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Exhibit 10.17    
    


 
 

CREDIT AGREEMENT    
    


 

 

 
 Dated as of April 8, 2005  


between 


CROCS, INC.  


and 


BANK OF AMERICA, N.A.  








  



 
 

TABLE OF CONTENTS    
    



	Section
 
	 	 
	 	Page

	ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS
	

1.01	
 	

Defined Terms	
 	

1
	1.02	 	Other Interpretive Provisions	 	18
	1.03	 	Accounting Terms	 	18
	1.04	 	Rounding	 	19
	1.05	 	Times of Day	 	19
	1.06	 	Letter of Credit Amounts	 	19
	

ARTICLE II.

THE COMMITMENT AND CREDIT EXTENSIONS
	

2.01	
 	

Loans	
 	

19
	2.02	 	Borrowings	 	19
	2.03	 	Letters of Credit	 	20
	2.04	 	Prepayments	 	24
	2.05	 	Termination or Reduction of Commitment	 	24
	2.06	 	Repayment of Loans	 	25
	2.07	 	Interest	 	25
	2.08	 	Fees	 	25
	2.09	 	Computation of Interest and Fees	 	26
	2.10	 	Evidence of Debt	 	26
	2.11	 	Payments Generally	 	26
	

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY
	

3.01	
 	

Taxes	
 	

26
	3.02	 	Illegality	 	27
	3.03	 	Inability to Determine Eurodollar Rate	 	27
	3.04	 	Increased Costs	 	28
	3.05	 	[Reserved]	 	29
	3.06	 	Mitigation Obligations	 	29
	3.07	 	Survival	 	29
	

ARTICLE IV.

CONDITIONS PRECEDENT TO CREDIT extensions
	

4.01	
 	

Conditions of Initial Credit Extension	
 	

29
	4.02	 	Conditions to all Credit Extensions	 	30
	

ARTICLE V.

REPRESENTATIONS AND WARRANTIES
	

5.01	
 	

Existence, Qualification and Power; Compliance with Laws	
 	

31
	5.02	 	Authorization; No Contravention	 	31
	5.03	 	Governmental Authorization; Other Consents	 	31
	5.04	 	Binding Effect	 	31
	5.05	 	Financial Statements; No Material Adverse Effect	 	32
	5.06	 	Litigation	 	32
	5.07	 	No Default	 	33
	 	 	 	 	 





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	5.08	 	Ownership of Property; Liens	 	33
	5.09	 	Environmental Compliance	 	33
	5.10	 	Insurance	 	33
	5.11	 	Taxes	 	33
	5.12	 	ERISA Compliance	 	33
	5.13	 	Subsidiaries; Equity Interests	 	34
	5.14	 	Margin Regulations; Investment Company Act; Public Utility Holding Company Act	 	34
	5.15	 	Disclosure	 	34
	5.16	 	Compliance with Laws	 	34
	5.17	 	Intellectual Property; Licenses, Etc	 	34
	

ARTICLE VI.

AFFIRMATIVE COVENANTS
	

6.01	
 	

Financial Statements	
 	

35
	6.02	 	Certificates; Other Information	 	35
	6.03	 	Notices	 	37
	6.04	 	Payment of Obligations	 	37
	6.05	 	Preservation of Existence, Etc	 	37
	6.06	 	Maintenance of Properties	 	38
	6.07	 	Maintenance of Insurance	 	38
	6.08	 	Compliance with Laws	 	38
	6.09	 	Books and Records	 	38
	6.10	 	Inspection Rights; Field Audit	 	38
	6.11	 	Use of Proceeds	 	38
	6.12	 	Deposit Accounts	 	38
	

ARTICLE VII.

