| *      | Confidential Treatment Requested Under      |
|--------|---------------------------------------------|
|   | 17 C.F.R. §§ 200.80(b)(4), 200.83 |
|   | and 240.24b-2                               |

 

SENIOR SECUREDCREDIT AGREEMENT,

dated as of August2, 2002,

between

THE TITANCORPORATION

as the Lender,

and

SUREBEAMCORPORATION

as the Borrower

 

----

 

SENIOR SECUREDCREDIT AGREEMENT

THIS SENIOR SECUREDCREDIT AGREEMENT, dated as of August 2, 2002, is between SUREBEAM CORPORATION,a Delaware corporation (the ***“Borrower”***), and THE TITAN CORPORATION, a Delawarecorporation (the ***“Lender”***).

WITNESSETH:

WHEREAS, the Lenderintends to distribute the Borrower’s common stock owned by Lender to theLender’s stockholders in a tax-free spin-off (the ***“Spin-off”***); and

WHEREAS, the Borrower hasrequested that the Lender make available to the Borrower a senior secured creditfacility in the amount of Fifty Million Dollars ($50,000,000); and

WHEREAS, the Lender iswilling to make such senior secured credit facility available upon and subjectto the terms and conditions contained herein.

NOW, THEREFORE, theparties hereby agree as follows:

ARTICLE I**DEFINITIONS AND ACCOUNTING TERMS**

Section 1.1             **Defined Terms.**  The following capitalized terms (whether ornot underscored) when used in this Agreement, including its preamble andrecitals, shall, except where the context otherwise requires, have thefollowing meanings (such meanings to be equally applicable to the singular andplural forms thereof):

“Affiliate” of anyPerson means any other Person which, directly or indirectly, controls, iscontrolled by or is under common control with such Person.  “Control” of a Person means the power,directly or indirectly,

(a)           to vote 10% or more of the securities(on a fully diluted basis) having ordinary voting power for the election ofdirectors, managing members or general partners (as applicable); or

(b)           to direct or cause the direction ofthe management and policies of such Person (whether by contract or otherwise).

“Agreement” meansthis Senior Secured Credit Agreement, as it may be amended, restated,supplemented, or otherwise modified from time to time.

“Allowed QuarterlyMaximum” is defined in Section 2.1(b).

“Annual Operating Plan”means the 2002-2003 annual operating plan prepared by the Borrower andpreviously delivered to the Lender, a copy of which is attached hereto as Exhibit A.

 

1

----

 

“Asset Sale” meansany sale, lease, sale and leaseback, assignment, conveyance, transfer or otherdisposition by the Borrower or any of its Subsidiaries of any of its propertyor assets, including the Capital Stock of any Subsidiary.

“Authorized Officer”means, relative to any Obligor, those of its officers, general partners ormanaging members (as applicable) whose signatures and incumbency shall havebeen certified to the Lender in the certificate of incumbency most recentlydelivered by such Obligor.

“Borrower” isdefined in the preamble.

“Borrower PledgeAgreement” means the Pledge Agreement executed and delivered by theBorrower pursuant to Article V substantially in the form of Exhibit Bhereto, as amended, restated, supplemented or otherwise modified from time totime.

“Borrower SecurityAgreement” means the Security Agreement executed and delivered by theBorrower pursuant to Article V substantially in the form of Exhibit Chereto, as amended, restated, supplemented or otherwise modified from time totime.

“Borrowing” meansthe Revolving Loans and/or the Letters of Credit, as the case may be.

“Borrowing Request”means a Revolving Loan request and certificate duly completed and executed byan Authorized Officer of the Borrower, substantially in the form of Exhibit Dhereto, together with such changes thereto as the Lender may from time to timereasonably request for the purpose of determining Borrower’s satisfaction ofconditions for each Borrowing Request.

“Business Day”means any day which is neither a Saturday or Sunday nor a legal holiday onwhich banks are authorized or required to be closed in New York, New York orSan Diego, California.

“Capital Expenditures”means, for any period, the aggregate, or separate amount, as the case may be,of all expenditures of the Borrower and its Subsidiaries for fixed or capitalassets made during such period which, in accordance with GAAP, would beclassified as capital expenditures.

“Capital Stock”means, with respect to any Person, any and all shares, interests,participations or other equivalents (however designated, whether voting ornon-voting) of such Person’s capital, whether now outstanding or issued afterthe Closing Date.

“Capitalized LeaseLiabilities” means all monetary obligations of the Borrower or any of itsSubsidiaries under any leasing or similar arrangement which have been (or, inaccordance with GAAP, should be) classified as capitalized leases, and forpurposes of each Loan Document the amount of such obligations shall be thecapitalized amount thereof, determined in accordance with GAAP, and the statedmaturity thereof shall be the date of the last payment of rent or any otheramount due under such lease prior to the first date upon which such lease maybe terminated by the lessee without payment of a premium or a penalty.

 

2

----

 

“Cash Equivalents”means (a) marketable direct obligations issued or unconditionally guaranteed bythe United States government and backed by the full faith and credit of theUnited States government; (b) domestic and Eurodollar certificates of depositand time deposits, bankers’ acceptances and floating rate certificates ofdeposit issued by any commercial bank organized under the laws of the UnitedStates, any State thereof, the District of Columbia, any foreign bank, or itsbranches or agencies (fully protected against currency fluctuations), which, atthe time of acquisition, are rated A-1 (or better) by S&P or P-1 (orbetter) by Moody’s; (c) commercial paper of United States and foreignbanks and bank holding companies and their Subsidiaries and United States andforeign finance, commercial industrial or utility companies which, at the timeof acquisition, are rated A-1 (or better) by S&P or P-1 (or better) byMoody’s; (d) marketable direct obligations of any State of the United States ofAmerica or any political subdivision of any such State given on the date ofsuch investment the highest credit rating by Moody’s and S&P; provided,that the maturities of all obligations of the type specified in clauses (a) through(d) above shall not exceed one hundred eighty (180) days; and (e)reverse purchase agreements covering obligations of the type specified in clause(a) above.

“Cash EquivalentInvestment” means, at any time:

(a)           any direct obligation of (orunconditionally guaranteed by) the United States of America or a State thereof(or any agency or political subdivision thereof, to the extent such obligationsare supported by the full faith and credit of the United States of America or aState thereof) maturing not more than one year after such time;

(b)           commercial paper maturing not morethan 270 days from the date of issue, which is issued by:

(i)            a corporation (other than anAffiliate of any Obligor) organized under the laws of any State of the UnitedStates or of the District of Columbia and rated A-1 or higher by S&P or P-1or higher by Moody’s;

(c)           any certificate of deposit, timedeposit or bankers acceptance, maturing not more than one year after its dateof issuance, which is issued by any bank organized under the laws of the UnitedStates (or any State thereof) and which has (x) a credit rating of A2 or higherfrom Moody’s or A or higher from S&P and (y) a combined capital and surplusgreater than $500,000,000;

(d)           any repurchase agreement having aterm of 30 days or less entered into with any commercial banking institutionsatisfying the criteria set forth in clause (c) which:

(i)            is secured by a fully perfectedsecurity interest in any obligation of the type described in clause (a);and

(ii)           has a market value at the time suchrepurchase agreement is entered into of not less than 100% of the repurchaseobligation of such commercial banking institution thereunder;

(e)           Investments, classified in accordancewith GAAP as current assets, in money market investment programs registeredunder the Investment Company Act of 1940, as amended, which are administered byfinancial institutions that have the highest rating obtainable from eitherMoody’s or S & P’s and the portfolios of which are limited solely to Investmentsof the character, quality and maturity described in **clauses (a)**, **(b)**,**(c)**and **(d)**above.

 

3

----

 

“CERCLA” means theComprehensive Environmental Response, Compensation and Liability Act of 1980,as amended.

“CERCLIS” meansthe Comprehensive Environmental Response Compensation Liability InformationSystem List.

“Change in Control”means (i) the acquisition by any person, entity or “group”, within the meaningof Section 13(d)(3) or 14(d)(2) of the Exchange Act, (excluding,for this purpose, the Lender, the Borrower or its Subsidiaries, or any employeebenefit plan of the Borrower or its Subsidiaries which acquires beneficialownership of voting securities of the Borrower) of beneficial ownership (withinthe meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-threepercent (33%) or more of either the then outstanding shares of common stock ofthe Borrower or the combined voting power of the Borrower’s then outstandingvoting securities entitled to vote generally in the election of directors; or (ii)individuals who immediately following the distribution date for the Spin-off(the ***“Distribution Date”***)constitute the Board of Directors (the ***“Incumbent Board”***) cease for any reason toconstitute at least a majority of the Board of Directors; provided thatany person becoming a director subsequent to the Distribution Date whoseelection, or nomination for election by the Borrower’s stockholders, wasapproved by a vote of at least a majority of the directors then comprising theIncumbent Board shall be considered as though such person were a member of theIncumbent Board; or (iii) approval by the stockholders of the Borrower of areorganization, merger or consolidation, in each case with respect to whichPersons who were the stockholders of the Borrower immediately prior to suchreorganization, merger or consolidation do not, immediately thereafter, ownmore than sixty-six percent (66%) of the combined voting power entitled to votegenerally in the election of directors of the reorganized, merged or consolidatedcompany’s then outstanding voting securities or (iv) any “Change of Control”(or substantially similar provision) under (and as defined in) any Sub DebtDocument; provided, however, any changes that occur directly as aresult of the Spin-off shall not constitute a Change in Control.

“Closing Date”means the first date on which all of the conditions precedent set forth in Section5.1 have been satisfied, but in no event shall such date be later thanAugust 2, 2002.

“Code” means theInternal Revenue Code of 1986, and the regulations thereunder, in each case asamended, reformed or otherwise modified from time to time.

“Collateral Assignmentof Rights under License Agreement” means the Collateral Assignment ofRights Under License Agreement executed and delivered by SB OperatingCo, Inc.,now known as SB OperatingCo, LLC, pursuant to Article V substantially in the form of Exhibit Ehereto, as amended, restated, supplemented or otherwise modified from time totime.

“Collateral Documents”means the Borrower Pledge Agreement, the Borrower Security Agreement, theCollateral Assignment of Rights under License Agreement; the SubsidiaryGuaranty, the Subsidiary Pledge Agreement, the Subsidiary Security Agreement,each Copyright Security Agreement, each Trademark Security Agreement and eachPatent Security Agreement.

 

4

----

 

“Commitment”means, as the context may require, the Revolving Loan Commitment and the Letterof Credit Commitment.

“CommitmentTermination Event” means:

(a)           the occurrence of any Event ofDefault described in Section 9.1(i); or

(b)           the occurrence and continuance of anyother Event of Default and either

(i)            the declaration by the Lender of allor any portion of the Revolving Loans to be due and payable pursuant to Section9.3, or

(ii)           the giving of notice by the Lender tothe Borrower that the Revolving Loan Commitment has been terminated.

“ComplianceCertificate” means a certificate duly completed and executed by anAuthorized Officer of the Borrower, substantially in the form of Exhibit Fhereto, together with such changes thereto as the Lender may from time to timereasonably request for the purpose of monitoring the Borrower’s compliance withSection 8.4 of this Agreement.

“Contingent Liability”means any agreement, undertaking or arrangement by which any Person guarantees,endorses or otherwise becomes or is contingently liable upon (by direct orindirect agreement, contingent or otherwise, to provide funds for payment, tosupply funds to, or otherwise to invest in, a debtor, or otherwise to assure acreditor against loss) the Indebtedness or any other obligation of any otherPerson (other than (i) by endorsements of instruments in the course ofcollection and (ii) guarantees of obligations of Subsidiaries incurred in theordinary course of business and not constituting Indebtedness).  The amount of any Person’s obligation underany Contingent Liability shall (subject to any limitation set forth therein) bedeemed to be the outstanding principal amount of the debt, obligation or otherliability guaranteed thereby.

“Controlled Group”means all members of a controlled group of corporations and all members of acontrolled group of trades or businesses (whether or not incorporated) undercommon control which, together with the Borrower, are treated as a singleemployer under Section 414(b) or 414(c) of the Code or Section4001 of ERISA.

“Copyright SecurityAgreement” means any Copyright Security Agreement executed and delivered byany Obligor in substantially the form of Exhibit G to any SecurityAgreement, as amended, restated, supplemented or otherwise modified from timeto time.

“Credit Extension”means the making of a Revolving Loan by the Lender or the issuance of a Letterof Credit.

“Credit ExtensionRequest” means any Borrowing Request.

 

5

----

 

“Default” meansany Event of Default or any condition, occurrence or event which, after noticeor lapse of time or both, would constitute an Event of Default.

“Disclosure Schedule”means the Disclosure Schedule attached hereto as Schedule I, as it may beamended, restated, supplemented or otherwise modified from time to time by theBorrower with the written consent of the Lender.

“Disbursement” isdefined in Section 2.7(b).

“Disbursement Date”is defined in Section 2.7(b).

“Disqualified Stock”means any Capital Stock of the Borrower or any Subsidiary of the Borrower whichby its terms (or by the terms of any security into which it is convertible orfor which it is exchangeable or exercisable) or upon the happening of any event(a) matures or is mandatorily redeemable pursuant to a sinking fund obligationor otherwise, (b) is convertible or exchangeable for Indebtedness orDisqualified Stock, or (c) is redeemable or subject to required repurchase atthe option of the holder thereof, in whole or in part, in each case in this clause(c) before the final Revolving Loan Maturity Date.

“Dollar” and thesign “$” mean lawful money of the United States.

“EBITDA” means,for the Borrower and its Subsidiaries, for any applicable period, the sum(without duplication) of the following:

(a)   Net Income,

minus

(b)   all amounts added by the Borrower and itsSubsidiaries, in determining Net Income, representing either non-cash ornon-recurring gains, including as a result of changes in accounting treatmentunder GAAP and including all royalty income recognized by the Borrower and itsSubsidiaries in accordance with that certain Amended and Restated LicenseAgreement dated October 17, 2001 between SB OperatingCo, Inc., now known as SBOperatingCo, LLC and the Lender,

plus

(c)   the amount deducted by the Borrower and itsSubsidiaries, in determining Net Income, representing amortization, asdetermined in accordance with GAAP,

plus

(d)   the amount deducted, in determining NetIncome, of all federal, state and local income taxes (whether paid in cash ordeferred) of the Borrower and its Subsidiaries,

plus

 

6

----

 

(e)   the amount deducted, in determining NetIncome, of Interest Expense of the Borrower and its Subsidiaries,

plus

(f)    the amount deducted, indetermining Net Income, representing depreciation of assets of the Borrower andits Subsidiaries, as determined in accordance with GAAP.

“EBITDA AOPTarget” means that amount set forth as the Borrower’s EBITDA Target for theparticular period in the Borrower’s Annual Operating Plan.

“Environmental Laws”means all applicable federal, state or local statutes, laws, ordinances, codes,rules, regulations and guidelines (including consent decrees and administrativeorders) relating to pollution, public health and safety and protection of theenvironment.

“ERISA” means theEmployee Retirement Income Security Act of 1974, as amended, and any successorstatute thereto of similar import, together with the regulations thereunder, ineach case as in effect from time to time. References to sections of ERISA also refer to any successor sectionsthereto.

“Event of Default”is defined in Section 9.1.

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

“Fiscal Quarter”means a quarter ending on the last day of each March, June, September or December.

“Fiscal Year”means any period of twelve consecutive calendar months ending on December 31 ofeach year; references to a Fiscal Year with a number corresponding to anycalendar year (e.g., the “Fiscal Year 2001”) refer to the Fiscal Year ending onDecember 31 of such calendar year.

“Foreign Subsidiary”means any Subsidiary that is not a U.S. Subsidiary.

“F.R.S. Board”means the Board of Governors of the Federal Reserve System or any successorthereto.

“GAAP” is definedin Section 1.4.

“Governmental Authority”means the government of the United States of America, any other nation or anypolitical subdivision thereof, whether state or local, and any agency,authority, instrumentality, regulatory body, court, central bank or otherentity exercising executive, legislative, judicial, taxing, regulatory oradministrative powers or functions of or pertaining to government.

“Guarantor” meanseach direct and indirect U.S. Subsidiary and Foreign Subsidiary of the Borrowerwhether now existing or hereafter acquired or organized, each of which shall berequired to execute and deliver the Subsidiary Guaranty, or a supplementthereto; provided, however, with respect to Foreign Subsidiaries,Guarantor shall not include Foreign Subsidiaries to the extent that thegranting of such Subsidiary Guaranty would cause material adverse taxconsequences to the Borrower or such Foreign Subsidiary or would be violativeof applicable law.

 

7

----

 

“Hazardous Material”means

(a)           any “hazardous substance”, as definedby CERCLA;

(b)           any “hazardous waste”, as defined bythe Resource Conservation and Recovery Act, as amended; or

(c)           any pollutant or contaminant orhazardous, dangerous or toxic chemical, material or substance (including anypetroleum product) within the meaning of any other applicable federal, state orlocal law, regulation, ordinance or requirement (including consent decrees andadministrative orders) relating to or imposing liability or standards ofconduct under any Environmental Law, all as amended.

“Hedging Agreements”means currency exchange agreements, interest rate swap agreements, interestrate cap agreements and interest rate collar agreements, and all otheragreements or arrangements designed to protect such Person against fluctuationsin interest rates or currency exchange rates.

“Hedging Obligations”means, with respect to any Person, all liabilities of such Person under HedgingAgreements.

“herein”, “hereof”,“hereto”, “hereunder” and similar terms contained in thisAgreement or any other Loan Document refer to this Agreement or such other LoanDocument, as the case may be, as a whole and not to any particular Section,paragraph or provision of this Agreement or such other Loan Document.

“ImpermissibleQualification” means, relative to the opinion or certification of anyindependent public accountant as to any financial statement of the Borrower,any qualification or exception to such opinion or certification:

(a)           which is of a “going concern” orsimilar nature;

(b)           which relates to the limited scope ofexamination of matters relevant to such financial statement; or

(c)           which relates to the treatment orclassification of any item in such financial statement and which, as acondition to its removal, would require an adjustment to such item the effectof which would be to cause the Borrower to be in default of any of itsobligations under Section 8.4.

“including” and “include”means including without limiting the generality of any description precedingsuch term, and, for purposes of this Agreement and each other Loan Document,the parties hereto agree that the rule of *ejusdemgeneris* shall not be applicable to limit a general statement, whichis followed by or referable to an enumeration of specific matters, to matterssimilar to the matters specifically mentioned.

 

8

----

 

“Incumbent Board”is defined in the definition of “Change in Control.”

“Indebtedness” ofany Person means, without duplication:

(a)           all obligations of such Person forborrowed money or advances and all obligations of such Person evidenced bybonds, debentures, notes or similar instruments;

(b)           all obligations, contingent orotherwise, relative to the face amount of all letters of credit, whether or notdrawn, and banker’s acceptances issued for the account of such Person;

(c)           all Capitalized Lease Liabilities ofsuch Person;

(d)           net liabilities of such Person underall Hedging Obligations;

(e)           whether or not so included asliabilities in accordance with GAAP, all obligations of such Person to pay thedeferred purchase price of property or services excluding trade accountspayable in the ordinary course of business which are not overdue for a periodof more than ninety (90) days or, if overdue for more than ninety (90) days, asto which a dispute exists and adequate reserves in conformity with GAAP havebeen established on the books of such Person, and indebtedness or otherobligations secured by (or for which the holder of such indebtedness or otherobligations has an existing right, contingent or otherwise, to be secured by) aLien on property owned or being acquired by such Person (including indebtednessor other obligations arising under conditional sales or other title retentionagreements), whether or not such indebtedness or other obligations shall havebeen assumed by such Person or is limited in recourse;

(f)            all Contingent Liabilities of suchPerson;

(g)           the principal portion of allobligations of such Person under any Synthetic Lease;

(h)           all Disqualified Stock of suchPerson; and

(i)            all Lender Guaranties and Letters ofCredit issued by or caused to be issued by the Lender on behalf of theBorrower.

 

9

----

 

For all purposes of thisAgreement, the Indebtedness of any Person shall include the Indebtedness of anyother entity (including any partnership in which such Person is a generalpartner) to the extent such Person is liable therefor as a result of suchPerson’s ownership interest in or other relationship with such entity, exceptto the extent the terms of such Indebtedness provide that such Person is notliable therefor (provided, Indebtedness shall not be calculated twice forpurposes of this Agreement).

“Intellectual Property”is defined in Section 6.19.

“IndemnifiedLiabilities” is defined in Section 10.4.

“Indemnified Parties”is defined in Section 10.4.

 “Interest Expense” means, for anyFiscal Quarter, the aggregate interest expense of the Borrower and itsSubsidiaries for such Fiscal Quarter, as determined in accordance with GAAP,including the portion of any payments made in respect of Capitalized LeaseLiabilities allocable to interest expense.

“Investment”means, relative to any Person, (a) any direct or indirect purchase or otheracquisition by such Person of, or of a beneficial interest in, the CapitalStock or other debt or equity securities (including options, warrants or otherrights to acquire such Capital Stock or other securities) of any other Person,(b) any direct or indirect purchase or other acquisition by such Person of anyassets constituting a business unit of any Person or all or substantially allof a Person’s assets, (c) any direct or indirect loan, advance (excludingcommission, travel, petty cash, relocation and similar advances to officers,directors, and employees made in the ordinary course of business) or capitalcontribution by such Person to any other Person, including all Indebtedness andaccounts receivable acquired from that other Person that are not current assetsor did not arise from sales to that other Person in the ordinary course ofbusiness, (c) any Hedging Agreements of such Person and (d) any Contingent Liabilityof such Person.  The amount of anyInvestment shall be the original principal or capital amount thereof less allreturns of principal or equity thereon and shall, if made by the transfer orexchange of property other than cash, be deemed to have been made in anoriginal principal or capital amount equal to the fair market value of suchproperty at the time of such Investment.

“Issuance Request”means a Letter of Credit request duly completed and executed by an AuthorizedOfficer of the Borrower, substantially in the form of Exhibit Hhereto, together with such changes thereto as the Lender may from time to timereasonably request for the purpose of determining the Borrower’s satisfactionof conditions for each Issuance Request.

“Lender” isdefined in the preamble.

“Lender Guaranties”means those outstanding guaranties of the Borrower’s obligations by the Lenderset forth on Item 2.7 of the Disclosure Schedule.

“Lender GuarantyDisbursement” is defined in Section 2.7(b).

“Lender GuarantyDisbursement Date” is defined in Section 2.7(b).

“Lender GuarantyOutstandings” means, on any date, an amount equal to the sum of:

(a)   the then aggregate amount which is guarantiedby the Lender under all issued and outstanding Lender Guaranties,

plus

 

10

----

 

                                (b)the then aggregate amount of all outstanding Lender Guaranty ReimbursementObligations.

“Lender GuarantyReimbursement Obligation” is defined in Section 2.7(c).

“Lender’s CreditAgreement” means that certain Senior Secured Credit Agreement dated as ofMay 23, 2002 among the Lender, various financial institutions from time to timeparties thereto, Wachovia Bank, National Association, as administrative agent,The Bank of Nova Scotia and Comerica Bank-California, as syndication agents,and Branch Banking and Trust Company and Toronto Dominion (New York), Inc., asdocumentation agents (as such Senior Secured Credit Agreement may be amended,restated, supplemented, renewed, replaced, refinanced or otherwise modifiedfrom time to time whether or not with the same financial institutions).

“Lender’sEnvironmental Liability” means any and all losses, liabilities,obligations, penalties, claims, litigation, demands, defenses, costs,judgments, suits, proceedings, damages (including consequential damages),disbursements or expenses of any kind or nature whatsoever (includingreasonable attorneys’ fees at trial and appellate levels and experts’ fees anddisbursements and expenses incurred in investigating, defending against orprosecuting any litigation, claim or proceeding) which may at any time beimposed upon, incurred by or asserted or awarded against the Lender or any ofthe Lender’s Affiliates, shareholders, directors, officers, employees, andagents (all such parties to the extent of their capacity only as lender and relatingthereto, but not in any other capacity) in connection with or arising from:

(a)           any Hazardous Material on, in, underor affecting all or any portion of any property of the Borrower or any of itsSubsidiaries, the groundwater thereunder, or any surrounding areas thereof tothe extent caused by Releases from the Borrower’s or any of its Subsidiaries’or any of their respective predecessors’ properties;

(b)           any misrepresentation, inaccuracy orbreach of any warranty, contained or referred to in Section 6.12;

(c)           any violation or claim of violationby the Borrower or any of its Subsidiaries of any Environmental Laws; or

(d)           the imposition of any lien fordamages caused by, or the recovery of any costs for, the cleanup, release orthreatened release of any Hazardous Material (i) by the Borrower or any of itsSubsidiaries or (ii) in connection with any property owned or formerly owned bythe Borrower or any of its Subsidiaries.

“Letter of Credit”is defined in Section 2.3.

“Letter of CreditCommitment” means the Lender’s obligation to cause the issuance of Lettersof Credit pursuant to Section 2.3.

“Letter of CreditCommitment Amount” means, on any date, a maximum amount of Five MillionDollars ($5,000,000), as such amount may be permanently reduced from time totime pursuant to Section 2.2 or Section 3.1.

 

11

----

 

“Letter of CreditOutstandings” means, on any date, an amount equal to the sum of:

(a)   the then aggregate amount which is undrawnand available under all issued and outstanding Letters of Credit,

plus

                                (b)  the then aggregate amount of all outstandingReimbursement Obligations.

“Lien” means anysecurity interest, mortgage, pledge, hypothecation, assignment, depositarrangement, encumbrance, lien (statutory or otherwise), charge against orinterest in property, or other priority or preferential arrangement of any kindor nature whatsoever, to secure payment of a debt or performance of anobligation.

“Loan Documents”collectively means this Agreement, the Collateral Documents, each agreementpursuant to which the Lender is granted a Lien to secure the Obligations andeach other agreement, certificate, document or instrument delivered inconnection with this Agreement or such other Loan Documents, whether or notspecifically mentioned herein or therein.

“Material AdverseEffect” means the result of one or more events, changes or effects which,individually or in the aggregate, would reasonably be expected to have amaterial adverse effect on (i) the business, results of operations, condition(financial or otherwise) or prospects of the Obligors, in each case, taken as awhole, or (ii) the validity or enforceability of any of the Loan Documents, orthe rights, remedies and benefits available to the parties thereunder.

 “Moody’s” means Moody’s InvestorsService, Inc.

“Net Income” meansfor any period, the aggregate of all amounts which would be included as netincome on the consolidated financial statements of the Borrower and itsSubsidiaries for such period, as determined in accordance with GAAP.

“Net Proceeds”means (a) with respect to the issuance of any equity securities in excess ofTwenty-Five Million Dollars ($25,000,000) (other than the issuance or exerciseof stock options in connection with employee incentive programs or employeebenefit programs or similar programs) of the Borrower or any of itsSubsidiaries, the excess of (i) the proceeds received by the Borrower or any ofits Subsidiaries from the sale or issuance to any Person of any stock,warrants, convertible securities or options or the exercise of any suchwarrants or options in excess of Twenty-Five Million Dollars ($25,000,000),over (ii) all reasonable and customary underwriting commissions and legal,investment banking, brokerage and accounting and other professional fees, salescommissions and disbursements actually incurred in connection with such sale orissuance; (b) with respect to any Asset Sale (other than sales of inventory orequipment or systems built for customers in the ordinary course of theBorrower’s business), the excess of (i) the proceeds received from any AssetSale over (ii) the reasonable cash costs of such Asset Sale, taxes paid orpayable as a result thereof, and all reasonable and customary legal, investmentbanking, accounting, and other professional fees, sales commissions ordisbursements actually incurred in connection with such Asset Sale which havenot been paid to Affiliates of the Borrower in connection therewith; and (c)with respect to the incurrence or issuance of

 

12

----

 

Indebtedness, theexcess of (i) the proceeds received from the incurrence or issuance of anyIndebtedness (except for Indebtedness permitted by Section 8.2) of theBorrower or any of its Subsidiaries over (ii) the reasonable costs incurred insuch transaction, and all reasonable and customary legal, investment banking,accounting, and other professional fees, sales commissions or disbursementsactually incurred in connection with such transaction.

The amount of theproceeds described in clauses(a) and (b) above may, atthe option of the Borrower and so long as no Default or Event of Default shallhave occurred and be continuing, be used by the Borrower or a Subsidiary, asapplicable, to purchase (x) (i) with respect to the proceeds described in clause(a), assets reasonably acceptable to the Lender and (ii) with respect tothe proceeds described in clause (b), substantially similar assetsuseful in the business of the Borrower or such Subsidiary, (with such assets orinterests described in clause (x), collectively, referred to as ***“Qualified Assets”***)within 180 days (with respect to the proceeds described in clause (a)),and 360 days (with respect to the proceeds described in clause (b)),after the consummation (and with the proceeds) of such sale, conveyance ordisposition. In the event the Borrower or such Subsidiary elects to exerciseits right to purchase Qualified Assets with the Net Proceeds pursuant to thisprovision, the Borrower shall deliver a certificate of an Authorized Officer tothe Lender within 120 days following the receipt of Net Proceeds (with respectto the proceeds described in clause (a) above) or within 180 daysfollowing receipt of Net Proceeds (with respect to the proceeds described in clause(b) above) setting forth the amount of the Net Proceeds which the Borroweror such Subsidiary expects to use to purchase Qualified Assets during such180-day or 360-day period, as applicable. Any amount of such Net Proceeds which the Borrower does not expect touse to purchase Qualified Assets shall be paid to the Lender in accordance withSection 3.1(d) on the 120th day following receipt of such Net Proceeds(with respect to the proceeds described in clause (a) above) or the180th day following receipt of such Net Proceeds (with respect to the proceedsdescribed in clause (b) above). If the Borrower fails to deliver a certificate within such 120- or180-day period, as applicable, specifying the amount of Net Proceeds which theBorrower expects to use to purchase Qualified Assets, all of the Net Proceedsreceived shall be paid to the Lender in accordance with Section 3.1(d)on the 120th day following receipt of such Net Proceeds (with respect to theproceeds described in clause (a) above) or the 180th day followingreceipt of such Net Proceeds (with respect to the proceeds described in clause(b) above).

If and to the extent thatthe Borrower or such Subsidiary has elected to reinvest Net Proceeds referredto in clauses (a) and (b) as permitted above, then on the datewhich is 180 days or 360 days, as appropriate, after the relevant sale, conveyanceor disposition, the Borrower shall deliver a certificate of an AuthorizedOfficer to the Lender certifying as to the amount and use of such Net  Proceeds actually used to purchase QualifiedAssets.  To the extent such Net Proceedsare not so used to purchase Qualified Assets then the Revolving Loans shall berepaid as set forth in Section 3.1(d) and the Revolving Loan CommitmentAmount, pursuant to Section 2.2(b), shall be automatically reduced by anamount equal to the aggregate amount of such proceeds not so used to purchaseQualified Assets.

 “Non-Excluded Taxes” means any Taxesother than net income and franchise taxes imposed with respect to the Lender bythe Governmental Authority under the laws of which the Lender is organized orin which it maintains its corporate office.

 

13

----

 

 “Obligations” means all obligations(monetary or otherwise, whether absolute or contingent, matured or unmatured)of the Borrower and each other Obligor arising under or in connection with thisAgreement, each other Loan Document and any Hedging Agreement between theBorrower and the Lender or an Affiliate of the Lender.

“Obligor” means,as the context may require, the Borrower and each other Person (other than theLender) obligated under any Loan Document.

“Operating Expenses”means all research and development expenses plus all sales, general andadministrative expenses of the Borrower and its Subsidiaries on a consolidatedbasis, excluding only non-cash asset impairment charges, as such expenses aredetermined under GAAP consistent with the Borrower’s historical accountingpractices and classifications of expenses and consistent with the AnnualOperating Plan.

“Organic Document”means, relative to any Obligor, as applicable, its certificate ofincorporation, articles of organization, by-laws, certificate of partnership,partnership agreement, certificate of formation, limited liability agreement,operating agreement and all shareholder agreements, voting trusts and similararrangements applicable to any of such Obligor’s partnership interests, limitedliability company interests or authorized shares of Capital Stock.

“Other Taxes”means any and all stamp, documentary or similar taxes, or any other excise orproperty taxes or similar levies that arise on account of any payment beingmade or being required to be made hereunder or under the Revolving Note or fromthe execution, delivery, registration, recording or enforcement of thisAgreement or any other Loan Document (but excluding income, franchise andrelated taxes of the Lender).

“Overadvance” isdefined in Section 3.1(c).

“Patent SecurityAgreement” means any Patent Security Agreement executed and delivered byany Obligor in substantially the form of Exhibit A to any SecurityAgreement, as amended, restated, supplemented, or otherwise modified from timeto time.

“PBGC” means thePension Benefit Guaranty Corporation and any entity succeeding to any or all ofits functions under ERISA.

“Pension Plan”means a “pension plan”, as such term is defined in Section 3(2) of ERISA,which is subject to Title IV of ERISA (other than a multiemployer plan asdefined in Section 4001(a)(3) of ERISA), and to which the Borrower or anycorporation, trade or business that is, along with the Borrower, a member of aControlled Group, may have liability, including any liability by reason ofhaving been a substantial employer within the meaning of Section 4063 of ERISAat any time during the preceding five years, or by reason of being deemed to bea contributing sponsor under Section 4069 of ERISA.

“PermittedAcquisitions” means an acquisition (whether pursuant to an acquisition ofstock, assets or otherwise) by the Borrower or any Guarantor of any Person orthe assets of any Person which meets all of the following conditions: (i) suchPerson is primarily engaged in a similar line of business as the Borrower orsuch Guarantor as of the Closing Date; (ii) all or substantially all of theassets acquired or owned by the Person being acquired are located in the

 

14

----

 

United States andsuch Person (in the case of an acquisition of Capital Stock) is organized underthe laws of the United States or a state thereof or the District of Columbiaand will become a Guarantor upon the consummation of such acquisition andotherwise comply with Section 7.7; (iii) all or substantially all of theCapital Stock or assets so acquired will become subject to Liens created underthe Loan Documents; (iv) with respect to any single acquisition, or a series ofrelated acquisitions with a single or aggregate net purchase price of greaterthan Two Million Dollars ($2,000,000), including any assumed Indebtedness (withany non-cash consideration being valued in good faith by senior management ofthe Borrower as set forth in an Officer’s Certificate delivered to the Lender),the Borrower has obtained the prior consent of the Lender (which consent shallnot be unreasonably withheld); (v) immediately before and after giving effectto such acquisition, no Default or Event of Default shall have occurred and becontinuing or would result therefrom (including under Section 8.1); (vi)the Borrower shall have delivered to the Lender a Compliance Certificate forthe period of four (4) full Fiscal Quarters immediately preceding suchacquisition (prepared in good faith and in a manner and using such methodologywhich is consistent with the most recent financial statements deliveredpursuant to Section 7.1) giving pro forma effect in accordance with thisAgreement to the consummation of such acquisition and evidencing compliancewith the covenants set forth in Section 8.4; and (vii) the Lender shallhave received a certificate, dated a date reasonably acceptable to the Lender,of an Authorized Officer of the Borrower certifying as to a true and completecopy of each purchase agreement, and all other documents and instrumentsdelivered in connection with the consummation of any Permitted Acquisitions andthat are required to be delivered pursuant to the terms of the relevantpurchase agreement and the Lender shall be reasonably satisfied with allamendments, waivers or other modifications of, or other forebearance toexercise any rights with respect to, any of the terms or provisions of suchpurchase agreements and the exhibits and schedules thereto.

“PermissivePrepayments” is defined in Section 3.1.

“Person” means anynatural person, corporation, limited liability company, partnership, jointventure, association, trust or unincorporated organization, GovernmentalAuthority or any other legal entity, whether acting in an individual, fiduciaryor other capacity.

“Plan” means anyPension Plan or Welfare Plan.

“Pledge Agreement”means, as the context may require, the Borrower Pledge Agreement or theSubsidiary Pledge Agreement.

“Pledged Subsidiary”means, at any time, each Subsidiary in respect of which the Lender has beengranted, at such time, a security interest in and to, or a pledge of, (i) anyof the issued and outstanding shares of Capital Stock of such Subsidiary, or(ii) any intercompany notes of such Subsidiary owing to the Borrower or anotherSubsidiary of the Borrower.

“Pro Forma FinancialStatements” is defined in Section 5.1(j).

“Qualified Assets”is defined in the definition of “Net Proceeds”.

“Quarterly Maximum”is defined in Section 2.1.

 

15

----

 

“Quarterly PaymentDate” means the first Business Day of January, April, July and October ofeach Fiscal Year.

“Regulation S-X”means Regulation S-X promulgated by the SEC.

“ReimbursementObligation” is defined in Section 2.6(c).

“Release” means a“release”, as such term is defined in CERCLA.

“Resource Conservationand Recovery Act” means the Resource Conservation and Recovery Act, 42U.S.C. Section 6901, et seq., as amended.

“Restricted Payment”means the declaration or payment of any dividend (other than dividends payablesolely in common stock of the Borrower) on, or the making of any payment ordistribution on account of, or setting apart assets for a sinking or otheranalogous fund for, the purchase, redemption, defeasance, retirement or otheracquisition of any class of Capital Stock of the Borrower or any Subsidiary orany warrants or options to purchase any such Capital Stock, whether now orhereafter outstanding, or the making of any other distribution in respectthereof, either directly or indirectly, whether in cash or property, obligationsof the Borrower or any Subsidiary or otherwise.

“Revenue” means,for the Borrower and its Subsidiaries, revenue determined on a consolidatedbasis in accordance with GAAP.

“Revolving Loan”is defined in Section 2.1.

“Revolving LoanCommitment” means the Lender’s obligation to make Revolving Loans pursuantto Section 2.1.

“Revolving LoanCommitment Amount” means, on any date, Fifty Million Dollars ($50,000,000),as such amount may be reduced from time to time pursuant to Sections 2.2and 3.1.

“Revolving LoanCommitment Termination Date” means December 31, 2003.  Upon such date, the Revolving LoanCommitment shall terminate automatically and without any further action.

“Revolving LoanMaturity Date” means December 31, 2005.

“Revolving Note”means a promissory note of the Borrower payable to the Lender, in the form of ExhibitI hereto (as such promissory note may be amended, endorsed or otherwisemodified from time to time), evidencing the aggregate Indebtedness of theBorrower to the Lender resulting from outstanding Revolving Loans, and alsomeans all other promissory notes accepted from time to time in substitutiontherefor or renewal thereof.

“S&P” meansStandard & Poor’s Rating Services.

“SEC” means theSecurities and Exchange Commission.

 

16

----

 

“Security Agreement”means, as the context may require, the Borrower Security Agreement and theSubsidiary Security Agreement, in each case as amended, restated, supplemented,or otherwise modified from time to time.

“Solvent” means,with respect to any Person, that as of the date of determination both (i) (a)the then fair saleable value of the property sold as a going concern of suchPerson is (y) greater than the total amount of liabilities (includingcontingent liabilities but excluding amounts payable under intercompanypromissory notes) of such Person and (z) not less than the amount that will berequired to pay the probable liabilities on such Person’s then existing debtsas they become absolute and matured considering all financing alternatives andpotential asset sales reasonably available to such Person; (b) such Person’scapital is not unreasonably small in relation to its business or anycontemplated or undertaken transaction; and (c) such Person does not intend toincur, or believe that it will incur, debts beyond its ability to pay suchdebts as they become due; and (ii) such Person is “solvent” within the meaninggiven that term and similar terms under applicable laws relating to fraudulenttransfers and conveyances.  For purposesof this definition, the amount of any contingent liability at any time shall becomputed as the amount that, in light of all of the facts and circumstancesexisting at such time, represents the amount that can reasonably be expected tobecome an actual or matured liability, taking into account the amount that canreasonably be expected to be reimbursed or paid by a Person that is notaffiliated with such Person.

“Spin-off” isdefined in the first paragraph in the Recitals to this Agreement.

“Stated Amount”means on any date and with respect to a particular Letter of Credit, the totalamount then available to be drawn under such Letter of Credit.

“Stated Expiry Date”is defined in Section 2.6(a).

“Sub Debt Documents”means, collectively, the loan agreements, indentures, note purchase agreements,promissory notes, guarantees, and other instruments and agreements evidencingthe terms of Subordinated Debt, as amended, supplemented, amended and restatedin accordance with Section 8.11.

“Subordinated Debt”means unsecured Indebtedness of the Borrower subordinated in right of paymentto the Obligations pursuant to documentation containing maturities,amortization schedules, covenants, defaults, remedies, subordination provisionsand other terms reasonably satisfactory to the Lender.

“Subordinated Notes”means, collectively, any promissory notes evidencing Subordinated Debt, as suchnotes or instruments may be amended, supplemented or otherwise modified fromtime to time in accordance with Section 8.11.

“Subsidiary”means, with respect to any Person, any corporation, limited liability company,partnership or other entity of which more than fifty percent (50%) of theoutstanding securities (or other ownership interest) having ordinary votingpower to elect the board of directors, managers or other voting members of thegoverning body of such corporation, limited liability company, partnership orother entity (irrespective of whether at the time securities (or otherownership interest) of any other class or classes of such corporation, limitedliability

 

17

----

 

company,partnership or other entity shall or might have voting power upon theoccurrence of any contingency) is at the time directly or indirectly owned orcontrolled by such Person, by such Person and one or more other Subsidiaries ofsuch Person, or by one or more other Subsidiaries of such Person.  Unless the context otherwise specificallyrequires, the term “Subsidiary” shall be a reference to a Subsidiary of theBorrower.

“Subsidiary Guaranty”means the subsidiary guaranty executed and delivered by each Guarantor pursuantto the terms of this Agreement, substantially in the form of Exhibit Jhereto, as amended, restated, supplemented or otherwise modified from time totime.

“Subsidiary PledgeAgreement” means the Pledge Agreement executed and delivered by eachSubsidiary that in turn has any Subsidiaries, substantially in the form of Exhibit Khereto, in each case as amended, restated, supplemented or otherwise modifiedfrom time to time.

“Subsidiary SecurityAgreement” means, collectively, each Security Agreement executed anddelivered by any Subsidiary in favor of the Lender pursuant to the terms ofthis Agreement, in substantially the form of Exhibit L, in eachcase, as amended, restated, supplemented or otherwise modified from time totime.

“Synthetic Lease”means any synthetic lease, tax retention operating lease or off-balance sheetfinancing product where such transaction is considered borrowed moneyIndebtedness for tax purposes but which is classified as an operating lease pursuantto GAAP.

“Taxes” means anyand all income, stamp or other taxes, duties, levies, imposts, charges, fees,deductions or withholdings, now or hereafter imposed, levied, collected,withheld or assessed by any Governmental Authority, and all interest, penaltiesor similar liabilities with respect thereto.

“Trademark SecurityAgreement” means any Trademark Security Agreement executed and delivered byany Obligor substantially in the form of Exhibit B to any SecurityAgreement, as amended, restated, supplemented or otherwise modified from timeto time.

“U.C.C.” means theUniform Commercial Code as from time to time in effect in the State ofCalifornia.

“United States” or“U.S.” means the United States of America, its fifty states and theDistrict of Columbia.

“Unutilized Amount”is defined in Section 2.1(f).

“U.S. Subsidiary”means any Subsidiary that is incorporated or organized under the laws of theUnited States or a state thereof or the District of Columbia.

 “Voting Stock” means, with respect toany Person, Capital Stock of any class or kind ordinarily having the power tovote for the election of directors, managers or other voting members of thegoverning body of such Person.

“Welfare Plan”means a “welfare plan”, as such term is defined in section 3(1) of ERISA.

 

18

----

 

“Weighted Average TermDebt Rate” means the rate obtained by, for any date of determination,multiplying the Lender’s average daily debt outstanding on the Lender’s CreditAgreement by the average daily effective interest rate under the Lender’sCredit Agreement divided by the total number of days for that givenperiod.  The Effective Weighted AverageTerm Debt Rate shall include, but not be limited to, the interest rate charged,the non-utilization fees charged and any other debt financing costs incurred bythe Lender or charged by the Lender’s syndicated bank group under the Lender’sCredit Agreement.

“wholly owned”means any Subsidiary all of the outstanding common stock (or similar equityinterest) of which (other than any director’s qualifying shares or investmentsby foreign nationals mandated by applicable laws) is owned directly orindirectly by the Borrower and the officers, directors or employees of suchSubsidiary.

Section 1.2             **Use of Defined Terms**.  Unless otherwise defined or the contextotherwise requires, terms for which meanings are provided in this Agreementshall have such meanings when used in each other Loan Document and theDisclosure Schedule.

Section 1.3             **Cross-References**.  Unless otherwise specified, references inthis Agreement and in each other Loan Document to any Article or Section arereferences to such Article or Section of this Agreement or such other LoanDocument, as the case may be, and, unless otherwise specified, references inany Article, Section or definition to any clause are references to such clauseof such Article, Section or definition.

Section 1.4             **Accounting and Financial Determinations**.    Unless otherwise specified, all accountingterms used herein or in any other Loan Document shall be interpreted, and allaccounting determinations and computations hereunder or thereunder (includingunder Section 8.4) shall be made, in accordance with, thosegenerally accepted accounting principles (***“GAAP”***) in effect on the Closing Date. Unlessotherwise expressly provided, all financial covenants and defined financialterms shall be computed on a consolidated basis for the Borrower and itsSubsidiaries, in each case without duplication.

ARTICLE II**COMMITMENTS,BORROWING AND ISSUANCEPROCEDURES AND NOTES**

Section 2.1             **Revolving Loan Commitment/Availability**.  (a)             Onthe terms and subject to the conditions set forth in this Agreement, from timeto time on any Business Day occurring after the Closing Date but prior to theRevolving Loan Commitment Termination Date, the Lender will make loans (“***Revolving Loans***”) tothe Borrower in an aggregate principal amount outstanding not to exceed at anyone time the Revolving Loan Commitment Amount less the Letter of CreditOutstandings and the Lender Guaranty Disbursements; provided, however,outstanding Revolving Loans may exceed the Revolving Loan Commitment Amount if,and only to the extent that, a Lender Guaranty Disbursement is made at a timewhen the sum of outstanding Revolving Loans, plus Letter of CreditOutstandings, plus Lender Guaranty Outstandings exceeds the Revolving LoanCommitment Amount.  To the extent thereis availability under the Revolving Loan Commitment Amount at the time aRevolving Loan is

 

19

----

 

made on account of a Lender Guaranty Disbursement,such Revolving Loan will reduce the availability on a dollar for dollarbasis.  Notwithstanding the foregoing,in no event shall the Lender be obligated to make Revolving Loans (and for thispurpose only, Revolving Loans shall not include Revolving Loans made pursuantto Section 2.6(b)) or to cause to be issued Letters of Credit on behalfof the Borrower that collectively have an aggregate principal amount and anaggregate undrawn face amount exceeding Twelve Million Five Hundred ThousandDollars ($12,500,000) during any one (1) of Lender’s Fiscal Quarters (the “***Quarterly Maximum***”);provided, however, for the third Fiscal Quarter in Fiscal Year 2002, suchQuarterly Maximum shall be Seventeen Million Dollars ($17,000,000), providedhowever, that Ten Million Dollars ($10,000,000) of the Fifteen Million Dollar($15,000,000) Borrowing to be made on the Closing Date and the One HundredFifty Three Thousand Seven Hundred Fifty Nine and 72/100 Dollar ($153,759.72)Borrowing to be made on the Closing Date (the “***Interest Borrowing***”) shall not beapplied toward such Quarterly Maximum; provided further that Revolving Loansmade during a particular Fiscal Quarter may exceed the Quarterly Maximum or theAllowed Quarterly Maximum (defined below) if, and only to the extent, that aRevolving Loan made on account of a Lender Guaranty Disbursement would causethe Revolving Loans plus the Letters of Credit issued during such FiscalQuarter to exceed the Quarterly Maximum or Allowed Quarterly Maximum for suchFiscal Quarter.  To the extent there isavailability under the Quarterly Maximum or the Allowed Quarterly Maximum atthe time a Revolving Loan is made on account of a Lender Guaranty Disbursement,such Revolving Loan will reduce the availability of the Quarterly Maximum orthe Allowed Quarterly Maximum on a dollar for dollar basis.  The Quarterly Maximum may be reduced as setforth in the following paragraphs.

(b)           For the third and fourth FiscalQuarters in Fiscal Year 2002 and the first Fiscal Quarter of Fiscal Year 2003,no Borrowings will be available if the Borrower was not in compliance with itscovenants set forth in Section 8.4 during the immediately preceding FiscalQuarter.

(c)           For each of the second, third andfourth Fiscal Quarters in Fiscal Year 2003, the Quarterly Maximum shall besubject to the following:  (i) if theBorrower’s EBITDA for the immediately preceding Fiscal Quarter (or for thesecond preceding Fiscal Quarter in accordance with Section 2.5) is lessthan twenty-five percent (25%) of the EBITDA AOP Target for such precedingFiscal Quarter, then the Borrower is limited to Borrowings of Five MillionDollars ($5,000,000) for such Fiscal Quarter, provided that no Borrowings shallbe available to the Borrower unless the Borrower covenants in writing to theLender to restrict its Operating Expenses during the current Fiscal Quarter toan amount not to exceed Five Million Dollars ($5,000,000), not taking intoaccount amounts allowed to be carried forward as provided in Section 8.4(b)(provided further that if the Borrower makes such a covenant and fails tocomply with such covenant during such Fiscal Quarter, then no Borrowings shallbe available in the next Fiscal Quarter); and (ii) if the Borrower’s EBITDA forsuch preceding Fiscal Quarter is twenty-five percent (25%) of the EBITDA AOPTarget for such preceding Fiscal Quarter, the Borrower may borrow up to fiftypercent (50%) of the Quarterly Maximum (the ***“Allowed Quarterly Maximum”***).  The Allowed Quarterly Maximum for suchFiscal Quarter shall increase pro rata with the percentage increase that theBorrower’s EBITDA for such preceding Fiscal Quarter was above twenty-fivepercent (25%) of the EBITDA AOP Target for such preceding Fiscal Quarter, butin no event to exceed the Quarterly Maximum. During the second Fiscal Quarter of Fiscal Year 2003, the followingshall apply in determining the portion of the Quarterly Maximum

 

20

----

 

available for Borrowing during such FiscalQuarter:  The EBITDA AOP Target for thefirst Fiscal Quarter of Fiscal Year 2003 is negative $2,169,000.  If the Borrower’s EBITDA is negative$2,350,000 or better during the first Fiscal Quarter of Fiscal Year 2003, thenone hundred percent (100%) of the Quarterly Maximum ($12,500,000) will beavailable for Borrowings during the second Fiscal Quarter of Fiscal Year2003.  If the Borrower’s EBITDA isnegative $3,000,000 during such Fiscal Quarter, then fifty percent (50%) of theQuarterly Maximum or $6,250,000 will be available for Borrowings during thesecond Fiscal Quarter of Fiscal Year 2003. If the Borrower’s EBITDA is between negative $2,350,000 and negative$3,000,000 during such Fiscal Quarter, then the amount of the Quarterly Maximumshall be determined by linear interpolation between fifty percent (50%) of theQuarterly Maximum and one hundred percent (100%) of the Quarterly Maximum.  No Borrowings shall be available in thesecond Fiscal Quarter of Fiscal Year 2003 if Borrower achieves negative EBITDAin excess of $3,000,000 during the first Fiscal Quarter of Fiscal Year 2003.

(d)           Beginning with the second FiscalQuarter of Fiscal Year 2003, if the Borrower has negative EBITDA in any FiscalQuarter, the Borrower may not make any Borrowings in the Fiscal Quarterimmediately following.

(e)           If the Borrower or any of itsSubsidiaries receives proceeds from the sale or issuance to any Person of anystock, warrants or options or the exercise of such warrants or options and suchproceeds are not used to prepay the Revolving Loans in accordance with Section3.1, the Borrower must exhaust such proceeds before any Borrowings may bemade hereunder.

(f)            Subject to Sections 2.6(b)and 2.7(b), no Revolving Loan will be made after the Revolving LoanCommitment Termination Date.  Subject toSection 2.1(a), no Revolving Loan will be made which will result in theaggregate principal amount of the Revolving Loans then outstanding exceedingthe Revolving Loan Commitment Amount less the Letter of Credit Outstandings andthe Lender Guaranty Disbursements, or which would result, in any FiscalQuarter, in Borrowings in excess of the Quarterly Maximum.  However, notwithstanding the foregoing, tothe extent that the Borrower borrows less than the Quarterly Maximum availablefor Borrowings (as determined in accordance with Section 2.1) in any priorFiscal Quarter in Fiscal Year 2002 (such unutilized Quarterly Maximum beingreferred to herein as the ***“UnutilizedAmount”***), then such Unutilized Amount shall be available, inaddition to the Quarterly Maximum, for Borrowings during such subsequent FiscalQuarter in Fiscal Year 2002.

(g)           Any amounts paid by the Borrower as aPermissive Prepayment under Section 3.1 during any Fiscal Quarter, maybe reborrowed or issued as Letters of Credit in any subsequent Fiscal Quarternotwithstanding that the Borrower has not delivered the Compliance Certificateas required under Section 2.5, and such amounts when so borrowed orissued as Letters of Credit shall not be calculated as part of the QuarterlyMaximum and shall not be subject to reduction as provided in Section 2.1(c),provided that, subject to Sections 2.6(b) and 2.7(b) no RevolvingLoan will be made after the Revolving Loan Commitment Termination Date and,subject to Section 2.1(a),  noRevolving Loan will be made which will result in the aggregate principal amountof the Revolving Loans then outstanding exceeding the Revolving Loan CommitmentAmount less the Letter of Credit Outstandings and Lender GuarantyDisbursements.

 

21

----

 

Section 2.2             **Reduction of the Commitment Amounts**.  The Borrower may, from time to time on anyBusiness Day occurring after the Closing Date, voluntarily reduce the RevolvingLoan Commitment Amount or the Letter of Credit Commitment Amount, on theBusiness Day so specified by the Borrower; provided, however,that all such reductions shall require at least one (1) Business Day’s priornotice to the Lender and be permanent, and any partial reduction of theRevolving Loan Commitment Amount shall be in a minimum amount of One MillionDollars ($1,000,000) and in an integral multiple of Five Hundred ThousandDollars ($500,000).

Section 2.3             **Letter of Credit Commitment**.  On the terms and subject to the conditionsset forth in this Agreement, from time to time on any Business Day occurringfrom and after the Closing Date, but prior to the fifth (5th)BusinessDay prior to the Revolving Loan Commitment Termination Date, the Lender will(a) cause to be issued one or more standby letters of credit (each a ***“Letter of Credit”***)for the account of the Borrower in the Stated Amount requested by the Borroweron such day or (b) cause to be extended the Stated Expiry Date of a standbyLetter of Credit previously issued hereunder to a date not later than theearlier of (i) five (5) Business Days prior to the Revolving Loan Maturity Dateor (ii) twelve (12) months from the date of such extension or issuance;provided, however, that with respect to Letters of Credit with an aggregateundrawn face amount not exceeding Five Hundred Thousand Dollars ($500,000), theStated Expiry Date of such Letters of Credit may be up to twenty-four (24)months following the issuance or extension thereof.  No Letter of Credit will be caused to be issued which, takinginto account the issuance of such Letter of Credit, would either cause theLetter of Credit Outstandings to exceed the Letter of Credit Commitment Amountor cause the aggregate principal amount of the Revolving Loans then outstandingplus the Letter of Credit Outstandings and the Lender Guaranty Disbursements toexceed the Revolving Loan Commitment Amount.

Section 2.4             **Borrowing Procedure for Revolving Loans**. By delivering a Borrowing Request tothe Lender on or before 11:00 a.m., California time, on a Business Day prior tothe Revolving Loan Commitment Termination Date, the Borrower may from time totime irrevocably request, on not less five (5) Business Days’ notice and notmore than seven (7) Business Days’ notice, that a Borrowing of a Revolving Loanbe made in a minimum amount of One Million Dollars ($1,000,000) and an integralmultiple of Five Hundred Thousand Dollars ($500,000), subject to the Quarterly Maximumand the other terms and conditions contained herein.  On the terms and subject to the conditions of this Agreement,each Borrowing of a Revolving Loan shall be made on the Business Day specifiedin such Borrowing Request.  The Lendershall make such funds available to transfer to the accounts the Borrower shallhave specified in its Borrowing Request. The Borrower may not request more than one (1) Borrowing (excludingLetters of Credit) per calendar month; provided, for the month of August 2002,the Borrower may request two (2) Borrowings, two (2) on the Closing Date andone (1) additional Borrowing.

Section 2.5             **Borrowing Procedure for Revolving Loansand Letters of Credit**. The Borrower may not request any Borrowing(and no Borrowing shall be made) during any particular Fiscal Quarter of theBorrower after sixty (60) days following the end of a prior Fiscal Quarter ofthe Borrower prior to the Borrower’s completion and delivery to the Lender of aCompliance Certificate that includes the Borrower’s certification as to theBorrower’s compliance for the preceding Fiscal Quarter.  During the first sixty (60) days of any ofthe Borrower’s Fiscal Quarters, prior to the Borrower’s completion and deliveryof the Compliance

 

22

----

 

Certificate for the preceding Fiscal Quarter, theavailability under the Revolving Loan Commitment and the Letter of CreditCommitment will be based upon the Borrower’s Compliance Certificate for thesecond preceding Fiscal Quarter.

Section 2.6             **Letters of Credit**.

(a)   Issuance Procedures.  By delivering to the Lender an IssuanceRequest on or before 12:00 noon, New York time, on a Business Day, the Borrowermay from time to time irrevocably request on not less than seven (7) nor morethan fifteen (15) Business Days’ notice, that the Lender cause to be issued, orcause to be extended the Stated Expiry Date of, as the case may be, anirrevocable Letter of Credit in such form as may be requested by the Borrowerand approved by the Lender and the issuer of the Letter of Credit, solely for thepurposes described in Section 7.8. Borrower agrees that it shall work directly with the issuing bank inconnection with the issuance of any Letter of Credit.  Each Letter of Credit shall by its terms be stated to expire on adate (its ***“Stated ExpiryDate”***) no later than the earlier to occur of (i) five (5)Business Days prior to the Revolving Loan Maturity Date or (ii) twelve (12)months from the date of its issuance; provided, however, thatwith respect to Letters of Credit with an aggregate undrawn face amount notexceeding Five Hundred Thousand Dollars ($500,000), the Stated Expiry Date ofsuch Letters of Credit may be up to twenty-four (24) months following theissuance or extension thereof. No Letter of Credit will be caused to be issuedwhich, taking into account the issuance of such Letter of Credit, would eithercause the Letter of Credit Outstandings to exceed the Letter of CreditCommitment Amount or cause the aggregate principal amount of the RevolvingLoans then outstanding plus the Letter of Credit Outstandings to exceed theRevolving Loan Commitment Amount.

(b)   Disbursements.  The Lender will notify the Borrower,promptly upon the Lender receiving knowledge thereof, of the presentment forpayment of any Letter of Credit, together with notice of the date (the ***“Disbursement Date”***)such payment shall have been or be made (each such payment, a ***“Disbursement”***).  Prior to 1:00 p.m., California time, on thefirst (1st) Business Day following the Lender giving written noticeto the Borrower of the Disbursement Date, the Borrower will reimburse theLender for all amounts which the Lender has disbursed to reimburse the issuingbank in connection with such issuing bank’s honor of a draw under such Letterof Credit, together with interest thereon at a rate per annum equal to theWeighted Average Term Debt Rate for the period from the Disbursement Datethrough the date of such reimbursement (a “***Lender Disbursement***”).  Without limiting in any way the foregoingand notwithstanding anything to the contrary contained herein or in anyseparate application for any Letter of Credit, the Borrower hereby acknowledgesand agrees that it shall be obligated to reimburse the Lender upon each LenderDisbursement of a Letter of Credit, and it shall be deemed to be the obligorfor purposes of each such Letter of Credit issued pursuant hereto (whether theaccount party on such Letter of Credit is the Borrower or a Subsidiary).  In the event the Borrower fails to soreimburse the Lender for any Lender Disbursement, the Lender shall be deemed tohave made, without further notice to the Borrower, a Revolving Loan(notwithstanding that the Revolving Loan Commitment Termination Date may havepassed), and interest shall accrue from the Disbursement Date, in the principalamount equal to the amount drawn under such Letter of Credit, and, for thispurpose, the conditions precedent in Article V or any other Borrowerrequirements hereunder shall not apply. Any Revolving Loan deemed to be

 

23

----

 

made pursuant to this Section2.6(b) and advanced after the Revolving Loan Maturity Date shall beimmediately due and payable.

(c)   Reimbursement.  The obligation (a ***“Reimbursement Obligation”***)of the Borrower under Section 2.6(b) to reimburse the Lender withrespect to each Lender Disbursement (including interest thereon)  shall be absolute and unconditional underany and all circumstances and irrespective of any setoff, counterclaim ordefense to payment which the Borrower may have or have had against the Lenderor the issuer of the Letter of Credit, including any defense based upon thefailure of any Disbursement to conform to the terms of the applicable Letter ofCredit (if, in the Lender’s or the issuer’s good faith opinion, suchDisbursement is determined to be appropriate) or any non-application ormisapplication by the beneficiary of the proceeds of such Letter of Credit,except to the extent of the Lender’s and the issuer’s gross negligence orwillful misconduct.

(d)   Deemed Disbursements.  Upon the occurrence and during thecontinuation of any Event of Default under Section 9.1(i) or uponnotification by the Lender to the Borrower of its obligations under thisSection following the occurrence and during the continuation of any other Eventof Default:

(i)            the aggregate Stated Amount of allLetters of Credit shall, without demand upon or notice to the Borrower or anyother Person, be deemed to have been paid or disbursed by the Lender(notwithstanding that such amount may not in fact have been paid or disbursed);and

(ii)           the Borrower shall be immediatelyobligated to reimburse the Lender for the amount deemed to have been so paid ordisbursed.

Amounts payable by theBorrower pursuant to this Section shall be deposited in immediately availablefunds with the Lender and held as collateral security for the ReimbursementObligations and all other Obligations. When all Events of Default giving rise to the deemed disbursements underthis Section have been cured or waived, the Lender shall, if no other Events ofDefault is then existing, return to the Borrower all amounts then on depositwith the Lender pursuant to this Section which have not been applied to thesatisfaction of the Reimbursement Obligations and/or all other Obligations.

(e)   Nature of Reimbursement Obligations.  The Borrower and each other Obligor shallassume all risks of the acts, omissions or misuse of any Letter of Credit bythe beneficiary thereof.  Neither theLender nor any other issuer of the Letter of Credit (except to the extent ofits own gross negligence or willful misconduct) shall be responsible for:

(i)            the form, validity, sufficiency,accuracy, genuineness or legal effect of any Letter of Credit or any documentsubmitted by any party in connection with the application for and issuance of aLetter of Credit, even if it should in fact prove to be in any or all respectsinvalid, insufficient, inaccurate, fraudulent or forged;

(ii)           the form, validity, sufficiency,accuracy, genuineness or legal effect of any instrument transferring orassigning or purporting to transfer or assign

 

24

----

 

a Letter of Credit or therights or benefits thereunder or the proceeds thereof in whole or in part,which may prove to be invalid or ineffective for any reason;

(iii)          failure of the beneficiary to complyfully with conditions required in order to demand payment under a Letter ofCredit;

(iv)          errors, omissions, interruptions ordelays in transmission or delivery of any messages, by mail, cable, telegraph,telex or otherwise; or

(v)           any loss or delay in the transmissionor otherwise of any document or draft required in order to make a Disbursementunder a Letter of Credit.

None of the foregoingshall affect, impair or prevent the vesting of any of the rights or powersgranted to the Lender hereunder.  Infurtherance and not in limitation or derogation of any of the foregoing, anyaction taken or omitted to be taken by the Lender in good faith (and notconstituting gross negligence or willful misconduct) shall be binding upon eachObligor, and shall not put the Lender under any resulting liability to anyObligor.

Section 2.7             **Lender Guaranties**.

(a)   Lender Guaranties.  The Lender has issued guaranties for thoseobligations of the Borrower set forth on Item 2.7 of the Disclosure Schedule.

(b)   Disbursements.  The Lender will notify the Borrower promptlyof any demand for payment under a Lender Guaranty, together with notice of thedate (the ***“LenderGuaranty Disbursement Date”***) such payment shall be made (eachsuch payment, a ***“LenderGuaranty Disbursement”***). Subject to the terms and provisions of such Lender Guaranty andapplicable laws, the Lender shall make such payment to the beneficiary (or itsdesignee) of such Lender Guaranty.  EachLender Guaranty Disbursement and any obligation of the Borrower for paymentassumed by the Lender shall be deemed to have made, without further notice tothe Borrower, as a Revolving Loan (notwithstanding that the Revolving LoanCommitment Termination Date may have passed) in the principal amount equal tothe amount demanded of and paid by the Lender under such Lender Guaranty, and,for this purpose, the conditions precedent in Article V or any other Borrowerrequirements shall not apply.

(c)   Reimbursement.  The obligation (a ***“Lender Guaranty ReimbursementObligation”***) of the Borrower under Section 2.7(b) toreimburse the Lender with respect to each Lender Guaranty Disbursement(including interest thereon)  shall beabsolute and unconditional under any and all circumstances and irrespective ofany setoff, counterclaim or defense to payment which the Borrower may have orhave had against the Lender, including any defense based upon the failure ofany Lender Guaranty Disbursement to conform to the terms of the applicableLender Guaranty (if, in the Lender’s good faith opinion, such Lender GuarantyDisbursement is determined to be appropriate) or any non-application ormisapplication by the beneficiary of the proceeds of such Lender GuarantyDisbursement, except to the extent of the Lender’s gross negligence or willfulmisconduct.

(d)   Deemed Disbursements.  Upon the occurrence and during thecontinuation of any Event of Default under Section 9.1(i) or uponnotification by the Lender to the Borrower of

 

25

----

 

its obligations underthis Section following the occurrence and during the continuation of any otherEvent of Default:

(i)            the aggregate amount guarantiedunder all Lender Guaranties shall, without demand upon or notice to theBorrower or any other Person, be deemed to have been paid or disbursed by theLender (notwithstanding that such amount may not in fact have been paid or disbursed);and

(ii)           the Borrower shall be immediatelyobligated to reimburse the Lender for the amount deemed to have been so paid ordisbursed.

Amounts payable by theBorrower pursuant to this Section shall be deposited in immediately availablefunds with the Lender and held as collateral security for the Lender GuarantyReimbursement Obligations and all other Obligations.  Provided, however, if the Borrower can provide adequateassurances that the Lender Guaranties are not reasonably likely to be drawn upon,the Lender may, in its sole and absolute discretion, waive the Borrower’srequirements under this Section 2.7(d). When all Events of Default giving rise to the deemed disbursements underthis Section have been cured or waived, the Lender shall, if no other Event ofDefault is then existing, return to the Borrower all amounts then on depositwith the Lender pursuant to this Section which have not been applied to thesatisfaction of the Lender Guaranty Reimbursement Obligations and/or all otherObligations.

(e)   Nature of Lender Guaranty ReimbursementObligations.  The Borrower and eachother Obligor shall assume all risks of the acts, omissions or misuse of anyLender Guaranty by the beneficiary thereof. The Lender (except to the extent of its own gross negligence or willfulmisconduct) shall not be responsible for:

(i)            the form, validity, sufficiency,accuracy, genuineness or legal effect of any Lender Guaranty, even if it shouldin fact prove to be in any or all respects invalid, insufficient, inaccurate orfraudulent;

(ii)           the form, validity, sufficiency,accuracy, genuineness or legal effect of any instrument transferring orassigning or purporting to transfer or assign a Lender Guaranty or the rightsor benefits thereunder or the proceeds thereof in whole or in part, which mayprove to be invalid or ineffective for any reason;

(iii)          failure of the beneficiary to complyfully with conditions required in order to demand payment under a LenderGuaranty;

(iv)          errors, omissions, interruptions ordelays in transmission or delivery of any messages, by mail, cable, telegraph,telex or otherwise; or

(v)           any loss or delay in the transmissionor otherwise of any document or draft required in order to make a LenderGuaranty Disbursement under a Lender Guaranty.

(f)    Release of Lender Guaranties.  The Borrower shall use reasonable efforts toobtain the Lender’s full and unconditional release from the Lender Guarantiesas soon as

 

26

----

 

reasonably possible, butin any event prior to the Revolving Loan Maturity Date.  In the event that one or more of the LenderGuaranties is outstanding on the Revolving Loan Maturity Date, if all of theother Obligations hereunder and under each of the other Loan Documents havebeen fully and indefeasibly satisfied, and no Event of Default then exists,neither this Agreement nor the other Loan Documents shall govern or apply toLender Guaranty Reimbursement Obligations of the Borrower with respect toLender Guaranty Disbursements advanced after the Revolving Loan Maturity Date,provided that the Borrower shall have entered into a reimbursement agreementand provided collateral to the Lender to secure its reimbursement obligationsunder the Lender Guaranties in form and amount reasonably satisfactory to theLender.

Section 2.8             **Disclaimer**.  None of the foregoing shall affect, impairor prevent the vesting of any of the rights or powers granted to the Lenderhereunder.  In furtherance and not inlimitation or derogation of any of the foregoing, any action taken or omittedto be taken by the Lender in good faith (and not constituting gross negligenceor willful misconduct) shall be binding upon each Obligor, and shall not putthe Lender under any resulting liability to any Obligor.

Section 2.9             **Guaranty Fee**.  The Borrower shall pay the Lender a monthlyfee equal to ten percent (10%) of the monthly payment amount guaranteedpursuant to the Lender Guaranties then outstanding and ten percent (10%) of themonthly payments of any kind made by the Lender under the leases entered intoby the Lender on behalf of the Borrower identified on Item 2.9 of theDisclosure Schedule (collectively, the ***“Guaranty Fee”***).  The Borrower shall pay the Guaranty Fee quarterly in arrears onthe last day of each Fiscal Quarter.  Ifthe Borrower fails to pay any Guaranty Fee when due, then the amount unpaidshall be deemed to be made, without further notice to the Borrower, as aRevolving Loan.

ARTICLE III**REPAYMENTS, PREPAYMENTS, INTEREST AND FEES**

Section 3.1             **Repayments and Prepayments**.  The Borrower shall repay in full the unpaidprincipal amount of each Revolving Loan upon the Revolving Loan MaturityDate.  Prior thereto, payments andprepayments of Revolving Loans shall or may be made as set forth below.

(a)           The Borrower shall make the followingprincipal reductions on the last day of each Fiscal Quarter during each of thefollowing periods:

(i)            during Fiscal Year 2002       None

(ii)           duringFiscal Year 2003                       None

(iii)          duringFiscal Year 2004                       quarterlypayments equal to thirteen and three-quarters percent (13.75%) of the outstandingprincipal balance of the Revolving Loans as of December 31, 2003

 

27

----

 

(iv)          duringFiscal Year 2005                       quarterlypayments equal to twenty-five percent (25%) of the outstanding principalbalance of the Revolving Loans as of December 31, 2004

(iv)          onDecember 31, 2005                          onehundred percent (100%) of the then outstanding principal balance of theRevolving Loans and all accrued interest

                Repayments under Section3.1(a) shall permanently reduce the Revolving Loan Commitment Amount in theamount of each required principal payment as of the date that such payment isrequired to be made, and the Letter of Credit Commitment Amount shall becorrespondingly reduced.

(b)           From time to time on any BusinessDay, the Borrower may make a voluntary prepayment, in whole or in part, of theoutstanding principal amount of any Revolving Loan, provided, however,that:

(i)            all such voluntary prepayments shallrequire at least three (3) but no more than seven (7) Business Days’ priorwritten notice to the Lender; and

(ii)           all such voluntary partialprepayments shall be in an aggregate minimum amount of One Million Dollars($1,000,000) and an integral multiple of Five Hundred Thousand Dollars($500,000).

(c)           Subject to Section 2.1(a), oneach date when the sum of the aggregate outstanding principal amount of allRevolving Loans exceeds the Revolving Loan Commitment Amount (as it may bereduced from time to time, including pursuant to Section 2.2) less theLetter of Credit Outstandings and the Lender Guaranty Disbursements (the amountof such excess being an ***“Overadvance”***),the Borrower shall make a mandatory prepayment of the Overadvance, togetherwith accrued interest thereon.

(d)           Concurrently with the receipt (ordeemed receipt) of any Net Proceeds or any insurance proceeds or condemnationproceeds (or after the expiration of any period designated for the purchase ofQualified Assets, if appropriate) by the Borrower or any of its Subsidiaries,the Borrower shall make a mandatory prepayment of the Revolving Loans in anamount equal to one hundred percent (100%) of such Net Proceeds (provided,however, the Borrower shall only be required to make a mandatory prepayment ofthe Revolving Loans in an amount equal to fifty percent (50%) of the NetProceeds described in clause (a) of the definition of Net Proceeds) which hasnot been used to purchase Qualified Assets, insurance proceeds or condemnationproceeds to be applied as set forth in Section 3.2.  Provided, however, the Borrower may, withthe Lender’s prior written consent, which consent shall not be unreasonablywithheld, use insurance proceeds for the purchase of Qualified Assets or therebuilding of any structure to which the insurance proceeds relate, uponconditions reasonably acceptable to the Lender.  The Borrower will, prior to prepaying the Revolving Loans, givethe Lender telephone notice (promptly confirmed in writing) thereof.

 

28

----

 

(e)           On or before the last Business Day ofeach Fiscal Quarter of the Borrower, the Borrower shall make a mandatoryprepayment of the Revolving Loans in an amount equal to the aggregate amount ofcash and cash equivalents in the Borrower’s and its Subsidiaries’ accounts, asof the last day of such Fiscal Quarter in excess of Five Million Dollars($5,000,000) (excepting Net Proceeds which are not subject to mandatoryprepayment pursuant to Section 3.1(d) above), however, such mandatoryprepayment shall not exceed the amount of the Revolving Loans outstanding atthat time.  Such mandatory prepaymentshall be made by wire transfer of immediately available funds.

(f)            The Borrower shall make a scheduledrepayment of the aggregate outstanding principal amount of the Revolving Loansimmediately upon any acceleration of the Revolving Loan Maturity Date pursuantto Section 9.2 or Section 9.3.

Each prepayment of theRevolving Loans made pursuant to this Section shall be without premium orpenalty, unless as a result of such prepayment the Lender uses the proceeds ofsuch prepayment to repay or prepay indebtedness outstanding under the Lender’sCredit Agreement (in the Lender’s sole discretion) and the Lender is therebysubject to a premium or penalty under the Lender’s Credit Agreement, in whichcase the Borrower shall promptly reimburse the Lender for such premium orpenalty.  No prepayment of principal ofthe Revolving Loans pursuant to clause (b), (c), (d) or (e)shall cause a reduction in the Revolving Loan Commitment Amount and suchamounts may be reborrowed prior to the Revolving Loan Commitment TerminationDate.  Prepayments under clauses (b),(d) or (e) shall be referred to herein as the “PermissivePrepayments”.

Section 3.2             **Application**.  Each prepayment or repayment of theprincipal of the Revolving Loans shall be made together with accrued interestin accordance with Section 3.5 and shall be applied, to the extent ofsuch prepayment or repayment, first, to accrued interest and then to theprincipal amount thereof.

Section 3.3             **Interest Rate.**  Except as specifically provided in the nextsucceeding sentence, the Revolving Loans shall accrue interest at the WeightedAverage Term Debt Rate plus three percent (3.0%) per annum, or the maximuminterest rate allowable by law, if and to the extent applicable, whichever islower.  The Interest Borrowing shall notbear or accrue interest on the principal amount thereof during the period fromthe Closing Date through December 31, 2002. The outstanding principal amount of the Interest Borrowing shallcommence to bear interest on January 1, 2003, and shall thereafter accrueinterest at the rates applicable to other Revolving Loans under this Agreement.

Section 3.4             **Default Rate**.  Upon the occurrence and during thecontinuation of an Event of Default, the Borrower shall pay interest on allObligations, including, without limitation, overdue interest and other amountsdue under this Agreement, at a rate per annum equal to two percent (2.0%) abovethe otherwise applicable interest rate.

Section 3.5             **Interest Payment Dates**.  Interest accrued on each Revolving Loanshall be payable, without duplication:

(a)           on the Revolving Loan Maturity Date;

 

29

----

 

(b)           on the date of any payment orprepayment, in whole or in part, of principal outstanding on any RevolvingLoan, on the principal amount so paid or prepaid;

(c)           beginning as of January of FiscalYear 2003, on the third Business Day of each month after the Lender providesthe Borrower notice of the amount of the interest payment due, includinginformation as to the applicable interest rate; provided, however, thecumulative amount of all interest accrued on the outstanding principal amountof the Revolving Loans for the period from the Closing Date through December31, 2002 (the “***Cumulative2002 Interest***”) shall automatically, provided no Default ofEvent of Default has occurred and is continuing, constitute a Borrowing on andas of January 1, 2003 in the principal amount equal to the Cumulative 2002Interest and shall thereafter accrue interest at the rates applicable to otherBorrowings, and shall correspondingly reduce the amount available under theRevolving Loan Commitment Amount (but shall not be deemed a Borrowing forpurposes of determining the number of Borrowings that the Borrower may requestunder this Agreement in any given month or be counted toward the QuarterlyMaximum in any given month).  The Lendermay provide notice of the interest payment due by facsimile or electronic mailaddressed to the Chief Financial Officer of the Borrower and notice shall bedeemed given when such notice is sent by the Lender;

(d)           on that portion of any RevolvingLoans the Revolving Loan Maturity Date of which is accelerated pursuant to Section9.2 or Section 9.3, immediately upon such acceleration.

Interest accruedon Revolving Loans or other monetary Obligations arising under this Agreementor any other Loan Document after the date such amount is due and payable(whether on the Revolving Maturity Date, any scheduled date for repayment ofthe Revolving Loans, upon acceleration or otherwise) shall be payable upondemand.

Section 3.6             **Letter of Credit Fees**.   The Borrower agrees to pay to the Lender,on demand, any fees or expenses, of any kind, reasonably incurred by the Lenderin securing the issuance of any Letter of Credit hereunder, whether pursuant toLender’s Credit Agreement or otherwise.

ARTICLE IV**TAXES AND OTHER PROVISIONS**

Section 4.1             **Increased Capital Costs**.  If any change in, or the introduction,adoption, effectiveness, interpretation, reinterpretation or phase-in of, anylaw or regulation, directive, guideline, decision or request (whether or nothaving the force of law) of any court, central bank, regulator or otherGovernmental Authority affects or would affect the amount of capital requiredor expected to be maintained by the lenders under the Lender’s Credit Agreementor any Person controlling such lenders, and costs or expenses or other amountsassociated with such increased capital costs are passed on to the Lender underLender’s Credit Agreement, then, in any such case upon notice from time to timeby the Lender to the Borrower, the Borrower shall immediately pay directly tothe Lender additional amounts (or in the case of amounts passed on to theLender under Lender’s Credit Agreement, the pro rata portion (defined as apercentage

 

30

----

 

equal to the percentage obtained by the Revolving LoanCommitment Amount divided by the amount available to the Lender under Lender’sCredit Agreement) of such amounts) sufficient to compensate the Lender for suchincreased capital costs.  A statement ofthe Lender, or a statement provided to the Lender under Lender’s CreditAgreement, as to any such additional amount or amounts (including calculationsthereof in reasonable detail) shall be rebuttably presumptive evidence of theamount of such loss or expense.  Indetermining such amount, the Lender may use any method of averaging andattribution that it (in its sole and absolute discretion) shall deemapplicable.

Section 4.2             **Taxes**.

(a)           Any and all payments by the Borrowerand each other Obligor under this Agreement and each other Loan Document shallbe made without setoff, counterclaim or other defense, and free and clear of,and without deduction or withholding for or on account of, any Taxes, except tothe extent such Taxes are required by law to be deducted or withheld.  In the event that any Taxes are required bylaw to be deducted or withheld from any payment required to be made by theBorrower or any other Obligor to or on behalf of the Lender hereunder or underany other Loan Document, then:

(i)            if such Taxes are Non-ExcludedTaxes, the amount of such payment shall be increased as may be necessary suchthat such payment is made, after withholding or deduction for or on account ofsuch Taxes, in an amount that is not less than the amount provided for hereinor in such other Loan Document; and

(ii)           the Borrower shall withhold the fullamount of such Taxes from such payment (as increased pursuant to clause (a)(i)) and shall pay such amount to the Governmental Authority imposing suchTaxes in accordance with applicable law.

(b)           In addition, the Borrower and eachother Obligor shall pay any and all Other Taxes imposed to the relevantGovernmental Authority imposing such Other Taxes in accordance with applicablelaw.

(c)           As promptly as practicable after thepayment of any Taxes or Other Taxes, and in any event within forty-five (45)days of any such payment being due, the Borrower shall furnish to the Lender acopy of an official receipt (or a certified copy thereof) evidencing thepayment of such Taxes or Other Taxes.

(d)           The Borrower shall indemnify theLender for any Non-Excluded Taxes and Other Taxes levied, imposed or assessedon (and whether or not paid directly by) the Lender (and whether or not suchNon-Excluded Taxes or Other Taxes are correctly or legally asserted by therelevant Governmental Authority) arising out of this Agreement.  Promptly upon having knowledge that any suchNon-Excluded Taxes or Other Taxes have been levied, imposed or assessed, andpromptly upon notice thereof by the Lender, the Borrower shall pay suchNon-Excluded Taxes or Other Taxes directly to the relevant GovernmentalAuthority (provided, however, that the Lender shall be under noobligation to provide any such notice to the Borrower).   In addition, the Borrower shall indemnifythe Lender for any incremental Taxes that may become payable by the Lender as aresult of any failure of the Borrower to pay any Taxes

 

31

----

 

when due to the appropriate Governmental Authority orto deliver to the Lender, pursuant to clause (c), documentationevidencing the payment of Taxes or Other Taxes.  With respect to indemnification for Non-Excluded Taxes and OtherTaxes actually paid by the Lender or the indemnification provided in theimmediately preceding sentence, such indemnification shall be made withinthirty (30) days after the date the Lender makes written demand therefor.  The Borrower acknowledges that any paymentmade to the Lender or to any Governmental Authority in respect of theindemnification obligations of the Borrower provided in this clause shallconstitute a payment in respect of which the provisions of this clause shallapply.

Section 4.3             **Payments, Computations, etc**.  Unless otherwise expressly provided, allpayments by the Borrower pursuant to this Agreement, the Revolving Note, or anyother Loan Document shall be made by the Borrower to the Lender.  All such payments required to be made to theLender shall be made, without setoff, deduction or counterclaim, not later than1:00 p.m., California time, on the date due, in same day or immediatelyavailable funds, to such account as the Lender shall specify from time to timeby notice to the Borrower.  Fundsreceived after that time shall be deemed to have been received by the Lender onthe next succeeding Business Day. All interest and fees shall be computed onthe basis of the actual number of days (including the first day but excludingthe last day) occurring during the period for which such interest or fee ispayable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which isnot a Business Day, such payment shall be made on the next succeeding BusinessDay and such extension of time shall be included in computing interest andfees, if any, in connection with such payment.

Section 4.4             **Setoff**.  The Lender shall, upon the occurrence andduring the continuance of any Event of Default described in Section 9.1(i),have the right to appropriate and apply to the payment of the Obligations(whether or not then due), and (as security for such Obligations) the Borrowerhereby grants to the Lender a continuing security interest in, any and allbalances, credits, deposits, accounts or moneys of the Borrower then orthereafter maintained with the Lender or any Affiliate of the Lender.  The Lender agrees promptly to notify theBorrower after any such setoff and application made by the Lender or itsAffiliate; provided, however, that the failure to give suchnotice shall not affect the validity of such setoff and application.  The rights of the Lender under this Sectionare in addition to other rights and remedies (including other rights of setoffunder applicable law or otherwise) which the Lender may have.  Notwithstanding the foregoing, nothing inthis Agreement or other Loan Documents is intended to affect rights orobligations or apply in any way to agreements other than the Loan Documents.

ARTICLE V**CONDITIONS TO CREDIT EXTENSIONS**

Section 5.1             **Conditions Precedent to theEffectiveness of this Agreement**. This Agreement shall become effective on the date when each of theconditions precedent set forth in this Section 5.1 have been satisfied(unless waived by the Lender or unless the deadline for delivery has beenextended by the Lender).  All suchconditions may occur contemporaneously but shall be deemed to have occurredsimultaneously.

 

32

----

 

(a)           Execution of Agreement. TheLender shall have received this Agreement, duly executed and delivered onbehalf of the Borrower.

(b)           Resolutions, etc.  The Lender shall have received from theBorrower and each Guarantor, (i) a copy of a good standing certificate, dated adate reasonably near the Closing Date, and (ii) a certificate, dated theClosing Date, duly executed and delivered by such Person’s Secretary orAssistant Secretary, as to:

(i)            resolutions of such Person’s Boardof Directors then in full force and effect authorizing the execution, deliveryand performance of each Loan Document to be executed by such Person and thetransactions contemplated by the Loan Documents to be performed by such Person;

(ii)           the incumbency and signatures ofthose of its officers, authorized to act with respect to each Loan Document tobe executed by such Person; and

(iii)          the full force and validity of eachOrganic Document of such Person and copies thereof;

upon whichcertificates the Lender may conclusively rely until it shall have received afurther certificate of the Secretary or Assistant Secretary, of such Person,canceling or amending its prior certificate.

(c)           Closing Date Certificate.  The Lender shall have received a certificate(the ***“Closing DateCertificate”***), dated the Closing Date and duly executed anddelivered by an Authorized Officer of the Borrower, in which certificate theBorrower shall agree and acknowledge that the statements made therein shall bedeemed to be true and correct representations and warranties in all materialrespects of the Borrower as of such date, and, at the time each suchcertificate is delivered, such statements shall in fact be true and correct inall material respects.  All documentsand agreements required to be appended to the Closing Date Certificate shall bein form and substance reasonably satisfactory to the Lender.

(d)           Revolving Note.  The Lender shall have received the RevolvingNote.

(e)           Pledge Agreements.  The Lender shall have received,

(i)            the Borrower Pledge Agreement (whichPledge Agreement shall be substantially in accordance with the provisions of Section7.7(b)), dated as of the Closing Date, duly executed and delivered by anAuthorized Officer of the Borrower, together with:

(1)   certificates evidencing all of the issued andoutstanding shares of Capital Stock of each of its Subsidiaries, except to theextent such pledge would be violative of applicable law, owned by the Borrower,which certificates shall be accompanied by undated stock powers duly executedin blank; and

 

33

----

 

(2)   all Pledged Notes (as defined in the BorrowerPledge Agreement), if any, evidencing Indebtedness of any of the Borrower’sSubsidiaries payable to the Borrower duly endorsed to the order of the Lender;

(ii)           the Subsidiary Pledge Agreement(which Pledge Agreement shall be substantially in accordance with theprovisions of Section 7.7(b)), dated as of the Closing Date, dulyexecuted and delivered by an Authorized Officer of each Guarantor, togetherwith:

(1)   certificates evidencing all of the issued andoutstanding shares of Capital Stock owned by such Guarantor which certificatesshall be accompanied by undated stock powers duly executed in blank; and

(2)   all Pledged Notes (as defined in theSubsidiary Pledge Agreement), if any, evidencing Indebtedness payable to aGuarantor duly endorsed to the order of the Lender; and

(iii)          the Lender and its counsel shall besatisfied that  the Lien granted to theLender in the collateral described above is a first priority (or localequivalent thereof) security interest; and no Lien exists on any of the collateral described above other than theLien created in favor of the Lender pursuant to a Loan Document.

(f)            Security Agreements.  The Lender shall have received the BorrowerSecurity Agreement, duly executed by the Borrower, and the Subsidiary SecurityAgreement, executed by each Guarantor, each dated as of the Closing Date,together with:

(i)            copies of Uniform Commercial Codefinancing statements (Form UCC-1), naming the applicable Obligor as a debtorand the Lender as the secured party, or other similar instruments or documents,to be filed under the Uniform Commercial Code of all jurisdictions as may benecessary or, in the opinion of the Lender, desirable to perfect the securityinterests of the Lender pursuant to the applicable Security Agreement;

(ii)           copies of proper Uniform CommercialCode Form UCC-2 termination statements necessary to release all Liens and otherrights of any Person in any collateral described in such Security Agreementpreviously granted by any Person, together with evidence that the Borrower orapplicable Obligor has the authority to file such termination statements, andsuch other Uniform Commercial Code Form UCC-2 termination statements as theLender may reasonably request from such Obligors; and

(iii)          certified copies of Uniform CommercialCode search results, or a similar search report certified by a party acceptableto the Lender, dated a date reasonably near to the Closing Date, listing alleffective financing statements which name any Obligor (under its present name andany previous names) as the debtor and which are filed in the jurisdictions inwhich filings were made pursuant to clause (a) above, together withcopies of such financing statements.

 

34

----

 

(iv)          the Lender and its counsel shall besatisfied that the Lien granted to the Lender in the collateral described aboveis a first priority (or local equivalent) security interest (subject to thefiling of the documents described in clause f(i) above); and no othereffective Lien (other than Liens permitted under Section 8.3) exists onany of the collateral described above other than the Lien created in favor ofthe Lender pursuant to a Loan Document.

(g)           Patent Security Agreement,Copyright Security Agreement and Trademark Security Agreement.  The Lender shall have received the PatentSecurity Agreement, the Copyright Security Agreement and the Trademark SecurityAgreement, as applicable, each dated as of the Closing Date, duly executed anddelivered by the Borrower and any Subsidiary of the Borrower that is requiredto execute and deliver such Loan Documents pursuant to this Agreement.

(h)           Deposit Account Control Agreements.  The Lender shall have received a DepositAccount Control Agreement, in form and substance satisfactory to the Lender,dated as of the Closing Date, duly executed and delivered by the Borrower andany Subsidiary of the Borrower that is required to execute such Loan Documentspursuant to this Agreement and each financial institution where Borrower or anySubsidiary maintains cash deposits.

(i)            Collateral Assignment of Rightsunder License Agreement.  The Lendershall have received a Collateral Assignment of Rights Under License Agreementdated as of the Closing Date, duly executed and delivered by SB OperatingCo,LLC.

(j)            Financial Information, etc.  The Lender shall have received financialstatements of the Borrower (including notes thereto), consisting of (i)consolidated financial statements of the Borrower and its Subsidiariesincluding balance sheets as of the end of each of the last two Fiscal Years andincome and cash flow statements as of the end of and for each of the last threeFiscal Years, in each case audited by independent public accountants ofrecognized national standing and prepared in conformity with GAAP, togetherwith the report thereon which shall not contain an Impermissible Qualification;(ii) comparable unaudited historical and pro forma interim financial statementscovering all quarterly or other appropriate periods subsequent to the FiscalYear most recently ended (the ***“Pro Forma Financial Statements”***) and (iii) such finalprojections in respect of the Obligors and their respective Subsidiaries as theLender may reasonably request; and all such financial statements, historical orpro forma, delivered pursuant to this clause (i) shall be in compliancewith the requirements of Regulation S-X for a public offering registered underthe Securities Act of 1933, and all financial statements and projectionsreferred to in this clause (i) shall not be materially inconsistent withfinancial statements, projections and estimates previously provided to theLender.

(k)           Compliance Certificate.  In the event a Credit Extension iscontemplated to be made on the Closing Date, the Lender shall have received aCompliance Certificate on a pro forma basis as if the Credit Extension to bemade on the Closing Date had occurred as of June 30, 2002 and as to suchitems therein as the Lender reasonably requests, dated the Closing Date, dulyexecuted (and with all schedules thereto duly completed) and delivered by thechief executive officer, the chief financial officer, the treasurer or theassistant treasurer of the Borrower.

 

35

----

 

(l)            Subsidiary Guaranty.  The Lender shall have received theSubsidiary Guaranty, dated as of the Closing Date, duly executed and deliveredby each Guarantor.

(m)          Insurance.  The Lender shall have received certificatesof insurance from one or more insurance companies satisfactory to the Lender,evidencing coverage required to be maintained pursuant to this Agreement andeach other Loan Document.

(n)           Opinions of Counsel.  The Lender shall have received opinions,dated the Closing Date and addressed to the Lender from Luce Forward Hamilton& Scripps in form and substance reasonably satisfactory to the Lender.

(o)           Material Adverse Change.  Since March 31, 2002**,** there shall not haveoccurred or become known to the Lender any event or events, adverse conditionor change that, individually or in the aggregate, would reasonably be expectedto have a Material Adverse Effect.

(p)           Payment of OutstandingIndebtedness, etc.  After givingeffect to the transactions contemplated by this Agreement, no Obligor shallhave outstanding any Indebtedness or preferred stock other than (i) withrespect to the Revolving Loans, Letters of Credit and the Lender Guarantieshereunder, and (ii) the Indebtedness permitted under Section 8.2.  The Lender shall have received payoffletters satisfactory in form and substance to the Lender with respect to anyIndebtedness to be repaid on the Closing Date.

(q)           Consents, etc.  All governmental and third party approvalsand consents  required to be obtainedprior to the Closing Date in connection with the financing contemplatedpursuant to this Agreement (including the execution and delivery of thisAgreement and each other Loan Document required hereunder by each Obligor andthe performance of their respective Obligations) and continuing operations ofthe Borrower and each Guarantor shall have been obtained and be in full forceand effect (and, to the extent requested by the Lender, the Lender shall havereceived true and correct copies of such approvals and consents) and allapplicable waiting periods shall have expired without any action being taken orthreatened by any competent authority which would restrain, prevent orotherwise impose adverse conditions on the transactions contemplated by thisAgreement and the other Loan Documents.

(r)            Litigation, etc.  There shall exist no pending or, to theknowledge of the Borrower, threatened, litigation, proceedings or investigationswhich involve any Loan Document or which could reasonably be expected to have aMaterial Adverse Effect.

(s)           Due Diligence.  The Lender shall have completed and besatisfied in its sole discretion with respect to its comprehensive duediligence in all matters pertaining to the business, properties, operations,financial condition or prospects of the Borrower and its Subsidiaries,including, without limitation, business, accounting, tax, legal andenvironmental due diligence and any documentation as the Lender may require inits sole discretion.

(t)            Closing Fees, Expenses, etc.  The Lender shall have received for its ownaccount all fees, costs and expenses due and payable pursuant to Section10.3 of this Agreement, if then invoiced (in reasonable detail).

 

36

----

 

(u)           Legal Details, etc.  All documents executed or submitted pursuanthereto shall be reasonably satisfactory in form and substance to the Lender andits counsel.  The Lender and its counselshall be satisfied as of the Closing Date with the terms and conditions of eachagreement entered into in connection herewith and with all legal, tax andaccounting matters relating to this Agreement and the other Loan Documents,including, without limitation, any such matters pertaining to the Lender’s unconditionalrelease from all guaranties or surety or indemnification arrangements withrespect to the Borrower’s Indebtedness or Indebtedness of the Borrower’scustomers (or the Borrower’s reimbursement of the Lender with respect to anyliabilities that the Lender may become subject to under such guaranties orsurety or indemnification arrangements). In addition, the corporate, capital and legal structure of the Borrowerand its Subsidiaries, and all organizational documents of the Borrower and itsSubsidiaries, shall be satisfactory to the Lender.  The Lender and its counsel shall have received all informationand such counterpart originals or such certified or other copies or suchmaterials, as the Lender or its counsel may reasonably request.

(v)           No Material Adverse Change in theMarket.  There shall not haveoccurred and be continuing (i) any general suspension of trading in securitieson the New York or American Stock Exchange or in the NASDAQ National MarketSystem (other than circuit breakers), (ii) the declaration of a bankingmoratorium or any suspension of payments in respect of banks in the UnitedStates, or (iii) any other material adverse change in banking or capital marketconditions that has had or could reasonably be expected to have a materialadverse effect on the syndication of leveraged bank credit facilities or theconsummation of high yield offerings, as the case may be.

(w)          Margin Regulations.  All Revolving Loans and other CreditExtensions made by the Lender shall be in full compliance with all applicablerequirements of Regulations T, U and X of the F.R.S. Board.

Section 5.2             **All Credit Extensions**.  The obligation of the Lender to make anyCredit Extension (including the initial Credit Extension, if any) shall besubject to Section 2.1 and the satisfaction of each of the conditionsprecedent set forth in this Section 5.2.

(a)           Compliance with Warranties, NoDefault, etc.  Both before and aftergiving effect to any Credit Extension, the following statements shall be trueand correct:

(i)            the representations and warrantiesset forth in Article VI and in each other Loan Document shall, in eachcase, be true and correct in all respects (with respect to representations andwarranties qualified by materiality or Material Adverse Effect) and in allmaterial respects (with respect to all other representations and warranties)with the same effect as if then made (unless stated to relate solely to anearlier date, in which case such representations and warranties shall be trueand correct in all material respects as of such earlier date unless suchrepresentations and warranties are qualified by materiality or Material AdverseEffect, in which case such representations and warranties shall be true andcorrect as of such earlier date);

(ii)           except as disclosed by the Borrowerto the Lender pursuant to Section 6.7,

 

37

----

 

(1)   no labor controversy, litigation, action,arbitration or governmental investigation or proceeding shall be pending or, tothe knowledge of the Borrower, threatened against the Borrower or any of itsSubsidiaries or any Obligor, or any of their respective properties, business,assets or revenues, which is reasonably likely to, if adversely determined,have a Material Adverse Effect, or which purports to involve the transactions contemplatedby this Agreement or would adversely affect the legality, validity orenforceability of this Agreement or any other Loan Document; and

(2)   no development shall have occurred in anylabor controversy, litigation, action, arbitration or governmentalinvestigation or proceeding disclosed pursuant to Section 6.7 whichcould reasonably be expected to have a Material Adverse Effect; and

(iii)          no Default or Event of Default shallhave then occurred and be continuing.

(b)           Credit Extension Request, etc.  The Lender shall have received a BorrowingRequest for Revolving Loans being requested or an Issuance Request for Lettersof Credit being requested.  Each of thedelivery of a Borrowing Request or an Issuance Request, as applicable, and theacceptance by the Borrower of the proceeds of such Credit Extension shallconstitute a representation and warranty by the Borrower that on the date ofsuch Credit Extension (both immediately before and after giving effect to suchCredit Extension and the application of the proceeds thereof) the statementsmade in Section 5.2(a) are true and correct in all material respects.

(c)           Satisfactory Legal Form.  All documents executed or submitted pursuanthereto by or on behalf of the Borrower or any of its Subsidiaries or any otherObligors shall be reasonably satisfactory in form and substance to the Lenderand its counsel; the Lender and its counsel shall have received allinformation, approvals, opinions, documents or instruments as the Lender or itscounsel may reasonably request.

(d)           Compliance Certificate.  The Lender shall have received a ComplianceCertificate on a pro forma basis as if the Credit Extension had been made as ofthe most recent practicable date for demonstrating compliance with thecovenants set forth in Section 8.4 and as to such items therein as theLender reasonably requests, dated the proposed date of the Credit Extension,duly executed (and with all schedules thereto duly completed) and delivered bythe chief executive officer, the chief financial officer, the treasurer or theassistant treasurer of the Borrower.

ARTICLE VI**REPRESENTATIONS AND WARRANTIES**

In order to induce theLender to enter into this Agreement and to make Credit Extensions hereunder,the Borrower represents and warrants to Lender as set forth in this Article.

Section 6.1             **Organization, etc.**  The Borrower and each of its Subsidiaries is(a)  validly organized and existing andin good standing, or if a Foreign Subsidiary the equivalent of

 

38

----

 

good standing, under the laws of the state orjurisdiction of its incorporation or organization, and (b) duly qualified to dobusiness and is in good standing as a foreign entity in each jurisdiction wherethe nature of its business requires such qualification, except where thefailure to so qualify would not result in a Material Adverse Effect, and hasfull power and authority and holds all requisite governmental licenses, permitsand other approvals to enter into and perform its Obligations under thisAgreement and each other Loan Document to which it is a party and to own andhold under lease its property and to conduct its business substantially ascurrently conducted by it except where the failure to hold such licenses,permits and other approvals would not result in a Material Adverse Effect.

Section 6.2             **Due Authorization, Non-Contravention,etc**.  The execution,delivery and performance by the Borrower of this Agreement and each other LoanDocument executed or to be executed by it, the execution, delivery andperformance by each other Obligor of each Loan Document executed or to beexecuted by it and the execution, delivery and performance by the Borrower andany of its applicable Subsidiaries of each agreement entered into in connectionherewith are in each case within each such Person’s powers, have been dulyauthorized by all necessary action, and do not:

(a)           contravene any such Person’s OrganicDocuments;

(b)           contravene any contractualrestriction binding on or affecting any such Person;

(c)           contravene (i) any court decree ororder binding on or affecting any such Person or (ii) any law or governmentalregulation binding on or affecting any such Person; or

(d)           result in, or require the creation orimposition of, any Lien on any of such Person’s properties (except as permittedby this Agreement).

Section 6.3             **Government Approval, Regulation, etc**.  Except as set forth in Item 6.3 of theDisclosure Schedule, and except for filings or recordings to perfect theLender’s security interests, no authorization or approval or other action by,and no notice to or filing with, any Governmental Authority or regulatory bodyor other Person other than those that have been duly obtained or made and whichare in full force and effect is required for the due execution, delivery orperformance by the Borrower or any other Obligor of any Loan Document to whichit is a party or in connection with the transactions contemplated under thisAgreement.  Neither the Borrower nor anyof its Subsidiaries is an “investment company” within the meaning of theInvestment Company Act of 1940, as amended, or a “holding company”, or a“subsidiary company” of a “holding company”, or an “affiliate” of a “holdingcompany” or of a “subsidiary company” of a “holding company”, within themeaning of the Public Utility Holding Company Act of 1935, as amended.

Section 6.4             **Validity, etc**.  This Agreement and each other Loan Documentexecuted by the Borrower will, on the due execution and delivery thereof,constitute, the legal, valid and binding obligations of the Borrower,enforceable against the Borrower in accordance with their respective terms; andeach other Loan Document executed by each other Obligor will, on the dueexecution and delivery thereof by such Obligor, constitute the legal, valid andbinding obligation

 

39

----

 

of such Obligor enforceable against such Obligor inaccordance with its terms (except, in any case, as such enforceability may belimited by applicable bankruptcy, insolvency, reorganization or similar lawsaffecting creditors’ rights generally and by principles of equity).

Section 6.5             **Financial Information.**  The financial statements of the Borrower andits Subsidiaries furnished to the Lender pursuant to Section 5.1(i) havebeen prepared in accordance with GAAP consistently applied, and present fairlythe consolidated financial condition of the Persons covered thereby as at thedates thereof and the results of their operations for the periods thenended.  All balance sheets, allstatements of operations, shareholders’ equity and cash flow and all otherfinancial information of each of the Borrower and its Subsidiaries furnishedpursuant to Section 7.1 have been and will for periods following theClosing Date be prepared in accordance with GAAP consistently applied, and door will present fairly the consolidated financial condition of the Personscovered thereby as at the dates thereof and the results of their operations forthe periods then ended.

Section 6.6             **No Material Adverse Effect.**  No Material Adverse Effect has occurredsince March 31, 2002 with respect to the Borrower and its Subsidiaries.

Section 6.7             **Litigation, Labor Controversies, etc.**  There is no pending or, to the knowledge ofthe Borrower or its Subsidiaries, threatened litigation, action, proceeding,arbitration, governmental investigation or labor controversy (a) affecting theBorrower or any of its Subsidiaries or any Obligor, or any of their respectiveproperties, businesses, assets or revenues, which is reasonably likely to, ifadversely determined, have a Material Adverse Effect, except as disclosed inItem 6.7 of the Disclosure Schedule or (b) which purports to involve thetransactions contemplated by this Agreement or affect the legality, validity orenforceability of this Agreement or any other Loan Document.

Section 6.8             **Subsidiaries.**  The Borrower has no Subsidiaries, exceptthose Subsidiaries

(a)           which are identified in Item 6.8 ofthe Disclosure Schedule; or

(b)           which constitute Investmentspermitted by Section 8.5 or which are permitted to have been organizedor acquired in accordance with Sections 8.5 or 8.9.

Section 6.9             **Ownership of Properties.**  The Borrower and each of its Subsidiariesowns (a) in the case of owned real property, good and marketable fee title to,and (b) in the case of owned personal property, good and valid title to, or, inthe case of leased real or personal property, valid and enforceable leaseholdinterests (as the case may be) in, all of its properties and assets, real andpersonal, tangible and intangible, of any nature whatsoever, free and clear ineach case of all Liens or claims, except for Liens permitted pursuant to Section8.3.

Section 6.10           **Taxes.** The Borrower and each of its Subsidiaries has timely filed all taxreturns and reports required by law to have been filed by it, and all such taxreturns are complete, accurate and correct in all material respects.  The Borrower and each of its Subsidiarieshas paid all material taxes and governmental charges due and payable on orprior to the date hereof, except any such taxes or charges which are beingdiligently contested in good faith by

 

40

----

 

appropriate proceedings and for which adequatereserves in accordance with GAAP shall have been set aside on its books.

Section 6.11           **Pension and Welfare Plans.**  During the twelve-consecutive-month periodprior to the date of the execution and delivery of this Agreement and prior tothe date of any Credit Extension hereunder, no steps have been taken toterminate any Pension Plan under circumstances in which the Pension Plan hasinsufficient assets to pay all of its benefit liabilities (as required bysection 4041(b)(1) of ERISA), and no contribution failure has occurred withrespect to any Pension Plan, sufficient to give rise to a Lien under section302(f) of ERISA.  No condition exists orevent or transaction has occurred with respect to any Pension Plan which mightresult in the incurrence by the Borrower or any member of the Controlled Group,if any, of any material liability, material fine or material penalty.  Except as disclosed in Item 6.11 of theDisclosure Schedule, neither the Borrower nor any member of the ControlledGroup has any material contingent liability with respect to any post-retirementbenefit under a Welfare Plan, other than liability for continuation coveragedescribed in Part 6 of Title I of ERISA.

Section 6.12           **Environmental Warranties.**  Except as set forth in Item 6.12 of theDisclosure Schedule:

(a)           all facilities and property(including underlying groundwater) owned or leased by the Borrower or any ofits Subsidiaries have been, and continue to be, owned or leased by the Borrowerand its Subsidiaries in material compliance with all Environmental Laws;

(b)           there have been no past, and thereare no pending or to the Borrower’s best knowledge threatened:

(i)            actions, investigations, claims,complaints, notices or requests for information received by the Borrower or anyof its Subsidiaries with respect to any alleged violation of any EnvironmentalLaw which could result in a liability to the Borrower or its Subsidiaries inexcess of $250,000 individually or $500,000 in the aggregate, or

(ii)           actions, investigations, complaints,notices or inquiries to the Borrower or any of its Subsidiaries regardingpotential liability under any Environmental Law which could result in aliability to the Borrower or its Subsidiaries in excess of $250,000individually or $500,000 in the aggregate;

(c)           to the Borrower’s best knowledge,there have been no Releases of Hazardous Materials at, on or under any propertynow or previously owned or leased by the Borrower or any of its Subsidiaries thathave, or could reasonably be expected to result in a liability to the Borroweror its Subsidiaries in excess of $250,000 individually or $500,000 in theaggregate;

(d)           the Borrower and its Subsidiarieshave been issued and are in material compliance with all permits, certificates,approvals, licenses and other authorizations relating to environmental mattersand necessary for their businesses;

 

41

----

 

(e)           to the Borrower’s best knowledge, noproperty now or previously owned or leased by the Borrower or any of itsSubsidiaries is listed or proposed for listing (with respect to owned propertyonly) on the National Priorities List pursuant to CERCLA, on the CERCLIS or onany similar state list of sites requiring investigation or clean-up;

(f)            to the Borrower’s best knowledge,there are no underground storage tanks, active or abandoned, includingpetroleum storage tanks, on or under any property now or previously owned orleased by the Borrower or any of its Subsidiaries that, singly or in theaggregate, have, or could reasonably be expected to result in a liability tothe Borrower or its Subsidiaries in excess of $250,000 individually or $500,000in the aggregate;

(g)           neither the Borrower nor anySubsidiary of the Borrower has directly transported or directly arranged forthe transportation of any Hazardous Material to any location which is listed orproposed for listing on the National Priorities List pursuant to CERCLA, on theCERCLIS or on any similar state list or which is the subject of federal, stateor local enforcement actions or other investigations which may lead to materialclaims against the Borrower or such Subsidiary for any response costs, remedialwork, damage to natural resources or personal injury, including claims underCERCLA;

(h)           to the Borrower’s best knowledge,there are no polychlorinated biphenyls or friable asbestos present at anyproperty now or previously owned or leased by the Borrower or any Subsidiary ofthe Borrower that, singly or in the aggregate, have, or could reasonably be expectedto result in a liability to the Borrower or its Subsidiaries in excess of$250,000 individually or $500,000 in the aggregate; and

(i)            to the Borrower’s best knowledge, noconditions exist at, on or under any property now or previously owned or leasedby the Borrower which, with the passage of time, or the giving of notice orboth, would give rise to material liability under any Environmental Law.

Section 6.13           **Accuracy of Information.**  None of the factual information heretoforeor contemporaneously furnished by or on behalf of the Borrower in writing tothe Lender for purposes of or in connection with this Agreement or any of thetransactions contemplated hereby or the financing contemplated hereby (true andcomplete copies of which were furnished to the Lender in connection with itsexecution and delivery hereof), contains any untrue statement of a materialfact, and none of the other factual information hereafter furnished inconnection with this Agreement or any other Loan Document  by the Borrower or any other Obligor toLender will contain any untrue statement of a material fact on the date as ofwhich such information is dated or certified and, as of the date of theexecution and delivery of this Agreement by the Lender, the informationdelivered prior to the date of execution and delivery of this Agreement (unlesssuch information specifically relates to a prior date) does not, and thefactual information hereafter furnished shall not on the date as of which suchinformation is dated or certified, omit to state any material fact necessary tomake any information not misleading.

Section 6.14           **Regulations T, U and X.**  No Obligor is engaged in the business ofextending credit for the purpose of purchasing or carrying margin stock, and noproceeds of any Credit Extensions will be used to purchase or carry marginstock or otherwise for a purpose which violates, or would be inconsistent with,F.R.S. Board Regulation T, U or X. Terms for

 

42

----

 

which meanings are provided in F.R.S. Board RegulationT, U or X or any regulations substituted therefor, as from time to time ineffect, are used in this Section with such meanings.

Section 6.15           **Compliance with Laws.**  None of the Borrower or any of itsSubsidiaries or any of their respective material properties or assets is inviolation of, nor will the continued operation of their material properties andassets as currently conducted violate in any material respect, any law, rule orregulation (including any Food and Drug Administration or United StatesDepartment of Agriculture law, rule or regulation or any Environmental Law orany zoning or building law, rule or regulation or any ordinance, code orapproval or building permits) or any restrictions of record or agreementsaffecting such material properties or assets, and none of the Borrower or anyof its Subsidiaries is in default with respect to any judgment, writ,injunction, decree or order of any Governmental Authority, in each case wheresuch violation or default could result in a Material Adverse Effect.

Section 6.16           **Labor Matters.** The hours worked by andpayments made to employees of the Borrower and its Subsidiaries have not beenin violation of the Fair Labor Standards Act or any other applicable federal,state, local or foreign law dealing with such matters.  All payments due from the Borrower or any ofits Subsidiaries, or for which any claim may be made against the Borrower orany of its Subsidiaries, on account of wages and employee health and welfareinsurance and other benefits, have been paid or accrued as a liability on thebooks of the Borrower or such Subsidiary. The consummation of the transactions contemplated by this Agreement willnot give rise to any right of termination or right of renegotiation on the partof any union under any collective bargaining agreement to which the Borrower orany of its Subsidiaries is bound.

Section 6.17           **Security Documents.** (a) Each PledgeAgreement is effective to create in favor of the Lender a legal, valid andenforceable security interest in the collateral (as defined in such PledgeAgreement) and, when such collateral is delivered to the Lender and for so longas the Lender continues to hold such collateral, such Pledge Agreement shallconstitute a fully perfected first priority Lien on, and security interest in,all right, title and interest of the pledgors thereunder in such collateral, ineach case prior and superior in right to any other Person.

(b)           Each Security Agreement is effectiveto create in favor of the Lender a legal, valid and enforceable security interestin the collateral (as defined in each such Security Agreement) and, whenfinancing statements in appropriate form are filed in the appropriate officesor other necessary steps are taken by the Lender to perfect its securityinterests, each Security Agreement shall constitute a fully perfected Lien on,and security interest in, all right, title and interest of the grantorsthereunder in such collateral, in each case prior and superior in right to anyother Person, other than with respect to Liens expressly permitted by Section8.3.

Section 6.18           **Insurance.** The Borrower and each of itsSubsidiaries maintains insurance on its property with financially sound andreputable insurance companies against loss and damage in at least the amounts(and with only those deductibles) customarily maintained, and against suchrisks as are typically insured against in the same general area, by Persons ofcomparable size engaged in the same or similar business as the Borrower and itsSubsidiaries, and also maintains all worker’s compensation, employer’sliability insurance or similar insurance as may be required under the laws ofany state or jurisdiction in which it may be engaged in business.

 

43

----

 

Section 6.19           **Intellectual Property.** The Borrower andeach of its Subsidiaries own or possess, or can acquire on reasonable terms,adequate patents, patent rights, licenses, inventions, copyrights, know-how(including trade secrets and other unpatented and/or unpatentable proprietaryor confidential information, systems or procedures), trademarks, service marks,trade names or other intellectual property (collectively, ***“Intellectual Property”***)necessary to carry on the business now operated by them, and, except asdisclosed in Item 6.19 of the Disclosure Schedule, neither the Borrower nor anyof its Subsidiaries have received any notice or are otherwise aware of anyinfringement or conflict with asserted rights of others with respect to anyIntellectual Property or of any facts or circumstances which would render anyIntellectual Property invalid or inadequate to protect the interest of theBorrower or any of its Subsidiaries therein, and which infringement or conflict(if the subject of any unfavorable decision, ruling or finding) or invalidityor inadequacy, singly or in the aggregate, could result in a Material AdverseEffect.  To the knowledge of theBorrower, upon due inquiry, the business of the Borrower and its Subsidiariesas currently conducted does not infringe or conflict with any IntellectualProperty rights or franchise rights of any Person.

Section 6.20           **Solvency.** The Borrower and its Subsidiaries, taken as a whole, are, and, upon theincurrence of any Obligations by any Obligor (including, without limitation,the making of the Revolving Loans, the issuance of the Letters of Credit, thedelivery of each Subsidiary Guaranty and the Liens created by the CollateralDocuments) on any date on which this representation is made, will be, Solvent.

ARTICLE VII**AFFIRMATIVE COVENANTS**

The Borrower agrees withthe Lender that until the Commitments have expired or terminated, all Lettersof Credit have been cancelled or otherwise terminated, and all Obligations havebeen paid and performed in full, the Borrower will, and will cause itsSubsidiaries to, perform or cause to be performed the obligations set forthbelow.

Section 7.1             **Financial Information, Reports, Notices,etc.**  The Borrower willfurnish or cause to be furnished to the Lender copies of the followingfinancial statements, reports, notices and information:

(a)           as soon as available and in any eventwithin sixty (60) days after the end of each of the first three Fiscal Quartersof each Fiscal Year, an unaudited consolidated balance sheet of the Borrowerand its Subsidiaries as of the end of such Fiscal Quarter and consolidatedstatements of income and cash flow of the Borrower and its Subsidiaries forsuch Fiscal Quarter and for the period commencing at the end of the previousFiscal Year and ending with the end of such Fiscal Quarter, and including (ineach case), in comparative form the figures for the corresponding FiscalQuarter in, and year to date portion of, the immediately preceding Fiscal Year,certified as complete and correct by the chief financial or accountingAuthorized Officer of the Borrower;

(b)           as soon as available and in any eventwithin ninety (90) days after the end of each Fiscal Year, a copy of theconsolidated balance sheet of the Borrower and its

 

44

----

 

Subsidiaries, and the related consolidated statementsof stockholders’ equity and cash flow and the consolidated statements of incomeof the Borrower and its Subsidiaries for such Fiscal Year, setting forth incomparative form the figures for the immediately preceding Fiscal Year, audited(without any Impermissible Qualification) by independent public accountantsacceptable to the Lender, stating that, in performing the examination necessaryto deliver the audited financial statements of the Borrower, no knowledge wasobtained of any Default or Event of Default;

(c)           concurrently with the delivery of thefinancial information pursuant to clauses (a) and (b), aCompliance Certificate, executed by the chief executive, financial oraccounting Authorized Officer of the Borrower, (i) showing compliance with thefinancial covenants set forth in Section 8.4, (ii) stating that noDefault or Event of Default has occurred and is continuing (or, if a Default orEvent of Default has occurred, specifying the details of such Default or Eventof Default and the action that the Borrower has taken or proposes to take withrespect thereto) and (iii) showing the outstanding balance of all RevolvingLoans as of the applicable Fiscal Quarter;

(d)           as soon as possible and in any eventwithin five (5) days after the Borrower or any of its Subsidiaries obtainsknowledge of the occurrence of a Default or Event of Default, a statement ofthe chief executive, financial or accounting Authorized Officer of the Borrowersetting forth details of such Default of Event of Default and the action whichthe Borrower has taken and proposes to take with respect thereto;

(e)           as soon as possible and in any eventwithin five (5) days after the Borrower or any of its Subsidiaries obtainsknowledge of (i) the occurrence of any material adverse development withrespect to any litigation, action, proceeding or labor controversy described inItem 6.7 of the Disclosure Schedule or (ii) the commencement of any litigation,action, proceeding or labor controversy of the type and materiality describedin Section 6.7, notice thereof and, to the extent the Lender requests,copies of all documentation relating thereto;

(f)            promptly after the sending or filingthereof, copies of all reports, notices, prospectuses and registrationstatements which the Borrower or any of its Subsidiaries files with the SEC orany national securities exchange;

(g)           immediately upon becoming aware of(i) the institution of any steps by the Borrower or any other Person toterminate any Pension Plan, (ii) the failure to make a required contribution toany Pension Plan if such failure is sufficient to give rise to a Lien underSection 302(f) of ERISA, (iii) the taking of any action with respect to aPension Plan which could result in the requirement that the Borrower furnish abond or other security to the PBGC or such Pension Plan, or (iv) the occurrenceof any event with respect to any Pension Plan which could result in theincurrence by the Borrower of any material liability, fine or penalty, noticethereof and copies of all documentation relating thereto;

(h)           promptly upon receipt thereof fromthe Borrower’s audit committee, copies of all “management letters” submitted tothe Borrower by the independent public accountants referred to in clause (b)in connection with each audit made by such accountants;

 

45

----

 

(i)            as soon as available and in anyevent within fifteen (15) days after the end of each Fiscal Year a copy ofBorrower’s Annual Operating Plan; and

(j)            such other financial and otherinformation as the Lender may from time to time reasonably request (includinginformation and reports in such detail as the Lender may request with respectto the terms of and information provided pursuant to the ComplianceCertificate).

Section 7.2             **Maintenance of Existence; Compliancewith Laws, etc**.  TheBorrower will, and will cause each of its Subsidiaries to,

(a)           except as otherwise permitted by Section8.9, preserve and maintain its legal existence; and

(b)           comply in all material respects withall applicable laws, rules, regulations and orders, including, but not limitedto, ERISA, employee benefits, Food and Drug Administration and United StatesDepartment of Agriculture laws, rules and regulations, and including thepayment, before the same become delinquent, of all taxes, assessments andgovernmental charges imposed upon the Borrower or its Subsidiaries or upontheir property except to the extent being diligently contested in good faith byappropriate proceedings and for which adequate reserves in accordance with GAAPhave been set aside on the books of the Borrower or its Subsidiaries, asapplicable.

Section 7.3             **Maintenance of Properties**.  The Borrower will, and will cause each ofits Subsidiaries to, maintain, preserve, protect and keep its and theirrespective properties in good repair, working order and condition (ordinarywear and tear excepted), and make necessary repairs, renewals and replacementsso that the business carried on by the Borrower and its Subsidiaries may beproperly conducted at all times, unless the Borrower determines in good faiththat the continued maintenance of such property is no longer economicallydesirable.

Section 7.4             **Insurance**.  The Borrower will, and will cause each ofits Subsidiaries to:

(a)           maintain insurance on its propertywith financially sound and reputable insurance companies against loss anddamage in at least the amounts (and with only those deductibles) customarilymaintained, and against such risks as are typically insured against in the samegeneral area, by Persons of comparable size engaged in the same or similarbusiness as the Borrower and its Subsidiaries; and

(b)           all worker’s compensation, employer’sliability insurance or similar insurance as may be required under the laws ofany state or jurisdiction in which it may be engaged in business.

Without limitingthe foregoing, all insurance policies required pursuant to this Section shall(i) name the Lender as loss payee (in the case of property insurance) oradditional insured (in the case of liability insurance), as applicable, andprovide that no cancellation or modification of the policies will be made withoutthirty (30) days’ prior written notice (or ten (10) days’ prior written noticewith respect to failure to pay the premium), to the Lender and (ii) be inaddition to any requirements to maintain specific types of insurance containedin the other Loan Documents.

 

46

----

 

Section 7.5             **Books and Records**.  The Borrower will, and will cause each ofits Subsidiaries to, keep books and records in accordance with GAAP whichaccurately reflect all of its business affairs and transactions and permit theLender or any of its representatives, at reasonable times and intervals uponreasonable notice to the Borrower, to visit its offices, to discuss itsfinancial matters with its officers and employees, and its independent publicaccountants (and the Borrower hereby authorizes such independent publicaccountants to discuss the Borrower’s and its Subsidiaries’ financial matterswith the Lender or its representatives whether or not any representative of theBorrower is present so long as the Borrower has been given reasonable priorwritten notice of such meeting) and to examine (and photocopy extracts from)any of its books and records.  TheBorrower shall pay any fees of such independent public accountants incurred inconnection with the Lender’s exercise of its rights pursuant to this Section.

Section 7.6             **Environmental Law Covenant**.  The Borrower will, and will cause each ofits Subsidiaries to:

(a)           use and operate all of its facilitiesand properties in material compliance with all Environmental Laws, keep allnecessary permits, approvals, certificates, licenses and other authorizationsrelating to environmental matters in effect and remain in material compliancetherewith, and handle all Hazardous Materials in material compliance with allapplicable Environmental Laws; and

(b)           promptly notify the Lender andprovide copies upon receipt of all material written claims, complaints, noticesor inquiries relating to the condition of its facilities and properties inrespect of, or as to compliance with, Environmental Laws, and shall promptlyresolve any non-compliance with Environmental Laws and keep its property freeof any Lien imposed by any Environmental Law.

Section 7.7             **Future Subsidiaries; Collateral**.  The Borrower shall promptly notify theLender upon any Person becoming a Subsidiary, or upon an Obligor directly orindirectly acquiring additional Capital Stock of any existing Subsidiary orreal property described in clause (d) below, and (except to the extentthat, for Foreign Subsidiaries, the granting of a Subsidiary Guaranty orSubsidiary Pledge Agreement would cause material adverse tax consequences tothe Borrower or such Foreign Subsidiary or would be violative of applicablelaw):

(a)           such Person shall (i) execute anddeliver to the Lender a supplement to the Subsidiary Guaranty and a supplementto the Subsidiary Security Agreement and (ii) to the extent such Subsidiary isrequired to pledge stock of a Subsidiary pursuant to clause (b) of Section7.7, execute and deliver to the Lender a supplement to the Subsidiary PledgeAgreement, if not already a party thereto as a pledgor, in a mannersatisfactory to the Lender;

(b)           the Borrower and each Subsidiaryshall, pursuant to the applicable Pledge Agreement (as supplemented, ifnecessary, by a foreign pledge agreement in form and substance satisfactory tothe Lender), pledge to the Lender all of the outstanding shares of CapitalStock of (i) each U.S. Subsidiary and (ii) any Subsidiary that is not a U.S.Subsidiary owned (other than where such ownership is in such U.S. Subsidiary’scapacity as a nominee shareholder) directly by the Borrower or such U.S.Subsidiary (provided that, subject to the last sentence of the

 

47

----

 

penultimate paragraph of this Section, not more thansixty-five percent (65%) of the Capital Stock of any Foreign Subsidiary shallbe so pledged), along with undated stock powers for such certificates, executedin blank (or, if any such shares of Capital Stock are uncertificated,confirmation and evidence satisfactory to the Lender that the security interestin such uncertificated securities has been perfected (as a first priority Lien)by the Lender, in accordance with the U.C.C. or any other similar or local orforeign law which may be applicable);

(c)           the Borrower and each Subsidiaryshall, pursuant to the applicable Pledge Agreement, pledge to the Lender, allintercompany notes evidencing Indebtedness in favor of the Borrower or suchSubsidiary (which shall be in a form acceptable to the Lender); and

(d)           if such Person owns any realproperty, such Obligor will execute and deliver to the Lender a Mortgage,together with, in the case of real property, mortgagee’s title insurancepolicies in amounts, in form and substance (including, if available, arevolving credit endorsement) and issued by insurers satisfactory to theLender, and such policies shall be accompanied by evidence of the payment infull of all premiums thereon;

together, in eachcase, with such opinions of legal counsel for the Borrower, which may be thecorporate general counsel of the Borrower (which shall be from counselsatisfactory to the Lender) relating thereto, which legal opinions shall be inform and substance satisfactory to the Lender. The Borrower agrees that if, as a result of a change in law after thedate hereof, (i) a Foreign Subsidiary can execute and deliver a supplement tothe Subsidiary Guaranty or execute and deliver a supplement to the SubsidiaryPledge Agreement as a pledgor or (ii) the Borrower or any Subsidiary can pledgemore than sixty-five percent (65%) of the Capital Stock of any ForeignSubsidiary or any intercompany Indebtedness of any Subsidiary evidenced by anote or other instrument, in any such case without material adverse taxconsequences to the Borrower or such Subsidiary, then the provisions of clause(a) of this Section shall thereafter apply to any Foreign Subsidiary and/or(as the case may be) the provisions of clause (b) of this Section shallthereafter apply to one hundred percent (100%) of the Capital Stock of suchForeign Subsidiary.