NEGATIVE COVENANTS
	

7.01	
 	

Liens	
 	

39
	7.02	 	Investments	 	39
	7.03	 	Indebtedness	 	40
	7.04	 	Fundamental Changes	 	40
	7.05	 	Dispositions	 	41
	7.06	 	Restricted Payments	 	41
	7.07	 	Change in Nature of Business	 	42
	7.08	 	Transactions with Affiliates	 	42
	7.09	 	Burdensome Agreements	 	42
	7.10	 	Use of Proceeds	 	42
	7.11	 	Financial Covenants	 	42
	7.12	 	Capital Expenditures	 	42
	

ARTICLE VIII.

EVENTS OF DEFAULT AND REMEDIES
	

8.01	
 	

Events of Default	
 	

42
	8.02	 	Remedies Upon Event of Default	 	44
	8.03	 	Application of Funds	 	45
	

ARTICLE IX.

MISCELLANEOUS
	

9.01	
 	

Amendments; Etc	
 	

45
	 	 	 	 	 



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	9.02	 	Notices, Effectiveness; Electronic Communication	 	45
	9.03	 	No Waiver; Cumulative Remedies	 	46
	9.04	 	Expenses; Indemnity; Damage Waiver.	 	46
	9.05	 	Payments Set Aside	 	47
	9.06	 	Successors and Assigns	 	47
	9.07	 	Confidentiality	 	49
	9.08	 	Right of Setoff	 	49
	9.09	 	Interest Rate Limitation	 	49
	9.10	 	Counterparts; Integration; Effectiveness	 	50
	9.11	 	Survival of Representations and Warranties	 	50
	9.12	 	Severability	 	50
	9.13	 	Governing Law; Jurisdiction; Etc	 	50
	9.14	 	USA PATRIOT Act Notice	 	52
	9.15	 	Time of the Essence	 	52
	

SIGNATURES	
 	

S-1





SCHEDULES  



	 	 	5.05	 	Supplement to Interim Financial Statements
	 	 	5.13	 	Subsidiaries; Other Equity Investments
	 	 	7.01	 	Existing Liens
	 	 	7.03	 	Existing Indebtedness
	 	 	9.02	 	Lending Office, Addresses for Notices
	
EXHIBITS
	

 	
 	

 	
 	
Form of
	

 	
 	

A	
 	

Loan Notice
	 	 	B	 	Note
	 	 	C	 	Compliance Certificate
	 	 	D	 	Borrowing Base Certificate
	 	 	E	 	Opinion Matters




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CREDIT AGREEMENT    
    


        This CREDIT AGREEMENT ("Agreement") is entered into as of April 8, 2005 by and between  CROCS,
 INC., a Colorado corporation (the "Borrower") and BANK OF AMERICA,
N.A. (the "Lender"). 


        The
Borrower has requested that the Lender provide a revolving credit facility with a letter of credit sublimit, and the Lender is willing to do so on the terms and conditions set forth
herein. 


        In
consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: 


 
 

ARTICLE I.
  DEFINITIONS AND ACCOUNTING TERMS    
    


        1.01    Defined Terms.    As used in this Agreement, the following terms shall have the meanings set forth below: 



        "Account Debtor" means any Person obligated on any Account of the Borrower. 


        "Accounts" means and includes all of the Borrower's now owned or hereafter acquired or arising accounts, as defined in the UCC, including
any rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance. 


        "Advance Limit" means, as of any date of determination thereof, the lesser of
(a) the aggregate amount of the Commitments in effect on such date, and (b) the Borrowing Base set forth on the Borrowing Base Certificate most recently delivered (as adjusted by the
Lender in accordance with the terms of this Agreement). 


        "Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or
is Controlled by or is under common Control with the Person specified. 


        "Agreement" means this Credit Agreement. 


        "Applicable Rate" means (a) with respect to Base Rate Loans, 1.00%, (b) with respect to Eurodollar Rate Loans, 4.00%, and
(c) with respect to Letter of Credit Fees, 4.00%. 


        "Approved Fund" means any Fund that is administered or managed by (a) the Lender, (b) an Affiliate of the Lender or
(c) an entity or an Affiliate of an entity that administers or manages the Lender. 