The Borrower shall, andshall cause each of its Subsidiaries to, cause the Lender to have at all timesa first priority perfected security interest (subject only to Liens permittedunder Section 8.3) in all of the property (real and personal, includingCapital Stock owned by such Obligors) now or hereafter acquired from time totime by the Borrower and such Subsidiaries to the extent the same is of thetype of property that constitutes “Collateral” (as defined in any LoanDocument) or is required to be pledged or assigned to the Lenderhereunder.   Without limiting thegenerality of the foregoing, the Borrower shall, and shall cause each of itsSubsidiaries to, promptly execute, deliver and/or file (as applicable) UniformCommercial Code financing statements and other instruments and documentationdeemed necessary by the Lender to grant and perfect such security interest, ineach case in form and substance satisfactory to the Lender.

Section 7.8             **Use Of Proceeds**.  The Borrower will apply the Revolving Loansas set forth below:

(i)            to repay principal and accruedinterest on those certain demand notes dated May 24, 2002, June 14, 2002 andJuly 26, 2002, respectively, each in the amount of Five Million Dollars($5,000,000), provided that the proceeds of such

 

48

----

 

demand notes shall havebeen and shall be after repayment hereunder be used for the purposes set forthin subsections (ii), (iii) and (iv) hereof;

(ii)           for working capital and generalcorporate purposes of the Borrower;

(iii)          to pay fees and expenses related tothe Revolving Loans; and

(iv)          to finance Capital Expenditures.

The Borrower will use theLetters of Credit for working capital and general corporate purposes of theBorrower.

Section 7.9             **Down Payment on International Sales**.  The Borrower shall, and shall cause each Subsidiary,in connection with agreements entered into after the date of this Agreement, toreceive, on all sales made to buyers located outside of the United States,prior to shipment, at least a ten percent (10%) cash down payment of the salesprice of the inventory or an irrevocable standby or documentary letter ofcredit in favor of the Borrower in an amount equal to at least ten percent(10%) of the sales price of the inventory, issued by a United States recognizedcommercial bank or financial institution which is rated A-1 (or better) byS&P or P-1 (or better) by Moody’s or issued by a foreign bank and confirmedby a United States recognized commercial bank or financial institution, which,at the time of confirmation, is rated A-1 (or better) by S&P or P-1 (orbetter) by Moody’s and payable at the counter of such bank or institution thatprovides customary draw procedures to protect the seller of goods ininternational markets; provided, however, the Lender may waive in a writingsigned by the Lender’s chief financial officer such requirement for contractsentered into after the Closing Date.

Section 7.10           **Contract Obligations**.  The Borrower shall, and shall cause eachSubsidiary, to perform in accordance with its material terms every contract,agreement, obligation or other arrangement to which such Person is a party orby which it or any of its property is bound, including government contracts, ifany.  In the event that any materialdefault or material performance deficiency occurs, the Borrower shall notifythe Lender promptly in writing.  TheBorrower shall provide the Lender promptly with copies of any cure notices ordefault notices it may receive on any contract or from any party and detail theproposed corrective action.  At theLender’s request, the Borrower shall also provide the Lender with copies of anystop work notices in effect at the date of the Lender’s request.

Section 7.11           **Notice of Claims Under Lender Guaranties**.  Promptly, and in any case within seven (7)days notice thereof, notify the Lender of any demand or event or circumstancethat is reasonably likely to cause a demand under any Lender Guaranty.

 

 

49

----

 

ARTICLE VIII**NEGATIVE COVENANTS**

The Borrower covenantsand agrees with the Lender that until the Revolving Loan Commitment has expiredor terminated and all Obligations have been paid and performed in full, theBorrower will not, and will not permit its Subsidiaries to, do any of thefollowing.

Section 8.1             **Business Activities**. The Borrower will not, and will not permit any of its Subsidiaries to,engage in any business activity except those business activities primarilyengaged in by the Borrower and its Subsidiaries as of the Closing Date andactivities reasonably incidental thereto.

Section 8.2             **Indebtedness**. The Borrower will not, without the Lender’s prior written consent, andwill not permit any of its Subsidiaries to, create, incur, assume or permit toexist any Indebtedness, other than:

(a)           Indebtedness in respect of theObligations;

(b)           Indebtedness existing as of theClosing Date which is identified in Item 8.2 of the Disclosure Schedule;

(c)           unsecured Indebtedness (i) incurredin the ordinary course of business of the Borrower and the Guarantors(including open accounts extended by suppliers on normal trade terms inconnection with purchases of goods and services which are not overdue for aperiod of more than ninety (90) days or, if overdue for more than ninety (90)days, as to which a dispute exists and adequate reserves in conformity withGAAP have been established on the books of the Borrower or such Guarantor) and(ii) in respect of performance, surety, statutory, appeal or similar bondsprovided in the ordinary course of business, but excluding (in each case),Indebtedness incurred through the borrowing of money or Contingent Liabilitiesin respect thereof;

(d)           unsecured Indebtedness not to exceedTwo Million Dollars ($2,000,000) in the aggregate, which is convertible intoequity upon terms and conditions reasonably acceptable to the Lender;

(e)           Indebtedness of any Guarantor owingto the Borrower or any other Guarantor, which Indebtedness shall be evidencedby one or more promissory notes in form and substance satisfactory to theLender, duly executed and delivered in pledge to the Lender pursuant to a LoanDocument, and shall not be forgiven or otherwise discharged for anyconsideration other than payment in full or in part in cash (provided, thatonly the amount repaid in part shall be discharged); and

(f)            Indebtedness of the Borrower and theGuarantors in respect of purchase money Indebtedness and Capitalized LeaseLiabilities which does not exceed $5,000,000 in the aggregate at any timeoutstanding;

provided, however, that no Indebtednessotherwise permitted by clause (d) shall be assumed or otherwise incurredif a Default or Event of Default has occurred and is then continuing or wouldresult therefrom.

 

50

----

 

Section 8.3             **Liens**.  The Borrower will not, and will not permitany of its Subsidiaries to, create, incur, assume or permit to exist any Lienupon any of its property (including Capital Stock of any Person), revenues orassets, whether now owned or hereafter acquired, except:

(a)           Liens securing payment of theObligations;

(b)           Liens existing as of the Closing Dateand disclosed in Item 8.3 of the Disclosure Schedule securing Indebtednessdescribed in clause (b) of Section 8.2; provided that no suchLien shall encumber any additional collateral and the amount of Indebtednesssecured by such Lien is not increased from that existing on the Closing Date;

(c)           Liens for taxes, assessments or othergovernmental charges or levies not at the time delinquent or thereafter payablewithout penalty or being diligently contested in good faith by appropriateproceedings and for which adequate reserves in accordance with GAAP shall havebeen set aside on its books;

(d)           Liens in favor of carriers,warehousemen, mechanics, materialmen and landlords granted in the ordinarycourse of business for amounts not overdue or being diligently contested ingood faith by appropriate proceedings and for which adequate reserves inaccordance with GAAP shall have been set aside on its books;

(e)           Liens incurred or deposits made inthe ordinary course of business in connection with workmen’s compensation,unemployment insurance or other forms of governmental insurance or benefits, orto secure performance of tenders, statutory obligations, bids, leases or othersimilar obligations (other than for borrowed money) entered into in theordinary course of business or to secure obligations on surety, statutory andappeal bonds or performance and similar bonds;

(f)            judgment Liens in existence for lessthan forty-five (45) days after the entry thereof or with respect to which executionhas been stayed or the payment of which is covered in full (subject to acustomary deductible) by insurance maintained with responsible insurancecompanies and which do not otherwise result in an Event of Default under Section9.1(f), or attachment, pre-judgment or similar Liens in existence less thantwenty (20) days after the entry thereof or which have been vacated,discharged, released or bonded over in a manner reasonably satisfactory to theLender within such time period;

(g)           easements, rights-of-way, zoningrestrictions, minor defects or irregularities in title and other similarencumbrances not interfering in any material respect with the value or use ofthe property to which such Lien is attached; and

(h)           Liens securing payment ofIndebtedness of the type described in clause (f) of Section 8.2used to purchase or lease assets of the Borrower or any Guarantor so long assuch Lien extends only to the asset or assets so financed.

 

51

----

 

Section 8.4             **Financial Condition and Operations.**  The Borrower will not permit to occur any ofthe events set forth below:

(a)           Maximum Capital Expenditures.  (i) If the Borrower’s Revenue for any FiscalQuarter in Fiscal Year 2002 is greater than eighty-five percent (85%) of thequarterly revenue target set forth in the Annual Operating Plan for such FiscalQuarter, the Borrower will not incur cumulative Capital Expenditures during thenext Fiscal Quarter (including Capital Expenditures incurred during such FiscalQuarter and all prior Fiscal Quarters during Fiscal Year 2002) greater thanFive Hundred Thousand Dollars ($500,000) in excess of the capital expenditurebudget for that next Fiscal Quarter and all prior Fiscal Quarters during FiscalYear 2002, set forth in the Annual Operating Plan.

(ii)  If the Borrower’s Revenue for any FiscalQuarter in Fiscal Year 2002 is less than eighty-five percent (85%) of thequarterly revenue target set forth in the Annual Operating Plan for such FiscalQuarter, the Borrower will not incur cumulative Capital Expenditures during thenext Fiscal Quarter (including Capital Expenditures incurred during such FiscalQuarter and all prior Fiscal Quarters during Fiscal Year 2002) greater thanFive Hundred Thousand Dollars ($500,000) in excess of the “adjusted plan” modelcapital expenditure budget for that next Fiscal Quarter and all prior FiscalQuarters during Fiscal Year 2002, set forth in the Annual Operating Plan.

(b)           Operating Expenses.  (i) If the Borrower’s Revenue for any Fiscal Quarter in Fiscal Year 2002 isgreater than eighty-five percent (85%) of the quarterly revenue target setforth in the Annual Operating Plan for such Fiscal Quarter, then for thefollowing Fiscal Quarter, the Borrower may not incur Operating Expenses inexcess of Five Hundred Thousand Dollars ($500,000) more than the OperatingExpenses, excluding amortization and depreciation included in OperatingExpenses, for such Fiscal Quarter set forth in the Annual Operating Plan.  However, notwithstanding the foregoing, tothe extent that in any Fiscal Quarter Borrower was limited in the incurrence ofOperating Expenses as provided herein, and its Operating Expenses for suchFiscal Quarter were less than Five Hundred Thousand Dollars ($500,000) morethan the Operating Expenses, excluding amortization and depreciation includedin Operating Expenses, for such Fiscal Quarter set forth in the AnnualOperating Plan, the Borrower may use such unincurred Operating Expenses in thesubsequent Fiscal Quarter.

(ii)  If the Borrower’s Revenue for any FiscalQuarter in Fiscal Year 2002 is equal to or less than eighty-five percent (85%)of the quarterly revenue target set forth in the Annual Operating Plan for suchFiscal Quarter, then for the following Fiscal Quarter:

the Borrower may notincur Operating Expenses in excess of Five Hundred Thousand Dollars ($500,000)more than the product of ((D-E) x ((C-B)/(A-B))) + E, where:

 

                                                A=Fiscal QuarterRevenue of the immediately preceding Fiscal Quarter from the Annual OperatingPlan.

                                                B=Fiscal QuarterRevenue of the immediately preceding Fiscal Quarter from the “adjusted plan”model in the Annual Operating Plan.

                                                C=Actual Revenue fromthe immediately preceding Fiscal Quarter.

 

52

----

 

                                                D=Operating Expensesof the following Fiscal Quarter from the Annual Operating Plan.

E=Operating Expensesof the following Fiscal Quarter from the “adjusted plan” model in the AnnualOperating Plan.

(c)           Any calculation to determinecompliance with clauses (a), (b), (d), (e) or (f)of this Section 8.4 or to determine whether a Default or Event ofDefault has occurred or would occur as a result of a particular transactionunder those clauses shall be on a pro forma basis and calculated on theassumption that any Permitted Acquisitions or other relevant transaction whichoccurred during the relevant period were consummated on the first day of suchperiod.

Section 8.5             **Investments**.  The Borrower will not, and will not permitany of its Subsidiaries to, purchase, make, incur, assume or permit to existany Investment in any other Person, except:

(a)           Investments existing on the ClosingDate and identified in Item 8.5 of the Disclosure Schedule, and Investments inSB OperatingCo, Inc. after its conversion (the “***Conversion***”) to a limited liabilitycompany;

(b)           Cash Equivalent Investments;

(c)           without duplication, Investments tothe extent permitted as Indebtedness pursuant to Section 8.2;

(d)           Investments by way of contributionsto capital or purchases of equity (i) by the Borrower in any Guarantor or bysuch Guarantor in other Guarantors; or (ii) by any Subsidiary in the Borrower;

(e)           Investments constituting (i) accountsreceivable arising, (ii) trade debt granted, or (iii) deposits made inconnection with the purchase price of goods or services, in each case in theordinary course of business;

(f)            Investments by way of PermittedAcquisitions;

(g)           Investments received in connectionwith the bankruptcy or reorganization of, or settlement of delinquent accountsand disputes with, customers and suppliers, in each case in the ordinary courseof business;

(h)           Investments consisting of anydeferred portion of the sales price received by the Borrower or any Guarantorin connection with any Asset Sale permitted under Section 8.10;

(i)            Hedging Agreements; and

 

53

----

 

(j)            after the Closing Date, otherInvestments (other than any acquisition of any Person) in an amount not toexceed $500,000 in the aggregate over the remaining term of this Agreement;

provided, however, that

(i)            any Investment which when madecomplies with the requirements of clauses (a), (b) or (c)of the definition of the term “Cash Equivalent Investment” may continue to beheld notwithstanding that such Investment if made thereafter would not complywith such requirements;

(ii)           no Investment otherwise permitted by clauses(c), (d), (e), (f), (g) or (j) shall bepermitted to be made if any Default or Event of Default has occurred and iscontinuing or would result therefrom; and

(iii)          after the Closing Date the aggregateamount of acquisitions (whether pursuant to an acquisition of stock, assetsconstituting a business unit of any Person or all or substantially all of theassets of any Person or Persons or otherwise and including any assumed debt) bythe Borrower or any Guarantor of any Person or Persons or the assets of anyPerson or Persons shall not exceed $2,000,000 over the remaining term of thisAgreement.

Section 8.6             **Restricted Payments, etc**.  The Borrower will not, and will not permitany of its Subsidiaries to, declare or make a Restricted Payment, or make anydeposit for any Restricted Payment, other than:

(a)           dividends or distributions payable incommon stock of the Borrower and its Subsidiaries;

(b)           Restricted Payments made bySubsidiaries to the Borrower or wholly owned Subsidiaries of the Borrower; or

(c)           redemptions of Capital Stock inaccordance with the exercise of mandatory put rights under existing agreementswith employees, and future agreements with employees that have been consentedto by the Lender in writing, provided that the aggregate amount of suchredemptions shall not exceed One Million Dollars ($1,000,000) in any FiscalYear.

provided, however, both before and after giving effectto such Restricted Payment, no Default or Event of Default shall have occurredand be continuing or caused thereby.

Section 8.7             **Subordinated Debt**.  The Borrower will not, and will not permitany of its Subsidiaries to, (a) make any payment or prepayment of principal of,or premium or interest on, any Subordinated Debt; (b) pay or cause to be paidany consideration, whether by way of payment of principal, interest, fee, indemnityor otherwise, to (i) any holder of any Indebtedness (in its capacity as such)that is subordinate or junior in right of payment to amounts owing hereunder or(ii) any holder (in its capacity as such) of any Capital Stock or othersecurities of any Obligor or any warrants, options or subscription rights withrespect to any Capital Stock of

 

54

----

 

any Obligor (whether as payment of such obligations,Capital Stock, securities, warrants, options or subscription rights orotherwise or as inducement to, any consent, waiver or amendment of any of theterms or provisions of the documentation evidencing such Subordinated Debt orsuch Capital Stock, securities, warrants, options or subscription rights); (c)refinance, redeem, retire, purchase, defease or otherwise acquire anySubordinated Debt; or (d) make any deposit (including the payment of amountsinto a sinking fund or other similar fund) for any of the foregoing purposes;provided that:

(a)           the Borrower and its Subsidiaries maypay, in the case of interest only, interest on such Subordinated Debt noearlier than the stated, scheduled date for such payment of interest set forthin the Sub Debt Documents governing such Subordinated Debt, so long as noDefault or Event of Default shall have occurred and be continuing or wouldresult therefrom; and

(b)           the Borrower and its Subsidiaries maymake Restricted Payments as permitted under Section 8.6.

Section 8.8             **Stock of Subsidiaries**.  The Borrower will not permit any of itsSubsidiaries to, (a) issue any Capital Stock (whether for value or otherwise)to any Person other than (i) officers or employees of the Guarantors, inconnection with incentive compensation programs or employee benefit plans or(ii) the Borrower or another wholly owned Guarantor, or (b) other than as setforth in Section 8.6, become liable in respect of any obligation(contingent or otherwise) to purchase, redeem, retire, acquire or make anyother payment in respect of any shares of Capital Stock of the Borrower or anySubsidiary or any option, warrant or other right to acquire any such shares ofCapital Stock; provided, however, that the options and warrantsissued by the Guarantors as set forth in Item 8.8 of the Disclosure Scheduleshall be permitted.

Section 8.9             **Consolidation, Merger, etc**.  The Borrower will not, and will not permitany of its Subsidiaries to, liquidate or dissolve, consolidate with, or mergeinto or with, any other Person, or purchase or otherwise acquire all orsubstantially all of the assets of any Person (or of any division thereof) orchange its corporate structure, except:

(a)           as contemplated by the Conversion;

(b)           any Guarantor may liquidate ordissolve voluntarily into, and may merge with and into, the Borrower or anyother Guarantor, and the assets or stock of any Guarantor may be purchased orotherwise acquired by the Borrower or any other Guarantor; provided, that in noevent shall any Guarantor consolidate with or merge with and into any otherGuarantor unless after giving effect thereto, the Lender shall have a perfectedpledge of and security interest in and to, at least the same percentage of theissued and outstanding shares of Capital Stock of the surviving Person as theLender had immediately prior to such merger or consolidation in form andsubstance satisfactory to the Lender and its counsel, pursuant to suchdocumentation and opinions as shall be necessary in the opinion of the Lenderto create, perfect or maintain the collateral position of the Lender therein ascontemplated by this Agreement; and

(c)           so long as no Default or Event ofDefault has occurred and is continuing or would occur after giving effectthereto, the Borrower or any Guarantor may (to the extent permitted by clause(f) and clause (iii) following clause (j) of Section 8.5) purchaseall or

 

55

----

 

substantially all of the assets or stock of any Person(or any division thereof) (other than the Borrower or any Subsidiary, suchintercompany transactions being subject to clause (b)), or acquire suchPerson by merger.

Section 8.10           **Permitted Dispositions.**  Other than in connection with the Borrower’sincentive compensation arrangements, the Borrower will not, and will not permitany of its Subsidiaries to, sell, transfer, lease, contribute or otherwiseconvey (including by way of merger), or grant options, warrants or other rightswith respect to, any of the Borrower’s or such Subsidiaries’ assets (includingaccounts receivable of the Borrower and its Subsidiaries and Capital Stock ofits Subsidiaries) to any Person in one transaction or series of transactionsunless such transaction is (a) in the ordinary course of its business,including sales of inventory or equipment or systems built for customers in theordinary course of the Borrower’s business within the United States or sales ofinventory or equipment or systems built for customers in the ordinary course ofBorrower’s business outside of the United States in accordance with theprovisions of Section 8.15; or (b) a transaction among the Borrowerand/or the Guarantors permitted by Section 8.9(b).

Section 8.11           **Modification of Certain Agreements.**  The Borrower will not, and will not permitany of its Subsidiaries to, consent to any amendment, supplement, waiver orother modification of, or enter into any forbearance from exercising any rightswith respect to the terms or provisions contained in:

(a)           the Sub Debt Documents, other thanany amendment, supplement, waiver or modification which (x) extends the date orreduces the amount of any required repayment, prepayment or redemption of theprincipal of such Subordinated Debt, (y) reduces the rate or extends the dateof payment of the interest, premium (if any) or fees payable on suchSubordinated Debt, or (z) makes the covenants, events of default or remedies insuch Sub Debt Documents less restrictive on the Borrower; or

(b)           the Borrower’s or any Subsidiary’sOrganic Documents (provided that SB OperatingCo, LLC may enter into documentsrelating to its conversion to a limited liability company provided the Lenderhas reviewed and approved the terms of such documents) to the extent that anysuch change would be adverse to the interests of the Lender.

Section 8.12           **Transactions with Affiliates.**  The Borrower will not, and will not permitany of its Subsidiaries to, enter into or cause or permit to exist any arrangementor contract (including for the purchase, lease or exchange of property or therendering of services) with any of its other Affiliates, unless sucharrangement or contract (i) is on fair and reasonable terms no less favorableto the Borrower or such Subsidiary than it could obtain in an arm’s-lengthtransaction with a Person that is not an Affiliate and (ii) is of the kindwhich would be entered into by a prudent Person in the position of the Borroweror such Subsidiary with a Person that is not one of its Affiliates.

Section 8.13           **Restrictive Agreements, etc.**  The Borrower will not, and will not permitany of its Subsidiaries to, enter into any agreement prohibiting:

 

56

----

 

(a)           the creation or assumption of anyLien upon its properties, revenues or assets, whether now owned or hereafteracquired (except for usual terms in contracts or agreements providing forrestrictions on transfer or assignment);

(b)           the ability of any Obligor to amendor otherwise modify this Agreement or any other Loan Document; or

(c)           the ability of any Subsidiary to makeany payments, directly or indirectly, to the Borrower, including by way ofdividends, advances, repayments of loans, reimbursements of management andother intercompany charges, expenses and accruals or other returns oninvestments.

The foregoingprohibitions shall not apply to restrictions contained in this Agreement andany other Loan Document.

Section 8.14           **Sale and Leaseback.**  The Borrower will not, and will not permitany of its Subsidiaries to, directly or indirectly enter into any agreement orarrangement providing for the sale or transfer by it of any property (now ownedor hereafter acquired) to a Person and the subsequent lease or rental of suchproperty or other similar property from such Person involving an amount of saleproceeds in excess of $2,500,000 in the aggregate.  The Net Proceeds of such sale and leaseback shall be applied bythe Borrower pursuant to Section 3.1(d).

Section 8.15           **Shipment of Assets Outside of U.S.**  Without the Lender’s prior written consent,which consent shall not be unreasonably withheld, the Borrower will not shipany fixed assets or a group of fixed assets, in one or more shipments, outsideof the United States; provided, however, that without the Lender’s priorwritten consent, the Borrower may ship inventory to an unaffiliated customer inthe ordinary course of business if the Borrower receives a minimum payment ofat least ten percent (10%) of the sales price of the inventory or anirrevocable standby or documentary letter of credit in favor of the Borrower inan amount equal to at least ten percent (10%) of the sales price of theinventory, issued by a United States recognized commercial bank or financialinstitution which is rated A-1 (or better) by S&P or P-1 (or better) byMoody’s or issued by a foreign bank and confirmed by a United States recognizedcommercial bank or financial institution, which, at the time of confirmation,is rated A-1 (or better) by S&P or P-1 (or better) by Moody’s and payableat the counter of such bank or financial institution that provides customarydraw procedures to protect the seller of goods in the internationalmarkets.  Provided further, that theBorrower, within eighteen (18) months following the Closing Date may ship toits existing Tech Ion facility under construction in Brazil up to fouraccelerator guns and related system components, without further consent fromthe Lender.

Section 8.16           **Modification of Lender Guaranty Documents.**  So long as the Lender remains a guarantorunder any of the Lender Guaranties, the Borrower shall not agree to and shallnot permit any modifications, amendments, consents or waivers of any provisionsto the underlying documents relating to the Lender Guaranties, nor shall theBorrower exercise any option to extend the term of the underlying documentsrelating to the Lender Guaranties, without the prior written consent of theLender, which consent may be withheld in the Lender’s sole and absolutediscretion, provided that the Lender shall not unreasonably withhold itsconsent to a

 

57

----

 

modification, amendment, consent or waiver if suchmodification, amendment, consent or waiver could not, in any way, have anadverse effect upon the Lender’s obligations under the Lender Guaranties.

ARTICLE IX**EVENTS OF DEFAULT**

Section 9.1             **Events of Default**.  Each of the following events or occurrencesdescribed in this Article shall constitute an “Event of Default”.

(a)           Non-Payment of Obligations.  The Borrower shall default in the payment orprepayment when due of:

(i)            any principal of or interest on anyRevolving Loan and such default shall continue unremedied for three (3)Business Days after such amount becomes due; or

(ii)           any fee described in Article IIIor any other monetary Obligation and such default shall continue unremedied fora period of three (3) days (including one Business Day) after such amount wasdue.

(b)           Breach of Warranty.  Any representation or warranty of anyObligor made or deemed to be made in any Loan Document (including anycertificates delivered pursuant to Article V) is or shall be incorrect(i) in any respect when made or deemed to have been made (with respect torepresentations and warranties qualified by materiality or a Material AdverseEffect) or (ii) in any material respect when made or deemed to have been made(with respect to all other representations or warranties).

(c)           Non-Performance of CertainCovenants and Obligations.  TheBorrower shall default in the due performance or observance of any of itsobligations under Section 7.1, Section 7.8, Section 7.9 orArticle VIII or any Obligor shall default in the due performance orobservance of its obligations under (i) Articles III or IV of theSubsidiary Guaranty, (ii) Articles III or IV of a SecurityAgreement, or (iii) Articles III or IV of a Pledge Agreement.

(d)           Non-Performance of Other Covenantsand Obligations.  Any Obligor shalldefault in the due performance and observance of any other agreement containedherein or in any other Loan Document executed by it, and such default shallcontinue unremedied for a period of thirty (30) days after notice thereof shallhave been given to the Borrower by the Lender.

(e)           Default on Other Indebtedness.  A default shall occur in the payment whendue (subject to any applicable grace period), whether by acceleration orotherwise, of any Indebtedness (including for purposes of this Section9.1(e), all items which, in accordance with GAAP, would be included asliabilities on the liability side of the balance sheet of a Person as of thedate at which Indebtedness is to be determined, but excluding Indebtednessdescribed in Section 9.1(a)) of the Borrower or any of its Subsidiariesor any other Obligor having a principal amount, individually or in theaggregate, in excess of $500,000, or a default shall occur in the performanceor observance of any obligation or condition with respect to such Indebtednessif

 

58

----

 

the effect of such default is to accelerate thematurity of any such Indebtedness or such default shall continue unremedied forany applicable period of time sufficient to permit the holder or holders ofsuch Indebtedness, or any trustee or agent for such holders, to cause ordeclare such Indebtedness to become due and payable or to require suchIndebtedness to be prepaid, redeemed, purchased or defeased, or require anoffer to purchase or defease such Indebtedness to be made, prior to itsexpressed maturity.

(f)            Judgments.  Any judgment or order for the payment ofmoney in excess of $250,000 (exclusive of any amounts fully covered byinsurance (less any applicable deductible) and as to which the insurer hasacknowledged its responsibility to cover such judgment or order) shall berendered against the Borrower or any of its Subsidiaries or any other Obligorand such judgment shall not have been vacated or discharged or stayed or bondedpending appeal within thirty (30) days after the entry thereof.

(g)           Pension Plans.  Any of the following events shall occur withrespect to any Pension Plan:

(i)            the institution of any steps by theBorrower, any member of its Controlled Group, if any, or any other Person toterminate a Pension Plan if, as a result of such termination, the Borrower orany such member could be required to make a contribution to such Pension Plan,or could reasonably expect to incur a liability or obligation to such PensionPlan, in excess of $250,000; or

(ii)           a contribution failure occurs withrespect to any Pension Plan sufficient to give rise to a Lien under section302(f) of ERISA.

(h)           Change in Control.  Any Change in Control shall occur, andLender determines, in its sole and absolute discretion, that such Change inControl shall constitute an Event of Default.

(i)            Bankruptcy, Insolvency, etc.  The Borrower or any of its Subsidiariesshall:

(i)            become insolvent or generally failto pay, or admit in writing its inability or unwillingness generally to pay,debts as they become due;

(ii)           apply for, consent to, or acquiescein the appointment of a trustee, receiver, sequestrator or other custodian forany substantial part of the property of any thereof, or make a generalassignment for the benefit of creditors;

(iii)          in the absence of such application,consent or acquiescence, permit or suffer to exist the appointment of atrustee, receiver, sequestrator or other custodian for a substantial part ofthe property of any thereof, and such trustee, receiver, sequestrator or othercustodian shall not be discharged within sixty (60) days; provided, that theBorrower, each Subsidiary and each other Obligor hereby expressly authorizesthe Lender to appear in any court conducting any relevant proceeding duringsuch sixty (60) day period to preserve, protect and defend its rights under theLoan Documents;

 

59

----

 

(iv)          permit or suffer to exist thecommencement of any bankruptcy, reorganization, debt arrangement or other caseor proceeding under any bankruptcy or insolvency law or any dissolution,winding up or liquidation proceeding, in respect thereof, and, if any such caseor proceeding is not commenced by the Borrower, any Subsidiary or any Obligor,such case or proceeding shall be consented to or acquiesced in by the Borrower,such Subsidiary or such Obligor, as the case may be, or shall result in theentry of an order for relief or shall remain for sixty (60) days undismissed;provided, that the Borrower, each Subsidiary and each Obligor hereby expresslyauthorizes the Lender to appear in any court conducting any such case orproceeding during such sixty (60) day period to preserve, protect and defendits rights under the Loan Documents; or

(v)           take any action authorizing, or infurtherance of, any of the foregoing.

(j)            Impairment of Security, etc.  Any Loan Document or any Lien grantedthereunder shall (except in accordance with its terms), in whole or in part,terminate, cease to be effective or cease to be the legally valid, binding andenforceable obligation of any Obligor party thereto; any Obligor or any otherparty shall, directly or indirectly, contest in any manner such effectiveness,validity, binding nature or enforceability; or, except as permitted under anyLoan Document, any Lien securing any Obligation shall, in whole or in part,cease to be a perfected first priority Lien (except due solely to any action orinaction by the Lender).

(k)           Failure of Subordination.  Unless otherwise waived or consented to bythe Lender in writing, the subordination provisions relating to anySubordinated Debt (the ***“SubordinationProvisions”***) shall fail to be enforceable by the Lender inaccordance with the terms thereof, or the monetary Obligations shall fail toconstitute “Senior Indebtedness” or “Secured Debt” (or similar term) referringto the Obligations; or the Borrower or any of its Subsidiaries shall, directlyor indirectly, disavow or contest in any manner (i) the effectiveness, validityor enforceability of any of the Subordination Provisions, (ii) that theSubordination Provisions exist for the benefit of the Lender or (iii) that allpayments of principal of or premium and interest on the Subordinated Debt, orrealized from the liquidation of any property of any Obligor, shall be subjectto any of such Subordination Provisions.

Section 9.2             **Action if Bankruptcy**.  If any Event of Default described in Section9.1(i) shall occur, the Revolving Loan Commitment (if not theretoforeterminated) shall automatically terminate and the outstanding principal amountof all outstanding Revolving Loans and all other Obligations shallautomatically be and become immediately due and payable, without presentment,protest, notice or demand (all of which are hereby expressly waived by theBorrower).

Section 9.3             **Action if Other Event of Default**.  If any Event of Default (other than anyEvent of Default described in Section 9.1(i)) shall occur for anyreason, whether voluntary or involuntary, and be continuing, the Lender may, atits option, by notice to the Borrower declare all or any portion of theoutstanding principal amount of the Revolving Loans and other Obligations to bedue and payable and/or the Revolving Loan Commitment (if not theretoforeterminated) to be terminated, whereupon the full unpaid amount of suchRevolving Loans and

 

60

----

 

other Obligations which shall be so declared due andpayable shall be and become immediately due and payable, without furtherpresentment, protest, notice or demand (all of which are hereby expresslywaived by the Borrower).

ARTICLE X

**MISCELLANEOUS PROVISIONS**

Section 10.1           **Waivers, Amendments, etc**.  The provisions of this Agreement and of eachother Loan Document may from time to time be amended, modified or waived, ifsuch amendment, modification or waiver is in writing and consented to by theBorrower and the Lender.

No failure or delay onthe part of the Lender in exercising any power or right under this Agreement orany other Loan Document shall operate as a waiver thereof, nor shall any singleor partial exercise of any such power or right preclude any other or furtherexercise thereof or the exercise of any other power or right.  No notice to or demand on the Borrower orany other Obligor in any case shall entitle it to any notice or demand insimilar or other circumstances.  Nowaiver or approval by the Lender under this Agreement or any other LoanDocument shall, except as may be otherwise stated in such waiver or approval,be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilarwaiver or approval thereafter to be granted hereunder.

Section 10.2           **Notices**. All notices and other communications provided to any party hereto underthis Agreement or any other Loan Document shall be in writing or by facsimileand addressed, delivered or transmitted to such party at its address orfacsimile number set forth below its signature hereto or at such other addressor facsimile number as may be designated by such party in a notice to the otherparty.  Any notice, if mailed andproperly addressed with postage prepaid or if properly addressed and sent bypre-paid courier service, shall be deemed given when received; any notice, iftransmitted by facsimile, shall be deemed given when the confirmation oftransmission thereof is received by the transmitter.

Section 10.3           **Payment of Costs and Expenses.**  The Borrower agrees to pay on demand allreasonable expenses of the Lender (including the reasonable fees, costs and out-of-pocket expenses ofcounsel to the Lender) in connection with:

(a)           (i) any due diligence investigationof the Borrower and its Subsidiaries and (ii) the negotiation, preparation,execution and delivery and administration of this Agreement and of each otherLoan Document, including schedules and exhibits, and any amendments, waivers,consents, supplements or other modifications to this Agreement or any otherLoan Document as may from time to time hereafter be required, whether or notthe transactions contemplated hereby or thereby are consummated;

(b)           the filing, recording, refiling orrerecording of any Loan Document and/or any Uniform Commercial Code financingstatements relating thereto and all amendments, supplements, amendments andrestatements and other modifications to any thereof and any and

 

61

----

 

all other documents or instruments of furtherassurance required to be filed or recorded or refiled or rerecorded by theterms hereof or the terms of any Loan Document; and

(c)           the preparation and review of theform of any document or instrument relevant to this Agreement or any other LoanDocument.

The Borrower furtheragrees to pay, and to save the Lender harmless from all liability for, anystamp or other taxes which may be payable by it in connection with theexecution or delivery of this Agreement, the Credit Extensions hereunder, orthe issuance of the Revolving Note, or any other Loan Documents.  The Borrower also agrees to reimburse theLender upon demand for all reasonable out-of-pocket expenses (includingreasonable attorneys’ fees and legal expenses of counsel to the Lender)incurred by the Lender in connection with (y) the negotiation of anyrestructuring or “work-out” with the Borrower, whether or not consummated, ofany Obligations and (z) the enforcement of any Obligations.

Section 10.4           **Indemnification**.  In consideration of the execution and delivery of this Agreementby the Lender, the Borrower hereby indemnifies, exonerates and holds Lender andits officers, directors, employees and agents (collectively, the ***“Indemnified Parties”***)free and harmless from and against any and all actions, causes of action,suits, losses, costs, liabilities and damages, and expenses incurred inconnection therewith (irrespective of whether any such Indemnified Party is aparty to the action for which indemnification hereunder is sought), includingreasonable attorneys’ fees and disbursements, whether incurred in connectionwith actions between or among the parties hereto or the parties hereto andthird parties (collectively, the ***“Indemnified Liabilities”***), incurred by theIndemnified Parties or any of them as a result of, or arising out of, orrelating to:

(a)           any transaction financed or to befinanced in whole or in part, directly or indirectly, with the proceeds of anyCredit Extension, including all Indemnified Liabilities arising in connectionwith transactions contemplated hereby or by any other Loan Document ortransactions which are financed with proceeds of any Revolving Loan;

(b)           the entering into and performance ofthis Agreement and any other Loan Document by any of the Indemnified Parties(including any action brought by or on behalf of the Borrower as the result ofany determination by the Lender pursuant to Article V not to fund anyCredit Extension);

(c)           any Indemnified Liabilities (as definedin Lender’s Credit Agreement) which Lender is required to pay under Lender’sCredit Agreement and that arise out of or relate to the Lender’s borrowingsunder the Lender’s Credit Agreement that are used to finance any RevolvingLoans;

(d)           any investigation, litigation orproceeding related to any acquisition or proposed acquisition by the Borroweror any of its Subsidiaries of all or any portion of the stock or assets of anyPerson, whether or not an Indemnified Party is party thereto;

(e)           any investigation, litigation orproceeding related to any environmental cleanup, audit, compliance or othermatter relating to Environmental Laws or the protection of

 

62

----

 

the environment or the Release by the Borrower or anyof its Subsidiaries of any Hazardous Material;

(f)            the presence on or under, or theRelease or threatened Release from, any real property owned or operated by theBorrower or any Subsidiary thereof of any Hazardous Material (including anylosses, liabilities, damages, injuries, costs, expenses or claims asserted orarising under any Environmental Law), regardless of whether caused by, orwithin the control of, the Borrower or such Subsidiary; or

(g)           Lender’s Environmental Liability (theindemnification herein shall survive repayment of the Obligations and anytransfer of the property of the Borrower or any of its Subsidiaries byforeclosure or by a deed in lieu of foreclosure for any Lender’s EnvironmentalLiability, regardless of whether caused by, or within the control of, theBorrower or such Subsidiary);

except for anysuch Indemnified Liabilities arising for the account of a particularIndemnified Party to the extent caused by or resulting from the relevantIndemnified Party’s gross negligence or willful misconduct.  The Borrower and its successors and assignshereby waive, release and agree not to make any claim or bring any costrecovery action against, the Lender under CERCLA or any state equivalent, orany similar law now existing or hereafter enacted, except to the extent theLender is liable due to its ownership, possession, or operation ofproperty.  It is expressly understoodand agreed that to the extent that any of such Persons is strictly liable underany Environmental Laws, the Borrower’s obligation to such Person under thisindemnity shall likewise be without regard to fault on the part of the Borrowerwith respect to the violation or condition which results in liability of suchPerson.  If and to the extent that theforegoing undertaking may be unenforceable for any reason, the Borrower herebyagrees to make the maximum contribution to the payment and satisfaction of eachof the Indemnified Liabilities which is permissible under applicable law.

Section 10.5           **Survival**. The obligations of the Borrower under Sections4.1, 4.2,10.3 and 10.4 shall survive any termination of this Agreement,the payment in full of all the Obligations and the termination of the RevolvingLoan Commitment.  The representationsand warranties made by the Borrower and each other Obligor in this Agreementand in each other Loan Document shall survive the execution and delivery ofthis Agreement and each such other Loan Document.

Section 10.6           **Severability**.  Any provision of this Agreement or any other Loan Document whichis prohibited or unenforceable in any jurisdiction shall, as to such provisionand such jurisdiction, be ineffective to the extent of such prohibition orunenforceability without invalidating the remaining provisions of thisAgreement or such Loan Document or affecting the validity or enforceability ofsuch provision in any other jurisdiction.

Section 10.7           **Headings**. The various headings of this Agreement and of each other Loan Documentare inserted for convenience only and shall not affect the meaning orinterpretation of this Agreement or such other Loan Document or any provisionshereof or thereof.

 

63

----

 

Section 10.8           **Execution in Counterparts, Effectiveness, etc**.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be an original andall of which shall constitute together but one and the same agreement.  This Agreement shall become effective whencounterparts hereof executed on behalf of the Borrower and the Lender  shall have been received by the Lender.

Section 10.9           **Governing Law; Entire Agreement**.  THIS AGREEMENT, THE REVOLVING NOTE AND EACHOTHER LOAN DOCUMENT (INCLUDING PROVISIONS WITH RESPECT TO INTEREST, LOANCHARGES AND COMMITMENT FEES) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDERAND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THEEXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY INTEREST OR MORTGAGEHEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL AREGOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.  This Agreement, the Revolving Note and theother Loan Documents constitute the entire understanding among the partieshereto with respect to the subject matter hereof and thereof and supersede anyprior agreements, written or oral, with respect thereto.

Section 10.10         **Successors and Assigns**.  This Agreement shall be binding upon andshall inure to the benefit of the parties hereto and their respectivesuccessors and assigns; provided, however:

(a)           that the Borrower may not assign ortransfer its rights or obligations hereunder without the prior written consentof the Lender;

(b)           the Lender may transfer, sell orassign its rights hereunder to:

(i)            to one or more commercial banks,other financial institutions or special purpose investment funds which areorganized for the specific purpose of making, acquiring, participating in orinvesting in loans of the type made pursuant to this Agreement;

(ii)           to any of its Affiliates.

Section 10.11         **Confidentiality**.  The Lender shall hold all non-public information (which has beenidentified as such by the Borrower or any of its Subsidiaries) provided to itby the Borrower or any of its Subsidiaries pursuant to or in connection withthis Agreement in accordance with its customary procedures for handlingconfidential information of this nature, but may make disclosure to any of itsexaminers, regulators, Affiliates, outside auditors, counsel and otherprofessional advisors in connection with this Agreement or any other LoanDocument or as reasonably required by any potential bona fide transferee orassignee, or in connection with the exercise of remedies under a Loan Document,or to any nationally recognized rating agency that requires access toinformation about the Lender’s investment portfolio in connection with ratingsissued with respect to the Lender, or as requested by any governmental agencyor representative thereof or pursuant to legal process; provided, however,that unless specifically prohibited by applicable law or court order, theLender shall use reasonable efforts to promptly

 

64

----

 

notify the Borrower of any request by any governmentalagency or representative thereof (other than any such request in connectionwith an examination of the financial condition of the Lender by suchgovernmental agency) for disclosure of any such non-public information and,where practicable, prior to disclosure of such information; provided further,however, that the Lender shall not be liable to the Borrower if any suchPerson fails to provide such notice; prior to any such disclosure pursuant tothis Section 10.11, the Lender shall require any such bona fidetransferee and assignee receiving a disclosure of non-public information toagree, for the benefit of the Borrower and its Subsidiaries, in writing to bebound by this Section 10.11; and to require such Person to require anyother Person to whom such Person discloses such non-public information to besimilarly bound by this Section 10.11; and except as may be required byan order of a court of competent jurisdiction or other applicable law, and tothe extent set forth therein, the Lender shall not be obligated or required toreturn any materials furnished by the Borrower or any of its Subsidiaries.

Section 10.12         **Forum Selection and Consent to Jurisdiction**.  ANY LITIGATION BASED HEREON, OR ARISING OUTOF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, ORANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)OR ACTIONS OF THE LENDER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITHSHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OFCALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OFCALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENTAGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER’SOPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHERPROPERTY MAY BE FOUND.  THE BORROWERIRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID,OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA AT THE ADDRESSFOR NOTICES SPECIFIED IN SECTION 10.2. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLESTEXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVETO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURTREFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN ANINCONVENIENT FORUM.  TO THE EXTENT THATTHE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANYCOURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENTPRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TOITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLESTEXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THISAGREEMENT AND THE OTHER LOAN DOCUMENTS.

Section 10.13         **Waiver of Jury Trial**.  THE LENDER AND THE BORROWER HEREBYKNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTEDBY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATIONBASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENTOR ANY OTHER LOAN

 

65

----

 

DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE BORROWERIN CONNECTION HEREWITH OR THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL ANDSUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACHOTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS AMATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT AND EACH SUCHOTHER LOAN DOCUMENT.

 

66

----

 

IN WITNESS WHEREOF, theparties hereto have caused this Agreement to be executed by their respectiveofficers thereunto duly authorized as of the day and year first above written.
|   | **SUREBEAM CORPORATION**  |
|--------|---------------------------|
|   | By:                       | /s/ L. A. OBERKFELL |
|   |                      | L.  A. Oberkfell*President   Chief Executive Office* |
|   |                      |   |
|   |                      | 9276  Scranton Road, Suite 600  San Diego, California  92121 |
|   |                      |   |   |
|   | **THE TITAN CORPORATION** |
|   | By:                       | /s/ MARK  W. SOPP |
|   |                      | Mark  W. Sopp*Senior Vice President   Chief Financial Officer* |
|   |                      |   |
|   |                      | 3033  Science Park Road  San Diego, CA  92121 |

 

 

67

----

 

**EXHIBITS**

 

 

Exhibit A          AnnualOperating Plan

 

Exhibit B          BorrowerPledge Agreement

 

Exhibit C          BorrowerSecurity Agreement

 

Exhibit D          BorrowingRequest

 

Exhibit E           CollateralAssignment or Rights under License Agreement

 

Exhibit F           ComplianceCertificate

 

Exhibit G          CopyrightSecurity Agreement

 

Exhibit H          IssuanceRequest

 

Exhibit I            RevolvingNote

 

Exhibit J           SubsidiaryGuaranty

 

Exhibit K          SubsidiaryPledge Agreement

 

Exhibit L           SubsidiarySecurity Agreement

 

 

----

 

**SCHEDULE****I**

 

 

DISCLOSURE SCHEDULE TO CREDIT AGREEMENT

 

 

ITEM 2.7  Lender Guaranties

 
| **Description**                                                                              |
|----------------------------------------------------------------------------------------------|
|                                                                                         |
| Chicago  Facility Lease dated November 17, 2000 with Bradley Associates Limited  Partnership |
| Los  Angeles Facility Lease dated March 26, 2002 with XH Partners, L.P.                      |
| Iowa  Dept. of Economic Development                                                          |
|                                                                                         |
|                                                                                         |

 

 

ITEM 2.9  Leases entered into by the Lender on behalfof the Borrower

 
| **Description**                                                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                             |
| Lease dated August 22, 2000  with B/G Management Co for the lease of certain property in Dublin,  California                     |
| Lease dated August 15, 2000  with Czapla DBA Zendex for the lease of certain property in Dublin,  California                     |
| Lease dated February 1, 2001  with Cloverleaf Cold Storage Co for the lease of certain property in Sioux  City, Iowa             |
| Lease dated May 15, 2000 with  Embassy Tower Limited Partnership for the lease of certain property in Omaha,  Nebraska           |
| Lease dated January 1, 2001  with Cooperative Real Estate Investment Company for the lease of certain  property

In Saudi Arabia |
|                                                                                                                             |

 

 

ITEM 6.3   Governmental Approval, Regulation.

 

N/A

 

ITEM 6.7  Litigation.

 

CorporateBrands, Inc. — Seeking $185,408.44.

 

ITEM6.8  Existing Subsidiaries*.

 

1.                             SB OperatingCo, Inc. (wholly-owned)

                                                whichwas previously named SureBeam Corporation

                                                andbefore that was named Titan Scan Corp.

                                                andbefore that was named Titan Purification, Inc.

 

                                                Thisentity has been or will be converted to a Delaware limited

liability company, SBOperatingCo, LLC.

 

 

1

----

 

 

                2.                             Titan SureBeamBrazil Inc.

 

                3.                             SureBeam BrasilLtda

 

*There may be other Subsidiaries, the Borrower agrees to update thisItem 6.8 upon confirming information regarding other Subsidiaries.

 

ITEM6.11  Employee Benefit Plans.

 

N/A

 

ITEM6.12  Environmental Matters.

 

N/A

 

ITEM8.2 Outstanding Indebtedness.

 

None, except (i) in favor of Lender, (ii) accounts payable that occurin the ordinary course of business, (iii) endorser liability arising in theordinary course of business, and (iv) as disclosed in the financial statementsas of March 31, 2002 filed with the SEC and furnished to Lender.

 

ITEM 8.3  Liens.

 

Crown Credit Company—Lease for forklift equipment

 

Certain vendors may have purported to retain purchase money securityinterests pursuant to their standard purchase agreements or invoices in theordinary course of business, but there have been no UCC Financing Statementsfiled.

 

ITEM 8.5  Investments.

 

Investments in Subsidiaries to the Closing Date.

Investments as disclosed in the financial statements as of March 31,2002 filed with the SEC and furnished to Lender.

Investments in Hawaii Pride LLC.—loan of approximately $5,400,000

Investments in SureBeam Middle East—joint venture wherein the Borrowerhas invested approximately $250,000

 

ITEM 8.8  Options and Warrants.

 

None.

 

2

----

 

 

 

**EXHIBIT A**

** **

SureBeamCorporation

FY2002 AOP

 

[...***...]

 

SureBeamCorporation

FY2002 Adjusted AOP

 

[...***...]

 

 

*Confidential Treatment Requested

 

----

 

SureBeamCorporation

2002AOP

 

[...***...]

 

 

*Confidential Treatment Requested

 

 

2

----

 

SureBeamCorporation

2003AOP

 

[...***...]

 

 

*Confidential Treatment Requested

 

 

 

3

----

 

SureBeamCorporation

2002Adjusted AOP

 

[...***...]

 

 

*Confidential Treatment Requested

 

 

 

4

----

 

**EXHIBIT B**

**BORROWER PLEDGE AGREEMENT**

 

This PLEDGE AGREEMENT (asamended, restated, supplemented, or otherwise modified from time to time, this“Pledge Agreement”), dated as of August 2, 2002, is made by SUREBEAMCORPORATION, a Delaware corporation (the “Pledgor”), in favor of THETITAN CORPORATION, a Delaware corporation (the “Pledgee”).

 

WITNESSETH:

WHEREAS, pursuant to aSenior Secured Credit Agreement, dated as of August 2, 2002 (as amended, restated, supplemented, or otherwisemodified from time to time, the “Credit Agreement”), between the Pledgorand Pledgee, the Pledgee has agreed to make Credit Extensions to the Borrower;

WHEREAS, as a conditionprecedent to the making of the Credit Extensions (including the initial CreditExtension) under the Credit Agreement, the Pledgor is required to execute anddeliver this Pledge Agreement;

WHEREAS, the Pledgor hasduly authorized the execution, delivery and performance of this PledgeAgreement; and

NOW THEREFORE, for goodand valuable consideration the receipt and sufficiency of which is herebyacknowledged, and in order to induce the Pledgee to make Credit Extensions(including the initial Credit Extension) to the Pledgor pursuant to the CreditAgreement, the Pledgor agrees as follows:

ARTICLE IDEFINITIONS

SECTION 1.1             Certain Terms.  Capitalized terms used but not otherwisedefined herein shall have the meanings given them in the Credit Agreement.  The following terms (whether or notunderscored) when used in this Pledge Agreement, including its preamble andrecitals, shall have the following meanings (such definitions to be equallyapplicable to the singular and plural forms thereof):

“Act” is definedin Section 6.2.

“CertificatedInterests” means, collectively, all Pledged Shares evidenced bycertificates.

“Collateral” isdefined in Section 2.1.

“Credit Agreement”is defined in the first recital.

 

1

----

 

“Distributions”means all stock dividends, liquidating dividends, shares of stock resultingfrom (or in connection with the exercise of) stock splits, reclassifications,warrants, options, non-cash dividends, mergers, consolidations, and all otherdistributions (whether similar or dissimilar to the foregoing) on or withrespect to any Pledged Interests or other shares of Capital Stock constitutingCollateral, but shall not include Dividends.

“Dividends” meanscash dividends and cash distributions with respect to any Pledged Interestsmade in the ordinary course of business and not as a liquidating dividend.

“Interest Rate HedgingAgreements” means interest rate swap agreements, interest rate capagreements and interest rate collar agreements, and all other agreements orarrangements designed to protect against fluctuations in interest rates,entered into for the purpose of hedging interest rate risk with respect to theObligations.

“Interest Rate HedgingObligations” means all liabilities of the Pledgor under Interest RateHedging Agreements.

“LLC” means eachlimited liability company listed from time to time as a Pledged Interest Issueron Attachment 1 hereto.

“LLC Interest”means the entire ownership interest of the Pledgor in each Pledged Interest Issuerthat is an LLC listed on Attachment 1 hereto, including such Pledgor’scapital account, its gain, loss, deduction and credit of such Pledged InterestIssuer, the Pledgor’s interest in all distributions made or to be made by suchPledged Interest Issuer to the Pledgor and all of the other rights, titles andinterests of the Pledgor as an owner or a member of such Pledged InterestIssuer, whether set forth in the operating or membership agreement of suchPledged Interest Issuer, by separate agreement or otherwise.

“Partnership”means each general partnership or limited partnership listed from time to timeas a Pledged Interest Issuer on Attachment 1 hereto.

“Partnership Interest”means the entire ownership interest of the Pledgor in each Pledged Interest Issuerthat is a Partnership listed on Attachment 1 hereto, including thePledgor’s capital account, its gain, loss, deduction and credit of such PledgedInterest Issuer, the Pledgor’s interest in all distributions made or to be madeby such Pledged Interest Issuer to the Pledgor and all of the other rights,titles and interests of the Pledgor as an owner, a general partner or a limitedpartner of such Pledged Interest Issuer, whether set forth in the partnershipagreement of such Pledged Interest Issuer, by separate agreement or otherwise.

“Pledge Agreement”is defined in the preamble.

“Pledged InterestIssuers” means each Person identified in Attachment 1 hereto as theissuer of the Pledged Interests (including the maker of each Pledged Note)identified opposite the name of such Person and each Person whose ownership,equity or other similar interests, including shares of Capital Stock,Partnership Interests and LLC Interests, are, or are required to be, pledgedhereunder and under the Credit Agreement from time to time.

“Pledged Interests”means (i) all Pledged Shares and (ii) all Pledged Notes.

 

2

----

 

“Pledged Notes”means all promissory notes of any Pledged Interest Issuer identified on Attachment1 hereto, and any promissory notes issued to Pledgor in the future, as suchpromissory notes are amended, restated, supplemented or otherwise modified fromtime to time, in accordance with Section 4.1.6, together with anypromissory note of any Pledged Interest Issuer taken in extension or renewalthereof or substitution therefor.

“Pledged Shares”means (a) all ownership, equity or other similar interests, including shares ofCapital Stock, Partnership Interests and LLC Interests, of any Pledged InterestIssuer listed on Attachment 1 hereto and any shares of Capital Stock,Partnership Interests and LLC Interests of any Pledged Interest Issuer obtainedin the future by the Pledgor, (b) the certificates representing all suchownership, equity or similar interests and (c) all securities convertible into,and all warrants, options or other rights to acquire, such ownership, equity orsimilar interests; but excluding all shares of voting stock of each class ofany Foreign Subsidiary in excess of sixty five percent (65%) of the totalissued and outstanding shares of the voting stock of each such class.

“Pledgee” isdefined in the preamble.

“Pledgor” isdefined in the preamble.

“Secured Obligations”is defined in Section 2.2.

“Termination Date”means the date on which all Obligations have been indefeasibly paid in full incash, all Commitments have been fully terminated and all Letters of Credit havebeen canceled or otherwise terminated.

“U.C.C.” means theUniform Commercial Code, as in effect from time to time in the State of California;provided, however, in the event that, by reason of mandatoryprovisions of law, any or all of the attachment, perfection or priority ofPledgee’s security interest in any Collateral is governed by the UniformCommercial Code (including Articles thereof) as in effect in a jurisdictionother than the State of California, “U.C.C.” shall mean the Uniform CommercialCode as in effect at such time in such other jurisdiction for purposes of theprovisions hereof relating to such attachment, perfection or priority and forpurposes of definitions related to such provisions.

SECTION 1.2             Credit Agreement Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Pledge Agreement, including itspreamble and recitals, have the meanings provided in the Credit Agreement.

SECTION 1.3             U.C.C. Definitions.  Unless otherwise defined herein or in theCredit Agreement or the context otherwise requires, terms for which meaningsare provided in the U.C.C. are used in this Pledge Agreement, including itspreamble and recitals, with such meanings.

 

3

----

 

ARTICLE IIPLEDGE

SECTION 2.1             Grant of Security Interest.  The Pledgor hereby pledges, hypothecates,assigns, charges, mortgages, delivers and transfers to the Pledgee, and thePledgor hereby grants to the Pledgee, to secure the Secured Obligations, acontinuing security interest in, all of the following property (the “Collateral”):

(a)           all Pledged Interests;

(b)           all right, title and interest of thePledgor, whether now existing or hereafter arising or acquired, in, to andunder any partnership agreement, limited liability company agreement or similaragreement which governs the rights and obligations of the holder of ownership,equity or similar interests in a Pledged Interest Issuer;

(c)           all voting trust certificates held byPledgor evidencing the right to vote any Pledged Shares subject to any votingtrust;

(d)           all Dividends, Distributions,interest and without duplication, other payments and rights with respect to anyPledged Interest; and

(e)           all Proceeds of any of the foregoing.

SECTION 2.2           Security for Obligations.  This Pledge Agreement secures the payment infull of all Obligations of the Pledgor now or hereafter existing under the CreditAgreement, each other Loan Document and each Interest Rate Hedging Agreement,whether for principal, interest, costs, fees, indemnities, expenses, InterestRate Hedging Obligations or otherwise (including all Obligations of the Pledgornow or hereafter existing under this Pledge Agreement and each other LoanDocument to which such Pledgor is or may become a party), with all suchObligations being referred to as the “Secured Obligations”.

SECTION 2.3             Pledge and Transfer of PledgedInterests.  Any CertificatedInterests representing or evidencing any Collateral shall be delivered to andheld by or on behalf of the Pledgee pursuant hereto, shall be in suitable formfor transfer by delivery, and shall be accompanied by all necessary instrumentsor documents of transfer or assignment, duly executed in blank by the Pledgoror, if any Collateral is in the form of uncertificated securities, confirmationand evidence satisfactory to the Pledgee that the Pledgor has taken all actionsrequested by the Pledgee to provide for the transfer to and perfection by thePledgee of the security interests in such uncertificated securities inaccordance with the U.C.C. and any other applicable law.

SECTION 2.4             Dividends on Pledged Interests.

(a)           In the event that any Dividend orother payment is to be paid on any Pledged Interests (including any payment ofany principal or interest on any Pledged Note) at a time when no Default hasoccurred and is continuing or would result therefrom, such Dividend or paymentmay be paid directly to the Pledgor; and

 

4

----

 

(b)           If any such Default or Event ofDefault has occurred and is continuing, then any such Dividend or payment shallbe paid directly to the Pledgee.

SECTION 2.5             Continuing Security Interest.  This Pledge Agreement shall create acontinuing security interest in the Collateral and shall:

(a)           remain in full force and effect untilthe Termination Date;

(b)           be binding upon the Pledgor and itssuccessors, transferees and assigns; and

(c)           inure to the benefit of and beenforceable by the Pledgee.

Without limiting clause(c), the Pledgee may assign or otherwise transfer (in whole or in part) theRevolving Note or any Credit Extension or Commitment held by it to any otherPerson, and such other Person shall thereupon become vested with all the rightsand benefits in respect thereof granted to the Pledgee under any Loan Document(including this Pledge Agreement) or otherwise, in each case as provided inSection 10.10 of the Credit Agreement.

Upon (i) the sale,transfer or other disposition of Collateral in accordance with the CreditAgreement or (ii) the occurrence of the Termination Date, the securityinterests granted herein shall automatically terminate with respect to (x) suchCollateral (in the case of clause (i)) or (y) all Collateral (in the case ofclause (ii)), and at such time the Pledgee will, at the Pledgor’s sole expense,deliver to the applicable Pledgor, without any representations, warranties orrecourse of any kind whatsoever, all certificates and instruments previouslydelivered to the Pledgee representing or evidencing all Pledged Interests,together with all other Collateral held by the Pledgee hereunder, and executeand deliver to the Pledgor such documents as the Pledgor shall reasonablyrequest to evidence such termination.

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

SECTION 3.1             Representations and Warranties,etc.  In order to induce the Pledgeeto enter into the Credit Agreement and to make Credit Extensions thereunder,the Pledgor represents and warrants to the Pledgee as set forth in this ArticleIII.

SECTION 3.1.1              Ownership, No Liens, etc.  The Pledgor is the legal and beneficialowner of, and has good and marketable title to (and has full right andauthority to pledge and assign) its Collateral, free and clear of all Liens,options and other charges, except any Lien granted pursuant hereto in favor ofthe Pledgee.

SECTION 3.1.2              Valid Security Interest.  With respect to U.S. entities, the executionand delivery of this Pledge Agreement, together with (a)(i) in the case ofCollateral in the form of a Certificated Interest, the delivery of suchCollateral to the Pledgee together with undated stock powers executed in blankby the Pledgor, (ii) in the case of Collateral in the form of an uncertificatedsecurity, the registration in the name of the Secured Party as owner with thePledged Interest Issuer of such uncertificated security, or (iii) in the caseof Collateral in the form 

 

5

----

 

of Pledged Notes,delivery of such Collateral and an ***allonge*** to such Collateral to the Pledgee, or (b) in thecase of other than Certificated Interests, the filing of U.C.C. financingstatements in the filing offices listed on Attachment 2 hereto, is effectiveto create a valid, perfected, first priority security interest in suchCollateral and all Proceeds thereof, securing the Secured Obligations.  Upon the performance of the actions setforth in the first sentence of this Section 3.1.2, no further actionis necessary to perfect or protect such security interest in the Collateral andthe Proceeds thereof.  The Pledgoragrees that it shall take all necessary actions reasonably requested by thePledgee to create a valid, perfected security interest in non-U.S. entities.

SECTION 3.1.3              As to Pledged Interests.  In the case of

(a)           any Pledged Interests (other thanPledged Notes) constituting Collateral,

(i)            all of such Pledged Interests areduly authorized, and validly issued, fully paid, and non-assessable, andconstitute that percentage of the issued and outstanding shares of CapitalStock, Partnership Interests, LLC Interests and other ownership interests ofeach Pledged Interest Issuer set forth on Attachment 1 hereto; and

(ii)           the Pledgor has delivered to thePledgee true and complete copies of the partnership, membership, operating orownership agreements, as applicable, for each Pledged Interest Issuer that isan LLC or a Partnership, which agreements are currently in full force andeffect and have not been amended or modified except as disclosed to the Pledgeein writing; and

(b)           each Pledged Note, all of suchPledged Notes have been duly authorized, executed, endorsed, issued anddelivered, and are the legal, valid and binding obligation of the issuers thereof,and no default or event of default has occurred and is continuing thereunder.

SECTION 3.1.4              Location of Pledgor.  The jurisdictions in which the Pledgor islocated for purposes of Section 9307 of the U.C.C. are set forth in Attachment1 hereto.

SECTION 3.1.5              Nature of Pledged Interests.  No LLC Interests or Partnership Interestsare Certificated Interests.

ARTICLE IVCOVENANTS

SECTION 4.1             Covenants.  The Pledgor covenants and agrees that, atall times prior to the Termination Date, it will perform, comply with and bebound by the obligations set forth in this Article IV.

SECTION 4.1.1              Protect Collateral; FurtherAssurances, etc.  The Pledgorcovenants and agrees that it will not sell, assign, transfer, pledge, orencumber in any other manner the Collateral except in favor of the Pledgeehereunder or as permitted in the Credit Agreement). The Pledgor will warrantand defend the right and title herein granted unto the 

 

6

----

 

Pledgee in and to theCollateral (and all right, title, and interest represented by the Collateral)against the claims and demands of all Persons. The Pledgor agrees that from time to time, at the expense of thePledgor, it will promptly execute and deliver all further instruments, and takeall further action, that may be necessary or desirable, or that the Pledgee mayreasonably request, in order to perfect and protect any security interestgranted or purported to be granted hereby or to enable the Pledgee to exerciseand enforce its rights and remedies hereunder with respect to anyCollateral.  The Pledgor will not,without thirty (30) days’ prior written notice to the Pledgee, (i) change itsname or structure so as to make any financing or other statement filed pursuantto this Pledge Agreement become seriously misleading or (ii) change thejurisdiction in which it is located to other than those specified in Section3.1.4 hereof.  The Pledgor furthercovenants and agrees as follows:

(a)     If the Pledgor shall become entitled toreceive or shall receive any stock or other certificate (including anycertificate representing a Dividend or a Distribution in connection with anyreclassification, increase or reduction of capital or any certificate issued inconnection with any reorganization), option or rights, whether in addition to,in substitution of, as a conversion of, or in exchange for any portion of theCollateral (or otherwise in respect thereof), the Pledgor shall accept the sameas the agent of the Pledgee, hold the same in trust for the Pledgee and deliverthe same forthwith to the Pledgee in the exact form received, duly endorsed (inblank) by the Pledgor to the Pledgee, if required, together with an undatedstock power or other necessary instrument of transfer covering such certificateduly executed in blank by the Pledgor, to be held by the Pledgee, subject tothe terms of this Pledge Agreement, as additional security for the SecuredObligations.  In addition, any sums paidupon or in respect of the Collateral upon the liquidation or dissolution of anyPledged Interest Issuer shall be held by the Pledgee as additional security forthe Secured Obligations.  If any sums ofmoney or property so paid or distributed in respect of any Collateral shall bereceived by the Pledgor, then the Pledgor shall, until such money or propertyis paid or delivered to the Pledgee, hold such money or property in trust forthe Pledgee, segregated from other funds of the Pledgor, as additionalcollateral securing the Secured Obligations.

(b)     Except as otherwise expressly permitted bythe Credit Agreement, without the prior written consent of the Pledgee, thePledgor will not (i) consent to any material modification, extension oralteration of the terms of any partnership, membership or operating agreement ofthe LLCs or the Partnerships or (ii) accept a surrender of any partnership,membership or operating agreement of any of the LLCs or the Partnerships, asapplicable, or waive any breach of or default under any such agreement by anyother party thereto.

(c)     The Pledgor will advise the Pledgeepromptly, in reasonable detail (i) of any Lien or claim made or assertedagainst any part of the Collateral, (ii) of any material change in thecomposition of the Collateral, and (iii) of the occurrence of any other eventrelating specifically to the Pledgor or its assets which could reasonably beexpected to have a material adverse effect on the aggregate value of theCollateral or on the security interests created hereunder.

SECTION 4.1.2              Registration of Pledged Interests,etc.  The Pledgor shall execute anddeliver to the applicable Pledged Interest Issuer instructions to register,substantially in the form of Exhibit A hereto, and cause each PledgedInterest Issuer to execute and deliver to 

 

7

----

 

the Pledgee theTransaction Statement, substantially in the form of Exhibit B hereto,confirming that each Pledged Interest Issuer (in which the Pledgor owns aPledged Interest (other than in the case of a Certificated Interest or aPledged Note)) has registered the pledge by the Pledgor effected by this PledgeAgreement on its books.  In addition,the Pledgor agrees that it shall cause each issuer of Certificated Interests toexecute and deliver to the Pledgee an acknowledgment in a form satisfactory tothe Pledgee.

SECTION 4.1.3              Stock Powers, etc.  The Pledgor agrees that all CertificatedInterests constituting Collateral delivered by the Pledgor pursuant to thisPledge Agreement will be accompanied by duly executed undated blank stockpowers, or other equivalent instruments or documents of transfer acceptable tothe Pledgee, as are necessary under all applicable laws to perfect the Lien infavor of the Pledgee on such Collateral. The Pledgor will, from time to time upon the request of the Pledgee,promptly deliver to the Pledgee such stock powers, instruments, and similardocuments, satisfactory in form and substance to the Pledgee, with respect tothe Collateral as the Pledgee may reasonably request and will, from time totime upon the request of the Pledgee after the occurrence, and during thecontinuance, of any Event of Default, promptly transfer any Pledged Interestsor other shares of Capital Stock or other ownership interests constitutingCollateral into the name of any nominee designated by the Pledgee.

SECTION 4.1.4              Continuous Pledge.  The Pledgor will, at all times, keep pledgedto the Pledgee pursuant hereto all Pledged Interests and all other shares ofCapital Stock or other ownership interests constituting Collateral, allDividends and Distributions with respect thereto (provided that if no Event ofDefault shall have occurred or be continuing, such Dividends and Distributionsmay be used for working capital or other purposes), all Pledged Notes, allinterest, principal and other proceeds received by the Pledgee with respect tothe Pledged Notes, and all other Collateral and other securities, instruments,proceeds, and rights from time to time received by or distributable to thePledgor in respect of any Collateral, and will not permit any Pledged InterestIssuer to issue any Capital Stock or other ownership interests or any options,warrants or other rights to subscribe for or purchase Capital Stock (other thanas permitted by the Credit Agreement) which shall not have been immediatelyduly pledged hereunder on a first priority perfected basis.

SECTION 4.1.5              Voting Rights; Dividends, etc.  The Pledgor agrees:

(a)     after any Event of Default shall haveoccurred and be continuing, promptly upon receipt of notice thereof by thePledgor and without any request therefor by the Pledgee, such Pledgor willdeliver (properly endorsed where required hereby or requested by the Pledgee)to the Pledgee all Dividends, Distributions, all other cash payments, and allProceeds of the Collateral, all of which shall be held by the Pledgee asadditional Collateral for use in accordance with Section 6.4 hereof; and

(b)     after any Event of Default shall haveoccurred and be continuing and the Pledgee has notified the Pledgor of the Pledgee’s intention to exerciseits voting power under this Section 4.1.5:

(i)      the Pledgee may exercise (to the exclusionof the Pledgor) the voting power and all other incidental rights of ownershipwith respect to any Pledged Interests or 

 

8

----

 

other shares of CapitalStock or other ownership interests constituting Collateral and the Pledgorhereby grants the Pledgee an irrevocable proxy, exercisable under suchcircumstances, to vote the Pledged Interests and such other Collateral; and

(ii)     to promptly deliver to the Pledgee suchadditional proxies and other documents requested by the Pledgee as may benecessary to allow the Pledgee to exercise such voting power.

All Dividends,Distributions, cash payments and Proceeds which may at any time and from timeto time be held by the Pledgor but which the Pledgor is then obligated todeliver to the Pledgee, shall, until delivery to the Pledgee, be held by thePledgor separate and apart from its other property in trust for the Pledgee.  The Pledgee agrees that unless an Event ofDefault shall have occurred and be continuing and the Pledgee shall have giventhe notice referred to in clause (b), the Pledgor shall have theexclusive voting power with respect to any shares of Capital Stock or otherownership interests (including any of the Pledged Interests) constitutingCollateral and the Pledgee shall, upon the written request of the Pledgor,promptly deliver such proxies and other documents, if any, as shall bereasonably requested by the Pledgor which are necessary to allow the Pledgor toexercise voting power with respect to any such share of Capital Stock or otherownership interests (including any of the Pledged Interests) constitutingCollateral; provided, however, that no vote shall be cast, orconsent, waiver, or ratification given, or action taken by the Pledgor thatwould impair any Collateral or be inconsistent with or violate any provision ofthe Credit Agreement, any other Loan Document or any Interest Rate HedgingAgreement.

SECTION 4.1.6              Additional Undertakings.  The Pledgor will not, without the priorwritten consent of the Pledgee, take or omit to take any action the taking orthe omission of which could with reasonable likelihood result in any impairmentor alteration of any Instrument constituting Collateral.  In furtherance of the foregoing, the Pledgoragrees that it will not, without the prior written consent of the Pledgee,which consent shall not be unreasonably withheld:

(a)     enter into any agreement amending, supplementing,or waiving any provision of any Pledged Note (including any underlyingInstrument pursuant to which such Pledged Note is issued) or compromising orreleasing or extending the time for payment of any obligation of the makerthereof; or

(b)     take or omit to take any action the takingor the omission of which would result in any impairment or alteration of anyobligation of the maker of any Pledged Note or other Instrument constitutingCollateral.

SECTION 4.1.7              Pledgor Remains Liable.  Anything herein to the contrarynotwithstanding:

(a)     the Pledgor shall remain liable to performall of its duties and obligations as an owner of the Pledged Interests, to thesame extent as if this Pledge Agreement had not been executed;

 

9

----

 

(b)     the exercise by the Pledgee of any of itsrights hereunder shall not release the Pledgor from any of its duties orobligations as owner of the Pledged Interests; and

(c)     the Pledgee shall not have any obligationor liability as an owner of any Pledged Interest as applicable, by reason ofthis Pledge Agreement.

ARTICLE VATTORNEY IN FACT

SECTION 5.1             Pledgee AppointedAttorney-in-Fact.  The Pledgorhereby irrevocably appoints the Pledgee as the Pledgor’s attorney-in-fact, withfull authority in the place and stead of the Pledgor and in the name of thePledgor or otherwise, from time to time in the Pledgee’s discretion, after theoccurrence and during the continuance of an Event of Default, to take anyaction and to execute any instrument or document which the Pledgee may deemnecessary or advisable to accomplish the purposes of this Pledge Agreement,including without limitation:

(a)     to ask, demand, collect, sue for, recover,compromise, receive and give acquittance and receipts for moneys due and tobecome due under or in respect of any of the Collateral;

(b)     to receive, endorse, and collect any draftsor other instruments, documents and chattel paper, in connection with clause(a); and

(c)     to file any claims or take any action orinstitute any proceedings which the Pledgee may deem necessary or desirable forthe collection of any of the Collateral or otherwise to enforce the rights ofthe Pledgee with respect to any of the Collateral.

The Pledgor herebyacknowledges, consents and agrees that the power of attorney granted pursuantto this Section 5.1 is irrevocable and coupled with an interest.

SECTION 5.2             Pledgee May Perform.  If the Pledgor fails to perform anyagreement contained herein, the Pledgee may perform, or cause performance of,such agreement, and the reasonable expenses of the Pledgee incurred inconnection therewith shall be payable by the Pledgor pursuant to Section 6.5hereof.

SECTION 5.3             Pledgee Has No Duty.  The powers conferred on the Pledgeehereunder are solely to protect its interests in the Collateral and shall notimpose any duty on it to exercise any such powers.  Except for reasonable care of any Collateral in its possessionand the accounting for moneys actually received by it hereunder, the Pledgeeshall have no duty as to any Collateral or responsibility for:

(a)     ascertaining or taking action with respectto calls, conversions, exchanges, maturities, tenders or other matters relativeto any Pledged Interests, whether or not the Pledgee has or is deemed to haveknowledge of such matters; or

(b)     taking any necessary steps to preserverights against prior parties or any other rights pertaining to any Collateral.

 

10

----

 

SECTION 5.4             Reasonable Care.  Other than the exercise of reasonable carein the custody and preservation of the Collateral in its possession, thePledgee shall have no duty with respect thereto.  The Pledgee shall be deemed to have exercised reasonable care inthe custody and preservation of the Collateral in its possession if theCollateral is accorded treatment substantially equal to that which the Pledgeeaccords its own property.  The Pledgeeshall not be liable or responsible for any loss or damage to any of the Collateral,or for any diminution in the value thereof, by reason of the act or omission ofany agent or bailee selected by the Pledgee in good faith.

ARTICLE VIREMEDIES

SECTION 6.1             Certain Remedies.  If any Event of Default shall have occurredand be continuing:

(a)     The Pledgee may exercise in respect of theCollateral, in addition to all other rights and remedies provided for herein orotherwise available to it, all the rights and remedies of a secured party underthe U.C.C. (whether or not the U.C.C. applies to the affected Collateral) andalso may, without notice except as specified below, sell the Collateral or anypart thereof in one or more parcels at public or private sale, at  the Pledgee’s offices or elsewhere, forcash, on credit or for future delivery, and upon such other terms as the Pledgeemay deem commercially reasonable.  ThePledgor agrees that, to the extent notice of sale shall be required by law, atleast ten (10) days’ prior notice to the Pledgor of the time and place of anypublic sale or the time after which any private sale is to be made shallconstitute reasonable notification.  ThePledgee shall not be obligated to make any sale of Collateral regardless ofnotice of sale having been given.  The Pledgeemay adjourn any public or private sale from time to time by announcement at thetime and place fixed therefor, and such sale may, without further notice, bemade at the time and place to which it was so adjourned.

(b)     The Pledgee may:

(i)    transfer all or any part of the Collateralinto the name of the Pledgee or its nominee, with or without disclosing thatsuch Collateral is subject to the Lien hereunder;

(ii)   notify the parties obligated on any of theCollateral to make payment to the Pledgee of any amount due or to become duethereunder;

(iii)          enforce collection of any of theCollateral by suit or otherwise, and surrender, release or exchange all or anypart thereof, or compromise or extend or renew for any period (whether or notlonger than the original period) any obligations of any nature of any partywith respect thereto;

(iv)    endorse any checks, drafts, or otherwritings in the Pledgor’s name to allow collection of the Collateral;

(v)   take control of any Proceeds of theCollateral;

 

11

----

 

(vi)    execute (in the name, place and stead of thePledgor) endorsements, assignments, stock powers and other instruments or otherdocuments of conveyance or transfer with respect to all or any of theCollateral;

(vii)   accelerate any Pledged Note which may beaccelerated in accordance with its terms and take any other action to collectupon any Pledged Note (including, without limitation, making any demand forpayment thereon); and

(viii)    to vote all or any part of the PledgedInterests (whether or not transferred into the name of the Pledgee) and giveall consents, waivers and ratifications in respect of the Collateral(including, without limitation, under all operating agreements, partnershipagreements or other agreements relating to the Collateral) and otherwise actwith respect thereto as if the Pledgee were the outright owner thereof.

SECTION 6.2                 Securities Laws.  If the Pledgee shall determine to exerciseits right to sell all or any of the Collateral pursuant to Section 6.1hereof, the Pledgor agrees that, upon request of the Pledgee, the Pledgor will,at the Pledgor’s own expense:

(a)     execute and deliver, and cause each issuerof the Collateral contemplated to be sold and cause the directors and officersthereof to execute and deliver, all such instruments and documents, and do orcause to be done all such other acts and things, as may be necessary or, in theopinion of the Pledgee, advisable to register such Collateral under theprovisions of the Securities Act of 1933, as from time to time amended (the“Act”) and comparable legislation in other jurisdictions, and to cause theregistration statement relating thereto to become effective and to remaineffective for such period as prospectuses are required by law to be furnished,and to make all amendments and supplements thereto and to the relatedprospectus which, in the opinion of the Pledgee, are necessary or advisable,all in conformity with the requirements of the Act and the rules andregulations of the Securities and Exchange Commission applicable thereto andcomparable legislation, rules and regulations in other jurisdictions;

(b)           use its best efforts to qualify theCollateral under the applicable state securities or “Blue Sky” laws and toobtain all necessary governmental approvals for the sale of the Collateral, asrequested by the Pledgee;

(c)           cause each such Pledged InterestIssuer to make available to its security holders, as soon as practicable, anearnings statement that will satisfy the provisions of Section 11(a) of the Actand comparable legislation in other jurisdictions; and

(d)           do or cause to be done all such otheracts and things as may be necessary to make such sale of the Collateral or anypart thereof valid and binding and in compliance with applicable law.

The Pledgor furtheracknowledges the impossibility of ascertaining the amount of damages that wouldbe suffered by the Pledgee by reason of the failure by the Pledgor to performany of the covenants contained in this Section 6.2 and, consequently,agrees that, if the Pledgor shall fail to perform any of such covenants, thePledgor shall pay, as liquidated damages and not as a penalty, an amount equalto the value (as determined by the Pledgee) of the Collateral on the 

 

12

----

 

date the Pledgeeshall demand compliance with this Section 6.2.  Notwithstanding the provisions of this Section 6.2, thePledgee shall not be obligated to register any of the Collateral under the Actin connection with the exercise of remedies hereunder and may elect, in itssole discretion, to sell the Collateral or any part thereof by private sale insuch manner and under such circumstances as the Pledgee may deem necessary oradvisable in order that such sale be effected without such registration.

SECTION 6.3         Compliance with Restrictions.  The Pledgor agrees that in any sale of anyof the Collateral whenever an Event of Default shall have occurred and becontinuing, the Pledgee is hereby authorized to comply with any limitation orrestriction in connection with such sale as it may be advised by counsel isnecessary in order to avoid any violation of applicable law (includingcompliance with such procedures as may restrict the number of prospectivebidders and purchasers, require that such prospective bidders and purchasershave certain qualifications, and restrict such prospective bidders andpurchasers to Persons who will represent and agree that they are purchasing fortheir own account for investment and not with a view to the distribution orresale of such Collateral), or in order to obtain any required approval of thesale or of the purchaser by any governmental regulatory authority or official,and the Pledgor further agrees that such compliance shall not result in suchsale being considered or deemed not to have been made in a commercially reasonablemanner, nor shall the Pledgee be liable or accountable to the Pledgor for anydiscount allowed by the reason of the fact that such Collateral is sold incompliance with any such limitation or restriction.

SECTION 6.4             Application of Proceeds.  All cash proceeds received by the Pledgee inrespect of any sale of, collection from, or other realization upon, all or anypart of the Collateral may, in the discretion of the Pledgee, be held by thePledgee as additional collateral security for, or then or at any timethereafter be applied in whole or in part by the Pledgee against all or anypart of the Secured Obligations as follows:

(i)      first, to the payment of all Obligationsowing to the Pledgee pursuant to Section 10.3 of the Credit Agreement and Section6.5 hereof;

(ii)           second, after payment in full of theamounts specified in clause (i), to the payment of all other Obligationsowing to the Pledgee, with such amounts applied first to fees and expenses,then to accrued and unpaid interest, then to the outstanding principal amountof the Revolving Loan, and then to Letter of Credit Outstandings and then toInterest Rate Hedging Obligations, if any; and

(iii)      third, payment in full of the amountsspecified in clauses (i) and (ii), and following the Termination Date, to thePledgor or any other Person lawfully entitled to receive such surplus.

SECTION 6.5                 Indemnity and Expenses.  The Pledgor hereby agrees to indemnify andhold harmless the Pledgee from and against any and all claims, losses, andliabilities arising out of or resulting from this Pledge Agreement (includingenforcement of this Pledge Agreement), except claims, losses, or liabilitiesresulting from the Pledgee’s gross negligence or willful misconduct.  Upon demand, the Pledgor agrees that it willpay to the Pledgee the amount of any 

 

13

----

 

and all reasonableexpenses, including the reasonable fees and disbursements of its counsel and ofany experts, which the Pledgee may incur in connection with:

(a)           the administration of this PledgeAgreement, the Credit Agreement and any other Loan Document;

(b)           the custody, preservation, use, oroperation of, or the sale of, collection from, or other realization upon, anyof the Collateral;

(c)           the exercise or enforcement of any ofthe rights of the Pledgee hereunder; or

(d)           the failure by the Pledgor to performor observe any of the provisions hereof.

The provisions of this Section6.5 shall survive the Termination Date.

ARTICLE VIIMISCELLANEOUS PROVISIONS

SECTION 7.1                 Loan Document.  This Pledge Agreement is a Loan Documentexecuted pursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions thereof, including Article X thereof.

SECTION 7.2                 Protection of Collateral.  The Pledgee may from time to time, at itsoption, perform any act which the Pledgor agrees hereunder to perform and whichthe Pledgor shall fail to perform after being requested in writing so to perform(it being understood that no such request need be given after the occurrenceand during the continuance of an Event of Default) and the Pledgee may fromtime to time take any other action which the Pledgee reasonably deems necessaryfor the maintenance, preservation or protection of any of the Collateral or ofits security interest therein.

SECTION 7.3                 Binding on Successors,Transferees and Assigns; Assignment. This Pledge Agreement shall be binding upon the Pledgor and itssuccessors, transferees and assigns and shall inure to the benefit of and beenforceable by Pledgee and its successors, transferees and assigns; provided,however, that the Pledgor may not assign any of its obligationshereunder without the prior written consent of the Pledgee.

SECTION 7.4                 Amendments, etc.  No amendment to or waiver of any provisionof this Pledge Agreement, nor consent to any departure by the Pledgor herefrom,shall in any event be effective unless the same shall be in writing and signedby the Pledgee and then such waiver or consent shall be effective only in thespecific instance and for the specific purpose for which given.

SECTION 7.5                 Notices.  All notices and other communicationsprovided for hereunder shall be given in accordance with Section 10.2 of theCredit Agreement.

 

14

----

 

SECTION 7.6                 No Waiver; Remedies.  No failure on the part of the Pledgee toexercise, and no delay in exercising, any right hereunder shall operate as awaiver thereof; nor shall any single or partial exercise of any right hereunderpreclude any other or further exercise thereof or the exercise of any otherright.  The remedies herein provided arecumulative and not exclusive of any remedies provided by law.

SECTION 7.7                 Captions.  Section captions used in this PledgeAgreement are for convenience of reference only, and shall not affect theconstruction of this Pledge Agreement.

SECTION 7.8                 Severability.  Wherever possible, each provision of thisPledge Agreement shall be interpreted in such manner as to be effective andvalid under applicable law, but if any provision of this Pledge Agreement shallbe prohibited by or invalid under such law, such provision shall be ineffectiveto the extent of such prohibition or invalidity, without invalidating theremainder of such provision or the remaining provisions of this PledgeAgreement.

SECTION 7.9                 Counterparts.  This Pledge Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

SECTION 7.10               Governing Law, EntireAgreement, etc.  **THIS PLEDGEAGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWSOF THE STATE OF CALIFORNIA.  THIS PLEDGEAGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDINGBETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF ANDSUPERCEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.**

**[RemainderOf Page Left Blank Intentionally.]**

 

15

----

 

IN WITNESS WHEREOF, thePledgor has caused this Borrower Pledge Agreement to be duly executed anddelivered by its officer thereunto duly authorized as of the date first abovewritten.
|   |   | SUREBEAM CORPORATION,   as Pledgor |
|--------|--------|------------------------------------|
|   |   |                               |
|   |   | By:                                | /s/ DAVID  A. RANE |
|   |   |                               |   |
|   |   |                               | David  A. Rane   Senior Vice President,   Chief Financial Officer |

 

ACKNOWLEDGED AND ACCEPTED:

 
| THE  TITAN CORPORATION,    as Pledgee |
|--------------------------------------------|
|                                       | By: | /s/ MARK  W. SOPP |   |
|                                       |   |   |   |
|                                       |   | Mark  W. Sopp   Senior Vice President,   Chief Financial Officer |   |

 

 

1

----

 

 

EXHIBIT A

INSTRUCTION TOREGISTER PLEDGE

__________ __,____

[                        ]

Attention:________________

Ladies andGentlemen:

The undersigned, a[member] [partner] [shareholder] of ___________, [a ___________ limitedliability company] [a __________ corporation] [a ___________ partnership] (the“Company”), hereby instructs the Company to register on the books of theCompany the pledge of the undersigned’s [membership] [partnership] interest infavor of The Titan Corporation, a Delaware corporation (the “Pledgee”),pursuant to the Borrower Pledge Agreement, dated as of August 2, 2002, made bythe undersigned in favor of the Pledgee.

Very truly yours,

SUREBEAM CORPORATION

 
| By:    |   |
|--------|--------|
| Name:  |   |
| Title: |   |

 

cc:  The Titan Corporation

 

1

----

 

EXHIBIT B

TRANSACTIONSTATEMENT

___________ __,____

To:          The Titan Corporation

Attention:

This statement is toadvise you that a pledge of the following uncertificated securities has beenregistered in the name of The Titan Corporation (the “Pledgee”), as follows:

1.             UncertificatedSecurities:

The entire [limited liability company] [partnership] interests ofSUREBEAM CORPORATION in the undersigned [limited liability company] [_____partnership] [corporation].

2.             Registered Owner:

SUREBEAM CORPORATION

3.             Pledged in favorof:

The Titan Corporation,

   as the Pledgee

4.             There are no liensor restrictions of the undersigned [limited liability company] [_______partnership] [corporation] and no adverse claims to which the uncertificatedsecurities are or may be subject known to the undersigned [limited liabilitycompany] [______ partnership] [corporation], other than in favor of The TitanCorporation, in its capacity as the Pledgee.

5.             The pledge wasregistered on _______ __, ____.

6.             No transfer of theuncertificated securities shall be made without the prior written consent ofthe Pledgee.

 

1

----

 

THIS STATEMENT ISMERELY A RECORD OF THE RIGHTS OF THE ADDRESSEE AS OF THE TIME OF ITSISSUANCE.  DELIVERY OF THIS STATEMENT,OF ITSELF, CONFERS NO RIGHTS ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT NOR A SECURITY.

Very truly yours,

[NAME OF PLEDGED INTEREST ISSUER]

 
| By:    |   |
|--------|--------|
| Name:  |   |
| Title: |   |

 

2

----

 

ATTACHMENT 1

Pledged Interests

 
| **Issuer**           |   | **Class** |   | **Certificate Numbers, if  applicable** |   | **Number of Shares or percentage  ownership interest** |
|----------------------|--------|-----------|--------|-----------------------------------------|--------|--------------------------------------------------------|
| SB  OperatingCo, LLC |   |      |   |                                    |   | 100%                                                   |
|                 |   |      |   |                                    |   |                                                   |

 

 

Pledged Notes

 

Location ofPledgor (Section3.1.4)

SureBeam Corporation — Delaware

9276 Scranton Road, Suite 600

San Diego, California 92121

 

 

1

----

 

 

**Exhibit C**

BORROWERSECURITY AGREEMENT

 

ThisBORROWER SECURITY AGREEMENT (as amended, restated, supplemented or otherwisemodified from time to time, this “Security Agreement”), dated as ofAugust 2, 2002, is made by SUREBEAM CORPORATION, a Delaware corporation (the “Grantor”)in favor of THE TITAN CORPORATION, a Delaware corporation (the “SecuredParty”).

 

W I T N E S S E T H :

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between the Grantor and the Secured Party, the Secured Partyhas agreed to make Credit Extensions to the Grantor;

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, the Grantor is requiredto execute and deliver this Security Agreement; and

WHEREAS,the Grantor has duly authorized the execution, delivery and performance of thisSecurity Agreement;

NOWTHEREFORE, for good and valuable consideration the receipt and sufficiency ofwhich is hereby acknowledged, and in order to induce the Secured Party to makeCredit Extensions (including the initial Credit Extension) to the Grantorpursuant to the Credit Agreement, the Grantor agrees as follows:

 

ARTICLE IDEFINITIONS

SECTION 1.1             Certain Terms.  The following terms (whether or notunderscored) when used in this Security Agreement, including its preamble andrecitals, shall have the following meanings (such definitions to be equallyapplicable to the singular and plural forms thereof):

“ChattelPaper” has the meaning provided in the U.C.C.

“Collateral”is defined in Section 2.1.

“CollateralAccount” is defined in Section 4.1.2(b).

“CommercialTort Claims” means any claim arising in tort now or hereafter owned, 

 

----

 

acquired,or received by Grantor in which Grantor now holds or hereafter acquires anyright or interest.

“ComputerHardware and Software Collateral” means:

(a)           all computer and other electronicdata processing hardware, integrated computer systems, central processingunits, memory units, display terminals, printers, features, computer elements,card readers, tape drives, hard and soft disk drives, cables, electrical supplyhardware, generators, power equalizers, accessories and all peripheral devicesand other related computer hardware;

(b)           all software programs (including bothsource code, object code and all related applications and data files), whethernow owned, licensed or leased or hereafter acquired by the Grantor, designedfor use on the computers and electronic data processing hardware described in clause(a) above;

(c)           all firmware associated therewith;

(d)           all documentation (including flowcharts, logic diagrams, manuals, guides and specifications) with respect tosuch hardware, software and firmware described in the preceding clauses (a)through (c); and

(e)           all rights with respect to all of theforegoing, including any and all copyrights, licenses, options, warranties,service contracts, program services, test rights, maintenance rights, supportrights, improvement rights, renewal rights and indemnifications and anysubstitutions, replacements, additions or model conversions of any of theforegoing.

“Contracts”means all agreements between the Grantor and one or more additional parties.

“ContractRights” means all rights of the Grantor (including, without limitation, allrights to payment) under each Contract.

“CopyrightCollateral” means all copyrights (including all copyrights forsemi-conductor chip product mask works) of the Grantor, whether statutory orcommon law, registered or unregistered, now or hereafter in force throughoutthe world including all of the Grantor’s right, title and interest in and toall copyrights registered in the United States Copyright Office or anywhereelse in the world and also including the copyrights referred to in Item Aof Schedule IV attached hereto, and all applications for registrationthereof, whether pending or in preparation, all copyright licenses, includingeach copyright license referred to in Item B of Schedule IVattached hereto, the right to sue for past, present and future infringements ofany thereof, all rights corresponding thereto throughout the world, allextensions and renewals of any thereof and all Proceeds of the foregoing, includinglicenses, royalties, income, payments, claims, damages and Proceeds of suit.

 

2

----

 

“CreditAgreement” is defined in the first recital.

“DepositAccounts” has the meaning provided in the U.C.C. and, in any event,includes, without limitation, any demand, time, savings, passbook or likeaccount maintained with a depositary institution, including those DepositAccounts set forth in Item G of Schedule I hereto.

“Documents”has the meaning provided in the U.C.C.

“Equipment”has the meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, all equipment in all of its forms of the Grantor, wherever located,including all parts thereof and all accessions, additions, attachments,improvements, substitutions and replacements thereto and therefor and allaccessories related thereto.

“Fixtures”has the meaning provided in the U.C.C., and in any event, includes, withoutlimitation, with respect to the Grantor, regardless of where located, any ofthe fixtures, systems, machinery, apparatus, equipment or fittings of any kindor nature whatsoever, and all appurtenances and additions thereto andsubstitutions or replacements thereof, now or hereafter attached or affixed toor constituting a part of, or located in or upon, real property whereverlocated, including sign, escalator, elevator, any heating, electrical,mechanical, lighting, lifting, plumbing, ventilating, air-conditioning or aircooling, refrigerating, food preparation, incinerating or power, loading orunloading, boilers, communication, switchboard, tank, pump, filter, sprinkleror other fire prevention or extinguishing fixture, system, machinery, apparatusor equipment, and any engine, motor, dynamo, machinery, pipe, pump, tank,conduit or duct constituting a part of any of the foregoing, together with allextensions, improvements, betterments, renewals, substitutes, and replacementsof, and all additions and appurtenances to any of the foregoing property, andall conversions of the security constituted thereby, immediately upon anyacquisition or release thereof or any such conversion, as the case may be.

“GeneralIntangibles” has the meaning provided in the U.C.C. and, in any event,includes, without limitation, with respect to the Grantor, all Contracts,agreements, Instruments and indentures in any form, and portions thereof, towhich the Grantor is a party or under which the Grantor has any right, title orinterest or to which the Grantor or any property of the Grantor is subject, asthe same may from time to time be amended, supplemented or otherwise modified,including, without limitation, (i) all rights of the Grantor to receive moneysdue and to become due to it thereunder or in connection therewith, (ii) allrights of the Grantor to damages arising thereunder and (iii) all rights of theGrantor to perform and to exercise all remedies thereunder.

“Goods”has the meaning provided in the U.C.C.

“Grantor”is defined in the preamble.

“Instrument”has the meaning provided in the U.C.C.

“IntellectualProperty Collateral” means, collectively, the Computer Hardware and 

 

3

----

 

SoftwareCollateral, the Copyright Collateral, the Patent Collateral, the TrademarkCollateral and the Trade Secrets Collateral.

“InterestRate Hedging Agreements” means interest rate swap agreements, interest ratecap agreements and interest rate collar agreements, and all other agreements orarrangements designed to protect the Grantor against fluctuations in interestrates, entered into for the purpose of hedging interest rate risk.

“InterestRate Hedging Obligations” means all liabilities of the Grantor underInterest Rate Hedging Agreements.

“Inventory”has the meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, all inventory in all of its forms of the Grantor, wherever located,including

(i)            all raw materials and work inprocess therefor, finished goods thereof, and materials used or consumed in themanufacture or production thereof,

(ii)           all goods in which the Grantor has aninterest in mass or a joint or other interest or right of any kind (includinggoods in which the Grantor has an interest or right as consignee), and

(iii)          all goods which are returned to orrepossessed by the Grantor,

and all accessions thereto,products thereof and documents therefor.

“InvestmentProperty” has the meaning provided in the U.C.C.

“Letterof Credit Right” means any right of the Grantor to payment or performanceunder a letter of credit (as such term in defined in Article 5 of the U.C.C.),whether or not the beneficiary has demanded or is at the time entitled todemand payment or performance.

“PatentCollateral” means:

(a)   all letters patent and applications forletters patent throughout the world, including all patent applications inpreparation for filing anywhere in the world and including each patent andpatent application referred to in Item A of Schedule II attached hereto;

(b)           all reissues, divisions,continuations, continuations-in-part, extensions, renewals and reexaminationsof any of the items described in clause (a);

(c)           all patent licenses, including eachpatent license referred to in Item B of Schedule II attached hereto; and

 

4

----

 

(d)           all Proceeds of, and rightsassociated with, the foregoing (including license royalties and  Proceeds of infringement suits), the rightto sue third parties for past, present or future infringements of any patent orpatent application, including any patent or patent application referred to in ItemA of Schedule II attached hereto, and for breach or enforcement ofany patent license, including any patent license referred to in Item B ofSchedule II attached hereto, and all rights corresponding thereto throughoutthe world.

“PaymentIntangibles” has the meaning provided in the U.C.C.

“PromissoryNotes” has the meaning provided in the U.C.C.

“Proceeds”has the meaning provided in the U.C.C., and shall include, in any event, withrespect to the Grantor, any and all currently owned or after-acquired (a)Receivables, Chattel Paper, Instruments, Investment Property, cash or otherforms of money, currency or funds or other property of any nature, type or landwhatsoever payable to or renewable by the Grantor from time to time in respectof the Collateral, including upon the sale, lease, license, exchange or otherdisposition of any Collateral, (b) proceeds of any insurance, indemnity,warranty or guaranty payable to the Grantor from time to time with respect toany of the Collateral, including by reason of the loss, nonconformity orinterference with the use of, defects or infringement of rights in, or damageto, any of the Collateral, (c) payments (in any form whatsoever) made or dueand payable to the Grantor from time to time in connection with anyrequisition, confiscation, condemnation, seizure or forfeiture of all or anypart of the Collateral by any governmental authority (or any person actingunder color of governmental authority), (d) claims of the Grantor against thirdparties arising out of the loss, nonconformity, interference with the use of,defects or infringements of rights in, or damage to, any of the Collateral,including any claim (i) for past, present or future infringement of any patentor patent license, copyright or copyright license or (ii) for past, present orfuture infringement or dilution of any Trademark or Trademark license or forinjury to the goodwill associated with any Trademark, Trademark registration orTrademark licensed under any Trademark license, (e) certificates, dividends,cash, Instruments or other forms of money, currency or funds and other Propertyreceived or distributed in respect of or in exchange for any InvestmentProperty, (f) cash or other forms of money, currency or funds and other proceedsreceived under and in respect of any letter of credit or other supportobligation, (g) rights arising out of any of the Collateral, and (h) otherproperty of any nature, type or kind whatsoever from time to time paid orpayable under or in connection with, collected on, or distributed on accountof, any of the Collateral.

“Receivables”means “accounts” (as such term is defined in the U.C.C.), including butnot limited to rights to payments for goods sold or leased or servicesrendered, whether now existing or hereafter arising, including, withoutlimitation, rights evidenced by an account, note, Contract, security agreement,Chattel Paper, or other evidence of indebtedness or security, together with (a)all security pledged, assigned, hypothecated or granted to or held by theGrantor to secure the foregoing, (b) all of the Grantor’s right, title andinterest in and to any goods, the sale of which gave rise thereto, (c) allguarantees, endorsements and indemnifications on, or of, any of the 

 

5

----

 

foregoing,(d) all powers of attorney for the execution of any evidence of indebtedness orsecurity or other writing in connection therewith, (e) all books, records,ledger cards, and invoices relating thereto, (f) all evidences of the filing offinancing statements and other statements and the registration of otherInstruments in connection therewith and amendments thereto, notices to othercreditors or secured parties, and certificates from filing or other registrationofficers, (g) all credit information, reports and memoranda relating theretoand (h) all other writings related in any way to the foregoing.

“SecuredObligations” is defined in Section 2.2.

“SecuredParty” is defined in the preamble.

“SecuritiesAccount” has the meaning provided in the U.C.C., including withoutlimitation those Securities Accounts listed in Item H of Schedule Ihereto.

“SecurityAgreement” is defined in the preamble.

“SupportingObligations” has the meaning provided in the U.C.C.

“TerminationDate” means the date on which all Obligations have indefeasibly been paidin full in cash, all Commitments have been fully terminated and all Letters ofCredit and Lender Guaranties have been canceled or otherwise terminated.

“TrademarkCollateral” means:

(a)   all trademarks, trade names, corporate names,company names, business names, fictitious business names, trade styles, servicemarks, certification marks, collective marks, logos, other source of businessidentifiers, prints and labels on which any of the foregoing have appeared orappear, designs and General Intangibles of a like nature (all of the foregoingitems in this clause (a) being collectively called a “Trademark”),now existing anywhere in the world or hereafter adopted or acquired, whethercurrently in use or not, all registrations and recordings thereof and allapplications in connection therewith, whether pending or in preparation forfiling, including registrations, recordings and applications in the UnitedStates Patent and Trademark Office or in any office or agency of the UnitedStates of America or any State thereof or any foreign country, including thosereferred to in Item A of Schedule III attached hereto;

(b)           all Trademark licenses, includingeach Trademark license referred to in Item B of Schedule IIIattached hereto;

(c)           all reissues, extensions or renewalsof any of the items described in clauses (a) and (b);

 

6

----

 

(d)           all of the goodwill of the businessconnected with the use of, and symbolized by the items described in, clauses(a) and (b); and

(e)           all Proceeds of, and rightsassociated with, the foregoing, including any claim by the Grantor againstthird parties for past, present or future infringement or dilution of anyTrademark, Trademark registration or Trademark license, including anyTrademark, Trademark registration or Trademark license referred to in Item Aand Item B of Schedule III attached hereto, or for any injury tothe goodwill associated with the use of any such Trademark or for breach orenforcement of any Trademark license.

“TradeSecrets Collateral” means all common law and statutory trade secrets andall other confidential or proprietary or useful information and all know-howobtained by or used in or contemplated at any time for use in the business ofthe Grantor (all of the foregoing being collectively called a “Trade Secret”),whether or not such Trade Secret has been reduced to a writing or othertangible form, including all documents and things embodying, incorporating orreferring in any way to such Trade Secret, all Trade Secret licenses, includingeach Trade Secret license referred to in Schedule V attached hereto, andincluding the right to sue for and to enjoin and to collect damages for theactual or threatened misappropriation of any Trade Secret and for the breach orenforcement of any such Trade Secret license.

“U.C.C.”means the Uniform Commercial Code, as in effect from time to time in the Stateof California; provided, however, in the event that, by reason ofmandatory provisions of law, any or all of the attachment, perfection orpriority of Secured Party’s security interest in any Collateral is governed bythe Uniform Commercial Code as in effect in a jurisdiction other than the Stateof California, the term “U.C.C.” shall mean the Uniform Commercial Code(including the Articles thereof) as in effect at such time in such otherjurisdiction for purposes of the provisions hereof relating to such attachment,perfection or priority and for purposes of definitions related to suchprovisions.

SECTION 1.2             Credit Agreement Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Security Agreement, includingits preamble and recitals, have the meanings provided in the Credit Agreement.

SECTION 1.3             U.C.C. Definitions.  Unless otherwise defined herein or in theCredit Agreement or the context otherwise requires, terms for which meaningsare provided in the U.C.C. are used in this Security Agreement, including itspreamble and recitals, with such meanings.

ARTICLE IISECURITY INTEREST

 

7

----

 

SECTION 2.1             Grant of Security.  The Grantor hereby assigns and pledges tothe Secured Party, and hereby grants to the Secured Party, to secure theSecured Obligations, a security interest in all of the following, whether nowor hereafter existing or acquired by the Grantor (the “Collateral”):

(a)           the Collateral Account;

(b)           all Commercial Tort Claims;

(c)           all Computer Hardware and SoftwareCollateral;

(d)           all Contracts, together with anyContract Rights arising thereunder;

(e)           all Deposit Accounts;

(f)            all Equipment;

(g)           all Fixtures;

(h)           all Intellectual Property Collateral;

(i)            all Inventory;

(j)            all Investment Property;

(k)           all Letter of Credit Rights;

(l)            all Receivables;

(m)          all Securities Accounts;

(n)           all Supporting Obligations;

(o)     all other Goods, Chattel Paper, Documents,Instruments (including, without limitation, Promissory Notes), and GeneralIntangibles (including, without limitation, Payment Intangibles and taxrefunds) of the Grantor now or hereafter existing;

(p)           all books, records, writings, databases, information and other property relating to, used or useful in connectionwith, evidencing, embodying, incorporating or referring to, any of theforegoing in this Section 2.1;

(q)           all of the Grantor’s other personalproperty and rights of every kind and description and interests therein; and

 

8

----

 

(r)            all products and Proceeds of andfrom any and all of the foregoing Collateral (including Proceeds whichconstitute property of the types described in clauses (a) through (q)and, to the extent not otherwise included, all payments under insurance whichthe Grantor is entitled to receive (whether or not the Secured Party is theloss payee thereof), or any indemnity, warranty or guaranty, payable by reasonof loss or damage to or otherwise with respect to any of the foregoingCollateral.

Notwithstandinganything herein to the contrary, in no event shall the Collateral include, andthe Grantor shall not be deemed to have granted a security interest in, any ofthe Grantor’s rights or interests in any license, contract or agreement towhich the Grantor is a party or any of its rights or interests thereunder tothe extent, but only to the extent, that such a grant would, under the expressterms of such license, contract or agreement or otherwise, result in a breachof the terms of, or constitute a default under such license, contract or agreement(other than to the extent that any such term would be rendered ineffectivepursuant to Sections 9407(a) or 9408(a) of the U.C.C. or any other applicablelaw (including the Bankruptcy Code) or principles of equity); provided, thatimmediately upon the ineffectiveness, waiver, lapse or termination of any suchprovision, the Collateral shall include, and the Grantor shall have granted asecurity interest in, all such rights and interests as if such provision hadnever been in effect.

SECTION 2.2             Security for Obligations.  This Security Agreement secures the paymentof all Obligations of the Grantor now or hereafter existing under the CreditAgreement and each other Loan Document, whether for principal, interest, costs,fees, expenses, Interest Rate Hedging Obligations or otherwise, with all suchobligations being collectively referred to as the “Secured Obligations”.

SECTION 2.3             Continuing Security Interest;Transfer of Notes.  This SecurityAgreement shall create a continuing security interest in the Collateral andshall:

(a)           remain in full force and effect untilthe Termination Date;

(b)           be binding upon the Grantor and itssuccessors, transferees and assigns; and

(c)           inure to the benefit of the SecuredParty.

TheSecured Party may assign or otherwise transfer (in whole or in part) theRevolving Note or any Credit Extension held by it to any other Person orentity, and such other Person or entity shall thereupon become vested with allthe rights and benefits in respect thereof granted to the Secured Party underany Loan Document (including this Security Agreement) or otherwise, subject,however, to the provisions of Section 10.10 of the Credit Agreement.

SECTION 2.4             Grantor Remains Liable.  Anything herein to the contrarynotwithstanding:

 

9

----

 

(a)           the Grantor shall remain liable underthe Contracts and agreements included in the Collateral to the extent set forththerein, and shall perform all of its duties and obligations under suchContracts and agreements to the same extent as if this Security Agreement hadnot been executed;

(b)           the exercise by the Secured Party ofany of its rights hereunder shall not release the Grantor from any of itsduties or obligations under any such Contracts or agreements included in theCollateral; and

(c)           the Secured Party shall not have anyobligation or liability under any such Contracts or agreements included in theCollateral by reason of this Security Agreement, nor shall the Secured Party beobligated to perform any of the obligations or duties of the Grantor thereunderor to take any action to collect or enforce any claim for payment assignedhereunder.

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

SECTION 3.1     Representations and Warranties.  The Grantor represents and warrants to theSecured Party as set forth in this Section.

SECTION 3.1.1              Location of Collateral, etc.  All of the Equipment and Inventory of theGrantor is located at the places specified in Item A and Item B,respectively, of Schedule I hereto, except for such property in transitin the ordinary course.  None of theEquipment and Inventory has, within the four (4) months preceding the date ofthis Security Agreement, been located at any place other than the placesspecified in Item A and Item B, respectively, of Schedule Ihereto except as set forth in the footnote thereto.  The place(s) of business and chief executive office of theGrantor and the office(s) where the Grantor keeps its records concerning theReceivables, and all originals of all Chattel Paper  which evidence Receivables, are located at the address set forthin Item D of Schedule I hereto. The Grantor has no trade names other than those set forth in Item Eof Schedule I hereto.  During thefour (4) months preceding the date hereof, the Grantor has not been known byany legal name different from the one set forth on the signature page hereto,nor has the Grantor been the subject of any merger or other corporatereorganization, except as set forth in Item F of Schedule Ihereto.  All Receivables, if such receivablesare in excess of Two Hundred Fifty Thousand Dollars ($250,000), and otherwiseat the request of Secured Party, evidenced by a promissory note or otherInstrument, negotiable Document or Chattel Paper have been duly endorsed andaccompanied by duly executed instruments of transfer or assignment, all in formand substance satisfactory to the Secured Party and delivered and pledged tothe Secured Party pursuant to Section 4.1.7 hereof.

SECTION 3.1.2              Ownership, No Liens, etc.  The Grantor and/or its Subsidiaries (withrespect to Collateral shown on Schedules II through V hereto) owns itsCollateral free and clear of any Lien, security interest, charge or encumbranceexcept for the security interest created by this 

 

10

----

 

Security Agreement andexcept as permitted by the Credit Agreement. No effective financing statement or other instrument similar in effectcovering all or any part of the Collateral is on file in any recording office,except such as may have been filed in favor of the Secured Party relating tothis Security Agreement or as have been filed in connection with Lienspermitted pursuant to Section 8.3 of the Credit Agreement.

SECTION 3.1.3              Possession and Control.  The Grantor has exclusive possession andcontrol of its Equipment and Inventory, except for such property in transit inthe ordinary course.

SECTION 3.1.4              Negotiable Documents,Instruments and Chattel Paper.  TheGrantor has, contemporaneously herewith, delivered to the Secured Partypossession of all originals of all negotiable Documents, Instruments andChattel Paper currently owned or held by the Grantor (duly endorsed in blank,if requested by the Secured Party).

SECTION 3.1.5              Intellectual PropertyCollateral.  With respect to anyIntellectual Property Collateral the loss, impairment or infringement of whichis reasonably likely to have a Material Adverse Effect:

(a)           such Intellectual Property Collateralis subsisting and has not been adjudged invalid or unenforceable, in whole or inpart;

(b)           such Intellectual Property Collateralis valid and enforceable;

(c)           the Grantor (and/or its Subsidiaries)has made all necessary filings and recordations to protect its interest in suchIntellectual Property Collateral, including recordations of all of itsinterests in the Patent Collateral and Trademark Collateral in the UnitedStates Patent and Trademark Office and in corresponding offices throughout theworld and its claims to the Copyright Collateral in the United States CopyrightOffice and in corresponding offices throughout the world, in each case where itis commercially reasonable to do so;

(d)           other than as previously disclosed inwriting to the Secured Party, the Grantor (and/or its Subsidiaries) is theexclusive owner of the entire and unencumbered right, title and interest in andto such Intellectual Property Collateral and no claim has been made that theuse of such Intellectual Property Collateral does or may violate the assertedrights of any third party; and

(e)           the Grantor has performed and willcontinue to perform and cause all acts and has paid and will continue to payall required fees and taxes to maintain each and every item of IntellectualProperty Collateral in full force and effect throughout the world, asapplicable, unless the Grantor (i) has reasonably and in good faith determinedthat any of the Intellectual Property Collateral is of negligible economicvalue to the Grantor, or (ii) has a reasonable and valid business purpose to dootherwise.

 

11

----

 

TheGrantor owns directly or is entitled to use by license or otherwise, allpatents, Trademarks, Trade Secrets, copyrights, mask works, licenses,technology, know-how, processes and rights with respect to any of the foregoingnecessary to the conduct of the Grantor’s business as presently conducted.

SECTION 3.1.6              Validity, Priority, etc.  Assuming the proper filing of one or morefinancing statements identifying the Collateral with the proper local, stateand/or federal authorities, the security interests in the Collateral granted tothe Secured Party hereunder constitute valid and continuing first priorityperfected security interests in the Collateral (subject to Liens permittedunder the Credit Agreement), securing payment of the Secured Obligations, tothe extent such security interests may be perfected by the filing of financingstatements or other filings with the United States Patent and Trademark Officeor United States Copyright Office.

SECTION 3.1.7              Authorization, Approval, etc.  Except as have been obtained or made and arein full force and effect, no authorization, approval or other action by, and nonotice to or filing with, any governmental authority or regulatory body isrequired under U.S. law, except for necessary filings in connection with theU.C.C., either:

(a)           for the grant by the Grantor of thesecurity interest granted hereby or for the execution, delivery and performanceof this Security Agreement by the Grantor; or

(b)           for the perfection of or the exerciseby the Secured Party of its rights and remedies hereunder.

SECTION 3.1.8              Compliance with Laws.  The Grantor is in compliance in all materialrespects with the requirements of all applicable laws (including the provisionsof the Fair Labor Standards Act), rules, regulations and orders of everygovernmental authority, the non-compliance with which is reasonably likely tohave a Material Adverse Effect or which is reasonably likely to materiallyadversely affect the value of the Collateral or the worth of the Collateral ascollateral security.

ARTICLE IVCOVENANTS

SECTION 4.1             Certain Covenants.  The Grantor covenants and agrees that untilthe Revolving Loan Commitment and Letter of Credit Commitment have expired orterminated, and all Secured Obligations have been paid and performed in full,the Grantor will perform, comply with and be bound by the obligations set forthin this Article.

SECTION 4.1.1              As to Equipment and Inventory.  The Grantor hereby agrees that it shall:

 

12

----

 

(a)           keep all the Equipment and Inventory(other than Inventory sold or certain Equipment in transit and is permittedunder the Credit Agreement in the ordinary course of business, or except asotherwise provided in the Credit Agreement or any of the other Loan Documents)at the places therefor specified in Section 3.1.1 hereof or, upon thirty(30) days’ prior written notice to the Secured Party, at such other places in ajurisdiction within the United States where all representations and warrantiesset forth in Article III shall be true and correct, and all actionrequired pursuant to the first sentence of Section 4.1.7 hereofshall have been taken with respect to the Equipment and Inventory(collectively, “Specified Locations”);

(b)           cause the Equipment to be maintainedand preserved in the same condition, repair and working order as when new,ordinary wear and tear excepted, and in accordance with any manufacturer’smanual or good business practice; and forthwith, or in the case of any loss or damageto any of the Equipment, as quickly as practicable after the occurrencethereof, make or cause to be made all repairs, replacements, and otherimprovements in connection therewith which are necessary or desirable to suchend; and promptly furnish to the Secured Party a statement respecting anymaterial loss or damage to any of the Equipment; and

(c)           pay promptly when due all propertyand other taxes, assessments and governmental charges or levies imposed upon,and all claims (including claims for labor, materials and supplies) against,the Equipment and Inventory, except to the extent the validity thereof is beingcontested in good faith by appropriate proceedings and for which adequatereserves in accordance with GAAP have been set aside.

SECTION 4.1.2              As to Receivables and Contracts.

(a)           The Grantor shall keep its place(s)of business and chief executive office and the office(s) where it keeps itsrecords concerning the Receivables, and all originals of all Chattel Paperwhich evidences Receivables, located at the address(es) set forth in Item Dof Schedule I hereto, or, upon thirty (30) days’ prior written notice tothe Secured Party, at such other locations in a jurisdiction within the UnitedStates where all actions required by the first sentence of Section 4.1.7hereof shall have been taken with respect to the Receivables; not change itsname except upon thirty (30) days’ prior written notice to the Secured Party;hold and preserve such records and Chattel Paper; and permit representatives ofthe Secured Party at any time during normal business hours to inspect (uponreasonable prior written notice so long as no Event of Default shall haveoccurred and be continuing) and make abstracts from such records and ChattelPaper.  In addition, the Grantor shallgive the Secured Party a supplement to Schedule I hereto on each date aCompliance Certificate is required to be delivered to the Secured Party underthe Credit Agreement, which shall set forth any changes to the information setforth in Section 3.1.1 hereof.

 

13

----

 

(b)           Upon written notice by the SecuredParty to the Grantor pursuant to this clause, all Proceeds of Collateralreceived by the Grantor shall be delivered in kind to the Secured Party fordeposit to a deposit account (the “Collateral Account”) of the Grantormaintained with Comerica Bank-California and the Grantor shall not commingleany such Proceeds, and shall hold separate and apart from all other property,all such Proceeds in express trust for the benefit of the Secured Party untildelivery thereof is made to the Secured Party. The Secured Party will not give the notice referred to in the precedingsentence unless there shall have occurred and be continuing an Event ofDefault.

(c)           The Secured Party shall have theright to apply any amount in the Collateral Account to the payment of anySecured Obligations which are due and payable or payable upon demand, or to thepayment of any Secured Obligations at any time that an Event of Default shallexist.

(d)           The Grantor shall not enter into anygovernment contract which prohibits assignment to the Secured Party of anypayments due or to become due thereunder, other than contracts for which thegovernment has determined that a prohibition on assignment of claims is in thegovernment’s interest.

(e)           Without the Lender’s prior writtenconsent, which consent shall not be unreasonably withheld, the Grantor shallnot cause the aggregate value of Receivables or Contracts or Contract Rightsand the value of similar Receivables and Contracts as to which a Lien in favorof the Secured Party cannot be granted hereunder pursuant to the finalparagraph of Section 2.1 hereof, or pursuant to any Subsidiary SecurityAgreement, to exceed $500,000 at any time.

SECTION 4.1.3              As to Collateral.

(a)           Until the occurrence and continuanceof an Event of Default, the Grantor (i) may, in the ordinary course of itsbusiness, at its own expense, sell, lease or furnish under the contracts ofservice any of the Inventory normally held by the Grantor for such purpose, anduse and consume, in the ordinary course of its business, any raw materials,work in process or materials normally held by the Grantor for such purpose,(ii) will, at its own expense, endeavor to collect, as and when due, allamounts due with respect to any of the Collateral, including the taking of suchaction with respect to such collection as the Secured Party may reasonablyrequest following the occurrence of an Event of Default or, in the absence ofsuch request, as the Grantor may reasonably deem advisable, and (iii) maygrant, in the ordinary course of business, to any party obligated on any of theCollateral, any rebate, refund or allowance to which such party may be lawfullyentitled, and may accept, in connection therewith, the return of goods, thesale or lease of which shall have given rise to such Collateral.  The Secured Party may, at any time followingan 

 

14

----

 

Event of Default, whetherbefore or after any revocation of such power and authority or the maturity ofany of the Secured Obligations, notify any parties obligated on any of theCollateral to make payment to the Secured Party of any amounts due or to becomedue thereunder and enforce collection of any of the Collateral by suit orotherwise and surrender, release, or exchange all or any part thereof, orcompromise or extend or renew for any period (whether or not longer than theoriginal period) any indebtedness thereunder or evidenced thereby.  Upon request of the Secured Party followingan Event of Default, the Grantor will, at its own expense, notify any partiesobligated on any of the Collateral to make payment to the Secured Party of anyamounts due or to become due thereunder.

(b)           After an Event of Default, theSecured Party is authorized to endorse, in the name of the Grantor, any item,howsoever received by the Secured Party, representing any payment on or otherProceeds of any of the Collateral.

SECTION 4.1.4              As to Intellectual PropertyCollateral.  The Grantor covenantsand agrees to comply with the following provisions as such provisions relate toany Intellectual Property Collateral of the Grantor:

(a)           The Grantor shall not do any act, oromit to do any act, whereby any of the Patent Collateral may lapse or becomeabandoned or dedicated to the public or unenforceable, unless the Grantor shalleither (i) reasonably and in good faith determine that any of the PatentCollateral is of negligible economic value to the Grantor, or (ii) has a reasonableand valid business purpose to do otherwise.

(b)           The Grantor shall not, and theGrantor shall not permit any of its licensees to:

(i)      fail to continue to use any of theTrademark Collateral in order to maintain all of the Trademark Collateral infull force free from any claim of abandonment for non-use,

(ii)           fail to maintain as in the past thequality of products and services offered under all of the Trademark Collateral,

(iii)          fail to employ all of the TrademarkCollateral registered with any Federal or state or foreign authority with anappropriate notice of such registration,

(iv)          adopt or use any other Trademark whichis confusingly similar or a colorable imitation of any of the TrademarkCollateral,

(v)           use any of the Trademark Collateralregistered with any Federal or state or foreign authority except for the usesfor which registration or 

 

15

----

 

application forregistration of all of the Trademark Collateral has been made, and

(vi)          do or permit any act or knowingly omitto do any act whereby any of the Trademark Collateral may lapse or becomeinvalid or unenforceable,

unlessthe Grantor shall either (x) reasonably and in good faith determine that any ofthe Trademark Collateral is of negligible economic value to the Grantor, or (y)have a reasonable and valid business purpose to do otherwise.

(c)           The Grantor shall not do or permitany act or knowingly omit to do any act whereby any of the Copyright Collateralor any of the Trade Secrets Collateral may lapse or become invalid orunenforceable or be placed in the public domain except upon expiration of theend of an unrenewable term of a registration thereof, unless the Grantor shalleither (i) reasonably and in good faith determine that any of the CopyrightCollateral or any of the Trade Secrets Collateral is of negligible economicvalue to the Grantor, or (ii) have a reasonable and valid business purpose todo otherwise.

(d)           The Grantor shall notify the SecuredParty immediately if it knows, or has reason to know, that any application orregistration relating to any material item of the Intellectual PropertyCollateral may become abandoned or dedicated to the public or be placed in thepublic domain or become invalid or unenforceable, or of any adverse determinationor development (including the institution of, or any such determination ordevelopment in, any proceeding in the United States Patent and TrademarkOffice, the United States Copyright Office or any foreign counterpart thereofor any court) regarding the Grantor’s ownership of any of the IntellectualProperty Collateral, its right to register the same or to keep and maintain andenforce the same.

(e)           In no event shall the Grantor or anyof its agents, employees, designees or licensees file an application for theregistration of any Intellectual Property Collateral with the United StatesPatent and Trademark Office, the United States Copyright Office or any similaroffice or agency in any other country or any political subdivision thereof,unless it promptly upon such filing informs the Secured Party, and upon requestof the Secured Party, executes and delivers any and all agreements,instruments, documents and papers as the Secured Party may reasonably requestto evidence the Secured Party’s security interest in such Intellectual PropertyCollateral and the goodwill and general intangibles of the Grantor relatingthereto or represented thereby.

 

16

----

 

 

(f)            The Grantor shall take all necessarysteps, including in any proceeding before the United States Patent andTrademark Office, the United States Copyright Office or any similar office oragency in any other country or any political subdivision thereof, to maintainand pursue any application (and to obtain the relevant registration) filed withrespect to, and to maintain any registration of, the Intellectual PropertyCollateral, including the filing of applications for renewal, affidavits ofuse, affidavits of incontestability and opposition, interference andcancellation proceedings and the payment of fees and taxes (except to theextent that dedication, abandonment or invalidation is permitted under theforegoing clauses (a), (b) and (c)).

(g)           The Grantor shall, contemporaneouslyherewith, execute and deliver to the Secured Party a Patent Security Agreement,a Trademark Security Agreement and a Copyright Security Agreement in the formsof Exhibit A, Exhibit B and Exhibit C hereto,respectively, and shall execute and deliver to the Secured Party any other documentrequired to acknowledge or register or perfect the Secured Party’s interest inany part of the Intellectual Property Collateral.

SECTION 4.1.5              Insurance.  The Grantor will maintain or cause to bemaintained with financially sound and reputable insurance companies insurancewith respect to its business and properties (including the Equipment andInventory) against such casualties and contingencies and of such types and insuch amounts as is required pursuant to the Credit Agreement and will, upon therequest of the Secured Party, furnish a certificate of a reputable insurancebroker setting forth the nature and extent of all insurance maintained by theGrantor in accordance with this Section. Without limiting the foregoing, the Grantor further agrees as follows:

(a)           Each policy for property insuranceshall show the Secured Party as loss payee.

(b)           Each policy for liability insuranceshall show the Secured Party as an additional insured.

(c)           Each insurance policy shall providethat at least thirty (30) days’ prior written notice of cancellation or oflapse shall be given to the Secured Party by the insured (or at least ten (10)days’ prior written notice of cancellation shall be given with respect tofailure to pay the premium).

(d)           The Grantor shall, if so requested bythe Secured Party, deliver to the Secured Party a copy of each insurancepolicy.

SECTION 4.1.6              Transfers and Other Liens.  The Grantor shall not:

(a)           sell, assign (by operation of law orotherwise) or otherwise dispose of any of the Collateral, except as may bepermitted by the Credit Agreement; or

 

17

----

 

(b)           create or suffer to exist any Lien orother charge or encumbrance upon or with respect to any of the Collateral,except for the security interest created by this Security Agreement and exceptas permitted by the Credit Agreement, including the cure periods set forththerein.