        "Attributable Indebtedness" means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof
that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the
remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital
lease. 


        "Audited Financial Statements" means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended
December 31, 2004, and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the
notes thereto. 


        "Availability Period" means the period from and including the Closing Date to the earlier of (a) the Maturity Date and
(b) the date of termination of the Commitment. 


        "Bank of America" means Bank of America, N.A. or any successor thereof. 


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        "Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus
1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The "prime rate" is a rate set by
Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public
announcement of such change. 


        "Base Rate Loan" means a Loan that bears interest based on the Base Rate. 


        "Borrower" has the meaning specified in the introductory paragraph hereto. 


        "Borrowing Base" means, at any time, an amount equal to (a) the sum of
(i) eighty-five percent (85%) of the Net Amount of Eligible Accounts plus (ii) the lesser of sixty percent (60%) of the value
of Eligible Inventory and $2,500,000 plus (iii) forty percent (40%) of the Net Book Value of Eligible Equipment  plus (iv) the amount of the
Collateral Shortfall Adjustment in effect on such date; minus
(b) Reserves from time to time established by the Lender in its reasonable credit judgment. 


        "Borrowing Base Certificate" means a certificate by a Responsible Officer of the Borrower, substantially in the form of  Exhibit D (or another form acceptable to the
Lender) setting forth the calculation of the Borrowing Base, including a calculation of each
component thereof, all in such detail as shall be reasonably satisfactory to the Lender. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate
shall originally be made by the Borrower and certified to the Lender; provided, that the Lender shall have the right to review and adjust, in the
exercise of its reasonable credit judgment, any such calculation (a) to reflect its reasonable estimate of declines in value of any of the Collateral described therein and of any applicable
Reserves, and (b) to the extent that such calculation is not in accordance with this the Agreement. 


        "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws
of, or are in fact closed in, the state where the Lending Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted
by and between banks in the London interbank eurodollar market. 


        "Cash Collateralize" has the meaning specified in Section 2.03(f). 


        "Change in Law" means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect
of any law, rule, regulation or treaty, (b) any change in any law, rule,
regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether
or not having the force of law) by any Governmental Authority. 


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



        (a)   any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such
person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such
person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of 25% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the 



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Borrower
on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); 


        (b)   during
any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed
of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing
body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or
(iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial
nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or
removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or 



        (c)   any
Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon
consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, or control over
the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such
securities that such Person or group has the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such securities. 




        "Closing Date" means the first date all the conditions precedent in Section 4.01
are satisfied or waived by the Lender in accordance with Section 9.01. 


        "Code" means the Internal Revenue Code of 1986. 


        "Collateral" means all of the Borrower's personal property and all other assets of any Person from time to time subject to Liens in favor
of the Lender securing payment or performance of the Obligations. 


        "Collateral Shortfall Adjustment" means, during each period set forth below, an amount set forth opposite such period: 



	Period
	 	Collateral Shortfall Adjustment

	Closing Date through March 30, 2005	 	$	1,000,000
	March 31, 2005 through April 29, 2005	 	$	750,000
	April 30, 2005 through May 30, 2005	 	$	500,000
	May 31, 2005 through June 29, 2005	 	$	250,000
	June 30, 2005 and thereafter	 	$	0





        "Commitment" means the obligation of the Lender to make Loans and L/C Credit Extensions hereunder in an aggregate principal amount at any
one time not to exceed $5,000,000, as such amount may be adjusted from time to time in accordance with this Agreement. 


        "Compliance Certificate" means a certificate substantially in the form of  Exhibit C. 


        "Consolidated EBITDA" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, an amount equal to
Consolidated Net Income for such period plus (a) the following 


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to
the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) the provision for Federal, state, local and foreign income
taxes payable by the Borrower and its Subsidiaries for such period, (iii) depreciation and amortization expense and (iv) other non-recurring expenses of the Borrower and its
Subsidiaries reducing such Consolidated Net Income which do not represent a cash item in such period or any future period and minus (b) the
following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits of the Borrower and its Subsidiaries for such period and
(ii) all non-cash items increasing Consolidated Net Income for such period. 