SECTION 4.1.7              Further Assurances, etc.  The Grantor agrees that, from time to timeat its own expense, it will promptly execute and deliver all furtherinstruments and documents, and take all further action, that may be necessaryor desirable (provided that it is reasonable), or that the Secured Party mayreasonably request, in order to perfect, preserve and protect any securityinterest granted or purported to be granted hereby or to enable the SecuredParty to exercise and enforce its rights and remedies hereunder with respect toany Collateral.  Without limiting thegenerality of the foregoing, the Grantor will:

(a)           mark conspicuously each Document(evidencing title) included in the Inventory, each Chattel Paper included inthe Receivables, and at the request of the Secured Party, upon the occurrenceand during the continuance of an Event of Default each of its records pertainingto the Collateral with a legend, in form and substance satisfactory to theSecured Party, indicating that such Document, Chattel Paper, or Collateral issubject to the security interest granted hereby;

(b)           if any Receivable shall be evidencedby a Promissory Note or other Instrument, negotiable Document or Chattel Paper,deliver and pledge to the Secured Party hereunder such Promissory Note,Instrument, negotiable Document or Chattel Paper duly endorsed and accompaniedby duly executed Instruments of transfer or assignment, all in form andsubstance satisfactory to the Secured Party; provided, however, if suchevidences amounts less than Two Hundred Fifty Thousand Dollars ($250,000) suchdelivery and pledge shall be at Secured Party’s request;

(c)           execute and file such financing orcontinuation statements, or amendments thereto, and such other Instruments ornotices as may be necessary or desirable, or as the Secured Party mayreasonably request, in order to perfect and preserve the security interests andother rights granted or purported to be granted to the Secured Party hereby;

(d)           promptly execute and file any noticeor other required form under or pursuant to the federal assignment of claimsstatute, 31 U.S.C. § 3727, any successor or amended version thereof or anyregulation promulgated under or pursuant to any version thereof, as the SecuredParty may reasonably request; and

(e)           furnish to the Secured Party, fromtime to time at the Secured Party’s request, statements and schedules furtheridentifying and describing the Collateral and such other reports in connectionwith the Collateral as the Secured Party may reasonably request, all inreasonable detail.

 

18

----

 

Withrespect to the foregoing and the grant of the security interest hereunder, theGrantor hereby authorizes the Secured Party to file one or more financing orcontinuation statements, and amendments thereto, relative to all or any part ofthe Collateral without the signature of the Grantor.  A carbon, photographic or other reproduction of this SecurityAgreement or any financing statement covering the Collateral or any partthereof shall be sufficient as a financing statement where permitted by law.

ARTICLE VATTORNEY IN FACT

SECTION 5.1             SecuredParty Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Secured Party the Grantor’sattorney-in-fact, with full authority in the place and stead of the Grantor andin the name of the Grantor or otherwise, from time to time in the SecuredParty’s discretion, following the occurrence and continuation of an Event ofDefault, to take any action and to execute any instrument which the SecuredParty may deem necessary or advisable to accomplish the purposes of thisSecurity Agreement, including:

(a)           to ask, demand, collect, sue for,recover, compromise, receive and give acquittance and receipts for moneys dueand to become due under or in respect of any of the Collateral;

(b)           to receive, endorse, and collect anydrafts or other Instruments, Documents and Chattel Paper, in connection with clause(a) above;

(c)           to file any claims or take any actionor institute any proceedings which the Secured Party may deem necessary ordesirable for the collection of any of the Collateral or otherwise to enforcethe rights of the Secured Party with respect to any of the Collateral; and

(d)           to perform the affirmativeobligations of the Grantor hereunder (including all obligations of the Grantorpursuant to Section 4.1.7 hereof).

TheGrantor hereby acknowledges, consents and agrees that the power of attorneygranted pursuant to this Section is irrevocable until the Obligations aresatisfied and coupled with an interest.

SECTION 5.2             Secured Party May Perform.  If any Grantor fails to perform anyagreement contained herein, the Secured Party may itself perform, or causeperformance of, such agreement, and the expenses of the Secured Party incurredin connection therewith shall be payable by the Grantor pursuant to Section6.2 hereof.

SECTION 5.3             Secured Party Has No Duty.  In addition to, and not in limitation of, Section2.4(c) hereof, the powers conferred on the Secured Party hereunder aresolely to protect its interest in the Collateral and shall not impose any dutyon it to exercise any such powers.  Exceptfor reasonable 

 

19

----

 

care of any Collateral inits possession and the accounting for moneys actually received by it hereunder,the Secured Party shall have no duty as to any Collateral or as to the takingof any necessary steps to preserve rights against prior parties or any otherrights pertaining to any Collateral.

SECTION 5.4             Reasonable Care.  Other than the exercise of reasonable carein the custody and preservation of the Collateral, the Secured Party shall haveno duty with respect thereto.  TheSecured Party shall be deemed to have exercised reasonable care in the custodyand preservation of the Collateral in its possession if the Collateral isaccorded treatment substantially equal to that which the Secured Party accordsits own property.  The Secured Partyshall not be liable or responsible for any loss or damage to any of theCollateral, or for any diminution in the value thereof, by reason of the act oromission of any agent or bailee selected by the Secured Party in good faith.

ARTICLE VIREMEDIES

SECTION 6.1             Certain Remedies.  If any Event of Default shall have occurredand be continuing:

(a)           The Secured Party may exercise inrespect of the Collateral, in addition to other rights and remedies providedfor herein or otherwise available to it, all the rights and remedies of asecured party under the U.C.C. (whether or not the U.C.C. applies to theaffected Collateral) and also may:

(i)            require the Grantor to, and theGrantor hereby agrees that it will, at its expense and upon the request of theSecured Party forthwith, assemble all or part of the Collateral as directed bythe Secured Party and make it available to the Secured Party at a place to bedesignated by the Secured Party which is reasonably convenient to both parties;

(ii)           reclaim, take possession, recover,store, maintain, finish, repair, prepare for sale or lease, shop, or advertisefor sale or lease the Collateral;

(iii)          without notice except as specifiedbelow, sell the Collateral or any part thereof in one or more parcels at publicor private sale, at any of the Secured Party’s offices or elsewhere, for cash,on credit or for future delivery, and upon such other terms as the SecuredParty may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be requiredby law, at least ten (10) days’ prior notice to the Grantor of the time andplace of any public sale or the time after which any private sale is to be madeshall constitute reasonable notification.  The Secured Party shall not be obligated to make any sale ofCollateral regardless of notice of sale having been given.  The Secured Party may adjourn any public orprivate sale from 

 

20

----

 

time to time by announcementat the time and place fixed therefor, and such sale may, without furthernotice, be made at the time and place to which it was so adjourned;

(iv)          withdraw all monies, securities andInstruments in the Collateral Account for application to the Obligations; and

(v)           license or sublicense, whether on anexclusive or nonexclusive basis, any Trademark Collateral, Patent Collateral orCopyright Collateral included in the Intellectual Property Collateral for suchterm and on such conditions and in such manner as the Secured Party shall inits sole judgment determine.

(b)           All cash proceeds received by theSecured Party in respect of any sale of, collection from, or other realizationupon all or any part of the Collateral may, in the discretion of the SecuredParty, be held by the Secured Party as collateral for, and/or then or at anytime thereafter applied (after payment of any amounts payable to the SecuredParty pursuant to Section 6.2) in whole or in part by the Secured Partyagainst, all or any part of the Secured Obligations in such order as theSecured Party shall elect.  The Grantorshall remain liable for any deficiency if the proceeds of any sale or otherdisposition of the Collateral are insufficient to pay all amounts to which theSecured Party is entitled from the Grantor. Any surplus of such cash or cash proceeds held by the Secured Party andremaining after payment in full in cash of all the Secured Obligations shall bepaid over to the applicable Grantor or to whomsoever may be lawfully entitledto receive such surplus.

(c)           To the extent the Grantor has theright to do so, the Grantor authorizes the Secured Party to take possession ofthe Collateral, or any part of it, and to pay, purchase, contract, orcompromise any encumbrance, charge, or Lien which, in the opinion of theSecured Party, appears to be prior or superior to its security interest.

(d)           The Secured Party shall have theright upon any such public sale or sales, and, to the extent permitted by law,upon any such private sale or sales, to purchase the whole or any part of saidCollateral so sold, free of any right or equity of redemption, which equity ofredemption the Grantor hereby releases.

(e)           To the maximum extent permitted bylaw, the Grantor waives all claims, damages, and demands against the SecuredParty arising out of the repossession, retention, or sale of the Collateral.

(f)            As to any Collateral constitutingcertificated securities or uncertificated securities, if, at any time when theSecured Party shall determine to exercise its right to sell the whole or anypart of such Collateral hereunder, such Collateral or the part thereof to besold shall not, for any reason whatsoever, be effectively registered under 

 

21

----

 

Securities Act of 1933,as amended (as so amended the “Act”), the Secured Party may, in itsdiscretion (subject only to applicable requirements of law), sell suchCollateral or part thereof by private sale in such manner and under suchcircumstances as the Secured Party may deem necessary or advisable, but subjectto the other requirements of this Section 6.1(f), and shall not berequired to effect such registration or cause the same to be effected.  Without limiting the generality of theforegoing, in any such event the Secured Party may, in its sole discretion, (i)in accordance with applicable securities laws, proceed to make such privatesale notwithstanding that a registration statement for the purpose ofregistering such Collateral or part thereof could be or shall have been filedunder the Act; (ii) approach and negotiate with a single possible purchaser toeffect such sale; and (iii) restrict such sale to a purchaser who willrepresent and agree that such purchaser is purchasing for its own account, forinvestment, and not with a view to the distribution or sale of such Collateralor part thereof.  In addition to aprivate sale as provided above in this Section 6.1(f), if any of suchCollateral shall not be freely distributable to the public without registrationunder the Act at the time of any proposed sale hereunder, then the SecuredParty shall not be required to effect such registration or cause the same to beeffected but may, in its sole discretion (subject only to applicablerequirements of law), require that any sale hereunder (including a sale atauction) be conducted subject to such restrictions as the Secured Party may, inits sole discretion, deem necessary or appropriate in order that such sale(notwithstanding any failure so to register) may be effected in compliance withthe Bankruptcy Code and other laws affecting the enforcement of creditors’rights and the Act and all applicable state securities laws.

(g)           The Grantor agrees that in any saleof any of such Collateral, whether at a foreclosure sale or otherwise, theSecured Party is hereby authorized to comply with any limitation or restrictionin connection with such sale as it may be advised by counsel is necessary inorder to avoid any violation of applicable law (including compliance with suchprocedures as may restrict the number of prospective bidders and purchasers,require that such prospective bidders and purchasers have certainqualifications and restrict such prospective bidders and purchasers to personswho will represent and agree that they are purchasing for their own account forinvestment and not with a view to the distribution or resale of suchCollateral), or in order to obtain any required approval of the sale or of thepurchaser by any governmental authority, and the Grantor further agrees thatsuch compliance shall not result in such sale being considered or deemed not tohave been made in a commercially reasonable manner, nor shall the Secured Partybe liable nor accountable to the Grantor for any discount allowed by the reasonof the fact that such Collateral is sold in compliance with any such limitationor restriction.

SECTION 6.2             Indemnity and Expenses.

 

22

----

 

(a)           The Grantor agrees to indemnify theSecured Party and its officers, employees, and agents from and against any andall claims, losses and liabilities arising out of or resulting from thisSecurity Agreement (including enforcement of this Security Agreement), exceptclaims, losses or liabilities resulting from the gross negligence or willfulmisconduct of the Secured Party.

(b)           The Grantor will upon demand pay tothe Secured Party the amount of any and all reasonable expenses, including thereasonable fees and disbursements of its counsel and of any experts and agents,which the Secured Party may incur in connection with:

(i)            the administration of this SecurityAgreement;

(ii)           the custody, preservation, use oroperation of, or the sale of, collection from, or other realization upon, anyof the Collateral;

(iii)          the exercise or enforcement of any ofthe rights of the Secured Party hereunder; or

(iv)          the failure by Grantor to perform orobserve any of the provisions hereof.

Theprovisions of this Section 6.2 shall survive the Termination Date.

 

ARTICLE VII

MISCELLANEOUS PROVISIONS

SECTION 7.1             Loan Document.  This Security Agreement is a Loan Documentexecuted pursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions thereof.

SECTION 7.2             Amendments; etc.  No amendment to or waiver of any provisionof this Security Agreement nor consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing andsigned by the Secured Party, and then such waiver or consent shall be effectiveonly in the specific instance and for the specific purpose for which given.

SECTION 7.3             Notices.  All notices and other communicationsprovided for hereunder shall be given in accordance with Section 10.2 of theCredit Agreement.

SECTION 7.4             Captions.  Section captions used in this SecurityAgreement are for convenience of reference only, and shall not affect theconstruction of this Security Agreement.

 

23

----

 

SECTION 7.5             Severability.  Wherever possible each provision of thisSecurity Agreement shall be interpreted in such manner as to be effective andvalid under applicable law, but if any provision of this Security Agreementshall be prohibited by or invalid under such law, such provision shall beineffective to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Security Agreement.

SECTION 7.6             Counterparts.  This Security Agreement may be executed bythe parties hereto in several counterparts, each of which shall be deemed anoriginal and all of which shall constitute together but one and the sameagreement.

SECTION 7.7             Governing Law, Entire Agreement,etc.  **THIS SECURITY AGREEMENT SHALL BE DEEMEDTO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OFCALIFORNIA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THESECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANYPARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THESTATE OF CALIFORNIA.  THIS SECURITYAGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDINGBETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF ANDSUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.**

[Remainder of page left blank intentionally.]

 

24

----

 

INWITNESS WHEREOF, the Grantor has caused this Borrower Security Agreement to beduly executed and delivered by its officer thereunto duly authorized as of thedate first above written.

 

 

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 
|   |   | SUREBEAM CORPORATION,   as Grantor              |
|--------|--------|-------------------------------------------------|
|   |   | By:                                             | /s/ DAVID  A. RANE |
|   |   |                                            |   |
|   |   |                                            | David  A. Rane   Senior Vice President,   Chief Financial Officer |
|   |   |                                            |   |
|   |   | THE TITAN CORPORATION,    as Secured Party |
|   |   | By:                                             | /s/ MARK  W. SOPP |
|   |   |                                            |   |
|   |   |                                            | Mark W. Sopp   Senior Vice President,   Chief Financial Officer |

 

 

 

25

----

 

SCHEDULE I

ItemA.  Location of Equipment
| **Location**                     |   | **Description**                              |
|----------------------------------|--------|----------------------------------------------|
| 9276  Scranton Road, Suite 600   |   | Leasehold  improvements, furniture           |
| San  Diego, CA 92121             |   | and  computer equipment                      |
|                             |   |                                         |
| 6780  Sierra Court, Suite A      |   | Leasehold  improvements, furniture,          |
| Dublin,  CA 94568                |   | machinery  and computer equipment.           |
|                             |   |                                         |
| 9040  Activity Road, Suite A     |   | Leasehold  improvements, furniture           |
| San  Diego, CA                   |   | and  computer equipment                      |
|                             |   |                                         |
| 2640  Murray Street              |   | Furniture,  computer equipment and machinery |
| Sioux  City, IA 51111            |   |                                         |
|                             |   |                                         |
| 9300  Underwood Avenue Suite 150 |   | Leasehold  improvements, furniture and       |
| Omaha,  NE 68114-2684            |   | computer  equipment                          |
|                             |   |                                         |
| 3285  East Vernon Avenue         |   | Leasehold  improvements, furniture,          |
| Vernon,  CA 90058                |   | computer  equipment and machinery            |
|                             |   |                                         |
| 300  Regency Drive               |   | Leasehold  improvements, furniture,          |
| Glendale  Heights, IL60139       |   | computer  equipment and machinery            |
|                             |   |                                         |
| 400  Discovery Drive             |   | Machinery  and equipment                     |
| College  Station, TX 77845       |   |                                         |
|                             |   |                                         |
| Avenida  Brasil 19001            |   | Leasehold  improvements, furniture,          |
| (Proximo  Ao lado Pavilhao 100   |   | computer  equipment and machinery            |
| CEASA)  Rio de Janeiro, RJ       |   |                                         |
| Brazil  21-531-140               |   |                                         |
|                             |   |                                         |
| Abbraj  Att’awuneya BLDG    |   | Leasehold  improvements, furniture and       |
| 8th  floor North                 |   | computer  equipment                          |
| King  Fahad Road                 |   |                                         |
| Riyadh 11533                     |   |                                         |
| Kingdom of Saudi Arabia          |   |                                         |

 

26

----

 

ItemB.  Location of Inventory
| **Location**                   |   | **Description** |
|--------------------------------|--------|-----------------|
| 9276  Scranton Road, Suite 600 |   | Inventory       |
| San  Diego, CA 92121           |   |            |
|                           |   |            |
| 6780  Sierra Court, Suite A    |   | Inventory       |
| Dublin,  CA 94568              |   |            |
|                           |   |            |
| 9040  Activity Road, Suite A   |   | Inventory       |
| San  Diego, CA                 |   |            |

 

*Item C. Location of Lock Boxes
|                       |   |                |   | **Contact** |
|----------------------------|--------|---------------------|--------|-------------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |
| Comerica Bank California   |   | 1891382754          |   |        |
| 600 B Street               |   | 1891505008          |   |        |
| San Diego, CA  92101  |   |                |   |        |

 

 

ItemD.  Place(s) of Business and ChiefExecutive Office
| Current: |   | 9276 Scranton Road, Suite  600 |
|----------|--------|--------------------------------|
|     |   | San Diego, CA  92121      |
|     |   |                           |
| Former:  |   | 3033 Science Park Road         |
|     |   | San Diego, CA  92121      |

 

 

ItemE.  Trade Names

SB OperatingCo, LLC (8/1/02)

SB OperatingCo, Inc. (8/3/00)

SureBeam Corporation (4/17/00)

Titan Scan Corp. (8/25/98)

Titan Purification Inc. (12/8/97)

SureBeam BrasilLTDA

 

----

* Accounts are SB OperatingCo, LLC and/or Borroweraccounts.

 

27

----

 

ItemF.  Merger or Other CorporateReorganization

 

*ItemG.  Location of Deposit Accounts
|                       |   |                |   | **Contact** |
|----------------------------|--------|---------------------|--------|-------------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |
| Comerica Bank California   |   | 1891507129          |   |        |
| 600 B Street               |   | 1891428169          |   |        |
| San Diego, CA  92101  |   | 1891427583          |   |        |
|                       |   | 1891382747          |   |        |
|                       |   | 1891427591          |   |        |
|                       |   | 1891507970          |   |        |
|                       |   | 2176994453          |   |        |
|                       |   | 1891504993          |   |        |

 

ItemH.  Location of Securities Accounts
|                       |   |                |   | **Contact** |   |
|----------------------------|--------|---------------------|--------|-------------|--------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |   |

                None.

 

 

28

----

 

SCHEDULEII

ItemA.  Patents
| **Country**                                  |   | **Patent No.** |   | **Issue Date** |   | **Title**                                                                                                                                          |
|----------------------------------------------|--------|----------------|--------|----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |   |           |   |           |   |                                                                                                                                               |
| U.S.                                         |   | 5,590,602      |   | 1/7/1997       |   | Conveyor System Utilizing  Articles Carriers                                                                                                       |
| PCT                                          |   | 5,994,706      |   | 11/30/1999     |   | Article Irradiation System  ________ Intermediate Wall of ________ Shielding Material Within Loop of  Conveyor System That Transports the Articles |
| U.S.   PCT   EPO   JAP   CA                  |   | 5,994,706      |   | 11/30/1999     |   | Article Irradiation System  in Which Articles Transporting Conveyor is Closely Encompassed by Shielding  Material                                  |
| U.S.   AUS   DAN   CAN   EPO   JAP   KR   MA |   | 5,396,074      |   | 3/7/1995       |   | Irradiation System  Utilizing Conveyor Transported Article Carriers                                                                                |
| U.S.                                         |   | 6,127,687      |   | 10/3/2000      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |
| U.S.                                         |   | 6,236,055      |   | 5/22/2001      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |
| U.S.                                         |   | 6,285,030      |   | 9/4/2001       |   | Article Irradiation System  in Which Article Transporting Conveyor is Closely Encompassed by Shielding                                             |
| U.S.                                         |   | 6,294,791      |   | 9/24/2001      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |

 

 

29

----

 

 

Pending Patent Applications
| **Country**       |   | **Serial  No.**  |   | **Filing  Date** |   | **Title**                                                                                                                |
|-------------------|--------|------------------|--------|------------------|--------|--------------------------------------------------------------------------------------------------------------------------|
| U.S               |   | 09/710,730       |   | 11/10/2000       |   | System For and Method of  Irradiating an Object with an Optimal Amount of Radiation                                      |
| U.S.              |   | 09/872131        |   | 6/1/2001         |   | System For, and Method of  Irradiating Article with Multiple Irradiations                                                |
| U.S.              |   | 09/872,441       |   | 6/1/2001         |   | System For, and Methods  Of, Irradiating Articles                                                                        |
| U.S.              |   | 09/456,061       |   | 12/7/1999        |   | System For and Methods Of,  Irradiating Articles to Sterilize The Articles                                               |
| U.S.              |   | 9/753,287        |   | 12/29/2000       |   | System For, And Method Of,  Irradiating Articles With X-Ray Beam                                                         |
| U.S.              |   | 09/881,257       |   | 6/13/2001        |   | System For, and Methods  Of, Irradiating Articles With X-Ray Beam                                                        |
| ***U.S.***        |   | ***09/710,730*** |   | ***11/10/2000*** |   | ***System For, And Methods Of, Irradiating Opposite Sides Of  Articles With Optimal amounts of Cumulative Irradiation*** |
| ***U.S.***        |   | ***09/569,402*** |   | ***5/12/2000***  |   | ***System For, and Method of Providing Frequency Hopping***                                                              |
| ***PCT******WO*** |   | ***09/458,051*** |   | ***12/7/1999***  |   | ***Apparatus For, And Methods for Sterilizing Products,  Primarily Food Products***                                      |
| U.S.              |   | 60/141,781       |   | 6/30/1999        |   | Apparatus For, And Methods  for Sterilizing Products, Primarily Food Products                                            |
| U.S.              |   | 09/912,576       |   | 7/24/2001        |   | System For, and Methods  Of, Irradiating Articles                                                                        |
| U.S.              |   | 09/971,986       |   | 10/4/2001        |   | Compact Self-Shielded  Irradiation System and Method                                                                     |
| U.S.              |   | 10/167,544       |   | 6/10/2002        |   | System For, and Method Of,  Irradiating Articles To Sterilize Articles                                                   |
| U.S.              |   | 09/964,785       |   | 9/26/2001        |   | System For, And Methods  Of, Irradiating Opposite Sides Of Articles With Optimal amounts of Cumulative  Irradiation      |

----

*              List items relatedto the United States first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

30

----

 

 

Patent Applications in Preparation
| **Expected*Country** |   | **Docket No.** |   | **Filing  Date** |   | **Inventor(s)** |   | **Title** |   |
|----------------------|--------|----------------|--------|------------------|--------|-----------------|--------|-----------|--------|

 

 

ItemB.  Patent Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and in alphabeticalorder by country name.

 

31

----

 

SCHEDULE III

ItemA.  Trademarks

Registered Trademarks
| **Country**   |   | **Trademark**                   |   | **Registration No.** |   | **Status** |
|---------------|--------|---------------------------------|--------|----------------------|--------|------------|
| United States |   | SUREBEAM in class 40            |   | (RN) 1,855,367       |   | Registered |
| Lebanon       |   | SUREBEAM in classes 9  & 40 |   | (RN) 88045           |   | Registered |

 

Pending Trademark Applications
| ***Country**  |   | **Trademark**                               |   | **Serial No.**   |   | **Status**               |
|---------------|--------|---------------------------------------------|--------|------------------|--------|--------------------------|
| United States |   | GOOD FOOD. MADE BETTER. in class 40         |   | (SN) 76/326,832  |   | Pending                  |
| United States |   | SAFER FRESHER BETTER in class 40            |   | (SN) 76/326,461  |   | Pending                  |
| United States |   | SERVE WITH CONFIDENCE in class 40           |   | (SN) 76/264,588  |   | Pending                  |
| United States |   | SERVED WITH CONFIDENCE in class 40          |   | (SN) 76/264,589  |   | Pending                  |
| United States |   | SUREBEAM in class 9                         |   | (SN) 76/260,478  |   | Published                |
| United States |   | SUREBEAM & Design in class 40           |   | (SN) 76/326,834  |   | Pending                  |
| United States |   | SUREMAIL in class 40                        |   | (SN) 76/335,335  |   | Pending                  |
| United States |   | YOUR FAVORITE FOODS MADE BETTER in class 40 |   | (SN) 76/264,590  |   | Pending                  |
| United States |   | Be SureBeam Safe                            |   | 78/145,494       |   | Pending                  |
| Australia     |   | GOOD FOOD. MADE BETTER. in  class 40        |   | (SN) 894010      |   | Pending                  |
| Australia     |   | SUREBEAM in classes 9  & 40             |   | (SN) 865938      |   | Allowed for Registration |
| Brazil        |   | SUREBEAM in class 9                         |   | (SN) 822,218,100 |   | Published                |
| Brazil        |   | SUREBEAM in class 40                        |   | (SN) 822,218,119 |   | Published                |
| Canada        |   | SUREBEAM in classes 9  & 40             |   | (SN) 1068730     |   | Pending                  |
| China         |   | SUREBEAM in class 9                         |   | (SN) 2001165531  |   | Pending                  |
| China         |   | SUREBEAM in class 40                        |   | (SN) 2001179227  |   | Pending                  |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

32

----

 
| ***Country**         |   | **Trademark**                        |   | **Serial No.**                                                                   |   | **Status** |
|----------------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------|--------|------------|
| Egypt                |   | SUREBEAM in class 9                  |   | (SN) 144891                                                                      |   | Pending    |
| Egypt                |   | SUREBEAM in class 40                 |   | (SN) 144892                                                                      |   | Pending    |
| Guatemala            |   | SUREBEAM in class 9                  |   | (SN) 07579                                                                       |   | Pending    |
| Guatemala            |   | SUREBEAM in class 40                 |   | (SN) 07580                                                                       |   | Pending    |
| Indonesia            |   | SUREBEAM in class 9                  |   | (SN) 16501-16604                                                                 |   | Pending    |
| Indonesia            |   | SUREBEAM in class 40                 |   | (SN) 16502-16605                                                                 |   | Published  |
| India                |   | SUREBEAM in class 9                  |   | (SN) 1012183                                                                     |   | Pending    |
| Japan                |   | SUREBEAM in classes 9  & 40      |   | (SN) 2000-097384                                                                 |   | Published  |
| Kuwait               |   | SUREBEAM in class 40                 |   | (SN) 52208                                                                       |   | Pending    |
| Mexico               |   | SUREBEAM in class 9                  |   | (SN) 496290                                                                      |   | Pending    |
| Mexico               |   | SUREBEAM in class 40                 |   | (SN) 496291                                                                      |   | Pending    |
| New Zealand          |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 647625                                                                      |   | Pending    |
| Oman                 |   | SUREBEAM in class 9                  |   | (SN) 25945                                                                       |   | Pending    |
| Oman                 |   | SUREBEAM in class 40                 |   | (SN) 25946                                                                       |   | Pending    |
| Panama               |   | SUREBEAM in class 9                  |   | (SN) 117604                                                                      |   | Pending    |
| Panama               |   | SUREBEAM in class 40                 |   | (SN) 115892                                                                      |   | Pending    |
| Philippines          |   | SUREBEAM in classes 9  & 40      |   | (SN) 4-2001005137                                                                |   | Pending    |
| Pakistan             |   | SUREBEAM in class 9                  |   | (SN) 172685                                                                      |   | Pending    |
| Pakistan             |   | SUREBEAM in class 16                 |   | (SN) 173569                                                                      |   | Pending    |
| Qatar                |   | SUREBEAM in class 9                  |   | (SN) 25783                                                                       |   | Pending    |
| Qatar                |   | SUREBEAM in class 40                 |   | (SN) 25784                                                                       |   | Pending    |
| Russia               |   | SUREBEAM in class 9                  |   | (SN) 2001721891                                                                  |   | Pending    |
| Russia               |   | SUREBEAM in class 40                 |   | (SN) 2001721845                                                                  |   | Pending    |
| Saudi Arabia         |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 73859                                                                       |   | Pending    |
| Saudi Arabia         |   | SUREBEAM in class 9                  |   | (SN) 71887                                                                       |   | Pending    |
| Saudi Arabia         |   | SUREBEAM in class 40                 |   | (SN) 71888                                                                       |   | Pending    |
| South Africa         |   | SUREBEAM in class 9                  |   | (SN) 2001/12160                                                                  |   | Pending    |
| South Africa         |   | SUREBEAM in class 40                 |   | (SN) 2001/12161                                                                  |   | Pending    |
| South Korea          |   | SUREBEAM in class 7                  |   | (SN) 40200051220                                                                 |   | Published  |
| South Korea          |   | SUREBEAM in class 9                  |   | (SN) 40200041625                                                                 |   | Published  |
| South Korea          |   | SUREBEAM in class 40                 |   | (SN) 41200023540                                                                 |   | Pending    |
| Spain                |   | SUREBEAM in class 9                  |   | (SN) 2351499                                                                     |   | Published  |
| Spain                |   | SUREBEAM in class 37                 |   | (SN) 2414906                                                                     |   | Published  |
| Spain                |   | SUREBEAM in class 40                 |   | (SN) 2346640                                                                     |   | Published  |
| Thailand             |   | SUREBEAM in class 9                  |   | (SN) 472133                                                                      |   | Pending    |
| Thailand             |   | SUREBEAM in class 40                 |   | (SN) 472134                                                                      |   | Pending    |
| Turkey               |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 2001-22756                                                                  |   | Pending    |
| United Arab Emirates |   | SUREBEAM in class 9                  |   | (SN) 44556                                                                       |   | Pending    |
| United Arab Emirates |   | SUREBEAM in class 40                 |   | (SN) 44557                                                                       |   | Pending    |
| Argentina            |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled    |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

33

----

 
| ***Country** |   | **Trademark**                        |   | **Serial No.**                                                                   |   | **Status** |
|--------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------|--------|------------|
| Brazil       |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled    |
| Guatemala    |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled    |
| Jordan       |   | SUREBEAM in class 9                  |   | Awaiting serial number  from local counsel                                       |   | Pending    |
| Jordan       |   | SUREBEAM in class 40                 |   | Awaiting serial number  from local counsel                                       |   | Pending    |
| Japan        |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled    |
| Mexico       |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled    |
| Philippines  |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number  from local counsel                                       |   | Pending    |
| Turkey       |   | SUREBEAM in classes 9  & 40      |   | Awaiting serial number  from local counsel                                       |   | Pending    |
| Yemen        |   | SUREBEAM in class 9                  |   | Awaiting serial number  from local counsel                                       |   | Pending    |

 

Trademark Applications in Preparation
|         |   |          |   |           |   | **Expected**     |   | **Products/** |   |
|--------------|--------|---------------|--------|----------------|--------|------------------|--------|---------------|--------|
| ***Country** |   | **Trademark** |   | **Docket No.** |   | **Filing  Date** |   | **Services**  |   |

 

ItemB.  Trademark Licenses
| ***Country or** |   |          |   |         |   |         |   | **Effective** |   | **Expiration** |   |
|-----------------|--------|---------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|
| **Territory**   |   | **Trademark** |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

34

----

 

SCHEDULE IV

ItemA.  Copyrights/Mask Works

Registered Copyrights/Mask Works
| ***Country** |   | **Registration  No.** |   | **Registration  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|-----------------------|--------|------------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Pending Registration Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Registration Applications in Preparation
|         |   |           |   | **Expected**     |   |          |   |      |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|
| ***Country** |   | **Docket No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |

 

 

ItemB.  Copyright/Mask Work Licenses
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

35

----

 

SCHEDULE V

Trade Secret or Know-How Licenses
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

36

----

 

EXHIBITA

 

BORROWER PATENT SECURITY AGREEMENT

This BORROWER PATENT SECURITY AGREEMENT (this “Agreement”),dated as of August 2, 2002, is made between SUREBEAM CORPORATION, a Delawarecorporation (the “Grantor”), and THE TITAN CORPORATION, a Delawarecorporation (the “Secured Party”);

 

W I T N E S S E T H :

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between the Grantor and the Secured Party, the Secured Partyhas agreed to make Credit Extensions to the Grantor;

WHEREAS,in connection with the Credit Agreement, the Grantor has executed and deliveredto the Secured Party a Borrower Security Agreement, dated as of August 2, 2002(as amended, restated, supplemented or otherwise modified from time to time,the “Security Agreement”);

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, the Grantor is requiredto execute and deliver this Agreement; and

WHEREAS,the Grantor has duly authorized the execution, delivery and performance of thisAgreement;

NOWTHEREFORE, for good and valuable consideration the receipt of which is herebyacknowledged, and in order to induce the Secured Party to make CreditExtensions (including the initial Credit Extension) to the Grantor pursuant tothe Credit Agreement, the Grantor agrees as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant ofSecurity Interest.  For good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, to secure all of the Secured Obligations, the Grantor does herebymortgage, pledge and hypothecate to the Secured Party, and grant to the SecuredParty a security interest in all of the following property (the “PatentCollateral”), whether now owned or hereafter acquired or existing by it:

 

----

 

(a)           all letters patentand applications for letters patent throughout the world, including all patentapplications in preparation for filing anywhere in the world and including eachpatent and patent application referred to in Item A of Attachment 1 attachedhereto;

(b)           all reissues,divisions, continuations, continuations-in-part, extensions, renewals andreexaminations of any of the items described in clause (a);

(c)           all patent licenses,including each patent license referred to in Item B of Attachment 1 attachedhereto; and

(d)           all Proceeds of, andrights associated with, the foregoing (including license royalties and Proceedsof infringement suits), the right to sue third parties for past, present orfuture infringements of any patent or patent application, including any patentor patent application referred to in Item A of Attachment 1 attached hereto,and for breach or enforcement of any patent license, including any patentlicense referred to in Item B of Attachment 1 attached hereto, and all rightscorresponding thereto throughout the world.

SECTION 3.           SecurityAgreement.  This Agreement has beenexecuted and delivered by the Grantor for the purpose of registering thesecurity interest of the Secured Party in the Patent Collateral with the UnitedStates Patent and Trademark Office and corresponding offices in other countriesof the world.  The security interestgranted hereby has been granted as a supplement to, and not in limitation of,the security interest granted to the Secured Party under the SecurityAgreement.  The Security Agreement (andall rights and remedies of the Secured Party thereunder) shall remain in fullforce and effect in accordance with its terms.

SECTION 4.           Release ofSecurity Interest.  Upon theTermination Date, the Secured Party shall, at the Grantor’s expense, executeand deliver to the Grantor all Instruments and other Documents as may benecessary or proper to release the lien on and security interest in the PatentCollateral which has been granted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Patent Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.           LoanDocument, etc.  This Agreement is aLoan Document executed pursuant to the Credit Agreement and shall (unlessotherwise expressly indicated herein) be construed, administered and applied inaccordance with the terms and provisions of the Credit Agreement.

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

 

2

----

 

IN WITNESSWHEREOF, the parties hereto have caused this Borrower Patent Security Agreementto be duly executed and delivered by their respective officers thereunto dulyauthorized as of the day and year first above written.

SUREBEAMCORPORATION,

                as Grantor

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

THETITAN CORPORATION,

                as Secured Party

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

 

37

----

 

ATTACHMENT 1

ItemA.  Patents

Issued Patents
| ***Country** |   | **Patent No.** |   | **Issue Date** |   | **Inventor(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|----------------|--------|-----------------|--------|-----------|--------|

 

 

Pending Patent Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Inventor(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|-----------------|--------|-----------|--------|

 

 

Patent Applications in Preparation
| **Expected*Country** |   | **Docket No.** |   | **Filing  Date** |   | **Inventor(s)** |   | **Title** |   |
|----------------------|--------|----------------|--------|------------------|--------|-----------------|--------|-----------|--------|

 

 

ItemB.  Patent Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

4

----

 

EXHIBIT B

BORROWER TRADEMARK SECURITY AGREEMENT

ThisBORROWER TRADEMARK SECURITY AGREEMENT (this “Agreement”), dated as ofAugust 2, 2002, is made between SUREBEAM CORPORATION, a Delaware corporation(the “Grantor”), and THE TITAN CORPORATION, a Delaware corporation (the“Secured Party”);

W I T N E S S E T H :

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between the Grantor and the Secured Party, the Secured Partyhas agreed to make Credit Extensions to the Grantor;

WHEREAS,in connection with the Credit Agreement, the Grantor has executed and deliveredto the Secured Party a Borrower Security Agreement, dated as of August 2, 2002(as amended, restated, supplemented or otherwise modified from time to time,the “Security Agreement”);

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, the Grantor is requiredto execute and deliver this Agreement; and

WHEREAS,the Grantor has duly authorized the execution, delivery and performance of thisAgreement;

NOWTHEREFORE, for good and valuable consideration the receipt of which is herebyacknowledged, and in order to induce the Secured Party to make CreditExtensions (including the initial Credit Extension) to the Grantor pursuant tothe Credit Agreement, the Grantor agrees as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant ofSecurity Interest.  For good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, to secure all of the Secured Obligations, the Grantor does herebymortgage, pledge and hypothecate to the Secured Party, and grant to the SecuredParty a security interest in, all of the following property (the “TrademarkCollateral”), whether now owned or hereafter acquired or existing by it:

(a)           all trademarks,trade names, corporate names, company names, business names, fictitiousbusiness names, trade styles, service marks, certification marks, collective 

 

----

 

marks, logos,other source of business identifiers, prints and labels on which any of theforegoing have appeared or appear, designs and general intangibles of a likenature (all of the foregoing items in this clause (a) being collectively calleda “Trademark”), now existing anywhere in the world or hereafter adopted oracquired, whether currently in use or not, all registrations and recordingsthereof and all applications in connection therewith, whether pending or inpreparation for filing, including registrations, recordings and applications inthe United States Patent and Trademark Office or in any office or agency of theUnited States of America or any State thereof or any foreign country, includingthose referred to in Item A of Attachment 1 attached hereto;

(b)           all Trademarklicenses, including each Trademark license referred to in Item B of Attachment1 attached hereto;

(c)           all reissues,extensions or renewals of any of the items described in clauses (a) and (b);

(d)           all of the goodwillof the business connected with the use of, and symbolized by the itemsdescribed in, clauses (a) and (b); and

(e)           all Proceeds of, andrights associated with, the foregoing, including any claim by the Grantoragainst third parties for past, present or future infringement or dilution ofany Trademark, Trademark registration or Trademark license, including anyTrademark, Trademark registration or Trademark license referred to in Item Aand Item B of Attachment 1 attached hereto, or for any injury to the goodwillassociated with the use of any such Trademark or for breach or enforcement ofany Trademark license.

SECTION 3.           SecurityAgreement.  This Agreement has beenexecuted and delivered by the Grantor for the purpose of registering thesecurity interest of the Secured Party in the Trademark Collateral with theUnited States Patent and Trademark Office and corresponding offices in othercountries of the world.  The securityinterest granted hereby has been granted as a supplement to, and not inlimitation of, the security interest granted to the Secured Party under theSecurity Agreement.  The SecurityAgreement (and all rights and remedies of the Secured Party thereunder) shallremain in full force and effect in accordance with its terms.

SECTION 4.           Release ofSecurity Interest.  Upon theTermination Date, the Secured Party shall, at the Grantor’s expense, executeand deliver to the Grantor all Instruments and other Documents as may benecessary or proper to release the lien on and security interest in theTrademark Collateral which has been granted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Trademark Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

 

2

----

 

SECTION 6.           LoanDocument, etc.  This Agreement is aLoan Document executed pursuant to the Credit Agreement and shall (unlessotherwise expressly indicated herein) be construed, administered and applied inaccordance with the terms and provisions of the Credit Agreement.

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

INWITNESS WHEREOF, the parties hereto have caused this Borrower TrademarkSecurity Agreement to be duly executed and delivered by their respectiveofficers thereunto duly authorized as of the day and year first above written.

SUREBEAMCORPORATION,

                as Grantor

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

THETITAN CORPORATION,

                as Secured Party

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

3

----

 

ATTACHMENT 1

ItemA.  Trademarks

Registered Trademarks
| ***Country** |   | **Trademark** |   | **Registration  No.** |   | **Registration  Date** |   |
|--------------|--------|---------------|--------|-----------------------|--------|------------------------|--------|

 

 

Pending Trademark Applications
| ***Country** |   | **Trademark** |   | **Serial No.** |   | **Filing  Date** |   |
|--------------|--------|---------------|--------|----------------|--------|------------------|--------|

 

 

Trademark Applications in Preparation
| **Expected** |   |          |   |             |   | **Products/** |   |
|--------------|--------|---------------|--------|------------------|--------|---------------|--------|
| ***Country** |   | **Trademark** |   | **Filing  Date** |   | **Services**  |   |

 

 

ItemB.  Trademark Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and in alphabeticalorder by country name.

 

4

----

 

EXHIBITC

 

BORROWER COPYRIGHT SECURITYAGREEMENT

ThisBORROWER COPYRIGHT SECURITY AGREEMENT (this “Agreement”), dated as ofAugust 2, 2002, is made between SUREBEAM CORPORATION, a Delaware corporation(the “Grantor”), and THE TITAN CORPORATION, a Delaware corporation (the “SecuredParty”);

 

W I T N E S S E T H :

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between the Grantor and the Secured Party, the Secured Partyhas agreed to make Credit Extensions to the Grantor;

WHEREAS,in connection with the Credit Agreement, the Grantor has executed and deliveredto the Secured Party a Borrower Security Agreement, dated as of August 2, 2002(as amended, restated, supplemented or otherwise modified from time to time,the “Security Agreement”);

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, the Grantor is requiredto execute and deliver this Agreement; and

WHEREAS,the Grantor has duly authorized the execution, delivery and performance of thisAgreement;

NOWTHEREFORE, for good and valuable consideration the receipt of which is herebyacknowledged, and in order to induce the Secured Party to make CreditExtensions (including the initial Credit Extension) to the Grantor pursuant tothe Credit Agreement, the Grantor agrees as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant ofSecurity Interest.  For good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, to secure all of the Secured Obligations, the Grantor does herebymortgage, pledge and hypothecate to the Secured Party, and grant to the SecuredParty a security interest in all of the following property (the “CopyrightCollateral”), whether now owned or hereafter acquired or existing by it, beingall copyrights (including all copyrights for semi-conductor chip product maskworks) of the Grantor, whether statutory or common law, registered orunregistered, now or hereafter in force throughout the world including all ofthe Grantor’s right, title 

 

----

 

and interest inand to all copyrights registered in the United States Copyright Office oranywhere else in the world and also including the copyrights referred to inItem A of Attachment 1 attached hereto, and all applications for registrationthereof, whether pending or in preparation, all copyright licenses, includingeach copyright license referred to in Item B of Attachment 1 attached hereto,the right to sue for past, present and future infringements of any thereof, allrights corresponding thereto throughout the world, all extensions and renewalsof any thereof and all Proceeds of the foregoing, including licenses,royalties, income, payments, claims, damages and Proceeds of suit.

SECTION 3.           SecurityAgreement.  This Agreement has beenexecuted and delivered by the Grantor for the purpose of registering the securityinterest of the Secured Party in the Copyright Collateral with the UnitedStates Copyright Office and corresponding offices in other countries of theworld.  The security interest grantedhereby has been granted as a supplement to, and not in limitation of, thesecurity interest granted to the Secured Party under the SecurityAgreement.  The Security Agreement (andall rights and remedies of the Secured Party thereunder) shall remain in fullforce and effect in accordance with its terms.

SECTION 4.           Release ofSecurity Interest.  Upon theTermination Date, the Secured Party shall, at the Grantor’s expense, executeand deliver to the Grantor all Instruments and other Documents as may benecessary or proper to release the lien on and security interest in theCopyright Collateral which has been granted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Copyright Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.           LoanDocument, etc.  This Agreement is aLoan Document executed pursuant to the Credit Agreement and shall (unlessotherwise expressly indicated herein) be construed, administered and applied inaccordance with the terms and provisions of the Credit Agreement.

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

 

2

----

 

INWITNESS WHEREOF, the parties hereto have caused this Borrower CopyrightSecurity Agreement to be duly executed and delivered by their respectiveofficers thereunto duly authorized as of the day and year first above written.

SUREBEAMCORPORATION,

                as Grantor

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

 

 

THETITAN CORPORATION,

                as Secured Party

 
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

3

----

 

ATTACHMENT 1

ItemA.  Copyrights/Mask Works

Registered Copyrights/Mask Works
| ***Country** |   | **Registration  No.** |   | **Registration  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|-----------------------|--------|------------------------|--------|---------------|--------|-----------|--------|

 

 

Copyright/Mask Work Pending Registration Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Registration Applications in Preparation
|         |   |           |   | **Expected**     |   |          |   |      |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|
| ***Country** |   | **Docket No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |

 

 

ItemB.  Copyright/Mask Work Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

4

----

 

# **Exhibit D**

                                                                                  BORROWINGREQUEST

 

The Titan Corporation

3033 Science Park Road

San Diego, CA  92121

Attention:                        

 

Re:  **SUREBEAM CORPORATION**

 

Gentlemen and Ladies:

 

                This BorrowingRequest is delivered to you pursuant to Section 2.4 of the Senior SecuredCredit Agreement, dated as of August 2, 2002 (as amended, restated,supplemented or otherwise modified from time to time, the “Credit Agreement”),between SureBeam Corporation (the “Borrower”), and The Titan Corporation(the “Lender”).  Unless otherwisedefined herein or the context otherwise requires, terms used herein have themeanings provided in the Credit Agreement.

 

                The Borrowerhereby requests that (i) a Revolving Loan in the aggregate principal amount of$15,000,000 and (ii) a Revolving Loan in the aggregate principal amount of$153,759.72 be made on August 2, 2002.

 

                The Borrower herebyacknowledges that, pursuant to Section 5.2(b) of the Credit Agreement, each ofthe delivery of this Borrowing Request and the acceptance by the Borrower ofthe proceeds of the Revolving Loan requested hereby constitute a representationand warranty by the Borrower that, on the date of such Revolving Loan, andimmediately before and after giving effect thereto and to the application ofthe proceeds therefrom, the statements set forth in Section 5.2(a) of theCredit Agreement are true and correct in all material respects.

 

                The Borroweragrees that if prior to the time of the Borrowings requested hereby any mattercertified to herein by it will not be true and correct in all material respectsat such time as if then made, it will immediately so notify the Lender.  Except to the extent, if any, that prior tothe time of the disbursement of funds or the issuance of the Letter of Creditfor the Borrowings requested hereby, the Lender shall receive written notice tothe contrary from the Borrower, each matter certified to herein shall be deemedonce again to be certified as true and correct in all material respects at thedate of such disbursement or issuance as if then made.

 

                The proceeds ofthis Borrowing Request shall be used to refinance the principal and accruedinterest of that certain Promissory Note dated May 24, 2002, in the originalprincipal amount of $5,000,000, that certain Promissory Note dated June 14,2002, in the original principal amount of $5,000,000 and that certainPromissory Note dated July 26, 2002, in the original principal amount of$5,000,000, each executed by the Borrower in favor of the Lender. 

 

----

 

                IN WITNESSWHEREOF, the Borrower has caused this Borrowing Request to be executed anddelivered, and the certification and representations and warranties containedherein to be made, by its duly Authorized Officer this 2nd day of August, 2002.

 
|   | ,      | SUREBEAM CORPORATION |
|--------|--------|----------------------|
|   |   | By:                  | /s/ DAVID  A. RANE |
|   |   |                 |   |
|   |   |                 | Senior  Vice President,   Chief Financial Officer |

 

 

2

----

 

**Exhibit E**

 

**[EXECUTION COPY]**

 

 

 

**CONSENT AND AGREEMENT**

**OF LICENSOR TO COLLATERALASSIGNMENT**

 

**THIS CONSENT AND AGREEMENT OFLICENSOR TO COLLATERAL ASSIGNMENT** (this “Consent”),made and entered this 23rd day of May, 2002 by SB OPERATINGCO, INC. (the “Licensor”);THE TITAN CORPORATION, a Delaware corporation (the “Borrower”); andWACHOVIA BANK, NATIONAL ASSOCIATION (hereinafter “Bank”), asadministrative agent (the “Agent”) for the lenders from time to timeparty to the Credit Agreement referred to below (individually a “Lender”and collectively the “Lenders”);

 

WITNESSETH:

 

WHEREAS, the Licensor andthe Borrower are parties to a certain License Agreement, dated as of October17, 2001 (such License Agreement, as amended, modified, supplemented orrestated from time to time, being herein called the “License Agreement”),a copy of which is attached hereto as Exhibit A, pursuant to whichthe Licensor has granted to the Borrower certain rights with regard to PatentRights, Improvements, Other Intellectual Property and Licensed Software (asthose terms are defined in the License Agreement), all in the territory andupon the terms and subject to the conditions described therein (collectively,the “SureBeam Technology”);

 

WHEREAS, the Borrower, theAgent and the Lenders have entered into a certain Senior Secured CreditAgreement dated as of May 23, 2002 (such Senior Secured Credit Agreement, asamended, modified, supplemented or restated from time to time, being hereincalled the “Credit Agreement”), pursuant to which, and upon the termsand subject to the conditions contained therein, the Lenders have agreed tomake loans and extend credit and other financial accommodations to theBorrower;

 

WHEREAS, pursuant to theCredit Agreement, the Borrower has executed in favor of the Agent a SecurityAgreement dated as of May 23, 2002 (such Security Agreement, as amended,modified, supplemented or restated from time to time, being herein called the “Assignment”),by which the Borrower has collaterally assigned to the Agent for the benefit ofitself and the Lenders, as security for all of the Obligations (as such term isdefined in the Credit Agreement), all of the Borrower’s right, title andinterest in, to and under the License Agreement;

 

WHEREAS, pursuant toSection 11.4 of the License Agreement, the Borrower is prohibited fromassigning any of its rights, interests or obligations under the LicenseAgreement without, the prior written consent of the Licensor, which theLicensor agrees not to unreasonably withhold;

 

WHEREAS, as a conditionprecedent to the making of the loans and the extending of the credit to theBorrowers contemplated by the Credit Agreement, the Agent and the Lendersrequire the execution of this Consent by the Licensor, pursuant to which theLicensor shall grant its consent to the Assignment and shall grant certainassurances to the Agent and the Lenders with respect to the License Agreement:and

 

 

----

 

WHEREAS, in order to inducethe Agent and the Lenders to enter into the Credit Agreement and to make theloans and extend the credit to the Borrowers contemplated thereby, the Licensorhas agreed to make and execute this Consent;

 

NOW, THEREFORE, for good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto, intending to be legally bound, hereby agreeas follows:

 

1.             Estoppel. The Licensor hereby represents and warrants to the Agent and the Lendersthat:

 

(a)           The Licensor is the licensor underthe License Agreement;

 

(b)           A true, accurate and complete copy ofthe License Agreement, and all supplements, amendments and modificationsthereto, is attached to this Consent as Exhibit A;

 

(c)           As of the date hereof, the LicenseAgreement is valid and in full force and effect without modification oramendment;

 

(d)           The License Agreement embodies theentire agreement between the Licensor and Lessee with respect to the use andlicense by the Borrower of the SureBeam Technology.  There are no other agreements or understandings between theLicensor and the Borrower with regard to the use or license of the SureBeamTechnology, and there are no other agreements, understandings or side letterswhatsoever between the Licensor and the Borrower pertaining in any way to theSureBeam Technology; and

 

(e)           To the best knowledge of theLicensor, there have been and are no defaults under the terms and conditions ofthe License Agreement by either the Licensor or the Borrower and there are noevents which have occurred which, with the giving of notice or the passage oftime, or both, would constitute a default by either the Licensor or theBorrower thereunder.  No controversypresently exists between the Licensor and the Borrower, including litigation orarbitration, with regard to the License Agreement or the performance thereof.

 

2.             Consent to Assignment.  The Licensor hereby consents to the collateral assignment by theBorrower to the Agent for the benefit of itself and the Lenders of theBorrower’s rights in, to and under the License Agreement pursuant to theAssignment and agrees that the Assignment is permitted under the LicenseAgreement and will not constitute a default or event of default on the part ofthe Borrower thereunder.

 

3.             Agreements of the Licensor.  The Licensor agrees with the Agent and theLenders that:

 

(a)           The Licensor shall provide the Agentwith a copy of any notice of default, notice of cure of default, termination orsimilar kind of notice given to the Borrower under the License Agreement,contemporaneously with the giving of such notice to the Borrower.  No default or event of default or terminationof the License Agreement 

 

2

----

 

predicated on the giving ofany notice to the Borrower shall be complete unless like notice in writingshall have been given to the Agent and the Agent has been given the same cureperiod as is given to the Borrower under the License Agreement, or a period ofthirty (30) days, whichever period is longer;

 

(b)           In the event the Borrower defaults inthe performance of any of its obligations under the License Agreement, regardlessof whether such default consists of a failure to make a payment when due or afailure to do any other thing which the Borrower is required to do under theLicense Agreement, the Agent, without prejudice to any of its rights againstthe Borrower, shall have the right (but not the obligation) to make good suchdefault within the period set forth in Section 3(a) above, and theLicensor shall accept such performance on the part of the Agent as though thesame had been performed by the Borrower; and

 

(c)           If the Borrower is in default underthe Obligations secured by the Assignment and the Agent elects to exercise itsrights and remedies with the License Agreement as granted under the Assignment,the License Agreement may be assigned by the Agent to a third party assignee orto any purchaser pursuant to a private or public foreclosure sale, in each caseto a third party assignee or other purchaser approved by the Licensor, whichapproval shall not be unreasonably withheld, but otherwise subject to all ofthe other covenants, conditions and restrictions set forth in the LicenseAgreement, and the requirement that all amounts then due and owing to theLicensor under the License Agreement be paid concurrently with the granting ofany such approval by the Licensor.  Nothingherein, however, shall give the Agent, any third party assignee or anypurchaser any greater rights than those granted under the License Agreement.

 

4.             Notices. All notices, requests and demands to or upon a party hereto, to beeffective, shall be in writing and shall be sent by certified or registeredmail, return receipt requested, by personal delivery against receipt, byovernight courier or by facsimile transmission and, unless expressly providedherein, shall be deemed to have been validly served, given or deliveredimmediately when delivered against receipt, three (3) business days afterdeposit in the mail, postage prepaid, or, in the case of facsimiletransmission, when received (if on a business day and, if not received on abusiness day, then on the next business day after receipt), addressed asfollows:

 
| (i)    | If  to the Agent, at:    |   | Wachovia  Bank, National Association |
|--------|--------------------------|--------|--------------------------------------|
|   |                     |   | One  Wachovia Center                 |
|   |                     |   | 301  South College Street, 5th Floor |
|   |                     |   | Charlotte,  NC 28288-0760            |
|   |                     |   | Attention:  Scott Santa Cruz    |
|   |                     |   | Facsimile  No.:  704-374-4793   |
|   |                     |   |                                 |
| (ii)   | If  to the Borrower, at: |   | The  Titan Corporation               |
|   |                     |   | 3033  Science Park Road              |
|   |                     |   | San  Diego, CA 92121                 |
|   |                     |   | Attention:  Mark Sopp           |
|   |                     |   | Facsimile  No.:  858-552-9802   |
|   |                     |   |                                 |

 

3

----

 
| (iii)  | If  to the Licensor, at: |   | SB  OperatingCo, Inc.              |
|--------|--------------------------|--------|------------------------------------|
|   |                     |   | 3033  Science Park Rd.             |
|   |                     |   | San  Diego, CA  92121         |
|   |                     |   | Attention:  David Rane             |
|   |                     |   | Facsimile  No.:  858-552-9973 |

 

or to such other address as each party maydesignate for itself by notice given in accordance with thisSection 4.  Any written notice ordemand that is not sent in conformity, with the provisions hereof shallnevertheless be effective on the date that such notice is actually received bythe noticed party.

 

5.             Term of Agreement.  This Consent, and the agreement of the parties set forth herein,shall continue to be effective until all Obligations owed by the Borrower tothe Agent and the Lenders shall have been paid and discharged in full and theCredit Agreement shall be terminated in writing, provided, however, thatnothing herein shall be deemed to extend the term of the License Agreementbeyond the term specified therein.

 

6.             Execution in Counterparts.  This Consent may be executed in any numberof counterparts and by different parties hereto in separate counterparts, eachof which when so executed and delivered shall be deemed to be an original andall of which counterparts taken together shall constitute but one and the sameinstrument.

 

7.             Miscellaneous. The provisions of this Consent may not be modified or terminated orallyand shall be binding upon and inure to the benefit of the parties hereto andtheir respective successors and assigns. The Section titles contained in this Consent are and shall bewithout substantive meaning or content of any kind whatsoever and are not partof the agreement among the parties hereto.

 

[remainderof page intentionally left blank]

 

 

4

----

 

IN WITNESS WHEREOF, theparties hereto have caused this Consent to be duly executed by their dulyauthorized corporate offices on the day and year first above written.

 
| SB OPERATINGCO, INC.                           |
|------------------------------------------------|
|                                           |   |
| By:                                            | /s/  David Rane |
| Name:                                          | David Rane |
| Title:                                         | SVP, CFO |
|                                           |   |
| THE TITAN CORPORATION                          |
|                                           |   |
| By:                                            | /s/ Ray H. Guillaume |
| Name:                                          | Ray H. Guillaume |
| Title:                                         | Director of Corporate  Treasury |
|                                           |   |
| WACHOVIA BANK, NATIONAL  ASSOCIATION, as Agent |
|                                           |   |
| By:                                            | /s/ Gerald P. Hullinger |
| Name:                                          | Gerald P. Hullinger |
| Title:                                         | Vice President |

 

 

5

----

 

 

EXHIBITF

COMPLIANCE CERTIFICATE

 

The Titan Corporation

3033 Science Park Road

San Diego, California 92121

 

Attention:

 

SUREBEAM CORPORATION

 

Ladies and Gentlemen:

 

This Compliance Certificateis delivered to you pursuant to Section 5.1(k) of the Senior Secured CreditAgreement, dated as of August 2, 2002 (as amended, restated, supplemented orotherwise modified from time to time, the “Credit Agreement”), betweenSureBeam Corporation, a Delaware corporation (the “Borrower”), and TheTitan Corporation, a Delaware corporation (the “Lender”).  Unless otherwise defined in this ComplianceCertificate, terms used herein (including the Attachments hereto) have themeanings provided in the Credit Agreement. Each reference to a Section is to the relevant Section in the CreditAgreement.

 

The Borrower hereby certifies and warrants that as of June 30, 2002(the “Computation Date”):

 

1.             Borrower’s Revenue for the currentFiscal Quarter* is $10,785,000.  Thequarterly revenue target for the current Fiscal Quarter, as set forth inBorrower’s Annual Operating Plan is $11,000,000.

 

                Borrower’s Revenue for thecurrent Fiscal Quarter is greater than 85% of the quarterly revenue target setforth in the Annual Operating Plan.

 

The Capital Expenditures forthe current Fiscal Quarter of the Borrower are $6,102,000.

 

                The maximumCapital Expenditures permitted pursuant to clause (a) of Section 8.4 of theCredit Agreement is $9,625,000 in the aggregate during Fiscal Year 2002 and,accordingly, the Capital Expenditures covenant has been satisfied.

 

2.             Borrower’s Revenue for the currentFiscal Quarter is $10,785,000.  Thequarterly revenue target for the current Fiscal Quarter, as set forth inBorrower’s Annual Operating Plan is $11,000,000.

 

                Borrower’s Revenue for thecurrent Fiscal Quarter is greater than 85% of the quarterly revenue target setforth in the Annual Operating Plan.

 

----

 

 

The Operating Expenses forthe current Fiscal Quarter of the Borrower are $9,844,000.

 

                The maximum Operating Expensespermitted pursuant to clause (b) of Section 8.4 of the Credit Agreement is$9,844,000 in the aggregate during Fiscal Year 2002 and, accordingly, theOperating Expenses covenant has been satisfied.

 

3.             Borrower’s EBITDA for the FiscalQuarter is $(1,254,000), as computed on Attachment 1 hereto.

 

4.             Indebtedness of theBorrower and the Guarantors as set forth in clause (f) of Section 8.2 of theCredit Agreement was, in the aggregate, $0. Indebtedness pursuant to clause (f) of Section 8.2 of the CreditAgreement is not allowed to exceed, in an aggregate amount at any time,$5,000,000, and accordingly, such Indebtedness was permitted.

 

5.             Other Investments(other than any acquisition of any Person) of the Borrower or any of itsSubsidiaries as set forth in clause (j) of Section 8.5 of the Credit Agreement,was $0.  Such other Investments pursuantto clause (j) of Section 8.5 of the Credit Agreement are not permitted toexceed $500,000 in the aggregate over the term of the Credit Agreement, andaccordingly, to date, such Investments were permitted.

 

6.             The aggregate amountof acquisitions (whether pursuant to an acquisition of stock, assetsconstituting a business unit of any Person, or substantially all of the assetsof any Person or Persons or otherwise and including any assumed debt) by theBorrower or any Guarantor of any Person or Persons or the assets of any Personor Persons was $0.  Such acquisitionspursuant to clause (j)(iii) of Section 8.5 of the Credit Agreement are notpermitted to exceed $2,000,000 in the aggregate over the term of the CreditAgreement, and accordingly, to date, such acquisitions were permitted.

 

7.             The aggregate valueof Capital Stock redemptions for the Borrower and its Subsidiaries under clause(c) of Section 8.6 of the Credit Agreement was $0.  The aggregate value of such redemptions pursuant to clause (c) ofSection 8.6 of the Credit Agreement are not permitted to exceed $1,000,000, andaccordingly, such redemptions were permitted.

 

8.             The amount of saleproceeds from sale-leasebacks of the Borrower and its Subsidiaries underSection 8.14 of the Credit Agreement was $0 in the aggregate.  Such proceeds from sale-leasebacks pursuantto such Section 8.14 of the Credit Agreement are not allowed exceed $2,500,000in the aggregate, and accordingly, such sale-leasebacks were permitted.

 

9.             No Default hasoccurred or is continuing.

 

*  As used herein, the term “current Fiscal Quarter” shall mean theFiscal Quarter for which calculations are being provided.

 

2

----

 

 

IN WITNESS WHEREOF, theBorrower has caused this Compliance Certificate to be duly executed anddelivered by its chief executive, financial or accounting Authorized Officerthis 2nd day of August 2002.

 

 
|   | SUREBEAM CORPORATION |
|--------|----------------------|
|   |                 |   |
|   | By:                  |   |
|   | Name:           | David A. Rane |
|   | Title:               | Senior Vice President and |
|   |                 | Chief Financial Officer |

 

 

3

----

 

SCHEDULE1

 

(ComplianceCertificate as of June 30, 2002)

 

DEFAULTS

 

Describe details of Default and actions that the Borrower has taken orproposes to take with respect thereto.