        "Consolidated Fixed Charge Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the
period of the four prior fiscal quarters ending on such date less cash taxes minus all capital expenditures made in cash by the Borrower and its
Subsidiaries during such period to (b) Consolidated Fixed Charges for such period. 


        "Consolidated Fixed Charges" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of
(a) Consolidated Interest Charges, (b) Restricted Payments (other than the Permitted Tax Distribution) made in cash by the Borrower or any of its Subsidiaries, and (d) payments of
principal on Indebtedness of the Borrower and its Subsidiaries scheduled to be made during the next ensuing period of four fiscal quarters of the Borrower beginning on the day after the date of
measurement thereof. 


        "Consolidated Funded Indebtedness" means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis,
the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced
by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including
standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments, (d) all obligations in respect of the deferred purchase price of property or services
(other than trade accounts payable in the ordinary course of business), (e) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations, (f) without
duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above of Persons other than the Borrower or any Subsidiary, and
(g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or
limited liability company) in which the Borrower or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Borrower or such
Subsidiary. 


        "Consolidated Interest Charges" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of
(a) all interest, premium payments, debt discount, fees, charges and
related expenses of the Borrower and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to
the extent treated as interest in accordance with GAAP, and (b) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated
as interest in accordance with GAAP. 


        "Consolidated Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such
date to (b) Consolidated EBITDA for the period of the four fiscal quarters most recently ended. 


        "Consolidated Net Income" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the
Borrower and its Subsidiaries (excluding extraordinary gains but including extraordinary losses) for that period. 


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        "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any of its property is bound. 


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


        "Credit Extension" means each of the following: (a) a borrowing of a Loan and (b) an L/C Credit Extension. 


        "Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment
for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to
time in effect and affecting the rights of creditors generally. 


        "Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time,
or both, would be an Event of Default. 


        "Default Rate" means (a) when used with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the
interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, provided that if the Eurodollar Rate is illegal or unavailable, the Default Rate shall be an interest
rate equal the Base Rate plus 4% per annum, (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum, in all cases to the fullest extent
permitted by applicable Laws, and (c) when used with respect to any Obligations not covered in (a) or (b) above, the Default Rate shall be equal to the Base Rate plus 4% per
annum. 


        "Direct Foreign Subsidiary" means Subsidiary other than a Domestic Subsidiary a majority of whose Voting Securities, or a majority of
whose Equity Interests, are owned by the Borrower or a Domestic Subsidiary. 



        "Disposition" or "Dispose" means the sale, transfer, license, lease or other disposition
(including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable
or any rights and claims associated therewith. 


        "Dollar" and "$" mean lawful money of the United States. 



        "Domestic Subsidiary" means any Subsidiary that is organized under the laws of any political subdivision of the United States. 


        "Eligible Account" means the Accounts of the Borrower arising from the sale of goods or rendition of services in the ordinary course of
business of the Borrower which the Lender, in the exercise of its reasonable commercial discretion, determines to be Eligible Accounts. Without limiting the discretion of the Lender to establish other
criteria of ineligibility, Eligible Accounts shall not include any Account: 



        (a)   with
respect to which more than 90 days have elapsed since the date of the original invoice therefor; 


        (b)   with
respect to which any of the representations, warranties, covenants, and agreements contained in the Loan Documents are incorrect or have been breached; 


        (c)   with
respect to which Account (or any other Account due from such Account Debtor), in whole or in part, a check, promissory note, draft, trade acceptance or other
instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; 



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        (d)   which
represents a progress billing (as hereinafter defined) or as to which the Borrower has extended the time for payment without the consent of the Lender; for the
purposes hereof, "progress billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice
is conditioned upon the Borrower's completion of any further performance under the contract or agreement; 