 

None.

 

4

----

 

ATTACHMENT 1

 

EBITDA

 

for the preceding Fiscal Quarter

ending on June 30, 2002 (the “Computation Date”)

(the “Computation Period”)

 

1.             EBITDA:
| (a)   Net Income                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $      | (5,102,000 | )      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
| (b)   the amount deducted by the Borrower and its  Subsidiaries, in determining Net Income, representing amortization, as  determined in accordance with GAAP                                                                                                                                                                                                                                                                                                                  |   | $      | 4,157,000  |   |
| (c)   the amount deducted, in determining Net  Income, of all federal, state and local income taxes (whether paid in cash or  deferred) of the Borrower and its Subsidiaries,                                                                                                                                                                                                                                                                                                  |   | $      | 0          |   |
| (d)   the amount deducted, in determining Net  Income, of Interest Expense of the Borrower and its Subsidiaries                                                                                                                                                                                                                                                                                                                                                                |   | $      | 65         |   |
| (e)   the amount deducted, in determining Net  Income, representing depreciation of assets of the Borrower and its  Subsidiaries, as determined in accordance with GAAP                                                                                                                                                                                                                                                                                                        |   | $      | 667        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |       |
| (f)            The sum of Items 1(a) through 1(e)                                                                                                                                                                                                                                                                                                                                                                                 |   | $      | (213       | )      |
| (g)   all amounts added by the Borrower and its  Subsidiaries, in determining Net Income, representing either non-cash or  non-recurring gains, including as a result of changes in accounting treatment  under GAAP, and including royalty income recognized by the Borrower and its  Subsidiaries in accordance with that certain Amended and Restated License  Agreement dated October 17, 2001 between SB OperatingCo, Inc., now known as  SB OperatingCo, LLC, and Lender |   | $      | 1,041      |   |
| (h)   EBITDA:   Item 1(f) minus Item 1(g)                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $      | (1,254     | )      |

 

 

----

 

**Exhibit G**

# **BORROWER COPYRIGHT SECURITY AGREEMENT**

 

ThisBORROWER COPYRIGHT SECURITY AGREEMENT (this “Agreement”), dated as ofAugust 2, 2002, is made between SUREBEAM CORPORATION, a Delaware corporation(the “Grantor”), and THE TITAN CORPORATION, a Delaware corporation (the “SecuredParty”);

 

W I T N E S S E T H :

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between the Grantor and the Secured Party, the Secured Partyhas agreed to make Credit Extensions to the Grantor;

WHEREAS,in connection with the Credit Agreement, the Grantor has executed and deliveredto the Secured Party a Borrower Security Agreement, dated as of August 2, 2002(as amended, restated, supplemented or otherwise modified from time to time,the “Security Agreement”);

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, the Grantor is requiredto execute and deliver this Agreement; and

WHEREAS,the Grantor has duly authorized the execution, delivery and performance of thisAgreement;

NOWTHEREFORE, for good and valuable consideration the receipt of which is herebyacknowledged, and in order to induce the Secured Party to make CreditExtensions (including the initial Credit Extension) to the Grantor pursuant tothe Credit Agreement, the Grantor agrees as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant of Security Interest.  For good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, to secure all of theSecured Obligations, the Grantor does hereby mortgage, pledge and hypothecateto the Secured Party, and grant to the Secured Party a security interest in allof the following property (the “Copyright Collateral”), whether nowowned or hereafter acquired or existing by it, being all copyrights (includingall copyrights for semi-conductor chip product mask works) of the Grantor,whether statutory or common law, registered or unregistered, now or hereafterin force throughout the world including all of the Grantor’s right, title andinterest in and to all copyrights registered in 

 

----

 

the United StatesCopyright Office or anywhere else in the world and also including thecopyrights referred to in Item A of Attachment 1 attached hereto,and all applications for registration thereof, whether pending or inpreparation, all copyright licenses, including each copyright license referredto in Item B of Attachment 1 attached hereto, the right to suefor past, present and future infringements of any thereof, all rightscorresponding thereto throughout the world, all extensions and renewals of anythereof and all Proceeds of the foregoing, including licenses, royalties,income, payments, claims, damages and Proceeds of suit.

Notwithstanding anything herein to thecontrary, in no event shall the Collateral include, and the Grantor shall notbe deemed to have granted a security interest in, any of the Grantor’s rightsor interests in any license, contract or agreement to which the Grantor is aparty or any of its rights or interests thereunder to the extent, but only tothe extent, that such a grant would, under the express terms of such license,contract or agreement or otherwise, result in a breach of the terms of, orconstitute a default under such license, contract or agreement (other than tothe extent that any such term would be rendered ineffective pursuant toSections 9407(a) or 9408(a) of the U.C.C. or any other applicable law(including the Bankruptcy Code) or principles of equity); provided, thatimmediately upon the ineffectiveness, waiver, lapse or termination of any suchprovision, the Collateral shall include, and the Grantor shall have granted asecurity interest in, all such rights and interests as if such provision hadnever been in effect.

 

SECTION 3.           Security Agreement.  This Agreement has been executed anddelivered by the Grantor for the purpose of registering the security interestof the Secured Party in the Copyright Collateral with the United StatesCopyright Office and corresponding offices in other countries of theworld.  The security interest grantedhereby has been granted as a supplement to, and not in limitation of, thesecurity interest granted to the Secured Party under the SecurityAgreement.  The Security Agreement (andall rights and remedies of the Secured Party thereunder) shall remain in fullforce and effect in accordance with its terms.

SECTION 4.           Release of Security Interest.  Upon the Termination Date, the Secured Partyshall, at the Grantor’s expense, execute and deliver to the Grantor allInstruments and other Documents as may be necessary or proper to release thelien on and security interest in the Copyright Collateral which has beengranted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Copyright Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.           Loan Document, etc.  This Agreement is a Loan Document executedpursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions of the Credit Agreement.

 

2

----

 

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

 

3

----

 

INWITNESS WHEREOF, the parties hereto have caused this Borrower CopyrightSecurity Agreement to be duly executed and delivered by their respectiveofficers thereunto duly authorized as of the day and year first above written.
|   |   | SUREBEAM CORPORATION,   as Grantor               |
|--------|--------|--------------------------------------------------|
|   |   | By:                                              | /s/ DAVID  A. RANE |
|   |   |                                             |   |
|   |   |                                             | David  A. Rane   Senior Vice President,   Chief Financial Officer |
|   |   |                                             |   |
|   |   | THE TITAN  CORPORATION,    as Secured Party |
|   |   | By:                                              | /s/ MARK  W. SOPP |
|   |   |                                             |   |
|   |   |                                             | Mark W. Sopp Senior   Vice President,   Chief Financial Officer |

 

 

4

----

 

ATTACHMENT 1

ItemA.  Copyrights/Mask Works

Registered Copyrights/Mask Works
| ***Country** |   | **Registration  No.** |   | **Registration  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|-----------------------|--------|------------------------|--------|---------------|--------|-----------|--------|

 

 

Copyright/Mask Work Pending Registration Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Registration Applications in Preparation
|         |   |           |   | **Expected**     |   |          |   |      |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|
| ***Country** |   | **Docket No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |

 

 

ItemB.  Copyright/Mask Work Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

5

----

 

 

**Exhibit H**

 

[BORROWING][ISSUANCE] REQUEST

 

The Titan Corporation

[ADDRESS]

Attention:

 

Re:  **SUREBEAM CORPORATION**

 

Gentlemen and Ladies:

 

                This BorrowingRequest is delivered to you pursuant to [Section 2.4] [Section 2.6] of theSenior Secured Credit Agreement, dated as of August    , 2002(as amended, restated, supplemented or otherwise modified from time to time,the “Credit Agreement”), between SureBeam Corporation (the “Borrower”),and The Titan Corporation (the “Lender”).  Unless otherwise defined herein or the context otherwiserequires, terms used herein have the meanings provided in the Credit Agreement.

 

                [The Borrowerhereby requests that a Revolving Loan be made in the aggregate principal amountof$                    on                              ,20   .]

 

                [The Borrowerrequests that Lender issue or cause to be issued a Letter of Credit in theamount of$                    on                               ,20   .]

 

                The Borrowerhereby acknowledges that, pursuant to Section 5.2(b) of the Credit Agreement,each of the delivery of this [Borrowing Request] [Issuance Request] and theacceptance by the Borrower of the [proceeds of the Revolving Loan] [Letter ofCredit] requested hereby constitute a representation and warranty by theBorrower that, on the date of such [Revolving Loan] [Letter of Credit], andimmediately before and after giving effect thereto and to the application ofthe proceeds therefrom, the statements set forth in Section 5.2(a) of theCredit Agreement are true and correct in all material respects.

 

                The Borrowerhereby certifies that, pursuant to Section 2.1(c) of the Credit Agreement,Borrower’s EBITDA for the immediately preceding Fiscal Quarter (or for thesecond preceding Fiscal Quarter in accordance with Section 2.5 of the CreditAgreement) is                                             .

 

                [**If amount in blank space above is less that 25% of theEBITDA AOP Target for such preceding Fiscal Quarter, include the following:**  Borrower hereby covenants that it shallrestrict its Operating Expenses during the current Fiscal Quarter to an amountnot to exceed Five Million Dollars ($5,000,000), not taking into accountamounts allowed to be carried forward as provided in Section 8.4(b) of theCredit Agreement.]

 

----

 

                The Borroweragrees that if prior to the time of the Borrowing requested hereby any mattercertified to herein by it will not be true and correct in all material respectsat such time as if then made, it will immediately so notify the Lender.  Except to the extent, if any, that prior tothe time of the disbursement of funds or the issuance of the Letter of Creditfor the Borrowing requested hereby, the Lender shall receive written notice tothe contrary from the Borrower, each matter certified to herein shall be deemedonce again to be certified as true and correct in all material respects at thedate of such disbursement or issuance as if then made.

 

                [Please wiretransfer the proceeds of the Borrowing to the accounts of the following personsat the financial institutions indicated respectively:]

 
| **Amount to  be  Transferred** |   | **Person to be Paid** |   | **Name, Account No.,  Address, etc.** |
|--------------------------------|--------|-----------------------|--------|---------------------------------------|
|                           |   |                  |   |                                  |
| $                              |   |                  |   |                                  |   |
|                           |   |                  |   |                                  |
|                           |   |                  |   |                                  |
|                           |   |                  |   | Attention:                            |   |
|                           |   |                  |   |                                  |   |
| $                              |   |                  |   |                                  |   |
|                           |   |                  |   |                                  |
|                           |   |                  |   |                                  |
|                           |   |                  |   | Attention:                            |   |
|                           |   |                  |   |                                  |   |
| $                              |   |                  |   |                                  |   |
| Balance of such proceeds       |   |                  |   |                                  |
|                           |   |                  |   |                                  |
|                           |   |                  |   | Attention:                            |   |

 

                [Please cause to be issued aLetter of Credit in the name of the following persons in the followingamounts:]

 
| **Amount of  Letter of  Credit** |   | **Issued in the Name of** |   | **Name, Address, etc.** |
|----------------------------------|--------|---------------------------|--------|-------------------------|
|                             |   |                      |   |                    |
| $                                |   |                      |   |                    |   |
|                             |   |                      |   |                    |
|                             |   |                      |   |                    |
|                             |   |                      |   |                    |
| $                                |   |                      |   |                    |   |
|                             |   |                      |   |                    |
|                             |   |                      |   |                    |
|                             |   |                      |   |                    |
| $                                |   |                      |   |                    |   |
|                             |   |                      |   |                    |
|                             |   |                      |   |                    |

 

 

2

----

 

                INWITNESS WHEREOF, the Borrower has caused this [Borrowing Request] [IssuanceRequest] to be executed and delivered, and the certification andrepresentations and warranties contained herein to be made, by its dulyAuthorized Officer this        day of                      ,         .

 

 
| SUREBEAM CORPORATION |
|----------------------|
|                 |
| By                   |   |
| Name:                |
| Title:               |

 

 

3

----

 

**Exhibit I**

                                                                                       REVOLVINGNOTE

 

$50,000,000                                                                                                                                                           August2, 2002

SanDiego, California

 

                FORVALUE RECEIVED, the undersigned, SUREBEAM CORPORATION, a Delaware corporation(the “Borrower”), promises to pay to the order of THE TITAN CORPORATION,a Delaware corporation, and its assigns (the “Lender”) on the RevolvingLoan Maturity Date, the principal sum of FIFITY MILLION DOLLARS ($50,000,000)or, if less, the aggregate unpaid principal amount of all Revolving Loans madeby the Lender pursuant to that certain Senior Secured Credit Agreement, datedas of August 2, 2002 by and between the Borrower and the Lender (as amended,restated, supplemented or otherwise modified from time to time, the “CreditAgreement”).  Unless otherwise defined,terms used herein have the meanings provided in the Credit Agreement.

 

                TheBorrower also promises to pay interest on the unpaid principal amount hereoffrom time to time outstanding from the date hereof until maturity (whether byacceleration or otherwise) and, after maturity, until paid, at the rates perannum and on the dates specified in the Credit Agreement.  Payments of both principal and interest areto be made in lawful money of the United States of America in same day orimmediately available funds at the place or places designated by the Lenderpursuant to the Credit Agreement.

 

                ThisRevolving Note is the Revolving Note referred to in, and evidences Obligationsincurred under, the Credit Agreement, to which reference is made for a descriptionof the security for this Revolving Note and for a statement of the terms andconditions on which the Borrower is permitted and required to make prepaymentsand repayments of principal of the Obligations evidenced by this Revolving Noteand on which such Obligations may be declared to be immediately due andpayable.

 

                TheBorrower hereby irrevocably authorizes the Lender to make (or cause to be made)appropriate notations on the grid attached hereto (or on any continuation ofsuch grid), which notations, if made, shall evidence, *inter alia*, the date of andthe outstanding principal of, the Revolving Loans evidenced hereby.  Such notations shall be rebuttablepresumptive evidence of the accuracy of the information so set forth; *provided,however*, that the failure of the Lender to make any such notationsshall not limit or otherwise affect any Obligations of the Borrower.

 

                Allparties hereto, whether as makers, endorsers, or otherwise, severally waivepresentment for payment, demand, protest and notice of dishonor.

 
|   |   | **SUREBEAM CORPORATION** |
|--------|--------|--------------------------|
|   |   | By:                      | /s/ L. A. OBERKFELL |
|   |   |                     |   |
|   |   |                     | L.  A. Oberkfeff *President and Chief Executive Officer* |

 

 

----

 

Thefollowing subtractions and additions of portions of the principal amount ofthis Revolving Note have been made:

 

 
| **Date Made** |   | **Principal  Amount Subtracted or Added** |   | **Principal  Amount Following Such Subtraction of Addition** |   |
|---------------|--------|-------------------------------------------|--------|--------------------------------------------------------------|--------|
|          |   |                                      |   |                                                         |   |

 

 

2

----

 

 

**Exhibit J**

SUBSIDIARY GUARANTY

ThisSUBSIDIARY GUARANTY (as amended, restated, supplemented, or otherwise modifiedfrom time to time, this “Guaranty”), dated as of August 2, 2002, is madeby each Subsidiary of SUREBEAM CORPORATION, a Delaware corporation (the“Borrower”), now or after the date hereof (including pursuant to Section 5.5)a party to this Guaranty (individually referred to as a “Guarantor” andcollectively referred to as the “Guarantors”) in favor of THE TITANCORPORATION, a Delaware corporation (the “Secured Party”).

W I T N E S S E T H:

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented, or otherwise modified from time to time, the “CreditAgreement”), between the Borrower and the Secured Party, the Secured Partyhas agreed to extend Commitments to make Credit Extensions to the Borrower;

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, each Guarantor isrequired to execute and deliver this Guaranty;

WHEREAS,each Guarantor has duly authorized the execution, delivery and performance ofthis Guaranty; and

WHEREAS,it is in the best interests of each Guarantor to execute this Guaranty inasmuchas such Guarantor will derive substantial direct and indirect benefits from theCredit Extensions made from time to time to the Borrower by the Secured Partypursuant to the Credit Agreement;

NOW THEREFORE, for good andvaluable consideration the receipt of which is hereby acknowledged, and inorder to induce the Secured Party to make Credit Extensions (including theinitial Credit Extension) to the Borrower, each Guarantor jointly and severallyagrees, for the benefit of the Secured Party, as follows:

 

ARTICLE IDEFINITIONS

Section 1.1             Certain Terms.  The following terms (whether or not underscored)when used in this Guaranty, including its preamble and recitals, shall have thefollowing meanings (such definitions to be equally applicable to the singularand plural forms thereof):

“Borrower”is defined in the preamble.

“CreditAgreement” is defined in the first recital.

“Guarantor”and “Guarantors” is defined in the preamble.

 

----

 

“Guaranty”is defined in the preamble.

“TerminationDate” means the date on which all Obligations have indefeasibly been paidin full in cash, all Commitments have been fully terminated and all Letters ofCredit and Lender Guaranties have been canceled or otherwise terminated.

Section 1.2             Credit Agreement Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Guaranty, including its preambleand recitals, have the meanings provided in the Credit Agreement.

ARTICLE IIGUARANTY PROVISIONS

Section 2.1             Guaranty.  Each Guarantor hereby jointly and severallyabsolutely, unconditionally and irrevocably:

(a)           guarantees the full and punctualpayment when due, whether at stated maturity, by required prepayment,declaration, acceleration, demand or otherwise, of all Obligations of theBorrower and each other Obligor now or hereafter existing, whether forprincipal, interest (including interest accruing at the then applicable rateprovided in the Credit Agreement after the occurrence of any Default set forthin Section 9.1(i) of the Credit Agreement, whether or not a claim forpost-filing or post-petition interest is allowed under applicable law followingthe institution of a proceeding under bankruptcy, insolvency or similar laws),fees, Reimbursement Obligations, Hedging Obligations, expenses or otherwise(including all such amounts which would become due but for the operation of theautomatic stay under Section 362(a) of the United States Bankruptcy Code, 11U.S.C. §362(a), and the operation of Sections 502(b) and 506(b) of the UnitedStates Bankruptcy Code, 11 U.S.C. §502(b) and §506(b)) (the “Liabilities”);and

(b)           indemnifies and holds harmless theSecured Party for any and all costs and expenses (including reasonableattorneys’ fees and expenses) incurred by the Secured Party in enforcing anyrights under this Guaranty (together with the Liabilities, the “GuarantyObligations”);

provided, however, that each Guarantor shall only beliable under this Guaranty for the maximum amount, if there is such a maximumamount, of such liability that can be hereby incurred without rendering thisGuaranty, as it relates to such Guarantor, voidable under applicable lawrelating to fraudulent conveyance or fraudulent transfer, and not for anygreater amount.  This Guarantyconstitutes a guaranty of payment when due and not of collection, and eachGuarantor specifically agrees that it shall not be necessary or required thatthe Secured Party exercise any right, assert any claim or demand or enforce anyremedy whatsoever against the Borrower, any other Obligor or any other Personbefore or as a condition to the obligations of such Guarantor hereunder.

Section 2.2             Reinstatement, etc.  Each Guarantor hereby jointly and severallyagrees that this Guaranty shall continue to be effective or be reinstated, asthe case may be, if at any time any payment (in whole or in part) of any of theObligations is invalidated, declared to be 

 

2

----

 

fraudulent or preferential, set aside, rescinded ormust otherwise be restored by the Secured Party, upon the insolvency,bankruptcy, reorganization (or similar event) of the Borrower, any otherObligor or otherwise, all as though such payment had not been made.

Section 2.3             Guaranty Absolute, etc.  This Guaranty shall in all respects be acontinuing, absolute, unconditional and irrevocable guaranty of payment, andshall remain in full force and effect until the Termination Date hasoccurred.  Each Guarantor jointly andseverally guarantees that the Obligations of the Borrower and each otherObligor will be paid strictly in accordance with the terms of the CreditAgreement, each other Loan Document and any Interest Rate Hedging Agreementunder which they arise, regardless of any law, regulation or order now orhereafter in effect in any jurisdiction affecting any of such terms or therights of the Secured Party with respect thereto.  The liability of each Guarantor under this Guaranty shall bejoint and several, absolute, unconditional and irrevocable irrespective of:

(a)           any lack of validity, legality orenforceability of the Credit Agreement or any other Loan Document;

(b)           the failure of the Secured Party

(1)           to assert any claim or demand or toenforce any right or remedy against the Borrower, any other Obligor or anyother Person (including any other guarantor) under the provisions of the CreditAgreement, any other Loan Document, any Interest Rate Hedging Agreement orotherwise, or

(2)           to exercise any right or remedyagainst any other guarantor (including each Guarantor) of, or collateralsecuring, any Obligations;

anychange in the time, manner or place of payment of, or in any other term of, allor any part of the Obligations, or any extension, compromise or renewal of anyObligation;

(c)           any reduction, limitation, impairmentor termination of any Obligations for any reason, including any claim ofwaiver, release, surrender, alteration or compromise, and shall not be subjectto (and each Guarantor hereby waives any right to or claim of) any defense orsetoff, counterclaim, recoupment or termination whatsoever by reason of theinvalidity, illegality, nongenuineness, irregularity, compromise,unenforceability of, or any other event or occurrence affecting, anyObligations or otherwise;

(d)           any amendment to, rescission, waiver,or other modification of, or any consent to or departure from, any of the termsof the Credit Agreement, any other Loan Document or any Interest Rate HedgingAgreement, including without limitation any increase in the Obligations fromthe extension of additional credit to the Borrower or otherwise;

(e)           any addition, exchange, release,surrender or non-perfection of any collateral, or any amendment to or waiver orrelease or addition of, or consent to or departure from, any other guarantyheld by the Secured Party securing any of the Obligations;

(f)            any change, restructuring ortermination of the corporate structure or existence of the Borrower or anyother Obligor; or

 

3

----

 

(g)           any other circumstance which mightotherwise constitute a defense available to, or a legal or equitable dischargeof, the Borrower, any other Obligor, any surety or any guarantor.

Section 2.4             Setoff.  Each Guarantor hereby irrevocably authorizesthe Secured Party, without the requirement that any notice be given to suchGuarantor (such notice being expressly waived by each Guarantor), upon the occurrenceand during the continuance of any Default described in Section 9.1(i) of theCredit Agreement as it relates to the Borrower or upon the occurrence andduring the continuance of any other Event of Default, to set-off andappropriate and apply to the payment of the Obligations owing to the SecuredParty (whether or not then due, and whether or not the Secured Party has madeany demand for payment of the Obligations), any and all balances, claims,credits, deposits (general or special, time or demand, provisional or final),accounts or money of such Guarantor then or thereafter maintained with theSecured Party.  The Secured Party agreesto notify the applicable Guarantor after any such setoff and application madeby the Secured Party; provided, however, that the failure to givesuch notice shall not affect the validity of such setoff and application.  The rights of the Secured Party under thisSection are in addition to other rights and remedies (including other rights ofsetoff under applicable law or otherwise) which the Secured Party may have.

Section 2.5             Waiver, Etc.  

(a)           Each Guarantor hereby waivespromptness, diligence, notice of acceptance and any other notice with respectto any of the Obligations and this Guaranty and any requirement that theSecured Party protect, secure, perfect or insure any Lien, or any propertysubject thereto, or exhaust any right or take any action against the Borrower,any other Obligor or any other Person (including any other guarantor) or entityor any collateral securing the Obligations, as the case may be.

(b)           Each Guarantor hereby waives anyright to revoke this Guaranty, and acknowledges that this Guaranty iscontinuing in nature and applies to all Obligations, whether existing now or inthe future.

(c)           Each Guarantor acknowledges that itwill receive substantial direct and indirect benefits from the financingarrangements contemplated by the Loan Documents and that the waivers set forthin this Section 2.4 are knowingly made in contemplation of suchbenefits.

(d)           Each Guarantor assumes allresponsibility for being and keeping itself informed of the financial conditionand assets of the Borrower, and of all other circumstances bearing upon therisk of non-payment of the Obligations and the nature, scope and extent of therisks the Guarantors assume and incur hereunder, and agrees that the SecuredParty shall have no duty to advise the Guarantors of information known to itregarding such circumstances or risks.

(e)           Each Guarantor hereby waives allclaims (as such term is defined in the United States Bankruptcy Code) it may atany time otherwise have against the Borrower arising from any transactionwhatsoever, including, without limitation, its rights to assert or enforce anysuch claims, until the Obligations are repaid in full in cash and allCommitments have been terminated.

 

4

----

 

(f)            Each Guarantor hereby waives, to thefullest extent permitted by applicable law, without limiting the generality ofthe foregoing or any other provision hereof, all rights and benefits whichmight otherwise be available to each Guarantor under Sections 1432, 2809, 2810,2815, 2819, 2821, 2839, 2845, 2848, 2849, 2850, 2899 and 3433 of the CaliforniaCivil Code.

(g)           Each Guarantor acknowledges andaffirms that it understands and is aware that if the Secured Party elects toforeclose on any real property security nonjudicially, any right of subrogationof such Guarantor against the Borrower may be impaired or extinguished and thatas a result of such impairment or extinguishment or subrogation rights, theGuarantors might otherwise have a defense to a deficiency judgment arising outof the operation of Section 580d of the California Code of Civil Procedure andrelated principles of estoppel, and waives any defense arising out of any suchelection by the Secured Party, including, without limitation, the defensearising out of the operation of Section 580d of the Code of Civil Procedure andrelated principles of estoppel, even though such election operates to impair orextinguish any right of reimbursement or subrogation or other right or remedyof the Guarantors against the Borrower or any other party or any security.

Section 2.6             Subrogation.  Each Guarantor agrees that it will notexercise any rights that it may now have or hereafter acquire against theBorrower that arise from the existence, payment, performance or enforcement ofsuch Guarantor’s obligations under this Guaranty or any other Loan Document,including without limitation any right of subrogation, reimbursement,exoneration, contribution or indemnification and any right to participate inany claim or remedy of the Secured Party or any beneficiary against theBorrower or any collateral, whether or not such claim, remedy or right arises atequity or under contract, statute or common law, including without limitationthe right to take or receive from the Borrower, directly or indirectly, in cashor other property or by set-off or in any other manner, payment or security onaccount of such claim, remedy or right except as specifically otherwiseprovided in the Loan Documents, until the Obligations are repaid in full incash and all Commitments have been terminated. Any amount paid to any Guarantor on account of any such subrogationrights shall be held in trust for the benefit of the Secured Party and shallimmediately be paid and turned over to the Secured Party in the exact formreceived by such Guarantor (duly endorsed in favor of the Secured Party, ifrequired), to be credited and applied against the Obligations, whether maturedor unmatured, in accordance with Section 2.7 hereof ; provided, however,that if:

(a)           any Guarantor has made payment to theSecured Party of all or any part of the Obligations; and

(b)           the Termination Date has occurred;

thenat such Guarantor’s request, the Secured Party will, at the expense of suchGuarantor, execute and deliver to such Guarantor appropriate documents (withoutrecourse and without representation or warranty) necessary to evidence thetransfer by subrogation to such Guarantor of an interest in the Obligationsresulting from such payment by such Guarantor. In furtherance of the foregoing, at all times prior to the TerminationDate, each Guarantor shall refrain from taking any action or commencing anyproceeding against the Borrower or any other Obligor (or  its or their successors or assigns, whetherin connection with a bankruptcy proceeding or 

 

5

----

 

otherwise)to recover any amounts in the respect of payments made under this Guaranty tothe Secured Party.  Notwithstanding theforegoing, to the extent necessary to toll the statute of limitations, suchGuarantor may take such action required to preserve any rights it has by way ofrights of subrogation as consented to by the Secured Party in its reasonablediscretion.

Section 2.7             Successors, Transferees andAssigns, etc.  This Guaranty shall:

(a)           be binding upon each Guarantor, andits successors, transferees and assigns; and

(b)           inure to the benefit of and beenforceable by the Secured Party.

Withoutlimiting the generality of clause (b), the Secured Party may assign orotherwise transfer (in whole or in part) the Revolving Note or any CreditExtension or Commitment held by it to any other Person and such other Personshall thereupon become vested with all rights and benefits in respect thereofgranted to the Secured Party under any Loan Document (including this Guaranty)or otherwise, in each case as provided in Section 10.10 of the CreditAgreement.

Section 2.8             Payments; Application.  Each Guarantor hereby agrees with theSecured Party as follows:

(a)           Each Guarantor agrees that allpayments made by such Guarantor hereunder will be made in Dollars to theSecured Party, without set-off, counterclaim or other defense and in accordancewith Sections 4.2 and 4.3 of the Credit Agreement, free and clear of andwithout deduction for any Taxes, the Guarantor hereby agreeing to comply withand be bound by the provisions of Sections 4.2 and 4.3 of the Credit Agreementin respect of all payments made by it hereunder and the provisions of whichSections are hereby incorporated into and made a part of this Guaranty by thisreference as if set forth herein; provided, that references to the“Borrower” in such Sections shall be deemed to be references to each Guarantor,and references to “this Agreement” shall be deemed to be references to thisGuaranty.

(b)           All payments made hereunder shall beapplied upon receipt as follows:

(1)           first, to the payment of allObligations owing to the Secured Party pursuant to Section 10.3 of the CreditAgreement;

(2)           second, after payment in full of theamounts specified in clause (b)(1), to the payment of all otherObligations owing to the Secured Party, with such amounts applied first to feesand expenses, then to accrued and unpaid interest, then to the outstandingprincipal amount of the Revolving Loan, then to Letter of Credit Outstandings,then to Lender Guaranty Outstandings, and then to Interest Rate HedgingObligations, if any; and

(3)           third, after payment in full of theamounts specified in clauses (b)(1) and (b)(2), and following theTermination Date, to such Guarantor or any other Person lawfully entitled toreceive such surplus.

Section 2.9             Acceleration of Guaranty.  Each Guarantor hereby jointly and severallyagrees that, in the event of an Event of Default under the Credit Agreement,each Guarantor 

 

6

----

 

jointly and severally agrees that all or any part ofthe Guaranty Obligations may, at the option of the Secured Party and withoutdemand, notice, or legal process of any kind, be declared, and immediatelyshall become, due and payable.

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

Section 3.1             Representations.  In order to induce the Secured Party toenter into the Credit Agreement and make Credit Extensions thereunder, eachGuarantor represents and warrants to the Secured Party that the representationsand warranties contained in Article VI of the Credit Agreement, insofar as therepresentations and warranties contained therein are applicable to it and itsproperties, are true and correct (it being understood that such representationsand warranties not qualified by reference to materiality or Material AdverseEffect shall be true and correct in all material respects), each suchrepresentation and warranty set forth in such Article VI (insofar as applicableas aforesaid) and all other terms of the Credit Agreement to which reference ismade therein, together with all related definitions and ancillary provisions,being hereby incorporated into this Guaranty by this reference as thoughspecifically set forth in this Article III. Furthermore, each Guarantor represents that it has knowledge of theBorrower’s and each other Obligor’s financial condition and affairs and that ithas adequate means to obtain from the Borrower and each other Obligor on anongoing basis, information relating thereto and to the Borrower’s and suchObligor’s ability to pay and perform the Obligations, and agrees to assume theresponsibility for keeping, and to keep, so informed for so long as thisGuaranty is in effect.  Each Guarantoracknowledges and agrees that the Secured Party shall have no obligation toinvestigate the financial condition or affairs of any Obligor for the benefitof such Guarantor nor to advise such Guarantor of any fact respecting, or anychange in, the financial condition or affairs of the Borrower or any otherObligor that might become known to the Secured Party at any time, whether ornot the Secured Party knows or believes or has reason to know or believe thatany such fact or change is unknown to such Guarantor, or might (or does)materially increase the risk of such Guarantor as guarantor, or might (orwould) affect the willingness of such Guarantor to continue as a guarantor ofthe Obligations.

ARTICLE IVCOVENANTS, ETC.

Section 4.1             Covenants.  Each Guarantor covenants and agrees that, atall times prior to the Termination Date, it will perform, comply with and bebound by all of the agreements, covenants and obligations contained in theCredit Agreement (including Articles VII and VIII thereof) which are applicableto such Guarantor or its properties, each such agreement, covenant andobligation contained in the Credit Agreement and all other terms of the CreditAgreement to which reference is made herein, together with all relateddefinitions and ancillary provisions, being hereby incorporated into thisGuaranty by this reference as though specifically set forth in this Article IV.

 

7

----

 

ARTICLE VMISCELLANEOUS PROVISIONS

Section 5.1             Loan Document.  This Guaranty is a Loan Document executedpursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions thereof.

Section 5.2             Binding on Successors,Transferees and Assigns; Assignment. In addition to, and not in limitationof, Section 2.6, this Guaranty shall be jointly and severally binding uponeach Guarantor and its successors, transferees and assigns and shall inure tothe benefit of and be enforceable by the Secured Party and its respectivesuccessors, transferees and assigns (to the full extent provided pursuant to Section2.6); provided, however, that no Guarantor may (unlessotherwise permitted under the terms of the Credit Agreement) assign any of itsobligations hereunder without the prior written consent of the Secured Party.

Section 5.3             Amendments, etc.  No amendment to or waiver of any provisionof this Guaranty, nor consent to any departure by any Guarantor therefrom,shall in any event be effective unless the same shall be in writing and signedby the Secured Party, and then such waiver or consent shall be effective onlyin the specific instance and for the specific purpose for which given.

Section 5.4             Notices.  All notices and other communicationsprovided for hereunder shall be in writing (including facsimile communication)and, mailed or telecopied or delivered to each Guarantor, in care of theBorrower at the address or facsimile number of the Borrower specified in theCredit Agreement.  All such notices andother communications, when mailed and properly addressed with postage prepaidor if properly addressed and sent by pre-paid courier service, shall be deemedgiven when received; any such notice or communication, if transmitted byfacsimile, shall be deemed given when the confirmation of transmission thereofis received by the transmitter.

Section 5.5             Additional Subsidiary Guarantors.  Upon the execution and delivery by any otherPerson of an instrument in the form of Annex I hereto, such Person shall becomea “Guarantor” hereunder with the same force and effect as if originally namedas a “Guarantor” herein.  The executionand delivery of any such instrument shall not require the consent of any otherGuarantor hereunder.  The rights andobligations of each Guarantor hereunder shall remain in full force and effectnotwithstanding the addition of any new Guarantor as a party to this Guaranty.

Section 5.6             No Waiver; Remedies.  In addition to, and not in limitation of, Section2.2 and Section 2.4 hereof, no failure on the part of the SecuredParty to exercise, and no delay in exercising, any right hereunder shalloperate as a waiver thereof; nor shall any single or partial exercise of anyright hereunder preclude any other or further exercise thereof or the exerciseof any other right.  The remedies hereinprovided are cumulative and not exclusive of any remedies provided by law.

 

8

----

 

Section 5.7             Captions.  Section captions used in this Guaranty arefor convenience of reference only, and shall not affect the construction ofthis Guaranty.

Section 5.8             Severability.  Wherever possible each provision of thisGuaranty shall be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Guaranty shall be prohibited by orinvalid under such law, such provision shall be ineffective to the extent of suchprohibition or invalidity, without invalidating the remainder of such provisionor the remaining provisions of this Guaranty.

Section 5.9             Governing Law, Entire Agreement,etc.  **THIS GUARANTY SHALL BE DEEMED TO BE ACONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.  THIS GUARANTY AND THE OTHER LOAN DOCUMENTSCONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TOTHE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL,WITH RESPECT THERETO.**

Section 5.10           Forum Selection and Consent toJurisdiction.  **ANY LITIGATION BASED HEREON, OR ARISINGOUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT,OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)OR ACTIONS OF THE SECURED PARTY OR ANY GUARANTOR SHALL BE BROUGHT ANDMAINTAINED IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATESDISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER,THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THESECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTYMAY BE FOUND.  EACH GUARANTORIRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGEPREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIAADDRESSED TO SUCH GUARANTOR, CARE OF THE BORROWER, AT THE ADDRESS FOR NOTICESSPECIFIED IN THE CREDIT AGREEMENT.  EACHGUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THECOURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FORTHE SOUTHERN DISTRICT OF CALIFORINIA FOR THE PURPOSE OF ANY SUCH LITIGATION ASSET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDEREDTHEREBY IN CONNECTION WITH SUCH LITIGATION.  EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLESTEXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVETO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURTREFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN ANINCONVENIENT FORUM.  TO THE EXTENT THATANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OFANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENTPRIOR TO JUDGMENT, ATTACHMENT IN AID OF**

 

9

----

 

**EXECUTIONOR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH GUARANTOR HEREBYIRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THISGUARANTY AND THE OTHER LOAN DOCUMENTS.**

Section 5.11           Waiver of Jury Trial. **EACHGUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS ITMAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ORARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOANDOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORALOR WRITTEN) OR ACTIONS OF THE SECURED PARTY OR SUCH GUARANTOR.  EACH GUARANTOR ACKNOWLEDGES AND AGREES THATIT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THATTHIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTOTHE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS.**

Section 5.12           Counterparts.  This Guaranty may be executed by the partieshereto in several counterparts, each of which shall be deemed to be an originaland all of which shall constitute together but one and the same agreement.

IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be dulyexecuted and delivered by its officer thereunto duly authorized as of the datefirst above written.

 
| **GUARANTOR** |   | SB OPERATINGCO, LLC,   a Delaware limited liability company |
|---------------|--------|-------------------------------------------------------------|
|          |   | By:                                                         | /s/ L. A. OBERKFELL |
|          |   |                                                        |   |
|          |   |                                                        | L.  A. Oberkfeff *President and Chief Executive Officer* |

 

 

10

----

 

ANNEXI

tothe

Subsidiary Guaranty

SUPPLEMENT, dated as of _______________, ____(this “Supplement”), to the Subsidiary Guaranty, dated as of August 2, 2002(together with all amendments, supplements, restatements and othermodifications, if any, from time to time thereafter made thereto, the“Guaranty”), among the initial signatories thereto and each other Person (suchcapitalized term, and other terms used in this Supplement, to have the meaningsset forth in Article I of the Guaranty) which from time to time thereafterbecame a party thereto pursuant to Section 5.5 thereof (each,individually, a “Guarantor”, and, collectively, the “Guarantors”),in favor of the Secured Party (as defined in the Guaranty).

W I T N E S S E T H:

WHEREAS,pursuant to the provisions of Section 5.5 of the Guaranty, theundersigned is becoming a Guarantor under the Guaranty; and

WHEREAS,the undersigned Guarantor desires to become a “Guarantor” under the Guaranty inorder to induce the Secured Party to continue to extend Credit Extensions underthe Credit Agreement;

NOWTHEREFORE, in consideration of the premises, and for other consideration (thereceipt and sufficiency of which is hereby acknowledged), the undersignedagrees, for the benefit of the Secured Party, as follows.

SECTION 1.           In accordancewith the terms of the Guaranty, by its signature below the undersigned herebyirrevocably agrees to become a Guarantor under the Guaranty with the same forceand effect as if it were an original signatory thereto, and the undersignedGuarantor hereby (a) agrees to be bound by and comply with all of the terms andprovisions of the Guaranty applicable to it as a Guarantor and (b) representsand warrants that the representations and warranties made by it as a Guarantorthereunder are true and correct as of the date hereof.  In furtherance of the foregoing, eachreference to a “Guarantor” in the Guaranty and each other Loan Document shallbe deemed to include the undersigned Guarantor.

SECTION 2.           Theundersigned Guarantor hereby represents and warrants that this Supplement hasbeen duly authorized, executed and delivered by it and that this Supplement andthe Guaranty constitute the legal, valid and binding obligation of theundersigned Guarantor, enforceable against it in accordance with its terms.

SECTION 3.           Except asexpressly supplemented hereby, the Guaranty shall remain in full force andeffect in accordance with its terms.

SECTION 4.           In the eventany one or more of the provisions contained in this Supplement should be heldinvalid, illegal or unenforceable in any respect, the validity, legality 

 

----

 

and enforceabilityof the remaining provisions contained herein and in the Guaranty shall not inany way be affected or impaired.

SECTION 5.           THIS SUPPLEMENTSHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THESTATE OF CALIFORNIA.

SECTION 6.           ThisSupplement may be executed by the parties hereto in several counterparts, eachof which shall be deemed to be an original and all of which shall constitutetogether but one and the same agreement.

INWITNESS WHEREOF, the parties hereto have caused this Supplement to be dulyexecuted and delivered by their respective officers thereunto duly authorizedas of the day and year first above written.
| [NAME OF ADDITIONAL  SUBSIDIARY GUARANTORS] |
|---------------------------------------------|
| By:                                         |   |
|                                        | Name: |
|                                        | Title: |

 

 

2

----

 

 

**Exhibit K**

SUBSIDIARYPLEDGE AGREEMENT

 

ThisSUBSIDIARY PLEDGE AGREEMENT (as amended, restated, supplemented, or otherwise modifiedfrom time to time, this “Pledge Agreement”), dated as of August 2,2002is made by each Subsidiary (as defined in the Credit Agreement referred tobelow) of SUREBEAM CORPORATION, a Delaware corporation (the “Borrower”),now or after the date hereof (including pursuant to Section 7.6) a signatoryhereto (each, individually, a “Pledgor,” and collectively, the “Pledgors”),in favor of THE TITAN CORPORATION, a Delaware corporation (the “Pledgee”).

 

W I T N E S S E T H:

WHEREAS,pursuant to a Senior Secured Credit Agreement, dated as of August 2, 2002 (asamended, restated, supplemented, or otherwise modified from time to time, the “CreditAgreement”), between Borrower and Pledgee, the Pledgee has extendedCommitments to make Credit Extensions to the Borrower;

WHEREAS,as a condition precedent to the making of the Credit Extensions (including theinitial Credit Extension) under the Credit Agreement, each Pledgor is requiredto execute and deliver this Pledge Agreement;

WHEREAS,each Pledgor has duly authorized the execution, delivery and performance ofthis Pledge Agreement; and

WHEREAS,it is in the best interests of each Pledgor to execute this Pledge Agreementinasmuch as such Pledgor will derive substantial direct and indirect benefitsfrom the Credit Extensions made from time to time to the Borrower by thePledgee pursuant to the Credit Agreement;

NOWTHEREFORE, for good and valuable consideration the receipt and sufficiency ofwhich is hereby acknowledged, and in order to induce the Pledgee to make CreditExtensions (including the initial Credit Extension) to the Borrower pursuant tothe Credit Agreement, each Pledgor jointly and severally agrees, for thebenefit of Pledgee, as follows:

ARTICLE IDEFINITIONS

SECTION 1.1             Certain Terms.  Capitalized terms used but not otherwisedefined herein shall have the meanings given them in the Credit Agreement.  The following terms (whether or notunderscored) when used in this Pledge Agreement, including its preamble and recitals,shall have the following meanings (such definitions to be equally applicable tothe singular and plural forms thereof):

 

----

 

“Act”is defined in Section 6.2.

“CertificatedInterests” means, collectively, all Pledged Shares evidenced bycertificates.

“Collateral”is defined in Section 2.1.

“CreditAgreement” is defined in the first recital.

“Distributions”means all stock dividends, liquidating dividends, shares of stock resultingfrom (or in connection with the exercise of) stock splits, reclassifications,warrants, options, non-cash dividends, mergers, consolidations, and all otherdistributions (whether similar or dissimilar to the foregoing) on or withrespect to any Pledged Interests or other shares of Capital Stock constitutingCollateral, but shall not include Dividends.

“Dividends”means cash dividends and cash distributions with respect to any PledgedInterests made in the ordinary course of business and not as a liquidatingdividend.

“InterestRate Hedging Agreements” means interest rate swap agreements, interest ratecap agreements and interest rate collar agreements, and all other agreements orarrangements designed to protect against fluctuations in interest rates,entered into for the purpose of hedging interest rate risk with respect to theObligations.

“InterestRate Hedging Obligations” means all liabilities of the Pledgors underInterest Rate Hedging Agreements.

“LLC”means each limited liability company listed from time to time as a PledgedInterest Issuer on Attachment 1 hereto.

“LLCInterest” means the entire ownership interest of any Pledgor in eachPledged Interest Issuer that is an LLC listed on Attachment 1 hereto,including such Pledgor’s capital account, its gain, loss, deduction and creditof such Pledged Interest Issuer, such Pledgor’s interest in all distributionsmade or to be made by such Pledged Interest Issuer to such Pledgor and all ofthe other rights, titles and interests of such Pledgor as an owner or a memberof such Pledged Interest Issuer, whether set forth in the operating ormembership agreement of such Pledged Interest Issuer, by separate agreement orotherwise.

“Partnership”means each general partnership or limited partnership listed from time to timeas a Pledged Interest Issuer on Attachment 1 hereto.

“PartnershipInterest” means the entire ownership interest of the Pledgor in eachPledged Interest Issuer that is a Partnership listed on Attachment 1hereto, including the Pledgor’s capital account, its gain, loss, deduction andcredit of such Pledged Interest Issuer, the Pledgor’s interest in all distributionsmade or to be made by such Pledged Interest Issuer to the Pledgor and all ofthe other rights, titles and interests of the Pledgor as an owner, a generalpartner or a limited partner of 

 

2

----

 

suchPledged Interest Issuer, whether set forth in the partnership agreement of suchPledged Interest Issuer, by separate agreement or otherwise.

“PledgeAgreement” is defined in the preamble.

“PledgedInterest Issuers” means each Person identified in Attachment 1hereto as the issuer of the Pledged Interests (including the maker of eachPledged Note) identified opposite the name of such Person and each Person whoseownership, equity or other similar interests, including shares of CapitalStock, Partnership Interests and LLC Interests, are , or are required to bepledged hereunder and under the Credit Agreement from time to time.

“PledgedInterests” means (i) all Pledged Shares and (ii) all Pledged Notes.

“PledgedNotes” means all promissory notes of any Pledged Interest Issuer,identified on Attachment 1 hereto, and any promissory notes issued toany Pledgor in the future, as such promissory notes are amended, restated,supplemented or otherwise modified from time to time, in accordance withSection 4.1.6, together with any promissory note of any Pledged Interest Issuertaken in extension or renewal thereof or substitution therefor.

“PledgedShares” means (a) all ownership, equity or other similar interests,including shares of Capital Stock, Partnership Interests and LLC Interests, ofany Pledged Interest Issuer listed on Attachment 1 hereto and any sharesof Capital Stock, Partnership Interests and LLC Interests of any PledgedInterest Issuer obtained in the future by any Pledgor, (b) the certificatesrepresenting all such ownership, equity or similar interests and (c) allsecurities convertible into, and all warrants, options or other rights toacquire, such ownership, equity or similar interests; but excluding all sharesof voting stock of each class of any Foreign Subsidiary in excess of sixty-fivepercent (65%) of the total issued and outstanding shares of the voting stock ofeach such class.

“Pledgee”is defined in the preamble.

“Pledgor”is defined in the preamble.

“SecuredObligations” is defined in Section 2.2.

“TerminationDate” means the date on which all Obligations have been indefeasibly paidin full in cash, all Commitments have been fully terminated and all Letters ofCredit have been canceled or otherwise terminated.

“U.C.C.”means the Uniform Commercial Code, as in effect from time to time in the Stateof California; provided, however, in the event that, by reason ofmandatory provisions of law, any or all of the attachment, perfection orpriority of Pledgee’s security interest in any Collateral is governed by theUniform Commercial Code (including Articles thereof) as in effect in ajurisdiction other than the State of California, “U.C.C.” shall mean theUniform Commercial Code as in effect at such time in such other jurisdictionfor purposes of the provisions hereof relating to such attachment, 

 

3

----

 

perfectionor priority and for purposes of definitions related to such provisions.

SECTION 1.2             Credit Agreement Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Pledge Agreement, including itspreamble and recitals, have the meanings provided in the Credit Agreement.

SECTION 1.3             U.C.C. Definitions.  Unless otherwise defined herein or in theCredit Agreement or the context otherwise requires, terms for which meaningsare provided in the U.C.C. are used in this Pledge Agreement, including itspreamble and recitals, with such meanings.

ARTICLE IIPLEDGE

SECTION 2.1             Grant of Security Interest.  Each Pledgor hereby pledges, hypothecates,assigns, charges, mortgages, delivers and transfers to the Pledgee, and eachPledgor hereby grants to the Pledgee, to secure the Secured Obligations, acontinuing security interest in, all of the following property (the “Collateral”):

(a)           all Pledged Interests;

(b)           all right, title and interest of suchPledgor, whether now existing or hereafter arising or acquired, in, to andunder any partnership agreement, limited liability company agreement or similaragreement which governs the rights and obligations of the holder of ownership,equity or similar interests in a Pledged Interest Issuer;

(c)           all voting trust certificates held byeach Pledgor evidencing the right to vote any Pledged Shares subject to anyvoting trust;

(d)           all Dividends, Distributions,interest and without duplication, other payments and rights with respect to anyPledged Interest; and

(e)           all Proceeds of any of the foregoing.

SECTION 2.2             Security for Obligations.  This Pledge Agreement secures the payment infull of (i) all Obligations of the Borrower now or hereafter existing under theCredit Agreement, each other Loan Document to which the Borrower is or maybecome a party, and each Interest Rate Hedging Agreement, whether forprincipal, interest, costs, fees, expenses, Interest Rate Hedging Obligationsor otherwise, and (ii) all Obligations of each Pledgor now or hereafterexisting under the Credit Agreement and each other Loan Document and eachInterest Rate Hedging Agreement, whether for principal, interest, costs, fees,indemnities, expenses, Interest Rate Hedging Obligations or otherwise(including all Obligations of each Pledgor now or hereafter existing under thisPledge 

 

4

----

 

Agreement and each otherLoan Document to which such Pledgor is or may become a party), with all suchObligations being referred to as the “Secured Obligations”.

SECTION 2.3             Pledge and Transfer of PledgedInterests.  Any CertificatedInterests representing or evidencing any Collateral shall be delivered to andheld by or on behalf of the Pledgee pursuant hereto, shall be in suitable formfor transfer by delivery, and shall be accompanied by all necessary instrumentsor documents of transfer or assignment, duly executed in blank by the applicablePledgor or, if any Collateral is in the form of uncertificated securities,confirmation and evidence satisfactory to the Pledgee that the applicablePledgor has taken all actions requested by the Pledgee to provide for thetransfer to and perfection by the Pledgee of the security interests in suchuncertificated securities in accordance with the U.C.C. and any otherapplicable law.

SECTION 2.4             Dividends on Pledged Interests.

(a)           In the event that any Dividend orother payment is to be paid on any Pledged Interests (including any payment ofany principal or interest on any Pledged Note) at a time when no Default hasoccurred and is continuing or would result therefrom, such Dividend or paymentmay be paid directly to the applicable Pledgor.

(b)           If any such Default or Event ofDefault has occurred and is continuing, then any such Dividend or payment shallbe paid directly to the Pledgee.

SECTION 2.5             Continuing Security Interest.  This Pledge Agreement shall create acontinuing security interest in the Collateral and shall:

(a)           remain in full force and effect untilthe Termination Date;

(b)           be binding upon each Pledgor and itssuccessors, transferees and assigns; and

(c)           inure to the benefit of and beenforceable by the Pledgee.

Withoutlimiting clause (c), the Pledgee may assign or otherwise transfer (in whole orin part) the Revolving Note or any Credit Extension or Commitment held by it toany other Person, and such other Person shall thereupon become vested with allthe rights and benefits in respect thereof granted to the Pledgee under anyLoan Document (including this Pledge Agreement) or otherwise, in each case asprovided in Section 10.10 of the Credit Agreement.

Upon(i) the sale, transfer or other disposition of Collateral in accordance withthe Credit Agreement, or (ii) the occurrence of the Termination Date, thesecurity interests granted herein shall automatically terminate with respect to(x) such Collateral (in the case of clause (i)), or (y) all Collateral (in thecase of clause (ii)), and at such time the Pledgee will, at each Pledgor’s soleexpense, deliver to the applicable Pledgor, without any representations,warranties or recourse of any kind whatsoever, all certificates and instrumentspreviously delivered to the Pledgee representing or 

 

5

----

 

evidencingall Pledged Interests, together with all other Collateral held by the Pledgeehereunder, and execute and deliver to the applicable Pledgor such documents asa Pledgor shall reasonably request to evidence such termination.

SECTION 2.6             Security Interest Absolute.  All rights of the Pledgee and the securityinterests granted to the Pledgee hereunder, and all obligations of each Pledgorhereunder, shall be joint and several and shall be absolute and unconditional,irrespective of:

(a)           any lack of validity orenforceability of the Credit Agreement or any other Loan Document;

(b)           the failure of the Pledgee

(i)            to assert any claim or demand or toenforce any right or remedy against any Obligor or any other Person under theprovisions of the Credit Agreement, any other Loan Document or otherwise, or

(ii)           to exercise any right or remedyagainst any other guarantor of, or collateral securing, any SecuredObligations;

(c)           any change in the time, manner orplace of payment of, or in any other term of, all or any of the SecuredObligations or any other extension, compromise or renewal of any SecuredObligation;

(d)           any reduction, limitation, impairmentor termination of any Secured Obligations for any reason, including any claimof waiver, release, surrender, alteration or compromise, and shall not besubject to (and each Pledgor hereby waives any right to or claim of) anydefense or setoff, counterclaim, recoupment or termination whatsoever by reasonof the invalidity, illegality, irregularity, compromise, unenforceability of,or any other event or occurrence affecting, any Secured Obligations orotherwise;

(e)           any amendment to, rescission, waiver,or other modification of, or any consent to departure from, any of the terms ofthe Credit Agreement or any other Loan Document;

(f)            any addition, exchange, release,surrender or non-perfection of any collateral (including the Collateral), orany amendment to or waiver or release of or addition to or consent to departurefrom any guaranty, for any of the Secured Obligations; or

(g)           any other circumstances which mightotherwise constitute a defense available to, or a legal or equitable dischargeof, any Obligor, any surety or any guarantor.

 

6

----

 

SECTION 2.7             Postponement of Subrogation,etc.  Each Pledgor agrees that itwill not exercise any rights which it may acquire by way of rights ofsubrogation under this Pledge Agreement, any payment made hereunder, whether byway of subrogation, reimbursement or otherwise, until after the TerminationDate.  Any amount paid to any Pledgor onaccount of any such subrogation rights prior to the Termination Date shall beheld in trust for the benefit of the Pledgee and shall immediately be paid tothe Pledgee and credited and applied against the Secured Obligations, whethermatured or unmatured, in accordance with the terms of the Credit Agreement; provided,however, that if:

(a)           any Pledgor has made payment to thePledgee of all or any part of the Secured Obligations; and

(b)           the Termination Date has occurred;

thenthe Pledgee agrees that, at such Pledgor’s request, the Pledgee will executeand deliver to such Pledgor appropriate documents (without recourse and withoutrepresentation or warranty) necessary to evidence the transfer by subrogationto such Pledgor of an interest in the Secured Obligations resulting from suchpayment by such Pledgor.  In furtheranceof the foregoing, at all times prior to the Termination Date, each Pledgorshall refrain from taking any action or commencing any proceeding against theBorrower or any other Obligor (or its successors or assigns, whether inconnection with a bankruptcy proceeding or otherwise) to recover any amounts inrespect of payments made under this Pledge Agreement to the Pledgee.  Notwithstanding the foregoing, to the extentnecessary to toll the statute of limitations, such Pledgor may take such actionrequired to preserve any rights it has by way of rights of subrogation asconsented to by the Pledgee in its reasonable discretion.

 

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

SECTION 3.1             Representations and Warranties,etc.  In order to induce the Pledgeeto enter into the Credit Agreement and to make Credit Extensions thereunder,each Pledgor represents and warrants to the Pledgee as set forth in thisArticle III.

SECTION 3.1.1              Ownership, No Liens, etc.  Each Pledgor is the legal and beneficialowner of, and has good and marketable title to (and has full right andauthority to pledge and assign) its Collateral, free and clear of all Liens,options and other charges, except any Lien granted pursuant hereto in favor ofthe Pledgee.

SECTION 3.1.2              Valid Security Interest.  With respect to U.S. entities, the executionand delivery of this Pledge Agreement, together with (a)(i) in the case ofCollateral in the form of a Certificated Interest, the delivery of suchCollateral to the Pledgee together with undated stock powers executed in blankby the Pledgor, (ii) in the case of Collateral in the form of an uncertificated

 

7

----

 

security, theregistration  in the name of the SecuredParty as owner with the Pledged Interest Issuer of such uncertificatedsecurity, or (iii) in the case of Collateral in the form of Pledged Notes,delivery of such Collateral and an allonge to such Collateral to the Pledgee,or (b) in the case of other than Certificated Interests, the filing of U.C.C.financing statements in the filing offices listed on Attachment 2hereto, is effective to create a valid, perfected, first priority securityinterest in such Collateral and all Proceeds thereof, securing the SecuredObligations.  Upon the performance ofthe actions set forth in the first sentence of this Section 3.1.2, nofurther action is necessary to perfect or protect such security interest in theCollateral and the Proceeds thereof. The Pledgor agrees that it shall take all necessary actions reasonablyrequested by the Pledgee to create a valid, perfected security interest in theCollateral related to non-U.S. entities.

SECTION 3.1.3              As to Pledged Interests.  In the case of

(a)           any Pledged Interests (other thanPledged Notes) constituting Collateral,

(i)            all of such Pledged Interests areduly authorized, and validly issued, fully paid, and non-assessable, andconstitute that percentage of the issued and outstanding shares of CapitalStock, Partnership Interests, LLC Interests and other ownership interests ofeach Pledged Interest Issuer set forth on Attachment 1 hereto; and

(ii)           the Pledgor has delivered to thePledgee true and complete copies of the partnership, membership, operating orownership agreements, as applicable, for each Pledged Interest Issuer that isan LLC or a Partnership, which agreements are currently in full force and effectand have not been amended or modified except as disclosed to the Pledgee inwriting; and

(b)           each Pledged Note, all of suchPledged Notes have been duly authorized, executed, endorsed, issued anddelivered, and are the legal, valid and binding obligation of the issuersthereof, and no default or event of default has occurred and is continuingthereunder.

SECTION 3.1.4              Location of Pledgor.  The jurisdictions in which the Pledgor islocated for purposes of Section 9307 of the U.C.C. are set forth in Attachment1 hereto.

SECTION 3.1.5              Nature of Pledged Interests.  No LLC Interests or Partnership Interestsare Certificated Interests.

 

8

----

 

ARTICLE IVCOVENANTS

SECTION 4.1             Covenants.  Each Pledgor covenants and agrees that, atall times prior to the Termination Date, it will perform, comply with and bebound by the obligations set forth in this Article IV.

SECTION 4.1.1              Protect Collateral; FurtherAssurances, etc.  Each Pledgorcovenants and agrees that it will not sell, assign, transfer, pledge, orencumber in any other manner the Collateral (except in favor of the Pledgeehereunder or as permitted in the Credit Agreement).  Each Pledgor will warrant and defend the right and title hereingranted unto the Pledgee in and to the Collateral (and all right, title, andinterest represented by the Collateral) against the claims and demands of allother Persons.  Each Pledgor agrees thatfrom time to time, at the expense of such Pledgor, it will promptly execute anddeliver all further instruments, and take all further action, that may benecessary or desirable, or that the Pledgee may reasonably request, in order toperfect and protect any security interest granted or purported to be grantedhereby or to enable the Pledgee to exercise and enforce its rights and remedieshereunder with respect to any Collateral. The Pledgor will not, without thirty (30) days’ prior written notice tothe Pledgee, (i) change its name or structure so as to make any financing orother statement filed pursuant to this Pledge Agreement become seriouslymisleading or (ii) change the jurisdiction in which it is located to other thanthose specified in Section 3.1.4 hereof.  Each Pledgor further covenants and agrees as follows:

(a)           If any Pledgor shall become entitledto receive or shall receive any stock or other certificate (including anycertificate representing a Dividend or a Distribution in connection with anyreclassification, increase or reduction of capital or any certificate issued inconnection with any reorganization), option or rights, whether in addition to,in substitution of, as a conversion of, or in exchange for any portion of theCollateral (or otherwise in respect thereof), such Pledgor shall accept thesame as the agent of the Pledgee, hold the same in trust for the Pledgee anddeliver the same forthwith to the Pledgee in the exact form received, dulyendorsed (in blank) by such Pledgor to the Pledgee, if required, together withan undated stock power or other necessary instrument of transfer covering suchcertificate duly executed in blank by such Pledgor, to be held by the Pledgee,subject to the terms of this Pledge Agreement, as additional security for theSecured Obligations.  In addition, anysums paid upon or in respect of the Collateral upon the liquidation ordissolution of any Pledged Interest Issuer shall be held by the Pledgee asadditional security for the Secured Obligations.  If any sums of money or property so paid or distributed inrespect of any Collateral shall be received by any Pledgor, then such Pledgorshall, until such money or property is paid or delivered to the Pledgee, holdsuch money or property in trust for the Pledgee, segregated from other funds ofsuch Pledgor, as additional collateral securing the Secured Obligations.

(b)           Except as otherwise expresslypermitted by the Credit Agreement, without the prior written consent of thePledgee, no Pledgor will (i) consent to any material modification, extension oralteration of the terms of any membership, partnership or operating agreementof the LLCs or the Partnerships or (ii) accept a 

 

9

----

 

surrender of anymembership, partnership or operating agreement of any of the LLCs or thePartnerships, as applicable, or waive any breach of or default under any suchagreement by any other party thereto.

(c)           Each Pledgor will advise the Pledgeepromptly, in reasonable detail (i) of any Lien or claim made or assertedagainst any part of the Collateral, (ii) of any material change in thecomposition of the Collateral, and (iii) of the occurrence of any other eventrelating specifically to such Pledgor or its assets which could reasonably beexpected to have a material adverse effect on the aggregate value of theCollateral or on the security interests created hereunder.

SECTION 4.1.2              Registration of PledgedInterests, etc.  Concurrently withthe execution and delivery of this Pledge Agreement, each Pledgor shall executeand deliver to the applicable Pledged Interest Issuer instructions to register,substantially in the form of Exhibit A hereto, and cause each Pledged InterestIssuer to execute and deliver to the Pledgee the Initial Transaction Statement,substantially in the form of Exhibit B hereto, confirming that each PledgedInterest Issuer (in which such Pledgor owns a Pledged Interest (other than inthe case of a Certificated Interest or a Pledged Note)) has registered thepledge by such Pledgor effected by this Pledge Agreement on its books.  In addition, the Pledgor agrees that itshall cause each issuer of Certificated Interests to execute and deliver to thePledgee an acknowledgment in a form satisfactory to the Pledgee.

SECTION 4.1.3              Stock Powers, etc.  Each Pledgor agrees that all CertificatedInterests constituting Collateral delivered by such Pledgor pursuant to thisPledge Agreement will be accompanied by duly executed undated blank stockpowers, or other equivalent instruments or documents of transfer acceptable tothe Pledgee, as are necessary under all applicable laws to perfect the Lien infavor of the Pledgee on such Collateral. Each Pledgor will, from time to time upon the request of the Pledgee,promptly deliver to the Pledgee such stock powers, instruments, and similardocuments, satisfactory in form and substance to the Pledgee, with respect tothe Collateral as the Pledgee may reasonably request and will, from time totime upon the request of the Pledgee after the occurrence, and during thecontinuance, of any Event of Default, promptly transfer any Pledged Interestsor other shares of Capital Stock or other ownership interests constitutingCollateral into the name of any nominee designated by the Pledgee.

SECTION 4.1.4              Continuous Pledge.  Each Pledgor will, at all times, keeppledged to the Pledgee pursuant hereto all Pledged Interests and all othershares of Capital Stock or other ownership interests constituting Collateral,all Dividends and Distributions with respect thereto [(provided that if noEvent of Default shall have occurred or be continuing, such Dividends andDistributions may be used for working capital or other purposes)], all PledgedNotes, all interest, principal and other proceeds received by the Pledgee withrespect to the Pledged Notes, and all other Collateral and other securities,instruments, proceeds, and rights from time to time received by ordistributable to such Pledgor in respect of any Collateral, and will not permitany Pledged Interest Issuer to issue any Capital Stock or other ownershipinterests or any options, warrants or other rights 

 

10

----

 

to subscribe for orpurchase Capital Stock (other than as permitted by the Credit Agreement) whichshall not have been immediately duly pledged hereunder on a first priorityperfected basis.

SECTION 4.1.5              Voting Rights; Dividends,etc.  Each Pledgor agrees:

(a)           after any Event of Default shall haveoccurred and be continuing, promptly upon receipt of notice thereof by suchPledgor and without any request therefor by the Pledgee, such Pledgor willdeliver (properly endorsed where required hereby or requested by the Pledgee)to the Pledgee all Dividends, Distributions, all other cash payments, and allProceeds of the Collateral, all of which shall be held by the Pledgee asadditional Collateral for use in accordance with Section 6.4 hereof; and

(b)           after any Event of Default shall haveoccurred and be continuing and the Pledgee has notified any Pledgor of thePledgee’s intention to exercise its voting power under this Section 4.1.5:

(i)            the Pledgee may exercise (to theexclusion of each Pledgor) the voting power and all other incidental rights ofownership with respect to any Pledged Interests or other shares of CapitalStock or other ownership interests constituting Collateral and each Pledgor herebygrants the Pledgee an irrevocable proxy, exercisable under such circumstances,to vote the Pledged Interests and such other Collateral; and

(ii)           to promptly deliver to the Pledgeesuch additional proxies and other documents requested by the Pledgee as may benecessary to allow the Pledgee to exercise such voting power.

AllDividends, Distributions, cash payments and Proceeds which may at any time andfrom time to time be held by any Pledgor but which such Pledgor is thenobligated to deliver to the Pledgee, shall, until delivery to the Pledgee, beheld by such Pledgor separate and apart from its other property in trust forthe Pledgee.  The Pledgee agrees thatunless an Event of Default shall have occurred and be continuing and thePledgee shall have given the notice referred to in clause (b), such Pledgorshall have the exclusive voting power with respect to any shares of CapitalStock or other ownership interests (including any of the Pledged Interests)constituting Collateral and the Pledgee shall, upon the written request of suchPledgor, promptly deliver such proxies and other documents, if any, as shall bereasonably requested by such Pledgor which are necessary to allow such Pledgorto exercise voting power with respect to any such share of Capital Stock orother ownership interests (including any of the Pledged Interests) constitutingCollateral; provided, however, that no vote shall be cast, or consent, waiver,or ratification given, or action taken by any Pledgor that would impair anyCollateral or be inconsistent with or violate any provision of the CreditAgreement, any other Loan Document or any Interest Rate Hedging Agreement.

 

11

----

 

SECTION 4.1.6              Additional Undertakings.  No Pledgor will, without the prior writtenconsent of the Pledgee, take or omit to take any action the taking or theomission of which could with reasonable likelihood result in any impairment oralteration of any Instrument constituting Collateral.  In furtherance of the foregoing, each Pledgor agrees that it willnot, without the prior written consent of the Pledgee, which consent shall notbe unreasonably withheld:

(a)           enter into any agreement amending,supplementing, or waiving any provision of any Pledged Note (including any underlyingInstrument pursuant to which such Pledged Note is issued) or compromising orreleasing or extending the time for payment of any obligation of the makerthereof; or

(b)           take or omit to take any action thetaking or the omission of which would result in any impairment or alteration ofany obligation of the maker of any Pledged Note or other Instrumentconstituting Collateral.

SECTION 4.1.7              Pledgor Remains Liable.  Anything herein to the contrarynotwithstanding:

(a)           each Pledgor shall remain liable toperform all of its duties and obligations as an owner of the Pledged Interests,to the same extent as if this Pledge Agreement had not been executed;

(b)           the exercise by the Pledgee of any ofits rights hereunder shall not release any Pledgor from any of its duties orobligations as owner of the Pledged Interests; and

(c)           the Pledgee shall not have anyobligation or liability as an owner of any Pledged Interest, by reason of thisPledge Agreement.

ARTICLE VATTORNEY IN FACT

SECTION 5.1             Pledgee Appointed Attorney-in-Fact.  Each Pledgor hereby irrevocably appoints thePledgee as such Pledgor’s attorney-in-fact, with full authority in the placeand stead of such Pledgor and in the name of such Pledgor or otherwise, fromtime to time in the Pledgee’s discretion, after the occurrence and during thecontinuance of an Event of Default, to take any action and to execute anyinstrument or document which such Pledgee may deem necessary or advisable toaccomplish the purposes of this Pledge Agreement, including without limitation:

(a)           to ask, demand, collect, sue for,recover, compromise, receive and give acquittance and receipts for moneys dueand to become due under or in respect of any of the Collateral;

 

12

----

 

(b)           to receive, endorse, and collect anydrafts or other instruments, documents and chattel paper, in connection withclause (a); and

(c)           to file any claims or take any actionor institute any proceedings which the Pledgee may deem necessary or desirablefor the collection of any of the Collateral or otherwise to enforce the rightsof the Pledgee with respect to any of the Collateral.

EachPledgor hereby acknowledges, consents and agrees that the power of attorneygranted pursuant to this Section 5.1 is irrevocable and coupled with aninterest.

SECTION 5.2             Pledgee May Perform.  If any Pledgor fails to perform anyagreement contained herein, the Pledgee may itself perform, or causeperformance of, such agreement, and the reasonable expenses of the Pledgeeincurred in connection therewith shall be jointly and severally payable by thePledgors pursuant to Section 6.5 hereof.

SECTION 5.3             Pledgee Has No Duty.  The powers conferred on the Pledgeehereunder are solely to protect its interests in the Collateral and shall notimpose any duty on it to exercise any such powers.  Except for reasonable care of any Collateral in its possessionand the accounting for moneys actually received by it hereunder, the Pledgeeshall have no duty as to any Collateral or responsibility for:

(a)           ascertaining or taking action withrespect to calls, conversions, exchanges, maturities, tenders or other mattersrelative to any Pledged Interests, whether or not the Pledgee has or is deemedto have knowledge of such matters; or

(b)           taking any necessary steps topreserve rights against prior parties or any other rights pertaining to anyCollateral.

SECTION 5.4             Reasonable Care.  Other than the exercise of reasonable carein the custody and preservation of the Collateral in its possession, thePledgee shall have no duty with respect thereto.  The Pledgee shall be deemed to have exercised reasonable care inthe custody and preservation of the Collateral in its possession if theCollateral is accorded treatment substantially equal to that which the Pledgeeaccords its own property.  The Pledgeeshall not be liable or responsible for any loss or damage to any of theCollateral, or for any diminution in the value thereof, by reason of the act oromission of any agent or bailee selected by the Pledgee in good faith.

 

ARTICLE VIREMEDIES

SECTION 6.1             Certain Remedies.  If any Event of Default shall have occurredand be continuing:

 

13

----

 

(a)           The Pledgee may exercise in respectof the Collateral, in addition to all other rights and remedies provided forherein or otherwise available to it, all the rights and remedies of a securedparty under the U.C.C. (whether or not the U.C.C. applies to the affectedCollateral) and also may, without notice except as specified below, sell theCollateral or any part thereof in one or more parcels at public or privatesale, at the Pledgee’s offices or elsewhere, for cash, on credit or for futuredelivery, and upon such other terms as the Pledgee may deem commerciallyreasonable.  Each Pledgor agrees that,to the extent notice of sale shall be required by law, at least ten (10) days’prior notice to any Pledgor of the time and place of any public sale or thetime after which any private sale is to be made shall constitute reasonable notification.  The Pledgee shall not be obligated to makeany sale of Collateral regardless of notice of sale having been given.  The Pledgee may adjourn any public orprivate sale from time to time by announcement at the time and place fixedtherefor, and such sale may, without further notice, be made at the time andplace to which it was so adjourned.

(b)           The Pledgee may:

(i)            transfer all or any part of theCollateral into the name of the Pledgee or its nominee, with or withoutdisclosing that such Collateral is subject to the Lien hereunder;

(ii)           notify the parties obligated on anyof the Collateral to make payment to the Pledgee of any amount due or to becomedue thereunder;

(iii)          enforce collection of any of theCollateral by suit or otherwise, and surrender, release or exchange all or anypart thereof, or compromise or extend or renew for any period (whether or notlonger than the original period) any obligations of any nature of any partywith respect thereto;

(iv)          endorse any checks, drafts, or otherwritings in any Pledgor’s name to allow collection of the Collateral;

(v)           take control of any Proceeds of theCollateral;

(vi)          execute (in the name, place and steadof any Pledgor) endorsements, assignments, stock powers and other instrumentsor other documents of conveyance or transfer with respect to all or any of theCollateral;

(vii)         accelerate any Pledged Note which maybe accelerated in accordance with its terms and take any other action tocollect upon any Pledged Note (including, without limitation, making any demandfor payment thereon); and

 

14

----

 

(viii)        to vote all or any part of the PledgedInterests (whether or not transferred into the name of the Pledgee) and giveall consents, waivers and ratifications in respect of the Collateral(including, without limitation, under all operating agreements, partnershipagreements or other agreements relating to the Collateral) and otherwise actwith respect thereto as if the Pledgee were the outright owner thereof.

SECTION 6.2             Securities Laws.  If the Pledgee shall determine to exerciseits right to sell all or any of the Collateral pursuant to Section 6.1hereof, each Pledgor agrees that, upon request of the Pledgee, such Pledgorwill, at such Pledgor’s own expense:

(a)           execute and deliver, and cause eachissuer of the Collateral contemplated to be sold and cause the directors andofficers thereof to execute and deliver, all such instruments and documents,and do or cause to be done all such other acts and things, as may be necessaryor, in the opinion of the Pledgee, advisable to register such Collateral underthe provisions of the Securities Act of 1933, as from time to time amended (the“Act”), and comparable legislation in other jurisdictions, and to cause the registrationstatement relating thereto to become effective and to remain effective for suchperiod as prospectuses are required by law to be furnished, and to make allamendments and supplements thereto and to the related prospectus which, in theopinion of the Pledgee, are necessary or advisable, all in conformity with therequirements of the Act and the rules and regulations of the Securities andExchange Commission applicable thereto and comparable legislation, rules andregulations in other jurisdictions;

(b)           use its best efforts to qualify theCollateral under the applicable state securities or “Blue Sky” laws and toobtain all necessary governmental approvals for the sale of the Collateral, asrequested by the Pledgee;

(c)           cause each such Pledged InterestIssuer to make available to its security holders, as soon as practicable, anearnings statement that will satisfy the provisions of Section 11(a) of the Actand comparable legislation in other jurisdictions; and

(d)           do or cause to be done all such otheracts and things as may be necessary to make such sale of the Collateral or anypart thereof valid and binding and in compliance with applicable law.

EachPledgor further acknowledges the impossibility of ascertaining the amount ofdamages that would be suffered by the Pledgee by reason of the failure by suchPledgor to perform any of the covenants contained in this Section 6.2and, consequently, jointly and severally, agrees that, if any Pledgor shallfail to perform any of such covenants, such Pledgor shall pay, as liquidateddamages and not as a penalty, an amount equal to the value (as determined bythe Pledgee) of the Collateral on the date the Pledgee shall demand compliancewith this Section.  Notwithstanding theprovisions 

 

15

----

 

ofthis Section 6.2, the Pledgee shall not be obligated to register any ofthe Collateral under the Act in connection with the exercise of remedieshereunder and may elect, in its sole discretion, to sell the Collateral or anypart thereof by private sale in such manner and under such circumstances as thePledgee may deem necessary or advisable in order that such sale be effectedwithout such registration.

SECTION 6.3             Compliance with Restrictions.  Each Pledgor agrees that in any sale of anyof the Collateral whenever an Event of Default shall have occurred and becontinuing, the Pledgee is hereby authorized to comply with any limitation orrestriction in connection with such sale as it may be advised by counsel isnecessary in order to avoid any violation of applicable law (includingcompliance with such procedures as may restrict the number of prospectivebidders and purchasers, require that such prospective bidders and purchasershave certain qualifications, and restrict such prospective bidders andpurchasers to Persons who will represent and agree that they are purchasing fortheir own account for investment and not with a view to the distribution orresale of such Collateral), or in order to obtain any required approval of thesale or of the purchase by any governmental regulatory authority or official,and each Pledgor further agrees that such compliance shall not result in suchsale being considered or deemed not to have been made in a commerciallyreasonable manner, nor shall the Pledgee be liable or accountable to anyPledgor for any discount allowed by the reason of the fact that such Collateralis sold in compliance with any such limitation or restriction.

SECTION 6.4             Application of Proceeds.  All cash proceeds received by the Pledgee inrespect of any sale of, collection from, or other realization upon, all or anypart of the Collateral may, in the discretion of the Pledgee, be held by thePledgee as additional collateral security for, or then or at any timethereafter be applied in whole or in part by the Pledgee against all or anypart of the Secured Obligations as follows:

(i)            first, to the payment of allObligations owing to the Pledgee pursuant to Section 10.3 of the CreditAgreement and Section 6.5 hereof;

(ii)           second, after payment in full of theamounts specified in clause (i), to the payment of all other Obligationsowing to the Pledgee, with such amounts applied first to fees and expenses,then to accrued and unpaid interest, then to the outstanding principal amountof the Revolving Loan, and then to Letter of Credit Outstandings and then toInterest Rate Hedging Obligations, if any; and

(iii)          third, after payment in full of theamounts specified in clauses (i) and (ii), and following the Termination Date,to the Pledgors or any other Person lawfully entitled to receive such surplus.

SECTION 6.5             Indemnity and Expenses.  Each Pledgor hereby jointly and severallyagrees to indemnify and hold harmless the Pledgee from and against any and allclaims, losses, and liabilities arising out of or resulting from this PledgeAgreement (including enforcement of this 

 

16

----

 

Pledge Agreement), exceptclaims, losses, or liabilities resulting from the Pledgee’s gross negligence orwillful misconduct.  Upon demand, eachPledgor jointly and severally agrees that it will pay to the Pledgee the amountof any and all reasonable expenses, including the reasonable fees anddisbursements of its counsel and of any experts, which the Pledgee may incur inconnection with:

(a)           the administration of this PledgeAgreement, the Credit Agreement and any other Loan Document;

(b)           the custody, preservation, use, oroperation of, or the sale of, collection from, or other realization upon, anyof the Collateral;

(c)           the exercise or enforcement of any ofthe rights of the Pledgee hereunder; or

(d)           the failure by any Pledgor to performor observe any of the provisions hereof.

Theprovisions of this Section 6.5 shall survive the Termination Date.

 

ARTICLE VII

 

MISCELLANEOUS PROVISIONS

SECTION 7.1             Loan Document.  This Pledge Agreement is a Loan Documentexecuted pursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions thereof, including Article X thereof.

SECTION 7.2             Protection of Collateral.  The Pledgee may from time to time, at itsoption, perform any act which any Pledgor agrees hereunder to perform and whichsuch Pledgor shall fail to perform after being requested in writing so toperform (it being understood that no such request need be given after theoccurrence and during the continuance of an Event of Default) and the Pledgeemay from time to time take any other action which the Pledgee reasonably deemsnecessary for the maintenance, preservation or protection of any of theCollateral or of its security interest therein.

SECTION 7.3             Binding on Successors,Transferees and Assigns; Assignment. This Pledge Agreement shall be jointly and several binding upon eachPledgor and each of their successors, transferees and assigns and shall inureto the benefit of and be enforceable by Pledgee and its successors, transfereesand assigns; provided, however, that no Pledgor may assign any ofits obligations hereunder without the prior written consent of the Pledgee.

SECTION 7.4             Amendments, etc.  No amendment to or waiver of any provisionof this Pledge Agreement, nor consent to any departure by any Pledgor herefrom,shall in any event be 

 

17

----

 

effective unless the sameshall be in writing and signed by the Pledgee and then such waiver or consentshall be effective only in the specific instance and for the specific purposefor which given.

SECTION 7.5             Notices.  All notices and other communicationsprovided for hereunder shall be in writing (including facsimile communication)and, mailed or telecopied or delivered to each Pledgor, in care of the Borrowerat the address specified in the Credit Agreement.  All such notices and other communications, when mailed andproperly addressed with postage prepaid or if properly addressed and sent bypre-paid courier service, shall be deemed given when received; any such noticeor communication, if transmitted by telecopier, shall be deemed given whentransmitted and electronically confirmed.

SECTION 7.6             Additional Subsidiary Pledgors.  Upon the execution and delivery by any otherPerson of an instrument in the form of Annex I hereto, such Person shall becomea “Pledgor” hereunder with the same force and effect as if originally named asa “Pledgor” herein.  The execution anddelivery of any such instrument shall not require the consent of any otherPledgor hereunder.  The rights andobligations of each Pledgor hereunder shall remain in full force and effectnotwithstanding the addition of any new Pledgor as a party to this PledgeAgreement.

SECTION 7.7             No Waiver; Remedies.  No failure on the part of the Pledgee toexercise, and no delay in exercising, any right hereunder shall operate as awaiver thereof; nor shall any single or partial exercise of any right hereunderpreclude any other or further exercise thereof or the exercise of any otherright.  The remedies herein provided arecumulative and not exclusive of any remedies provided by law.

SECTION 7.8             Captions.  Section captions used in this PledgeAgreement are for convenience of reference only, and shall not affect theconstruction of this Pledge Agreement.

SECTION 7.9             Severability.  Wherever possible, each provision of thisPledge Agreement shall be interpreted in such manner as to be effective andvalid under applicable law, but if any provision of this Pledge Agreement shallbe prohibited by or invalid under such law, such provision shall be ineffectiveto the extent of such prohibition or invalidity, without invalidating theremainder of such provision or the remaining provisions of this PledgeAgreement.

SECTION 7.10           Counterparts.  This Pledge Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

SECTION 7.11           Governing Law, Entire Agreement,etc.  **THIS PLEDGE AGREEMENT SHALL BE DEEMED TOBE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OFCALIFORNIA.  THIS PLEDGE AGREEMENT ANDTHE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIESHERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIORAGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.**

 

18

----

 

SECTION 7.12               Forum Selection and Consent toJurisdiction.  **ANY LITIGATION BASED HEREON, OR ARISINGOUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOANDOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORALOR WRITTEN) OR ACTIONS OF THE PLEDGEE OR ANY PLEDGOR SHALL BE BROUGHT ANDMAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THEUNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA; PROVIDED,HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT,AT THE PLEDGEE’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTYMAY BE FOUND.  EACH PLEDGOR HEREBYEXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THESTATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERNDISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTHABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY INCONNECTION WITH SUCH LITIGATION. EACH PLEDGOR IRREVOCABLY CONSENTS TO THESERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICEWITHIN OR WITHOUT THE STATE OF CALIFORNIA. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLESTEXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVETO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURTREFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN ANINCONVENIENT FORUM.  TO THE EXTENT THATANY PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANYCOURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENTPRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TOITSELF OR ITS PROPERTY, SUCH PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY INRESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT AND THE OTHER LOANDOCUMENTS.**

SECTION 7.13               Waiver of Jury Trial.  **EACH PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY ANDINTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OFANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF CONDUCT,COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THEPLEDGEE OR SUCH PLEDGOR.  EACH PLEDGORACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATIONFOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PLEDGEEENTERING INTO THE CREDIT AGREEMENT AND EACH OTHER LOAN DOCUMENT.**

 

19

----

 

 

 

**[Remainder of page intentionally left blank]**

 

20

----

 

INWITNESS WHEREOF, the Pledgor has caused this Subsidiary Pledge Agreement to beduly executed and delivered by its officer thereunto duly authorized as of thedate first above written.
|   |   | SB  OPERATINGCO, LLC,    as Pledgor  |
|--------|--------|-------------------------------------------|
|   |   | By:                                       | /s/ L. A.  OBERKFELL |
|   |   |                                      |   |
|   |   |                                      | L.  A. Oberkfell   President,   Chief Executive Officer |
|   |   |                                      |   |
|   |   | THE TITAN CORPORATION,    as Pledgee |
|   |   | By:                                       | /s/ MARK  W. SOPP |
|   |   |                                      |   |
|   |   |                                      | Mark W. Sopp   Senior Vice President,   Chief Financial Officer |

 

 

21

----

 

ATTACHMENT1

 

 
| **Owner** |   | **Issuer** |   | **Class** |   | **Certificate  Numbers, if applicable** |   | **Number of  Shares or percentage ownership interest** |   |
|-----------|--------|------------|--------|-----------|--------|-----------------------------------------|--------|--------------------------------------------------------|--------|
|      |   |       |   |      |   |                                    |   |                                                   |   |

 

 

Pledged Notes

 

Location of Pledgor (Section 3.1.4)

SB OperatingCo,LLC — Delaware

9276 ScrantonRoad, Suite 600

San Diego,California  92121

 

 

22

----

 

ANNEX I

 

SUPPLEMENT,dated as of ________________, ____ (this “Supplement”), to the SubsidiaryPledge Agreement, dated as of August 2, 2002 (together with all amendments,supplements, restatements and other modifications, if any, from time to timethereafter made thereto, the “Pledge Agreement”), among the initialsignatories thereto and each other Person (such capitalized term, and otherterms used in this Supplement, to have the meanings set forth in Article I ofthe Pledge Agreement) which from time to time thereafter became a party theretopursuant to Section 7.6 thereof (each, individually, a “Pledgor”, and,collectively, the “Pledgors”), in favor of the Pledgee (as defined inthe Pledge Agreement).

W I T N E S S E T H:

WHEREAS,pursuant to the provisions of Section 7.6 of the Pledge Agreement, theundersigned is becoming a Pledgor under the Pledge Agreement; and

WHEREAS,the undersigned Pledgor desires to become a “Pledgor” under the PledgeAgreement in order to induce the Pledgee to continue to extend CreditExtensions under the Credit Agreement;

NOW,THEREFORE, in consideration of the premises, and for other consideration (thereceipt and sufficiency of which is hereby acknowledged), the undersigned agrees,for the benefit of Pledgee, as follows.

SECTION 1.           In accordancewith the terms of the Pledge Agreement, by its signature below the undersignedhereby irrevocably agrees to become a Pledgor under the Pledge Agreement withthe same force and effect as if it were an original signatory thereto and theundersigned Pledgor, hereby (a) agrees to be bound by and comply with all ofthe terms and provisions of the Pledge Agreement applicable to it as a Pledgorand (b) represents and warrants that the representations and warranties made byit as a Pledgor thereunder are true and correct as of the date hereof.  In furtherance of the foregoing, eachreference to a “Pledgor” in the Pledge Agreement shall be deemed to include theundersigned Pledgor.

SECTION 2.           The undersignedPledgor hereby represents and warrants that this Supplement has been dulyauthorized, executed and delivered by it and that this Supplement and thePledge Agreement constitute the legal, valid and binding obligation of theundersigned Pledgor, enforceable against it in accordance with its terms.

SECTION 3.           Except asexpressly supplemented hereby, the Pledge Agreement shall remain in full forceand effect in accordance with its terms.

 

23

----

 

SECTION 4.           In the eventany one or more of the provisions contained in this Supplement should be heldinvalid, illegal or unenforceable in any respect, the validity, legality andenforceability of the remaining provisions contained herein and in the PledgeAgreement shall not in any way be affected or impaired.

SECTION 5.           THISSUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWSOF THE STATE OF CALIFORNIA.

SECTION 6.           ThisSupplement may be executed by the parties hereto in several counterparts, eachof which shall be deemed to be an original and all of which shall constitutetogether but one and the same agreement.

 

INWITNESS WHEREOF, the parties hereto have caused this Supplement to be dulyexecuted and delivered by their respective officers thereunto duly authorizedas of the day and year first above written.

 
| [NAME OF ADDITIONAL  SUBSIDIARY PLEDGOR] |
|------------------------------------------|
|                                     |   |
| By:                                      |   |
|                                     | Name: |
|                                     | Title: |

 

ACCEPTEDBY:

THE TITAN CORPORATION,

asPledgee

 
| By:    |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

 

24

----

 

EXHIBIT A

 

INSTRUCTION TO REGISTER PLEDGE

 

_____________, ____

 

[                        ]

Attention:________________

Ladiesand Gentlemen:

Theundersigned, a [member] [partner] [shareholder] of ___________, a [___________limited liability company] [a ________ partnership] [a __________ corporation](the “Company”), hereby instructs the Company to register on the books of theCompany the pledge of the undersigned’s [membership] [partnership] interest infavor of THE TITAN CORPORATION, a Delaware corporation, as Pledgee (the“Pledgee”), pursuant to the Subsidiary Pledge Agreement, dated as of May 24,2002, made by, among others, the undersigned in favor of the Pledgee.

Very truly yours,

[NAME OF PLEDGOR]

 
| By:    |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

cc: The Titan Corporation

 

25

----

 

EXHIBIT B

 

INITIAL TRANSACTION STATEMENT

 

_____________, ____

To:          The Titan Corporation

                Attention:

Thisstatement is to advise you that a pledge of the following uncertificatedsecurities has been registered in the name of The Titan Corporation (the“Pledgee”), as follows:

1.             Uncertificated Securities:

The entire [limited liability company][partnership] interests of [NAME OF PLEDGOR] in the undersigned [limitedliability company] [________ partnership] [corporation].

2.             Registered Owner:

[NAME OF PLEDGOR]

 

3.             Pledged in favor of:

TheTitan Corporation,

   as the Pledgee

4.             There are no liens or restrictions of the undersigned[limited liability company] [________ partnership] [corporation] and no adverseclaims to which the uncertificated securities are or may be subject known tothe undersigned [limited liability company] [________ partnership][corporation], other than in favor of The Titan Corporation, in its capacity asthe Pledgee.

5.             The pledge was registered on _______ __, ____.

6.             No transfer of the uncertificated securities shall bemade without the prior written consent of the Pledgee.

THISSTATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEE AS OF THE TIME OFITS ISSUANCE.  DELIVERY OF THISSTATEMENT, OF ITSELF, CONFERS NO RIGHTS ON THE RECIPIENT.  THIS STATEMENT IS NEITHER A 

 

26

----

 

NEGOTIABLEINSTRUMENT NOR A SECURITY.

Very truly yours,

[NAME OF PLEDGED INTEREST ISSUER]

 
| By:    |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

27

----

 

**Exhibit L**

SUBSIDIARY SECURITY AGREEMENT

This SUBSIDIARY SECURITYAGREEMENT (as amended, restated, supplemented, or otherwise modified from timeto time, this “Security Agreement”), dated as of August 2, 2002, is madeby each Subsidiary (as defined in the Credit Agreement referred to below) ofthe Borrower (as defined below), now or after the date hereof (includingpursuant to Section 7.4) a signatory hereto (each, individually, a “Grantor,”and collectively, the “Grantors”), in favor of THE TITAN CORPORATION, aDelaware corporation (the “Secured Party”).

WITNESSETH :

WHEREAS, pursuant to aSenior Secured Credit Agreement, dated as of August 2, 2002 (as amended,restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between SUREBEAM CORPORATION, a Delaware corporation (the “Borrower”)and Secured Party, the Secured Party has extended Commitments to make CreditExtensions to the Borrower;

WHEREAS, as a conditionprecedent to the making of the Credit Extensions (including the initial CreditExtension) under the Credit Agreement, each Grantor is required to execute anddeliver this Security Agreement;

WHEREAS, each Grantor isa Subsidiary of the Borrower;

WHEREAS, each Grantor hasduly authorized the execution, delivery and performance of this SecurityAgreement; and

WHEREAS, it is in thebest interests of each Grantor to execute this Security Agreement inasmuch assuch Grantor will derive substantial direct and indirect benefits from theCredit Extensions made from time to time to the Borrower by the Secured Partypursuant to the Credit Agreement;

NOW THEREFORE, for goodand valuable consideration the receipt and sufficiency of which is herebyacknowledged, and in order to induce the Secured Party to make CreditExtensions (including the initial Credit Extension) to the Borrower pursuant tothe Credit Agreement, each Grantor jointly and severally agrees, for thebenefit of the Secured Party, as follows:

ARTICLE IDEFINITIONS

SECTION 1.1             CertainTerms.  The following terms (whetheror not underscored) when used in this Security Agreement, including itspreamble and recitals, shall have the following meanings (such definitions tobe equally applicable to the singular and plural forms thereof):

“Borrower” isdefined in the first recital.

 

----

 

“Chattel Paper”has the meaning provided in the U.C.C.

“Collateral” isdefined in Section 2.1.

“Collateral Account”is defined in Section 4.1.2(b).

“Commercial Tort Claims”means any claim arising in tort now or hereafter owned, acquired, or receivedby any Grantor in which any Grantor now holds or hereafter acquires any rightor interest.

“Computer Hardware andSoftware Collateral” means:

(a)       allcomputer and other electronic data processing hardware, integrated computersystems, central processing units, memory units, display terminals, printers,features, computer elements, card readers, tape drives, hard and soft diskdrives, cables, electrical supply hardware, generators, power equalizers,accessories and all peripheral devices and other related computer hardware;

(b)       all software programs(including both source code, object code and all related applications and datafiles), whether now owned, licensed or leased or hereafter acquired by anyGrantor, designed for use on the computers and electronic data processinghardware described in clause (a) above;

(c)       all firmware associatedtherewith;

(d)       all documentation(including flow charts, logic diagrams, manuals, guides and specifications)with respect to such hardware, software and firmware described in the precedingclauses (a) through (c); and

(e)       all rights with respectto all of the foregoing, including any and all copyrights, licenses, options,warranties, service contracts, program services, test rights, maintenancerights, support rights, improvement rights, renewal rights and indemnificationsand any substitutions, replacements, additions or model conversions of any ofthe foregoing.

“Contracts” meansall agreements between any Grantor and one or more additional parties.

“Contract Rights”means all rights of any Grantor (including, without limitation, all rights topayment) under each Contract.

“Copyright Collateral”means all copyrights (including all copyrights for semi-conductor chip productmask works) of each Grantor, whether statutory or common law, registered orunregistered, now or hereafter in force throughout the world including all ofsuch Grantor’s right, title and interest in and to all copyrights registered inthe United States Copyright Office or anywhere else in the world and alsoincluding the copyrights referred to in Item A of Schedule IVattached hereto, and all applications for registration thereof, whether pendingor in preparation, all copyright licenses, including each copyright licensereferred to in Item B of Schedule IV attached hereto, the rightto sue for past, present and future infringements of any thereof, all rights 

 

2

----

 

corresponding theretothroughout the world, all extensions and renewals of any thereof and allProceeds of the foregoing, including licenses, royalties, income, payments,claims, damages and Proceeds of suit.

“Credit Agreement”is defined in the first recital.

“Deposit Accounts”has the meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, any demand, time, savings, passbook or like account maintained witha depositary institution, including those Deposit Accounts set forth in ItemG of Schedule I hereto.

“Documents” hasthe meaning provided in the U.C.C.

“Equipment” hasthe meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, all equipment in all of its forms of the Grantors, whereverlocated, including all parts thereof and all accessions, additions,attachments, improvements, substitutions and replacements thereto and thereforand all accessories related thereto.

“Fixtures” has themeaning provided in the U.C.C., and in any event, includes, without limitation,with respect to the Grantors, regardless of where located, any of the fixtures,systems, machinery, apparatus, equipment or fittings of any kind or naturewhatsoever, and all appurtenances and additions thereto and substitutions orreplacements thereof, now or hereafter attached or affixed to or constituting apart of, or located in or upon, real property wherever located, including sign,escalator, elevator, any heating, electrical, mechanical, lighting, lifting,plumbing, ventilating, air-conditioning or air cooling, refrigerating, foodpreparation, incinerating or power, loading or unloading, boilers,communication, switchboard, tank, pump, filter, sprinkler or other fireprevention or extinguishing fixture, system, machinery, apparatus or equipment,and any engine, motor, dynamo, machinery, pipe, pump, tank, conduit or ductconstituting a part of any of the foregoing, together with all extensions,improvements, betterments, renewals, substitutes, and replacements of, and alladditions and appurtenances to any of the foregoing property, and allconversions of the security constituted thereby, immediately upon anyacquisition or release thereof or any such conversion, as the case may be.

“General Intangibles”has the meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, with respect to the Grantors, all Contracts, agreements,Instruments and indentures in any form, and portions thereof, to which anyGrantor is a party or under which any Grantor has any right, title or interestor to which any Grantor or any property of any Grantor is subject, as the samemay from time to time be amended, supplemented or otherwise modified,including, without limitation, (i) all rights of any Grantor to receive moneysdue and to become due to it thereunder or in connection therewith, (ii) allrights of any Grantor to damages arising thereunder and (iii) all rights of anyGrantor to perform and to exercise all remedies thereunder.

“Goods” has themeaning provided in the U.C.C.

“Grantor” and “Grantors”are defined in the preamble.

“Instrument” hasthe meaning provided in the U.C.C.

 

3

----

 

“Intellectual PropertyCollateral” means, collectively, the Computer Hardware and SoftwareCollateral, the Copyright Collateral, the Patent Collateral, the TrademarkCollateral and the Trade Secrets Collateral.

“Inventory” hasthe meaning provided in the U.C.C. and, in any event, includes, withoutlimitation, all inventory in all of its forms of the Grantors, whereverlocated, including

(i)      all rawmaterials and work in process therefor, finished goods thereof, and materialsused or consumed in the manufacture or production thereof,

(ii)     allgoods in which any Grantor has an interest in mass or a joint or other interestor right of any kind (including goods in which such Grantor has an interest orright as consignee), and

(iii)    allgoods which are returned to or repossessed by any Grantor,

and all accessionsthereto, products thereof and documents therefor.

“Investment Property”has the meaning provided in the U.C.C.

“Letter of CreditRight” means any right of any Grantor to payment or performance under aletter of credit (as such term in defined in Article 5 of the U.C.C.), whetheror not the beneficiary has demanded or is at the time entitled to demandpayment or performance.

“Patent Collateral”means:

(a)       all letters patent andapplications for letters patent throughout the world, including all patentapplications in preparation for filing anywhere in the world and including eachpatent and patent application referred to in Item A of Schedule IIattached hereto;

(b)       all reissues, divisions,continuations, continuations-in-part, extensions, renewals and reexaminationsof any of the items described in clause (a);

(c)       all patent licenses, includingeach patent license referred to in Item B of Schedule II attachedhereto; and

(d)       all Proceeds of, andrights associated with, the foregoing (including license royalties and Proceedsof infringement suits), the right to sue third parties for past, present orfuture infringements of any patent or patent application, including any patentor patent application referred to in Item A of Schedule IIattached hereto, and for breach or enforcement of any patent license, includingany patent license referred to in Item B of Schedule II attachedhereto, and all rights corresponding thereto throughout the world.

“Payment Intangibles”has the meaning provided in the U.C.C.

“Promissory Notes”has the meaning provided in the U.C.C.

 

4

----

 

“Proceeds” has themeaning provided in the U.C.C., and shall include, in any event, with respectto any Grantor, any and all currently owned or after-acquired (a) Receivables,Chattel Paper, Instruments, Investment Property, cash or other forms of money,currency or funds or other property of any nature, type or land whatsoeverpayable to or renewable by any Grantor from time to time in respect of theCollateral, including upon the sale, lease, license, exchange or otherdisposition of any Collateral, (b) proceeds of any insurance, indemnity,warranty or guaranty payable to any Grantor from time to time with respect toany of the Collateral, including by reason of the loss, nonconformity orinterference with the use of, defects or infringement of rights in, or damageto, any of the Collateral, (c) payments (in any form whatsoever) made or dueand payable to any Grantor from time to time in connection with anyrequisition, confiscation, condemnation, seizure or forfeiture of all or any partof the Collateral by any governmental authority (or any person acting undercolor of governmental authority), (d) claims of any Grantor against thirdparties arising out of the loss, nonconformity, interference with the use of,defects or infringements of rights in, or damage to, any of the Collateral,including any claim (i) for past, present or future infringement of any patentor patent license, copyright or copyright license or (ii) for past, present orfuture infringement or dilution of any Trademark or Trademark license or forinjury to the goodwill associated with any Trademark, Trademark registration orTrademark licensed under any Trademark license, (e) certificates, dividends,cash, Instruments or other forms of money, currency or funds and other Propertyreceived or distributed in respect of or in exchange for any InvestmentProperty, (f) cash or other forms of money, currency or funds and otherproceeds received under and in respect of any letter of credit or other supportobligation, (g) rights arising out of any of the Collateral, and (h) otherproperty of any nature, type or kind whatsoever from time to time paid orpayable under or in connection with, collected on, or distributed on accountof, any of the Collateral.

“Receivables”means “accounts” (as such term is defined in the U.C.C.), including but notlimited to rights to payments for goods sold or leased or services rendered,whether now existing or hereafter arising, including, without limitation,rights evidenced by an account, note, Contract, security agreement, ChattelPaper, or other evidence of indebtedness or security, together with (a) allsecurity pledged, assigned, hypothecated or granted to or held by any Grantorto secure the foregoing, (b) all of any Grantor’s right, title and interest inand to any goods, the sale of which gave rise thereto, (c) all guarantees,endorsements and indemnifications on, or of, any of the foregoing, (d) allpowers of attorney for the execution of any evidence of indebtedness orsecurity or other writing in connection therewith, (e) all books, records,ledger cards, and invoices relating thereto, (f) all evidences of the filing offinancing statements and other statements and the registration of otherInstruments in connection therewith and amendments thereto, notices to othercreditors or secured parties, and certificates from filing or otherregistration officers, (g) all credit information, reports and memorandarelating thereto and (h) all other writings related in any way to theforegoing.

“Secured Obligations”is defined in Section 2.2.

“Secured Party” isdefined in the preamble.

“Securities Account”has the meaning provided in the U.C.C., including without limitation thoseSecurities Accounts listed in Item H of Schedule I hereto.

“Security Agreement”is defined in the preamble.

 

5

----

 

“SupportingObligations” has the meaning provided in the U.C.C.

“Termination Date”means the date on which all Obligations have indefeasibly been paid in full incash, all Commitments have been fully terminated and all Letters of Credit andLender Guaranties have been canceled or otherwise terminated.

“Trademark Collateral”means:

(a)       all trademarks, tradenames, corporate names, company names, business names, fictitious businessnames, trade styles, service marks, certification marks, collective marks,logos, other source of business identifiers, prints and labels on which any ofthe foregoing have appeared or appear, designs and General Intangibles of alike nature (all of the foregoing items in this clause (a) beingcollectively called a “Trademark”), now existing anywhere in the worldor hereafter adopted or acquired, whether currently in use or not, allregistrations and recordings thereof and all applications in connectiontherewith, whether pending or in preparation for filing, includingregistrations, recordings and applications in the United States Patent andTrademark Office or in any office or agency of the United States of America orany State thereof or any foreign country, including those referred to in Item Aof Schedule III attached hereto;

(b)       all Trademark licenses,including each Trademark license referred to in Item B of ScheduleIII attached hereto;

(c)       all reissues, extensionsor renewals of any of the items described in clauses (a) and (b);

(d)       all of the goodwill ofthe business connected with the use of, and symbolized by the items describedin, clauses (a) and (b); and

(e)       all Proceeds of, andrights associated with, the foregoing, including any claim by any Grantoragainst third parties for past, present or future infringement or dilution ofany Trademark, Trademark registration or Trademark license, including anyTrademark, Trademark registration or Trademark license referred to in Item Aand Item B of Schedule III attached hereto, or for anyinjury to the goodwill associated with the use of any such Trademark or forbreach or enforcement of any Trademark license.

“Trade SecretsCollateral” means all common law and statutory trade secrets and all otherconfidential or proprietary or useful information and all know-how obtained byor used in or contemplated at any time for use in the business of any Grantor(all of the foregoing being collectively called a “Trade Secret”),whether or not such Trade Secret has been reduced to a writing or othertangible form, including all documents and things embodying, incorporating orreferring in any way to such Trade Secret, all Trade Secret licenses, includingeach Trade Secret license referred to in Schedule V attached hereto, andincluding the right to sue for and to enjoin and to collect damages for theactual or threatened misappropriation of any Trade Secret and for the breach orenforcement of any such Trade Secret license.

 

6

----

 

“U.C.C.” means theUniform Commercial Code, as in effect from time to time in the State ofCalifornia; provided, however, in the event that, by reason ofmandatory provisions of law, any or all of the attachment, perfection orpriority of Secured Party’s security interest in any Collateral is governed bythe Uniform Commercial Code as in effect in a jurisdiction other than the Stateof California, the term “U.C.C.” shall mean the Uniform Commercial Code(including the Articles thereof) as in effect at such time in such otherjurisdiction for purposes of the provisions hereof relating to such attachment,perfection or priority and for purposes of definitions related to suchprovisions.

SECTION 1.2             CreditAgreement Definitions.  Unlessotherwise defined herein or the context otherwise requires, terms used in thisSecurity Agreement, including its preamble and recitals, have the meaningsprovided in the Credit Agreement.

SECTION 1.3             U.C.C.Definitions.  Unless otherwisedefined herein or in the Credit Agreement or the context otherwise requires,terms for which meanings are provided in the U.C.C. are used in this SecurityAgreement, including its preamble and recitals, with such meanings.

ARTICLE IISECURITY INTEREST

SECTION 2.1             Grantof Security.  Each Grantor herebyassigns and pledges to the Secured Party, and hereby grants to the SecuredParty, to secure the Secured Obligations, a security interest in all of thefollowing, whether now or hereafter existing or acquired by such Grantor (the “Collateral”):

(a)       the Collateral Account;

(b)       all Commercial TortClaims;

(c)       all Computer Hardwareand Software Collateral;

(d)       all Contracts, togetherwith any Contract Rights arising thereunder;

(e)       all Deposit Accounts;

(f)        all Equipment;

(g)       all Fixtures;

(h)       all IntellectualProperty Collateral;

(i)        all Inventory;

(j)        all InvestmentProperty;

(k)       all Letter of CreditRights;

 

7

----

 

(l)        all Receivables;

(m)      all Securities Accounts;

(n)       all Supporting Obligations;

(o)       all other Goods, ChattelPaper, Documents, Instruments (including, without limitation, PromissoryNotes), and General Intangibles (including, without limitation, PaymentIntangibles and tax refunds) of such Grantor now or hereafter existing;

(p)       all books, records,writings, data bases, information and other property relating to, used oruseful in connection with, evidencing, embodying, incorporating or referringto, any of the foregoing in this Section 2.1;

(q)       all of such Grantor’sother personal property and rights of every kind and description and intereststherein; and

(r)        all products andProceeds of and from any and all of the foregoing Collateral (includingProceeds which constitute property of the types described in clauses (a)through (q) and, to the extent not otherwise included, all paymentsunder insurance which such Grantor is entitled to receive (whether or not theSecured Party is the loss payee thereof), or any indemnity, warranty orguaranty, payable by reason of loss or damage to or otherwise with respect toany of the foregoing Collateral.

Notwithstandinganything herein to the contrary, in no event shall the Collateral include, andno Grantor shall be deemed to have granted a security interest in, any of suchGrantor’s rights or interests in any license, contract or agreement to whichsuch Grantor is a party or any of its rights or interests thereunder to theextent, but only to the extent, that such a grant would, under the expressterms of such license, contract or agreement or otherwise, result in a breachof the terms of, or constitute a default under such license, contract oragreement (other than to the extent that any such term would be renderedineffective pursuant to Sections 9407(a) or 9408(a) of the U.C.C. or any otherapplicable law (including the Bankruptcy Code) or principles of equity); provided,that immediately upon the ineffectiveness, waiver, lapse or termination of anysuch provision, the Collateral shall include, and such Grantor shall havegranted a security interest in, all such rights and interests as if suchprovision had never been in effect.

SECTION 2.2             Securityfor Obligations.  This SecurityAgreement secures the payment of (i) all Obligations of the Borrower now orhereafter existing under the Credit Agreement and each other Loan Document towhich the Borrower is or may become a party, whether for principal, interest,costs, fees, expenses, Interest Rate Hedging Obligations or otherwise, and (ii)all obligations of each Grantor and each other Obligor now or hereafterexisting under this Security Agreement and each other Loan Document to whichsuch Grantor or such other Obligor is or may become a party, with all suchobligations of the Borrower and each Grantor and each other Obligor beingcollectively referred to as the “Secured Obligations”.

SECTION 2.3             ContinuingSecurity Interest; Transfer of Notes. This Security Agreement shall create a continuing security interest inthe Collateral and shall:

 

8

----

 

(a)       remain in full force andeffect until the Termination Date;

(b)       be binding upon eachGrantor and each of their successors, transferees and assigns; and

(c)       inure to the benefit ofthe Secured Party.

The Secured Partymay assign or otherwise transfer (in whole or in part) the Revolving Note orany Credit Extension held by it to any other Person or entity, and such otherPerson or entity shall thereupon become vested with all the rights and benefitsin respect thereof granted to the Secured Party under any Loan Document(including this Security Agreement) or otherwise, subject, however, to theprovisions of Section 10.10 of the Credit Agreement.

SECTION 2.4             GrantorsRemain Liable.  Anything herein tothe contrary notwithstanding:

(a)       each Grantor shallremain liable under the Contracts and agreements included in the Collateral tothe extent set forth therein, and shall perform all of its duties andobligations under such Contracts and agreements to the same extent as if thisSecurity Agreement had not been executed;

(b)       the exercise by theSecured Party of any of its rights hereunder shall not release any Grantor fromany of its duties or obligations under any such Contracts or agreementsincluded in the Collateral; and

(c)       the Secured Party shallnot have any obligation or liability under any such Contracts or agreementsincluded in the Collateral by reason of this Security Agreement, nor shall theSecured Party be obligated to perform any of the obligations or duties of anyGrantor thereunder or to take any action to collect or enforce any claim forpayment assigned hereunder.

SECTION 2.5             SecurityInterest Absolute.  All rights ofthe Secured Party and the security interests granted to the Secured Partyhereunder, and all obligations of each Grantor hereunder, shall be absolute andunconditional, irrespective of:

(a)       any lack of validity orenforceability of the Credit Agreement or any other Loan Document;

(b)       the failure of theSecured Party

(i)      toassert any claim or demand or to enforce any right or remedy against anyObligor or any other Person under the provisions of the Credit Agreement, anyother Loan Document or otherwise, or

(ii)     toexercise any right or remedy against any other guarantor of, or collateralsecuring, any Secured Obligations;

 

9

----

 

(c)       any change in the time,manner or place of payment of, or in any other term of, all or any of theSecured Obligations or any other extension, compromise or renewal of anySecured Obligation;

(d)       any reduction, limitation,impairment or termination of any Secured Obligations for any reason, includingany claim of waiver, release, surrender, alteration or compromise, and shallnot be subject to (and each Grantor hereby waives any right to or claim of) anydefense or setoff, counterclaim, recoupment or termination whatsoever by reasonof the invalidity, illegality, irregularity, compromise, unenforceability of,or any other event or occurrence affecting, any Secured Obligations orotherwise;

(e)       any amendment to,rescission, waiver, or other modification of, or any consent to departure from,any of the terms of the Credit Agreement or any other Loan Document;

(f)        any addition, exchange,release, surrender or non-perfection of any collateral (including theCollateral), or any amendment to or waiver or release of or addition to orconsent to departure from any guaranty, for any of the Secured Obligations; or

(g)       any other circumstanceswhich might otherwise constitute a defense available to, or a legal orequitable discharge of, any Obligor, any surety or any guarantor.

SECTION 2.6             Postponementof Subrogation, etc.  Each Grantoragrees that it will not exercise any rights which it may acquire by way ofrights of subrogation under this Security Agreement, by any payment made hereunder,whether by way of subrogation, reimbursement or otherwise, until after theTermination Date.  Any amount paid toany Grantor on account of any such subrogation rights prior to the TerminationDate shall be held in trust for the benefit of the Secured Party and shallimmediately be paid to the Secured Party and credited and applied against theSecured Obligations, whether matured or unmatured, in accordance with the termsof the Credit Agreement; provided, however, that if:

(a)       any Grantor has madepayment to the Secured Party of all or any part of the Secured Obligations; and

(b)       the Termination Date hasoccurred;

then the SecuredParty agrees that, at such Grantor’s request, the Secured Party will executeand deliver to such Grantor appropriate documents (without recourse and withoutrepresentation or warranty) necessary to evidence the transfer by subrogationto such Grantor of an interest in the Secured Obligations resulting from suchpayment by such Grantor.  In furtheranceof the foregoing, at all times prior to the Termination Date, each Grantorshall refrain from taking any action or commencing any proceeding against theBorrower or any other Obligor (or its successors or assigns, whether inconnection with a bankruptcy proceeding or otherwise) to recover any amounts inrespect of payments made under this Security Agreement to the SecuredParty.  Notwithstanding the foregoing,to the extent necessary to toll the statute of limitations, such Grantor may takesuch action required to preserve any rights it has by way of rights ofsubrogation as consented to by the Secured Party in its reasonable discretion.

 

10

----

 

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

SECTION 3.1             Representationsand Warranties.  Each Grantorrepresents and warrants to the Secured Party (a) as to all matters contained inArticle VI of the Credit Agreement insofar as the representations andwarranties contained therein are applicable to such Grantor and its properties,each such representation and warranty set forth in such Article (insofar asapplicable as aforesaid) and all other terms of the Credit Agreement to whichreference is made therein, together with all related definitions and ancillaryprovisions, being hereby incorporated into this Security Agreement by referenceas though specifically set forth in this Section 3.1 and (b) insofar asthe representations and warranties contained herein are applicable to suchGrantor and its properties, as set forth in this Article.

SECTION 3.1.1              Locationof Collateral, etc.  All of theEquipment and Inventory of such Grantor is located at the places specified in ItemA and Item B, respectively, of Schedule I hereto, except forsuch property in transit in the ordinary course.  None of the Equipment and Inventory has, within the four (4)months preceding the date of this Security Agreement, been located at any placeother than the places specified in Item A and Item B, respectively, of ScheduleI applicable to such Grantor hereto except as set forth in a footnotethereto.  The place(s) of business andchief executive office of such Grantor and the office(s) where such Grantorkeeps its records concerning the Receivables, and all originals of all Chattel Paperwhich evidence Receivables, are located at the address set forth in Item Dof Schedule I applicable to such Grantor hereto.  Such Grantor has no trade names other thanthose set forth in Item E of Schedule I applicable to suchGrantor hereto.  During the four (4)months preceding the date hereto, such Grantor has not been known by any legalname different from the one set forth on the signature page hereto, nor hassuch Grantor been the subject of any merger or other corporate reorganization,except as set forth in Item F of Schedule I applicable to suchGrantor hereto.  All Receivables[, ifsuch Receivables are in excess of Two Hundred Fifty Thousand Dollars($250,000), and otherwise at the request of Security Party) evidenced by apromissory note or other Instrument, negotiable Document or Chattel Paper havebeen duly endorsed and accompanied by duly executed instruments of transfer orassignment, all in form and substance satisfactory to the Secured Party anddelivered and pledged to the Secured Party pursuant to Section 4.1.7hereto.

SECTION 3.1.2              Ownership,No Liens, etc.  Such Grantor and/orthe Borrower (with respect to Collateral shown on Schedules II through Vhereto) owns its Collateral free and clear of any Lien, security interest,charge or encumbrance except for the security interest created by this SecurityAgreement and except as permitted by the Credit Agreement.  No effective financing statement or otherinstrument similar in effect covering all or any part of the Collateral is onfile in any recording office, except such as may have been filed in favor ofthe Secured Party relating to this Security Agreement or as have been filed inconnection with Liens permitted pursuant to Section 8.3 of the CreditAgreement.

SECTION 3.1.3              Possessionand Control.  Such Grantor hasexclusive possession and control of its Equipment and Inventory, except forproperty in transit in the ordinary course.

 

11

----

 

SECTION 3.1.4              NegotiableDocuments, Instruments and Chattel Paper. Such Grantor has, contemporaneously herewith, delivered to the SecuredParty possession of all originals of all negotiable Documents, Instruments andChattel Paper currently owned or held by such Grantor (duly endorsed in blank,if requested by the Secured Party).

SECTION 3.1.5              IntellectualProperty Collateral.  With respectto any Intellectual Property Collateral the loss, impairment or infringement ofwhich is reasonably likely to have a Material Adverse Effect:

(a)       such IntellectualProperty Collateral is subsisting and has not been adjudged invalid orunenforceable, in whole or in part;

(b)       such IntellectualProperty Collateral is valid and enforceable;

(c)       such Grantor (and/or theBorrower) has made all necessary filings and recordations to protect itsinterest in such Intellectual Property Collateral, including recordations ofall of its interests in the Patent Collateral and Trademark Collateral in theUnited States Patent and Trademark Office and in corresponding officesthroughout the world and its claims to the Copyright Collateral in the UnitedStates Copyright Office and in corresponding offices throughout the world, ineach case where it is commercially reasonable to do so;

(d)       other than as previouslydisclosed in writing to the Secured Party, such Grantor (and/or the Borrower)is the exclusive owner of the entire and unencumbered right, title and interestin and to such Intellectual Property Collateral and no claim has been made thatthe use of such Intellectual Property Collateral does or may violate theasserted rights of any third party; and

(e)       such Grantor hasperformed and will continue to perform and cause all acts and has paid and willcontinue to pay all required fees and taxes to maintain each and every item ofIntellectual Property Collateral in full force and effect throughout the world,as applicable, unless such Grantor (i) has reasonably and in good faithdetermined that any of the Intellectual Property Collateral is of negligibleeconomic value to such Grantor, or (ii) has a reasonable and valid business purposeto do otherwise.

Such Grantor ownsdirectly or is entitled to use by license or otherwise, all patents,Trademarks, Trade Secrets, copyrights, mask works, licenses, technology,know-how, processes and rights with respect to any of the foregoing necessaryto the conduct of such Grantor’s business as presently conducted.

SECTION 3.1.6              Validity,Priority, etc.  Assuming the properfiling of one or more financing statements identifying the Collateral with theproper local, state and/or federal authorities, the security interests in theCollateral granted to the Secured Party hereunder constitute valid andcontinuing first priority perfected security interests in the Collateral(subject to Liens permitted under the Credit Agreement), securing payment of theSecured Obligations, to the extent such security interests may be perfected bythe filing of financing statements or other filings with the United StatesPatent and Trademark Office or United States Copyright Office.

 

12

----

 

SECTION 3.1.7              Authorization,Approval, etc.  Except as have beenobtained or made and are in full force and effect, no authorization, approvalor other action by, and no notice to or filing with, any governmental authorityor regulatory body is required under U.S. law, except for necessary filings inconnection with the U.C.C., either:

(a)       for the grant by suchGrantor of the security interest granted hereby or for the execution, deliveryand performance of this Security Agreement by such Grantor; or

(b)       for the perfection of orthe exercise by the Secured Party of its rights and remedies hereunder.

SECTION 3.1.8              Compliancewith Laws.  Such Grantor is incompliance in all material respects with the requirements of all applicablelaws (including the provisions of the Fair Labor Standards Act), rules,regulations and orders of every governmental authority, the non-compliance withwhich is reasonably likely to have a Material Adverse Effect or which isreasonably likely to materially adversely affect the value of the Collateral orthe worth of the Collateral as collateral security.

ARTICLE IVCOVENANTS

SECTION 4.1             CertainCovenants.  Each Grantor covenantsand agrees that, so long as any portion of the Secured Obligations shall remainunpaid, any Letters of Credit shall be outstanding or the Secured Party shallhave any outstanding Commitment, such Grantor will, unless the Secured Partyshall otherwise consent in writing, perform, comply with and be bound by (a)all of the agreements, covenants and obligations contained in Article VII ofthe Credit Agreement which are applicable to such Grantor or its properties,each such agreement, covenant and obligation contained in such Article and allother terms of the Credit Agreement to which reference is made herein, togetherwith all related definitions and ancillary provisions, being herebyincorporated into this Security Agreement by reference as though specificallyset forth in this Section 4.1 and (b) the obligations set forth in thisArticle.

SECTION 4.1.1              Asto Equipment and Inventory.  SuchGrantor hereby agrees that it shall:

(a)       keep all the Equipmentand Inventory (other than Inventory sold or certain Equipment in transit and ispermitted under the Credit Agreement), each in the ordinary course of business,or except as otherwise provided in the Credit Agreement or any of the otherLoan Documents) at the places therefor specified in Section 3.1.1 hereofor, upon thirty (30) days’ prior written notice to the Secured Party, at suchother places in a jurisdiction where all representations and warranties setforth in Article III shall be true and correct, and all action requiredpursuant to the first sentence of Section 4.1.7 hereof shall havebeen taken with respect to the Equipment and Inventory (collectively, “SpecifiedLocations”);

(b)       cause the Equipment tobe maintained and preserved in the same condition, repair and working order aswhen new, ordinary wear and tear excepted, and in accordance 

 

13

----

 

with anymanufacturer’s manual or good business practice; and forthwith, or in the caseof any loss or damage to any of the Equipment, as quickly as practicable afterthe occurrence thereof, make or cause to be made all repairs, replacements, andother improvements in connection therewith which are necessary or desirable tosuch end; and promptly furnish to the Secured Party a statement respecting anymaterial loss or damage to any of the Equipment; and

(c)       pay promptly when dueall property and other taxes, assessments and governmental charges or leviesimposed upon, and all claims (including claims for labor, materials andsupplies) against, the Equipment and Inventory, except to the extent thevalidity thereof is being contested in good faith by appropriate proceedingsand for which adequate reserves in accordance with GAAP have been set aside.

SECTION 4.1.2              Asto Receivables and Contracts.

(a)       Such Grantor shall keepits place(s) of business and chief executive office and the office(s) where itkeeps its records concerning the Receivables, and all originals of all ChattelPaper which evidences Receivables, located at the address(es) set forth in ItemD of Schedule I hereto, or, upon thirty (30) days’ priorwritten notice to the Secured Party, at such other locations in a jurisdictionwhere all actions required by the first sentence of Section 4.1.7 hereofshall have been taken with respect to the Receivables; not change its nameexcept upon thirty (30) days’ prior written notice to the Secured Party; hold andpreserve such records and Chattel Paper; and permit representatives of theSecured Party at any time during normal business hours to inspect (uponreasonable prior written notice so long as no Event of Default shall haveoccurred and be continuing) and make abstracts from such records and ChattelPaper.  In addition, such Grantor shallgive the Secured Party a supplement to Schedule I hereto on each date aCompliance Certificate is required to be delivered by the Borrower to theSecured Party under the Credit Agreement, which shall set forth any changes tothe information set forth in Section 3.1.1 hereof.

(b)       Upon written notice bythe Secured Party to such Grantor pursuant to this clause, all Proceeds ofCollateral received by such Grantor shall be delivered in kind to the SecuredParty for deposit to a deposit account (the “Collateral Account”) ofsuch Grantor maintained with Comerica Bank-California, and such Grantor shallnot commingle any such Proceeds, and shall hold separate and apart from all otherproperty, all such Proceeds in express trust for the benefit of the SecuredParty until delivery thereof is made to the Secured Party.  The Secured Party will not give the noticereferred to in the preceding sentence unless there shall have occurred and becontinuing an Event of Default.

(c)       The Secured Party shallhave the right to apply any amount in any such Collateral Account to thepayment of any Secured Obligations which are due and payable or payable upondemand, or to the payment of any Secured Obligations at any time that an Eventof Default shall exist.

(d)       Such Grantor shall notenter into any government contract which prohibits assignment to the SecuredParty of any payments due or to become due thereunder or under 

 

14

----

 

any othergovernment contract, other than contracts for which the government hasdetermined that a prohibition on assignment of claims is in the government’sinterest.

(e)       Without Lender’s priorwritten consent, which consent shall not be unreasonably withheld, such Grantorshall not cause the aggregate value of Receivables or Contracts or ContractRights and the value of similar Receivables and Contracts as to which a Lien infavor of the Secured Party cannot be granted hereunder pursuant to the finalparagraph of Section 2.1 (including Liens granted by other Grantors), orpursuant to the Borrower Security Agreement to exceed $[500,000] at any time.

SECTION 4.1.3              Asto Collateral.

(a)       Until the occurrence andcontinuance of an Event of Default, such Grantor (i) may in the ordinary courseof its business, at its own expense, sell, lease or furnish under the contractsof service any of the Inventory normally held by such Grantor for such purpose,and use and consume, in the ordinary course of its business, any raw materials,work in process or materials normally held by such Grantor for such purpose,(ii) will, at its own expense, endeavor to collect, as and when due, allamounts due with respect to any of the Collateral, including the taking of suchaction with respect to such collection as the Secured Party may reasonablyrequest following the occurrence of an Event of Default or, in the absence ofsuch request, as such Grantor may reasonably deem advisable, and (iii) maygrant, in the ordinary course of business, to any party obligated on any of theCollateral, any rebate, refund or allowance to which such party may be lawfullyentitled, and may accept, in connection therewith, the return of goods, thesale or lease of which shall have given rise to such Collateral.  The Secured Party may, at any time followingan Event of Default, whether before or after any revocation of such power andauthority or the maturity of any of the Secured Obligations, notify any partiesobligated on any of the Collateral to make payment to the Secured Party of anyamounts due or to become due thereunder and enforce collection of any of theCollateral by suit or otherwise and surrender, release, or exchange all or anypart thereof, or compromise or extend or renew for any period (whether or notlonger than the original period) any indebtedness thereunder or evidencedthereby.  Upon request of the SecuredParty following an Event of Default, such Grantor will, at its own expense,notify any parties obligated on any of the Collateral to make payment to theSecured Party of any amounts due or to become due thereunder.

(b)       After an Event ofDefault, the Secured Party is authorized to endorse, in the name of suchGrantor, any item, howsoever received by the Secured Party, representing anypayment on or other Proceeds of any of the Collateral.

SECTION 4.1.4              Asto Intellectual Property Collateral. Each Grantor covenants and agrees to comply with the followingprovisions as such provisions relate to any Intellectual Property Collateral ofsuch Grantor:

(a)       Such Grantor shall notdo any act, or omit to do any act, whereby any of its Patent Collateral maylapse or become abandoned or dedicated to the public or unenforceable, unlesssuch Grantor shall either (i) reasonably and in good faith determine 

 

15

----

 

that any of itsPatent Collateral is of negligible economic value to such Grantor, or (ii) havea reasonable and valid business purpose to do otherwise.

(b)       Such Grantor shall not,and such Grantor shall not permit any of its licensees to:

(i)        fail to continue to useany of its Trademark Collateral in order to maintain all of its TrademarkCollateral in full force free from any claim of abandonment for non-use,

(ii)       fail to maintain as inthe past the quality of products and services offered under all of itsTrademark Collateral,

(iii)      fail to employ all ofits Trademark Collateral registered with any Federal or state or foreignauthority with an appropriate notice of such registration,

(iv)      adopt or use any otherTrademark which is confusingly similar or a colorable imitation of any of itsTrademark Collateral,

(v)       use any of its TrademarkCollateral registered with any Federal or state or foreign authority except forthe uses for which registration or application for registration of all of itsTrademark Collateral has been made, and

(vi)      do or permit any act orknowingly omit to do any act whereby any of its Trademark Collateral may lapseor become invalid or unenforceable,

unless such Grantor shalleither (x) reasonably and in good faith determine that any of its TrademarkCollateral is of negligible economic value to such Grantor, or (y) have areasonable and valid business purpose to do otherwise.

(c)       Such Grantor shall notdo or permit any act or knowingly omit to do any act whereby any of itsCopyright Collateral or any of its Trade Secrets Collateral may lapse or becomeinvalid or unenforceable or placed in the public domain except upon expirationof the end of an unrenewable term of a registration thereof, unless suchGrantor shall either (i) reasonably and in good faith determine that any of itsCopyright Collateral or any of its Trade Secrets Collateral is of negligibleeconomic value to such Grantor, or (ii) have a reasonable and valid businesspurpose to do otherwise.

(d)       Such Grantor shallnotify the Secured Party immediately if it knows, or has reason to know, thatany application or registration relating to any material item of itsIntellectual Property Collateral may become abandoned or dedicated to thepublic or be placed in the public domain or become invalid or unenforceable, orof any adverse determination or development (including the institution of, orany such determination or development in, any proceeding in the United StatesPatent and Trademark Office, the United States Copyright Office or any foreigncounterpart thereof or any court) regarding such Grantor’s ownership of any ofits Intellectual Property Collateral, its right to register the same or to keepand maintain and enforce the same.

 

16

----

 

(e)       In no event shall suchGrantor or any of its agents, employees, designees or licensees file anapplication for the registration of any Intellectual Property Collateral withthe United States Patent and Trademark Office, the United States CopyrightOffice or any similar office or agency in any other country or any politicalsubdivision thereof, unless it promptly upon such filing informs the SecuredParty, and upon request of the Secured Party, executes and delivers any and allagreements, instruments, documents and papers as the Secured Party mayreasonably request to evidence the Secured Party’s security interest in suchIntellectual Property Collateral and the goodwill and general intangibles ofsuch Grantor relating thereto or represented thereby.

(f)        Such Grantor shall takeall necessary steps, including in any proceeding before the United StatesPatent and Trademark Office, the United States Copyright Office or any similaroffice or agency in any other country or any political subdivision thereof, tomaintain and pursue any application (and to obtain the relevant registration)filed with respect to, and to maintain any registration of, its IntellectualProperty Collateral, including the filing of applications for renewal,affidavits of use, affidavits of incontestability and opposition, interferenceand cancellation proceedings and the payment of fees and taxes (except to theextent that dedication, abandonment or invalidation is permitted under theforegoing clauses (a), (b) and (c)).

(g)       Such Grantor shall,contemporaneously herewith, execute and deliver to the Secured Party a PatentSecurity Agreement, a Trademark Security Agreement and a Copyright Security Agreementin the forms of Exhibit A, Exhibit B and Exhibit C hereto,respectively, and shall execute and deliver to the Secured Party any otherdocument required to acknowledge or register or perfect the Secured Party’sinterest in any part of its Intellectual Property Collateral.

SECTION 4.1.5              Insurance.  Such Grantor will maintain or cause to bemaintained with financially sound and reputable insurance companies insurancewith respect to its business and properties (including the Equipment andInventory) against such casualties and contingencies and of such types and insuch amounts as is required pursuant to the Credit Agreement and will, upon therequest of the Secured Party, furnish a certificate of a reputable insurancebroker setting forth the nature and extent of all insurance maintained by suchGrantor in accordance with this Section. Without limiting the foregoing, such Grantor further agrees as follows:

(a)       Each policy for propertyinsurance shall show the Secured Party as loss payee.

(b)       Each policy forliability insurance shall show the Secured Party as an additional insured.

(c)       Each insurance policyshall provide that at least thirty (30) days’ prior written notice ofcancellation or of lapse shall be given to the Secured Party by the insured (orat least ten (10) days’ prior written notice of cancellation shall be givenwith respect to failure to pay the premium).

(d)       Such Grantor shall, ifso requested by the Secured Party, deliver to the Secured Party a copy of eachinsurance policy.

 

17

----

 

SECTION 4.1.6              Transfersand Other Liens.  Such Grantor shallnot:

(a)       sell, assign (byoperation of law or otherwise) or otherwise dispose of any of the Collateral,except as may be permitted by the Credit Agreement; or

(b)       create or suffer toexist any Lien or other charge or encumbrance upon or with respect to any ofthe Collateral, except for the security interest created by this SecurityAgreement and except as permitted by the Credit Agreement, including the cureperiods set forth therein

SECTION 4.1.7              FurtherAssurances, etc.  Such Grantoragrees that, from time to time at its own expense, it will promptly execute anddeliver all further instruments and documents, and take all further action,that may be necessary or desirable (provided that it is reasonable), or thatthe Secured Party may reasonably request, in order to perfect, preserve andprotect any security interest granted or purported to be granted hereby or toenable the Secured Party to exercise and enforce its rights and remedieshereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will:

(a)       mark conspicuously eachDocument (evidencing title) included in the Inventory, each Chattel Paperincluded in the Receivables and, at the request of the Secured Party, and uponthe occurrence and during the continuance of an Event of Default, each of itsrecords pertaining to the Collateral with a legend, in form and substancesatisfactory to the Secured Party, indicating that such Document, ChattelPaper, or Collateral is subject to the security interest granted hereby;

(b)       if any Receivable shallbe evidenced by a Promissory Note or other Instrument, negotiable Document orChattel Paper, deliver and pledge to the Secured Party hereunder suchPromissory Note, Instrument, negotiable Document or Chattel Paper duly endorsedand accompanied by duly executed Instruments of transfer or assignment, all inform and substance satisfactory to the Secured Party; provided, however, ifsuch evidences amounts less than Two Hundred Fifty Thousand Dollars ($250,000)such delivery and pledge shall be at Secured Party’s Request;

(c)       execute and file suchfinancing or continuation statements, or amendments thereto, and such other Instrumentsor notices as may be necessary or desirable, or as the Secured Party mayreasonably request, in order to perfect and preserve the security interests andother rights granted or purported to be granted to the Secured Party hereby;

(d)       promptly execute andfile any notice or other required form under or pursuant to the federalassignment of claims statute, 31 U.S.C. § 3727, any successor or amendedversion thereof or any regulation promulgated under or pursuant to any versionthereof, as the Secured Party may reasonably request; and

(e)       furnish to the SecuredParty, from time to time at the Secured Party’s request, statements andschedules further identifying and describing the Collateral and such otherreports in connection with the Collateral as the Secured Party may reasonablyrequest, all in reasonable detail.

 

18

----

 

With respect to theforegoing and the grant of the security interest hereunder, such Grantor herebyauthorizes the Secured Party to file one or more financing or continuationstatements, and amendments thereto, relative to all or any part of theCollateral without the signature of such Grantor.  A carbon, photographic or other reproduction of this SecurityAgreement or any financing statement covering the Collateral or any partthereof shall be sufficient as a financing statement where permitted by law.

ARTICLE VATTORNEY-IN-FACT

SECTION 5.1             SecuredParty Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Secured Party suchGrantor’s attorney-in-fact, with full authority in the place and stead of suchGrantor and in the name of such Grantor or otherwise, from time to time in theSecured Party’s discretion, following the occurrence and continuation of anEvent of Default, to take any action and to execute any instrument which theSecured Party may deem necessary or advisable to accomplish the purposes ofthis Security Agreement, including:

(a)       to ask, demand, collect,sue for, recover, compromise, receive and give acquittance and receipts formoneys due and to become due under or in respect of any of the Collateral;

(b)       to receive, endorse, andcollect any drafts or other Instruments, Documents and Chattel Paper, inconnection with clause (a) above;

(c)       to file any claims ortake any action or institute any proceedings which the Secured Party may deemnecessary or desirable for the collection of any of the Collateral or otherwiseto enforce the rights of the Secured Party with respect to any of theCollateral; and

(d)       to perform theaffirmative obligations of such Grantor hereunder (including all obligations ofsuch Grantor pursuant to Section 4.1.7 hereof).

Such Grantorhereby acknowledges, consents and agrees that the power of attorney grantedpursuant to this Section is irrevocable until the Obligations are satisfied andcoupled with an interest.

SECTION 5.2             SecuredParty May Perform.  If any Grantorfails to perform any agreement contained herein, the Secured Party may itselfperform, or cause performance of, such agreement, and the expenses of theSecured Party incurred in connection therewith shall be payable by such Grantorpursuant to Section 6.2 hereof.

SECTION 5.3             SecuredParty Has No Duty.  In addition to,and not in limitation of, Section 2.4(c) hereof, the powers conferred on theSecured Party hereunder are solely to protect its interest in the Collateraland shall not impose any duty on it to exercise any such powers.  Except for reasonable care of any Collateralin its possession and the accounting for moneys actually received by ithereunder, the Secured Party shall have no duty as to any Collateral or as tothe taking of any necessary steps to preserve rights against prior parties orany other rights pertaining to any Collateral.

 

19

----

 

SECTION 5.4             ReasonableCare.  Other than the exercise ofreasonable care in the custody and preservation of the Collateral, the SecuredParty shall have no duty with respect thereto. The Secured Party shall be deemed to have exercised reasonable care inthe custody and preservation of the Collateral in its possession if theCollateral is accorded treatment substantially equal to that which the SecuredParty accords its own property.  The SecuredParty shall not be liable or responsible for any loss or damage to any of theCollateral, or for any diminution in the value thereof, by reason of the act oromission of any agent or bailee selected by the Secured Party in good faith.

ARTICLE VIREMEDIES

SECTION 6.1             CertainRemedies.  If any Event of Defaultshall have occurred and be continuing:

(a)       The Secured Party mayexercise in respect of the Collateral, in addition to other rights and remediesprovided for herein or otherwise available to it, all the rights and remediesof a secured party under the U.C.C. (whether or not the U.C.C. applies to theaffected Collateral) and also may:

(i)        require each Grantorto, and such Grantor hereby agrees that it will, at its expense and uponrequest of the Secured Party forthwith, assemble all or part of the Collateralas directed by the Secured Party and make it available to the Secured Party ata place to be designated by the Secured Party which is reasonably convenient toboth parties;

(ii)       reclaim, takepossession, recover, store, maintain, finish, repair, prepare for sale orlease, shop, or advertise for sale or lease the Collateral;

(iii)      without notice exceptas specified below, sell the Collateral or any part thereof in one or moreparcels at public or private sale, at any of the Secured Party’s offices orelsewhere, for cash, on credit or for future delivery, and upon such otherterms as the Secured Party may deem commercially reasonable.  Each Grantor agrees that, to the extentnotice of sale shall be required by law, at least ten days’ prior notice tosuch Grantor of the time and place of any public sale or the time after whichany private sale is to be made shall constitute reasonable notification.  The Secured Party shall not be obligated tomake any sale of Collateral regardless of notice of sale having beengiven.  The Secured Party may adjournany public or private sale from time to time by announcement at the time andplace fixed therefor, and such sale may, without further notice, be made at thetime and place to which it was so adjourned;

(iv)      withdraw all monies,securities and Instruments in the Collateral Account for application to theObligations; and

 

20

----

 

(v)       license or sublicense,whether on an exclusive or nonexclusive basis, any Trademark Collateral, PatentCollateral or Copyright Collateral included in the Intellectual PropertyCollateral for such term and on such conditions and in such manner as theSecured Party shall in its sole judgment determine.

(b)       All cash proceedsreceived by the Secured Party in respect of any sale of, collection from, orother realization upon all or any part of the Collateral may, in the discretionof the Secured Party, be held by the Secured Party as collateral for, and/orthen or at any time thereafter applied (after payment of any amounts payable tothe Secured Party pursuant to Section 6.2 hereof) in whole or in part bythe Secured Party against, all or any part of the Secured Obligations in suchorder as the Secured Party shall elect. Each Grantor shall remain liable for any deficiency if the proceeds ofany sale or disposition of its Collateral are insufficient to pay all amountsto which the Secured Party is entitled from such Grantor.  Any surplus of such cash or cash proceedsheld by the Secured Party and remaining after payment in full in cash of allthe Secured Obligations shall be paid over to the applicable Grantor or towhomsoever may be lawfully entitled to receive such surplus.

(c)       To the extent suchGrantor has the right to do so, such Grantor authorizes the Secured Party totake possession of the Collateral, or any part of it, and to pay, purchase,contract, or compromise any encumbrance, charge, or Lien which, in the opinionof the Secured Party, appears to be prior or superior to its security interest.

(d)       The Secured Party shallhave the right upon any such public sale or sales, and, to the extent permittedby law, upon any such private sale or sales, to purchase the whole or any partof said Collateral so sold, free of any right or equity of redemption, whichequity of redemption such Grantor hereby releases.

(e)       To the maximum extentpermitted by law, the Grantors waive all claims, damages, and demands againstthe Secured Party arising out of the repossession, retention, or sale of the Collateral.

(f)        As to any Collateralconstituting certificated securities or uncertificated securities, if, at anytime when the Secured Party shall determine to exercise its right to sell thewhole or any part of such Collateral hereunder, such Collateral or the partthereof to be sold shall not, for any reason whatsoever, be effectivelyregistered under Securities Act of 1933, as amended (as so amended the “Act”),the Secured Party may, in its discretion (subject only to applicablerequirements of law), sell such Collateral or part thereof by private sale insuch manner and under such circumstances as the Secured Party may deemnecessary or advisable, but subject to the other requirements of this Section6.1(f), and shall not be required to effect such registration or cause thesame to be effected.  Without limitingthe generality of the foregoing, in any such event the Secured Party may, inits sole discretion, (i) in accordance with applicable securities laws, proceedto make such private sale notwithstanding that a registration statement for thepurpose of registering such Collateral or part thereof could be or shall havebeen filed under the Act; (ii) approach and negotiate with a single possiblepurchaser to effect such sale; and (iii) restrict such sale to a purchaser whowill represent and agree that such purchaser is purchasing for its own 

 

21

----

 

account, forinvestment, and not with a view to the distribution or sale of such Collateralor part thereof.  In addition to aprivate sale as provided above in this Section 6.1(f), if any of suchCollateral shall not be freely distributable to the public without registrationunder the Act at the time of any proposed sale hereunder, then the SecuredParty shall not be required to effect such registration or cause the same to beeffected but may, in its sole discretion (subject only to applicablerequirements of law), require that any sale hereunder (including a sale atauction) be conducted subject to such restrictions as the Secured Party may, inits sole discretion, deem necessary or appropriate in order that such sale(notwithstanding any failure so to register) may be effected in compliance withthe Bankruptcy Code and other laws affecting the enforcement of creditors’rights and the Act and all applicable state securities laws.

(g)       Each Grantor agrees thatin any sale of any of such Collateral, whether at a foreclosure sale orotherwise, the Secured Party is hereby authorized to comply with any limitationor restriction in connection with such sale as it may be advised by counsel isnecessary in order to avoid any violation of applicable law (includingcompliance with such procedures as may restrict the number of prospectivebidders and purchasers, require that such prospective bidders and purchasershave certain qualifications and restrict such prospective bidders andpurchasers to persons who will represent and agree that they are purchasing fortheir own account for investment and not with a view to the distribution orresale of such Collateral), or in order to obtain any required approval of thesale or of the purchaser by any governmental authority, and such Grantorfurther agrees that such compliance shall not result in such sale beingconsidered or deemed not to have been made in a commercially reasonable manner,nor shall the Secured Party be liable nor accountable to such Grantor for anydiscount allowed by the reason of the fact that such Collateral is sold incompliance with any such limitation or restriction.

SECTION 6.2             Indemnityand Expenses.

(a)       Each Grantor jointly andseverally agrees to indemnify the Secured Party and its officers, employees,and agents from and against any and all claims, losses and liabilities arisingout of or resulting from this Security Agreement (including enforcement of thisSecurity Agreement), except claims, losses or liabilities resulting from thegross negligence or willful misconduct of the Secured Party.

(b)       Each Grantor will upondemand pay to the Secured Party the amount of any and all reasonable expenses,including the reasonable fees and disbursements of its counsel and of anyexperts and agents, which the Secured Party may incur in connection with:

(i)        the administration ofthis Security Agreement;

(ii)       the custody,preservation, use or operation of, or the sale of, collection from, or otherrealization upon, any of the Collateral;

(iii)      the exercise orenforcement of any of the rights of the Secured Party hereunder: or

 

22

----

 

(iv)      the failure by anyGrantor to perform or observe any of the provisions hereof.

The provisions ofthis Section 6.2 shall survive the Termination Date.

ARTICLE VIIMISCELLANEOUS PROVISIONS

SECTION 7.1             LoanDocument.  This Security Agreementis a Loan Document executed pursuant to the Credit Agreement and shall (unlessotherwise expressly indicated herein) be construed, administered and applied inaccordance with the terms and provisions thereof.

SECTION 7.2             Amendments;etc.  No amendment to or waiver ofany provision of this Security Agreement nor consent to any departure by anyGrantor here from, shall in any event be effective unless the same shall be inwriting and signed by the Secured Party, and then such waiver or consent shallbe effective only for the specified Grantor, in the specific instance, and forthe specific purpose for which given.

SECTION 7.3             Notices.  All notices and other communicationsprovided for hereunder shall be in writing (including facsimile communication)and, if to any Grantor, mailed or telecopied or delivered to it, addressed toit, care of the Borrower at the address for the Borrower specified in theCredit Agreement, if to Secured Party, mailed or telecopied or delivered to it,addressed to it at the address of the Secured Party specified in the CreditAgreement.  All such notices and othercommunications, when mailed and properly addressed with postage prepaid or ifproperly addressed and sent by pre-paid courier service, shall be deemed givenwhen received; any such notice or communication, if transmitted by telecopier,shall be deemed given when transmitted and electronically confirmed.

SECTION 7.4             AdditionalSubsidiary Grantors.  Upon theexecution and delivery by any other Person of an instrument in the form of AnnexI hereto, such Person shall become a “Grantor” hereunder with the sameforce and effect as if originally named as a “Grantor” herein.  The execution and delivery of any suchinstrument shall not require the consent of any other Grantor hereunder.  The rights and obligations of each Grantorhereunder shall remain in full force and effect notwithstanding the addition ofany new Grantor as a party to this Security Agreement.

SECTION 7.5             Captions.  Section captions used in this SecurityAgreement are for convenience of reference only, and shall not affect theconstruction of this Security Agreement.

SECTION 7.6             Severability.  Wherever possible each provision of thisSecurity Agreement shall be interpreted in such manner as to be effective andvalid under applicable law, but if any provision of this Security Agreementshall be prohibited by or invalid under such law, such provision shall beineffective to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Security Agreement.

 

23

----

 

SECTION 7.7             Counterparts.  This Security Agreement may be executed bythe parties hereto in several counterparts, each of which shall be deemed anoriginal and all of which shall constitute together but one and the sameagreement.

SECTION 7.8             GoverningLaw, Entire Agreement, etc.  **THISSECURITY AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BYTHE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT THE VALIDITY ORPERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, INRESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTIONOTHER THAN THE STATE OF CALIFORNIA. THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THEENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECTMATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECTTHERETO.**

SECTION 7.9             ForumSelection and Consent to Jurisdiction. **ANYLITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THISSECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSEOF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECUREDPARTY OR ANY GRANTOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTSOF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THESOUTHERN DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUITSEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, ATTHE SECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCHCOLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH GRANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTEREDMAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OFCALIFORNIA ADDRESSED TO SUCH GRANTOR, CARE OF THE BORROWER, AT THE ADDRESS FORNOTICES SPECIFIED IN THE CREDIT AGREEMENT. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THEJURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATESDISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANYSUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANYJUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.  EACH GRANTOR IRREVOCABLY CONSENTS TO THESERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICEWITHIN OR WITHOUT THE STATE OF CALIFORNIA. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLESTEXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVETO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURTREFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN ANINCONVENIENT FORUM.  TO THE EXTENT THATANY GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF**

 

24

----

 

**ANY COURT OR FROM ANY LEGAL PROCESS(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT INAID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCHGRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONSUNDER THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS.**

SECTION 7.10       Waiverof Jury Trial.  **EACH GRANTOR HEREBY KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURYIN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR INCONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OFDEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTYOR SUCH GRANTOR. EACH GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULLAND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OFEACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS AMATERIAL INDUCEMENT FOR THE SECURED PARTY ENTERING INTO THE CREDIT AGREEMENTAND EACH SUCH OTHER LOAN DOCUMENT.**

[Remainder of pageleft blank intentionally.]

 

25

----

 

IN WITNESS WHEREOF, eachGrantor has caused this Subsidiary Security Agreement to be duly executed anddelivered by its officer thereunto duly authorized as of the date first abovewritten.
|   |   | SB  OPERATINGCO, LLC,   as Grantor |
|--------|--------|------------------------------------|
|   |   | By:                                | /s/ L. A.  OBERKFELL |
|   |   |                               |   |
|   |   |                               | L.  A. Oberkfell   President,   Chief Executive Officer |

 

 

26

----

 

ANNEX I

SUPPLEMENT, dated as of________________, ____ (this “Supplement”), to the Subsidiary SecurityAgreement, dated as of August 2, 2002 (together with all amendments,supplements, restatements and other modifications, if any, from time to timethereafter made thereto, the “Security Agreement”), among the initialsignatories thereto and each other Person (such capitalized term, and otherterms used in this Supplement, to have the meanings set forth in Article I ofthe Security Agreement) which from time to time thereafter became a partythereto pursuant to Section 7.4 thereof (each, individually, a “Grantor”,and, collectively, the “Grantors”), in favor of the Secured Party.

WITNESSETH :

WHEREAS, pursuant to theprovisions of Section 7.4 of the Security Agreement, the undersigned isbecoming a Grantor under the Security Agreement; and

WHEREAS, the undersignedGrantor desires to become a “Grantor” under the Security Agreement in order toinduce the Secured Party to continue to extend Credit Extensions under theCredit Agreement;

NOW, THEREFORE, inconsideration of the premises, and for other consideration (the receipt andsufficiency of which is hereby acknowledged), the undersigned agrees, for thebenefit of the Secured Party, as follows.

SECTION 1.           Inaccordance with the terms of the Security Agreement, by its signature below theundersigned hereby irrevocably agrees to become a Grantor under the SecurityAgreement with the same force and effect as if it were an original signatorythereto and the undersigned Grantor, hereby (a) agrees to be bound by andcomply with all of the terms and provisions of the Security Agreement applicableto it as a Grantor and (b) represents and warrants that the representations andwarranties made by it as a Grantor thereunder are true and correct as of thedate hereof.  In furtherance of theforegoing, each reference to a “Grantor” in the Security Agreement shall bedeemed to include the undersigned Grantor.

SECTION 2.           Theundersigned Grantor hereby represents and warrants that this Supplement hasbeen duly authorized, executed and delivered by it and that this Supplement andthe Security Agreement constitute the legal, valid and binding obligation ofthe undersigned Grantor, enforceable against it in accordance with its terms.

SECTION 3.           Exceptas expressly supplemented hereby, the Security Agreement shall remain in fullforce and effect in accordance with its terms.

 

----

 

SECTION 4.           Inthe event any one or more of the provisions contained in this Supplement shouldbe held invalid, illegal or unenforceable in any respect, the validity,legality and enforceability of the remaining provisions contained herein and inthe Security Agreement shall not in any way be affected or impaired.

SECTION 5.           **THISSUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWSOF THE STATE OF CALIFORNIA.**

SECTION 6.           ThisSupplement may be executed by the parties hereto in several counterparts, eachof which shall be deemed to be an original and all of which shall constitutetogether but one and the same agreement.

IN WITNESSWHEREOF, the parties hereto have caused this Supplement to be duly executed anddelivered by their respective officers thereunto duly authorized as of the dayand year first above written.

[NAME OF ADDITIONAL SUBSIDIARY GRANTOR]
| By:    |   |
|--------|--------|
|   | Name:  |
|   | Title: |

ACCEPTED BY:

THE TITAN CORPORATION, as Secured Party
| By:    |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

 

2

----

 

SCHEDULE I

ItemA.  Location of Equipment
| **Location**                     |   | **Description**                              |
|----------------------------------|--------|----------------------------------------------|
| 9276  Scranton Road, Suite 600   |   | Leasehold  improvements, furniture           |
| San  Diego, CA 92121             |   | and  computer equipment                      |
|                             |   |                                         |
| 6780  Sierra Court, Suite A      |   | Leasehold  improvements, furniture,          |
| Dublin,  CA 94568                |   | machinery  and computer equipment.           |
|                             |   |                                         |
| 9040  Activity Road, Suite A     |   | Leasehold  improvements, furniture           |
| San  Diego, CA                   |   | and  computer equipment                      |
|                             |   |                                         |
| 2640  Murray Street              |   | Furniture,  computer equipment and machinery |
| Sioux  City, IA 51111            |   |                                         |
|                             |   |                                         |
| 9300  Underwood Avenue Suite 150 |   | Leasehold  improvements, furniture and       |
| Omaha,  NE 68114-2684            |   | computer  equipment                          |
|                             |   |                                         |
| 3285  East Vernon Avenue         |   | Leasehold  improvements, furniture,          |
| Vernon,  CA 90058                |   | computer  equipment and machinery            |
|                             |   |                                         |
| 300  Regency Drive               |   | Leasehold  improvements, furniture,          |
| Glendale  Heights, IL60139       |   | computer  equipment and machinery            |
|                             |   |                                         |
| 400  Discovery Drive             |   | Machinery  and equipment                     |
| College  Station, TX 77845       |   |                                         |
|                             |   |                                         |
| Avenida  Brasil 19001            |   | Leasehold  improvements, furniture,          |
| (Proximo  Ao lado Pavilhao 100   |   | computer  equipment and machinery            |
| CEASA)  Rio de Janeiro, RJ       |   |                                         |
| Brazil  21-531-140               |   |                                         |
|                             |   |                                         |
| Abbraj  Att’awuneya BLDG    |   | Leasehold  improvements, furniture and       |
| 8th  floor North                 |   | computer  equipment                          |
| King  Fahad Road                 |   |                                         |
| Riyadh 11533                     |   |                                         |
| Kingdom of Saudi Arabia          |   |                                         |

 

3

----

 

ItemB.  Location of Inventory
| **Location**                   |   | **Description** |
|--------------------------------|--------|-----------------|
| 9276  Scranton Road, Suite 600 |   | Inventory       |
| San  Diego, CA 92121           |   |            |
|                           |   |            |
| 6780  Sierra Court, Suite A    |   | Inventory       |
| Dublin,  CA 94568              |   |            |
|                           |   |            |
| 9040  Activity Road, Suite A   |   | Inventory       |
| San  Diego, CA                 |   |            |

 

*Item C. Location of Lock Boxes
|                       |   |                |   | **Contact** |
|----------------------------|--------|---------------------|--------|-------------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |
| Comerica Bank California   |   | 1891382754          |   |        |
| 600 B Street               |   | 1891505008          |   |        |
| San Diego, CA  92101  |   |                |   |        |

 

 

ItemD.  Place(s) of Business and ChiefExecutive Office

Current:                  9276 Scranton Road, Suite 600

                                San Diego, CA  92121

 

Former:                   3033 Science Park Road

                                San Diego, CA  92121

 

 

ItemE.  Trade Names

SB OperatingCo, LLC (8/1/02)

SB OperatingCo, Inc. (8/3/00)

SureBeam Corporation (4/17/00)

Titan Scan Corp. (8/25/98)

Titan Purification Inc. (12/8/97)

SureBeam BrasilLTDA

----

* Accounts are SB OperatingCo, LLC and/orBorrower accounts.

 

4

----

 

ItemF.  Merger or Other CorporateReorganization

 

*ItemG.  Location of Deposit Accounts
|                       |   |                |   | **Contact** |
|----------------------------|--------|---------------------|--------|-------------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |
| Comerica Bank California   |   | 1891507129          |   |        |
| 600 B Street               |   | 1891428169          |   |        |
| San Diego, CA  92101  |   | 1891427583          |   |        |
|                       |   | 1891382747          |   |        |
|                       |   | 1891427591          |   |        |
|                       |   | 1891507970          |   |        |
|                       |   | 2176994453          |   |        |
|                       |   | 1891504993          |   |        |

 

ItemH.  Location of Securities Accounts
|                       |   |                |   | **Contact** |   |
|----------------------------|--------|---------------------|--------|-------------|--------|
| **Bank Name  and Address** |   | **Account  Number** |   | **Person**  |   |

                None.

 

 

5

----

 

SCHEDULEII

ItemA.  Patents
| **Country**                                  |   | **Patent No.** |   | **Issue Date** |   | **Title**                                                                                                                                          |
|----------------------------------------------|--------|----------------|--------|----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |   |           |   |           |   |                                                                                                                                               |
| U.S.                                         |   | 5,590,602      |   | 1/7/1997       |   | Conveyor System Utilizing  Articles Carriers                                                                                                       |
| PCT                                          |   | 5,994,706      |   | 11/30/1999     |   | Article Irradiation System  ________ Intermediate Wall of ________ Shielding Material Within Loop of  Conveyor System That Transports the Articles |
| U.S.   PCT   EPO   JAP   CA                  |   | 5,994,706      |   | 11/30/1999     |   | Article Irradiation System  in Which Articles Transporting Conveyor is Closely Encompassed by Shielding  Material                                  |
| U.S.   AUS   DAN   CAN   EPO   JAP   KR   MA |   | 5,396,074      |   | 3/7/1995       |   | Irradiation System  Utilizing Conveyor Transported Article Carriers                                                                                |
| U.S.                                         |   | 6,127,687      |   | 10/3/2000      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |
| U.S.                                         |   | 6,236,055      |   | 5/22/2001      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |
| U.S.                                         |   | 6,285,030      |   | 9/4/2001       |   | Article Irradiation System  in Which Article Transporting Conveyor is Closely Encompassed by Shielding                                             |
| U.S.                                         |   | 6,294,791      |   | 9/24/2001      |   | Article Irradiation System  having Intermediate Wall of Radiation Shielding Material Within Loop of  Conveyor System that transports the Articles. |

 

 

6

----

 

Pending Patent Applications
| **Country**       |   | **Serial No.**   |   | **Filing  Date** |   | **Title**                                                                                                                |
|-------------------|--------|------------------|--------|------------------|--------|--------------------------------------------------------------------------------------------------------------------------|
| U.S               |   | 09/710,730       |   | 11/10/2000       |   | System For and Method of  Irradiating an Object with an Optimal Amount of Radiation                                      |
| U.S.              |   | 09/872131        |   | 6/1/2001         |   | System For, and Method of  Irradiating Article with Multiple Irradiations                                                |
| U.S.              |   | 09/872,441       |   | 6/1/2001         |   | System For, and Methods  Of, Irradiating Articles                                                                        |
| U.S.              |   | 09/456,061       |   | 12/7/1999        |   | System For and Methods Of,  Irradiating Articles to Sterilize The Articles                                               |
| U.S.              |   | 9/753,287        |   | 12/29/2000       |   | System For, And Method Of,  Irradiating Articles With X-Ray Beam                                                         |
| U.S.              |   | 09/881,257       |   | 6/13/2001        |   | System For, and Methods  Of, Irradiating Articles With X-Ray Beam                                                        |
| ***U.S.***        |   | ***09/710,730*** |   | ***11/10/2000*** |   | ***System For, And Methods Of, Irradiating Opposite Sides Of  Articles With Optimal amounts of Cumulative Irradiation*** |
| ***U.S.***        |   | ***09/569,402*** |   | ***5/12/2000***  |   | ***System For, and Method of Providing Frequency Hopping***                                                              |
| ***PCT******WO*** |   | ***09/458,051*** |   | ***12/7/1999***  |   | ***Apparatus For, And Methods for Sterilizing Products,  Primarily Food Products***                                      |
| U.S.              |   | 60/141,781       |   | 6/30/1999        |   | Apparatus For, And Methods  for Sterilizing Products, Primarily Food Products                                            |
| U.S.              |   | 09/912,576       |   | 7/24/2001        |   | System For, and Methods  Of, Irradiating Articles                                                                        |
| U.S.              |   | 09/971,986       |   | 10/4/2001        |   | Compact Self-Shielded  Irradiation System and Method                                                                     |
| U.S.              |   | 10/167,544       |   | 6/10/2002        |   | System For, and Method Of,  Irradiating Articles To Sterilize Articles                                                   |
| U.S.              |   | 09/964,785       |   | 9/26/2001        |   | System For, And Methods  Of, Irradiating Opposite Sides Of Articles With Optimal amounts of Cumulative  Irradiation      |

 

 

7

----

 

Patent Applications in Preparation
| **Expected*Country** |   | **Docket No.** |   | **Filing  Date** |   | **Inventor(s)** |   | **Title** |   |
|----------------------|--------|----------------|--------|------------------|--------|-----------------|--------|-----------|--------|

 

 

ItemB.  Patent Licenses

 
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

8

----

 

SCHEDULE III

ItemA.  Trademarks

Registered Trademarks
| ***Country**  |   | **Trademark**                   |   | **Registration No.** |   | **Status** |
|---------------|--------|---------------------------------|--------|----------------------|--------|------------|
| United States |   | SUREBEAM in class 40            |   | (RN) 1,855,367       |   | Registered |
| Lebanon       |   | SUREBEAM in classes 9  & 40 |   | (RN) 88045           |   | Registered |

 

Pending Trademark Applications
| ***Country**  |   | **Trademark**                               |   | **Serial No.**   |   | **Status**               |
|---------------|--------|---------------------------------------------|--------|------------------|--------|--------------------------|
| United States |   | GOOD FOOD. MADE BETTER. in class 40         |   | (SN) 76/326,832  |   | Pending                  |
| United States |   | SAFER FRESHER BETTER in class 40            |   | (SN) 76/326,461  |   | Pending                  |
| United States |   | SERVE WITH CONFIDENCE in class 40           |   | (SN) 76/264,588  |   | Pending                  |
| United States |   | SERVED WITH CONFIDENCE in class 40          |   | (SN) 76/264,589  |   | Pending                  |
| United States |   | SUREBEAM in class 9                         |   | (SN) 76/260,478  |   | Published                |
| United States |   | SUREBEAM & Design in class 40           |   | (SN) 76/326,834  |   | Pending                  |
| United States |   | SUREMAIL in class 40                        |   | (SN) 76/335,335  |   | Pending                  |
| United States |   | YOUR FAVORITE FOODS MADE BETTER in class 40 |   | (SN) 76/264,590  |   | Pending                  |
| United States |   | Be SureBeam Safe                            |   | 78/145,494       |   | Pending                  |
| Australia     |   | GOOD FOOD. MADE BETTER. in  class 40        |   | (SN) 894010      |   | Pending                  |
| Australia     |   | SUREBEAM in classes 9  & 40             |   | (SN) 865938      |   | Allowed for Registration |
| Brazil        |   | SUREBEAM in class 9                         |   | (SN) 822,218,100 |   | Published                |
| Brazil        |   | SUREBEAM in class 40                        |   | (SN) 822,218,119 |   | Published                |
| Canada        |   | SUREBEAM in classes 9  & 40             |   | (SN) 1068730     |   | Pending                  |
| China         |   | SUREBEAM in class 9                         |   | (SN) 2001165531  |   | Pending                  |
| China         |   | SUREBEAM in class 40                        |   | (SN) 2001179227  |   | Pending                  |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

9

----

 
| Egypt                |   | SUREBEAM in class 9                  |   | (SN) 144891       |   | Pending   |
|----------------------|--------|--------------------------------------|--------|-------------------|--------|-----------|
| Egypt                |   | SUREBEAM in class 40                 |   | (SN) 144892       |   | Pending   |
| Guatemala            |   | SUREBEAM in class 9                  |   | (SN) 07579        |   | Pending   |
| Guatemala            |   | SUREBEAM in class 40                 |   | (SN) 07580        |   | Pending   |
| Indonesia            |   | SUREBEAM in class 9                  |   | (SN) 16501-16604  |   | Pending   |
| Indonesia            |   | SUREBEAM in class 40                 |   | (SN) 16502-16605  |   | Published |
| India                |   | SUREBEAM in class 9                  |   | (SN) 1012183      |   | Pending   |
| Japan                |   | SUREBEAM in classes 9  & 40      |   | (SN) 2000-097384  |   | Published |
| Kuwait               |   | SUREBEAM in class 40                 |   | (SN) 52208        |   | Pending   |
| Mexico               |   | SUREBEAM in class 9                  |   | (SN) 496290       |   | Pending   |
| Mexico               |   | SUREBEAM in class 40                 |   | (SN) 496291       |   | Pending   |
| New Zealand          |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 647625       |   | Pending   |
| Oman                 |   | SUREBEAM in class 9                  |   | (SN) 25945        |   | Pending   |
| Oman                 |   | SUREBEAM in class 40                 |   | (SN) 25946        |   | Pending   |
| Panama               |   | SUREBEAM in class 9                  |   | (SN) 117604       |   | Pending   |
| Panama               |   | SUREBEAM in class 40                 |   | (SN) 115892       |   | Pending   |
| Philippines          |   | SUREBEAM in classes 9  & 40      |   | (SN) 4-2001005137 |   | Pending   |
| Pakistan             |   | SUREBEAM in class 9                  |   | (SN) 172685       |   | Pending   |
| Pakistan             |   | SUREBEAM in class 16                 |   | (SN) 173569       |   | Pending   |
| Qatar                |   | SUREBEAM in class 9                  |   | (SN) 25783        |   | Pending   |
| Qatar                |   | SUREBEAM in class 40                 |   | (SN) 25784        |   | Pending   |
| Russia               |   | SUREBEAM in class 9                  |   | (SN) 2001721891   |   | Pending   |
| Russia               |   | SUREBEAM in class 40                 |   | (SN) 2001721845   |   | Pending   |
| Saudi Arabia         |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 73859        |   | Pending   |
| Saudi Arabia         |   | SUREBEAM in class 9                  |   | (SN) 71887        |   | Pending   |
| Saudi Arabia         |   | SUREBEAM in class 40                 |   | (SN) 71888        |   | Pending   |
| South Africa         |   | SUREBEAM in class 9                  |   | (SN) 2001/12160   |   | Pending   |
| South Africa         |   | SUREBEAM in class 40                 |   | (SN) 2001/12161   |   | Pending   |
| South Korea          |   | SUREBEAM in class 7                  |   | (SN) 40200051220  |   | Published |
| South Korea          |   | SUREBEAM in class 9                  |   | (SN) 40200041625  |   | Published |
| South Korea          |   | SUREBEAM in class 40                 |   | (SN) 41200023540  |   | Pending   |
| Spain                |   | SUREBEAM in class 9                  |   | (SN) 2351499      |   | Published |
| Spain                |   | SUREBEAM in class 37                 |   | (SN) 2414906      |   | Published |
| Spain                |   | SUREBEAM in class 40                 |   | (SN) 2346640      |   | Published |
| Thailand             |   | SUREBEAM in class 9                  |   | (SN) 472133       |   | Pending   |
| Thailand             |   | SUREBEAM in class 40                 |   | (SN) 472134       |   | Pending   |
| Turkey               |   | GOOD FOOD. MADE BETTER. in  class 40 |   | (SN) 2001-22756   |   | Pending   |
| United Arab Emirates |   | SUREBEAM in class 9                  |   | (SN) 44556        |   | Pending   |
| United Arab Emirates |   | SUREBEAM in class 40                 |   | (SN) 44557        |   | Pending   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

10

----

 
| Argentina   |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled |
|-------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------|--------|---------|
| Brazil      |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled |
| Guatemala   |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled |
| Jordan      |   | SUREBEAM in class 9                  |   | Awaiting serial number  from local counsel                                       |   | Pending |
| Jordan      |   | SUREBEAM in class 40                 |   | Awaiting serial number  from local counsel                                       |   | Pending |
| Japan       |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled |
| Mexico      |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number and  confirmation of application filed from local counsel |   | Unfiled |
| Philippines |   | GOOD FOOD. MADE BETTER. in  class 40 |   | Awaiting serial number  from local counsel                                       |   | Pending |
| Turkey      |   | SUREBEAM in classes 9  & 40      |   | Awaiting serial number  from local counsel                                       |   | Pending |
| Yemen       |   | SUREBEAM in class 9                  |   | Awaiting serial number  from local counsel                                       |   | Pending |

 

Trademark Applications in Preparation
|         |   |          |   |           |   | **Expected**     |   | **Products/** |   |
|--------------|--------|---------------|--------|----------------|--------|------------------|--------|---------------|--------|
| ***Country** |   | **Trademark** |   | **Docket No.** |   | **Filing  Date** |   | **Services**  |   |

 

ItemB.  Trademark Licenses
| ***Country or** |   |          |   |         |   |         |   | **Effective** |   | **Expiration** |   |
|-----------------|--------|---------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|
| **Territory**   |   | **Trademark** |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

11

----

 

SCHEDULE IV

ItemA.  Copyrights/Mask Works

Registered Copyrights/Mask Works
| ***Country** |   | **Registration  No.** |   | **Registration  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|-----------------------|--------|------------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Pending Registration Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|

 

Copyright/Mask Work Registration Applications in Preparation
|         |   |           |   | **Expected**     |   |          |   |      |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|
| ***Country** |   | **Docket No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |

 

 

ItemB.  Copyright/Mask Work Licenses
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

12

----

 

SCHEDULE V

Trade Secret or Know-How Licenses
| ***Country or** |   |         |   |         |   | **Effective** |   | **Expiration** |   | **Subject** |   |
|-----------------|--------|--------------|--------|--------------|--------|---------------|--------|----------------|--------|-------------|--------|
| **Territory**   |   | **Licensor** |   | **Licensee** |   | **Date**      |   | **Date**       |   | **Matter**  |   |

 

13

----

 

EXHIBIT A

SUBSIDIARY PATENT SECURITY AGREEMENT

This SUBSIDIARY PATENTSECURITY AGREEMENT (this “Agreement”), dated as of August 2, 2002, ismade between ___________________, a ____________ (the “Grantor”), andTHE TITAN CORPORATION, a Delaware corporation (the “Secured Party”);

WITNESSETH :

WHEREAS, pursuant to aSenior Secured Credit Agreement, dated as of August 2, 2002 (as amended,restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between SUREBEAM CORPORATION, a Delaware corporation (the “Borrower”),and the Secured Party, the Secured Party has extended Commitments to makeCredit Extensions to the Borrower;

WHEREAS, in connectionwith the Credit Agreement, the Grantor has executed and delivered to theSecured Party a Subsidiary Security Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “SecurityAgreement”);

WHEREAS, as a conditionprecedent to the making of the Credit Extensions (including the initial CreditExtension) under the Credit Agreement, the Grantor is required to execute anddeliver this Agreement;

WHEREAS, the Grantor hasduly authorized the execution, delivery and performance of this Agreement; and

WHEREAS, it is in thebest interests of the Grantor to execute this Agreement inasmuch as the Grantorwill derive substantial direct and indirect benefits from the Credit Extensionsmade from time to time to the Borrower by the Secured Party pursuant to theCredit Agreement;

NOW THEREFORE, for goodand valuable consideration the receipt of which is hereby acknowledged, and inorder to induce the Secured Party to make Credit Extensions (including theinitial Credit Extension) to the Borrower pursuant to the Credit Agreement, theGrantor agrees, for the benefit of the Secured Party, as follows:

SECTION 1.    Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.    Grant of Security Interest.  For good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, to secure all of theSecured Obligations, the Grantor does hereby mortgage, pledge and hypothecateto the Secured Party, and grant to the 

 

----

 

Secured Party a securityinterest in all of the following property (the “Patent Collateral”),whether now owned or hereafter acquired or existing by it:

(a)           all letters patent and applicationsfor letters patent throughout the world, including all patent applications inpreparation for filing anywhere in the world and including each patent andpatent application referred to in Item A of Attachment 1 attachedhereto;

(b)           all reissues, divisions,continuations, continuations-in-part, extensions, renewals and reexaminationsof any of the items described in clause (a);

(c)           all patent licenses, including eachpatent license referred to in Item B of Attachment 1 attachedhereto; and

(d)           all Proceeds of, and rightsassociated with, the foregoing (including license royalties and Proceeds ofinfringement suits), the right to sue third parties for past, present or futureinfringements of any patent or patent application, including any patent orpatent application referred to in Item A of Attachment 1 attachedhereto, and for breach or enforcement of any patent license, including anypatent license referred to in Item B of Attachment 1 attachedhereto, and all rights corresponding thereto throughout the world.

Notwithstandinganything herein to the contrary, in no event shall the Collateral include, andthe Grantor shall not be deemed to have granted a security interest in, any ofthe Grantor’s rights or interests in any license, contract or agreement towhich the Grantor is a party or any of its rights or interests thereunder tothe extent, but only to the extent, that such a grant would, under the expressterms of such license, contract or agreement or otherwise, result in a breachof the terms of, or constitute a default under such license, contract oragreement (other than to the extent that any such term would be renderedineffective pursuant to Sections 9407(a) or 9408(a) of the U.C.C. or any otherapplicable law (including the Bankruptcy Code) or principles of equity);provided, that immediately upon the ineffectiveness, waiver, lapse ortermination of any such provision, the Collateral shall include, and theGrantor shall have granted a security interest in, all such rights andinterests as if such provision had never been in effect.

SECTION 3.    Security Agreement.  This Agreement has been executed anddelivered by the Grantor for the purpose of registering the security interestof the Secured Party in the Patent Collateral with the United States Patent andTrademark Office and corresponding offices in other countries of theworld.  The security interest grantedhereby has been granted as a supplement to, and not in limitation of, thesecurity interest granted to the Secured Party under the SecurityAgreement.  The Security Agreement (andall rights and remedies of the Secured Party thereunder) shall remain in fullforce and effect in accordance with its terms.

SECTION 4.    Release of Security Interest.  Upon the Termination Date, the Secured Partyshall, at the Grantor’s expense, execute and deliver to the Grantor allInstruments and other Documents as may be necessary or proper to release thelien on and security interest in the Patent Collateral which has been grantedhereunder.

 

14

----

 

SECTION 5.    Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Patent Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.    Loan Document, etc.  This Agreement is a Loan Document executedpursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions of the Credit Agreement.

SECTION 7.    Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

IN WITNESSWHEREOF, the parties hereto have caused this Subsidiary Patent SecurityAgreement to be duly executed and delivered by their respective officersthereunto duly authorized as of the day and year first above written.

 

[NAME OF GRANTOR]
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

THE TITAN CORPORATION,

as Secured Party
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

15

----

 

ATTACHMENT 1

Item A.   Patents

Issued Patents
|         |   | **Patent No.** |   |           |   |            |   |
|--------------|--------|----------------|--------|----------------|--------|-----------------|--------|
| ***Country** |   | **Title**      |   | **Issue Date** |   | **Inventor(s)** |   |
|         |   |           |   |           |   |            |   |

 

Pending PatentApplications
|         |   | **Serial No.** |   |             |   |            |   |
|--------------|--------|----------------|--------|------------------|--------|-----------------|--------|
| ***Country** |   | **Title**      |   | **Filing  Date** |   | **Inventor(s)** |   |
|         |   |           |   |             |   |            |   |

 

PatentApplications in Preparation
|         |   | **Docket No.** |   |                      |   |            |   |
|--------------|--------|----------------|--------|---------------------------|--------|-----------------|--------|
| ***Country** |   | **Title**      |   | **Expected  Filing Date** |   | **Inventor(s)** |   |
|         |   |           |   |                      |   |            |   |

 

Item B.                    PatentLicenses
| ***Country or Territory** |   | **Subject  Licensor** |   | **Licensee** |   | **Effective  Date** |   | **Expiration  Date** |   | **Subject  Matter** |   |
|---------------------------|--------|-----------------------|--------|--------------|--------|---------------------|--------|----------------------|--------|---------------------|--------|
|                      |   |                  |   |         |   |                |   |                 |   |                |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

16

----

 

EXHIBIT B

SUBSIDIARY TRADEMARK SECURITY AGREEMENT

This SUBSIDIARY TRADEMARKSECURITY AGREEMENT (this “Agreement”), dated as of August 2, 2002, ismade between _____________________, a ___________ __________ (the “Grantor”),and THE TITAN CORPORATION, a Delaware corporation (the “Secured Party”);

WITNESSETH :

WHEREAS, pursuant to aSenior Secured Credit Agreement, dated as of August 2, 2002 (as amended,restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between SUREBEAM CORPORATION, a Delaware corporation, (the“Borrower”) and the Secured Party, the Secured Party has extended Commitmentsto make Credit Extensions to the Borrower;

WHEREAS, in connectionwith the Credit Agreement, the Grantor has executed and delivered to theSecured Party a Subsidiary Security Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the“Security Agreement”);

WHEREAS, as a conditionprecedent to the making of the Credit Extensions (including the initial CreditExtension) under the Credit Agreement, the Grantor is required to execute anddeliver this Agreement;

WHEREAS, the Grantor hasduly authorized the execution, delivery and performance of this Agreement; and

WHEREAS, it is in thebest interests of the Grantor to execute this Agreement inasmuch as the Grantorwill derive substantial direct and indirect benefits from the Credit Extensionsmade from time to time to the Borrower by the Secured Party pursuant to theCredit Agreement;

NOW THEREFORE, for goodand valuable consideration the receipt of which is hereby acknowledged, and inorder to induce the Secured Party to make Credit Extensions (including theinitial Credit Extension) to the Borrower pursuant to the Credit Agreement, theGrantor agrees, for the benefit of the Secured Party, as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant of Security Interest.  For good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, to secure all of theSecured Obligations, the Grantor does hereby mortgage, pledge and hypothecateto the Secured Party, and grant to the 

 

1

----

 

Secured Party a securityinterest in all of the following property (the “Trademark Collateral”),whether now owned or hereafter acquired or existing by it:

(a)           alltrademarks, trade names, corporate names, company names, business names,fictitious business names, trade styles, service marks, certification marks,collective marks, logos, other source of business identifiers, prints andlabels on which any of the foregoing have appeared or appear, designs andgeneral intangibles of a like nature (all of the foregoing items in this clause (a)being collectively called a “Trademark”), now existing anywhere in theworld or hereafter adopted or acquired, whether currently in use or not, allregistrations and recordings thereof and all applications in connectiontherewith, whether pending or in preparation for filing, includingregistrations, recordings and applications in the United States Patent andTrademark Office or in any office or agency of the United States of America orany State thereof or any foreign country, including those referred to in ItemA of Attachment 1 attached hereto;

(b)           allTrademark licenses, including each Trademark license referred to in Item Bof Attachment 1 attached hereto;

(c)           allreissues, extensions or renewals of any of the items described in clauses(a) and (b);

(d)           allof the goodwill of the business connected with the use of, and symbolized bythe items described in, clauses (a) and (b); and

(e)           allProceeds of, and rights associated with, the foregoing, including any claim bythe Grantor against third parties for past, present or future infringement ordilution of any Trademark, Trademark registration or Trademark license,including any Trademark, Trademark registration or Trademark license referredto in Item A and Item B of Attachment 1 attached hereto,or for any injury to the goodwill associated with the use of any such Trademarkor for breach or enforcement of any Trademark license.

Notwithstandinganything herein to the contrary, in no event shall the Collateral include, andthe Grantor shall not be deemed to have granted a security interest in, any ofthe Grantor’s rights or interests in any license, contract or agreement to whichthe Grantor is a party or any of its rights or interests thereunder to theextent, but only to the extent, that such a grant would, under the expressterms of such license, contract or agreement or otherwise, result in a breachof the terms of, or constitute a default under such license, contract oragreement (other than to the extent that any such term would be renderedineffective pursuant to Sections 9407(a) or 9408(a) of the U.C.C. or any otherapplicable law (including the Bankruptcy Code) or principles of equity);provided, that immediately upon the ineffectiveness, waiver, lapse ortermination of any such provision, the Collateral shall include, and theGrantor shall have granted a security interest in, all such rights andinterests as if such provision had never been in effect.

SECTION 3.           Security Agreement.  This Agreement has been executed anddelivered by the Grantor for the purpose of registering the security interestof the Secured Party in the Trademark Collateral with the United States Patentand Trademark Office and corresponding offices in other countries of theworld.  The security interest grantedhereby has been granted as a supplement to, 

 

2

----

 

and not in limitation of,the security interest granted to the Secured Party under the SecurityAgreement.  The Security Agreement (andall rights and remedies of the Secured Party thereunder) shall remain in fullforce and effect in accordance with its terms.

SECTION 4.           Releaseof Security Interest.  Upon theTermination Date, the Secured Party shall, at the Grantor’s expense, executeand deliver to the Grantor all Instruments and other Documents as may benecessary or proper to release the lien on and security interest in theTrademark Collateral which has been granted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Trademark Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.           LoanDocument, etc.  This Agreement is aLoan Document executed pursuant to the Credit Agreement and shall (unlessotherwise expressly indicated herein) be construed, administered and applied inaccordance with the terms and provisions of the Credit Agreement.

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

IN WITNESS WHEREOF, theparties hereto have caused this Subsidiary Trademark Security Agreement to beduly executed and delivered by their respective officers thereunto dulyauthorized as of the day and year first above written.

[NAME OF GRANTOR]
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

THE TITAN CORPORATION,

as Secured Party
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

3

----

ATTACHMENT 1

Item A.   Trademarks

RegisteredTrademarks
| ***Country** |   | **Trademark** |   | **Registration  No.** |   | **Registration  Date** |   |
|--------------|--------|---------------|--------|-----------------------|--------|------------------------|--------|
|         |   |          |   |                  |   |                   |   |

 

Pending TrademarkApplications
| ***Country** |   | **Trademark** |   | **Serial No.** |   | **Filing  Date** |   |
|--------------|--------|---------------|--------|----------------|--------|------------------|--------|
|         |   |          |   |           |   |             |   |

 

TrademarkApplications in Preparation
| ***Country** |   | **Trademark** |   | **Docket No.** |   | **Expected  Filing Date** |   | **Products/  Services** |   |
|--------------|--------|---------------|--------|----------------|--------|---------------------------|--------|-------------------------|--------|
|         |   |          |   |           |   |                      |   |                    |   |

 

Item B.                    TrademarkLicenses
| ***Country or Territory** |   | **Trademark** |   | **Licensor** |   | **Licensee** |   | **Effective  Date** |   | **Expiration  Date** |   |
|---------------------------|--------|---------------|--------|--------------|--------|--------------|--------|---------------------|--------|----------------------|--------|
|                      |   |          |   |         |   |         |   |                |   |                 |   |

----

*              List items related to the UnitedStates first for ease of recordation.List items related to other countries next, grouped by country and inalphabetical order by country name.

 

4

----

 

EXHIBIT C

SUBSIDIARY COPYRIGHT SECURITY AGREEMENT

This SUBSIDIARY COPYRIGHTSECURITY AGREEMENT (this “Agreement”), dated as of August 2, 2002, ismade between _____________________, a __________ __________ (the “Grantor”),and THE TITAN CORPORATION, a Delaware corporation (the “Secured Party”);

WITNESSETH :

WHEREAS, pursuant to aSenior Secured Credit Agreement, dated as of August 2, 2002 (as amended,restated, supplemented or otherwise modified from time to time, the “CreditAgreement”), between SUREBEAM CORPORATION, a Delaware corporation (the “Borrower”),and the Secured Party, the Secured Party has extended Commitments to makeCredit Extensions to the Borrower;

WHEREAS, in connectionwith the Credit Agreement, the Grantor has executed and delivered to theSecured Party a Subsidiary Security Agreement, dated as of August 2, 2002 (asamended, restated, supplemented or otherwise modified from time to time, the “SecurityAgreement”);

WHEREAS, as a conditionprecedent to the making of the Credit Extensions (including the initial CreditExtension) under the Credit Agreement, the Grantor is required to execute anddeliver this Agreement;

WHEREAS, the Grantor hasduly authorized the execution, delivery and performance of this Agreement; and

WHEREAS, it is in the bestinterests of the Grantor to execute this Agreement inasmuch as the Grantor willderive substantial direct and indirect benefits from the Credit Extensions madefrom time to time to the Borrower by the Secured Party pursuant to the CreditAgreement;

NOW THEREFORE, for goodand valuable consideration the receipt of which is hereby acknowledged, and inorder to induce the Secured Party to make Credit Extensions (including theinitial Credit Extension) to the Borrower pursuant to the Credit Agreement, theGrantor agrees, for the benefit of the Secured Party, as follows:

SECTION 1.           Definitions.  Unless otherwise defined herein or thecontext otherwise requires, terms used in this Agreement, including itspreamble and recitals, have the meanings provided (or incorporated byreference) in the Security Agreement.

SECTION 2.           Grant of Security Interest.  For good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, to secure all of theSecured Obligations, the Grantor does hereby mortgage, pledge and hypothecateto the Secured Party, and grant to the Secured Party a security interest in allof the following property (the “Copyright Collateral”), 

 

1

----

 

whether now owned orhereafter acquired or existing by it, being all copyrights (including allcopyrights for semi-conductor chip product mask works) of the Grantor, whetherstatutory or common law, registered or unregistered, now or hereafter in forcethroughout the world including all of the Grantor’s right, title and interestin and to all copyrights registered in the United States Copyright Office oranywhere else in the world and also including the copyrights referred to in ItemA of Attachment 1 attached hereto, and all applications forregistration thereof, whether pending or in preparation, all copyrightlicenses, including each copyright license referred to in Item B of Attachment1 attached hereto, the right to sue for past, present and futureinfringements of any thereof, all rights corresponding thereto throughout theworld, all extensions and renewals of any thereof and all Proceeds of theforegoing, including licenses, royalties, income, payments, claims, damages andProceeds of suit.

Notwithstandinganything herein to the contrary, in no event shall the Collateral include, andthe Grantor shall not be deemed to have granted a security interest in, any ofthe Grantor’s rights or interests in any license, contract or agreement towhich the Grantor is a party or any of its rights or interests thereunder tothe extent, but only to the extent, that such a grant would, under the expressterms of such license, contract or agreement or otherwise, result in a breachof the terms of, or constitute a default under such license, contract oragreement (other than to the extent that any such term would be renderedineffective pursuant to Sections 9407(a) or 9408(a) of the U.C.C. or any otherapplicable law (including the Bankruptcy Code) or principles of equity);provided, that immediately upon the ineffectiveness, waiver, lapse ortermination of any such provision, the Collateral shall include, and theGrantor shall have granted a security interest in, all such rights andinterests as if such provision had never been in effect.

SECTION 3.           Security Agreement.  This Agreement has been executed anddelivered by the Grantor for the purpose of registering the security interestof the Secured Party in the Copyright Collateral with the United StatesCopyright Office and corresponding offices in other countries of theworld.  The security interest grantedhereby has been granted as a supplement to, and not in limitation of, thesecurity interest granted to the Secured Party under the Security Agreement.  The Security Agreement (and all rights and remediesof the Secured Party thereunder) shall remain in full force and effect inaccordance with its terms.

SECTION 4.           Release of Security Interest.  Upon the Termination Date, the Secured Partyshall, at the Grantor’s expense, execute and deliver to the Grantor allInstruments and other Documents as may be necessary or proper to release thelien on and security interest in the Copyright Collateral which has beengranted hereunder.

SECTION 5.           Acknowledgment.  The Grantor does hereby further acknowledgeand affirm that the rights and remedies of the Secured Party with respect tothe security interest in the Copyright Collateral granted hereby are more fullyset forth in the Security Agreement, the terms and provisions of which(including the remedies provided for therein) are incorporated by referenceherein as if fully set forth herein.

SECTION 6.           Loan Document, etc.  This Agreement is a Loan Document executedpursuant to the Credit Agreement and shall (unless otherwise expresslyindicated herein) be construed, administered and applied in accordance with theterms and provisions of the Credit Agreement.

 

2

----

 

SECTION 7.           Counterparts.  This Agreement may be executed by theparties hereto in several counterparts, each of which shall be deemed to be anoriginal and all of which shall constitute together but one and the sameagreement.

 

3

----

 

IN WITNESS WHEREOF, theparties hereto have caused this Subsidiary Copyright Security Agreement to beduly executed and delivered by their respective officers thereunto dulyauthorized as of the day and year first above written.

[NAME OF GRANTOR]
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

THE TITAN CORPORATION,

as Secured Party
| By     |   |
|--------|--------|
|   | Name:  |
|   | Title: |

 

4

----

 

ATTACHMENT 1

Item A.   Copyrights/Mask Works

RegisteredCopyrights/Mask Works
| ***Country** |   | **Registration  No.** |   | **Registration  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|-----------------------|--------|------------------------|--------|---------------|--------|-----------|--------|
|         |   |                  |   |                   |   |          |   |      |   |

 

Copyright/MaskWork Pending Registration Applications
| ***Country** |   | **Serial No.** |   | **Filing  Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|------------------|--------|---------------|--------|-----------|--------|
|         |   |           |   |             |   |          |   |      |   |

 

Copyright/MaskWork Registration Applications in Preparation
| ***Country** |   | **Docket No.** |   | **Expected  Filing Date** |   | **Author(s)** |   | **Title** |   |
|--------------|--------|----------------|--------|---------------------------|--------|---------------|--------|-----------|--------|
|         |   |           |   |                      |   |          |   |      |   |

 

Item B.                    Copyright/MaskWork Licenses
| ***Country or Territory** |   | **Licensor** |   | **Licensee** |   | **Effective  Date** |   | **Expiration  Date** |   | **Subject  Matter** |   |
|---------------------------|--------|--------------|--------|--------------|--------|---------------------|--------|----------------------|--------|---------------------|--------|
|                      |   |         |   |         |   |                |   |                 |   |                |   |

----

*              List items relatedto the United States first for ease of recordation.List items related to other countries next, grouped by country and in alphabeticalorder by country name.

 

5

----

 

EXHIBIT A

DESCRIPTION OFPREMISES

[See attached.]

 

6

----