        (e)   with
respect to which any one or more of the following events has occurred to the Account Debtor on such Account: death or judicial declaration of incompetency of an
Account Debtor who is an individual; the filing by or against the Account Debtor of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect;
the making of any general assignment by the Account Debtor for the benefit of creditors; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking possession by a "custodian," as defined in the U.S. Federal Bankruptcy Code; the institution by or against the Account Debtor of any other
type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of affairs of, the Account Debtor; the sale, assignment, or transfer of all or any material part of the assets of the Account Debtor; the nonpayment generally by the Account Debtor of
its debts as they become due; or the cessation of the business of the Account Debtor as a going concern; 



        (f)    if
twenty-five percent (25%) or more of the aggregate Dollar amount of outstanding Accounts owed at such time by the Account Debtor thereon is classified as
ineligible under clause (a) above; 


        (g)   owed
by an Account Debtor which: (1) does not maintain its chief executive office in the United States; (2) is not organized under the laws of the United
States or any state thereof; (3) is not, if a natural person, a citizen of the United States residing therein; or (4) is the government of any foreign country or sovereign state, or of
any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; except to the extent that such Account is
secured or payable by a letter of credit satisfactory to the Lender in its discretion; 


        (h)   owed
by an Account Debtor which is an Affiliate, officer or employee of the Borrower; 


        (i)    except
as provided in clause (k) below, with respect to which either the perfection, enforceability, or validity of the Lender's Liens in such Account, or the
Lender's right or ability to obtain direct payment to the Lender of the proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the UCC; 



        (j)    owed
by an Account Debtor to which the Borrower or any of its Subsidiaries is indebted in any way, or which is subject to any right of setoff or recoupment by the
Account Debtor, unless the Account Debtor has entered into an agreement acceptable to the Lender to waive setoff rights; or if the Account Debtor thereon has disputed liability or made any claim with
respect to any other Account due from such Account Debtor, but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or claim; 


        (k)   owed
by the government of the United States, or any department, agency, public corporation, or other instrumentality thereof, unless the Federal Assignment of Claims Act
of 1940, as amended (31 U.S.C. § 3727 et seq.), and any other steps necessary to perfect the Lender's Liens therein, have been complied with to the Lender's satisfaction with respect to
such Account; 



6







 




        (l)    owed
by any state, municipality, or other political subdivision of the United States, or any department, agency, public corporation, or other instrumentality thereof and
as to which the Lender determines that its Lien therein is not or cannot be perfected; 


        (m)  which
represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis; 


        (n)   which
is evidenced by a promissory note or other instrument or by chattel paper; 


        (o)   if
the Lender believes, in the exercise of its reasonable judgment, that the prospect of collection of such Account is reasonably likely to be impaired or that the
Account could reasonably be expected not to be paid by reason of the Account Debtor's financial inability to pay; 



        (p)   with
respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report or similar report in order to permit the
Borrower to seek judicial enforcement in such state of payment of such Account, unless such Borrower has qualified to do
business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year; 


        (q)   which
arises out of a sale not made in the ordinary course of the Borrower's business or out of finance or similar charges; 


        (r)   with
respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by the Account Debtor or the services giving rise to such
Account have not been performed by the Borrower and, if applicable, accepted by the Account Debtor, or the Account Debtor revokes its acceptance of such goods or services; 


        (s)   owed
by an Account Debtor which is obligated to the Borrower respecting Accounts the aggregate unpaid balance of which exceeds twenty-five percent (25%) of
the aggregate unpaid balance of all Accounts owed to the Borrower at such time by all of the Borrower's Account Debtors, but only to the extent of such excess; 


        (t)    which
is not subject to the Lender's Liens, which are perfected as to such Accounts, or which are subject to any other Lien whatsoever (other than the Liens described in  Section 7.01(c) and (d) so long as any such Lien (i) is junior in priority to the Lender's
Liens or subject to Reserves and (ii) do not impair the ability of the Lender to realize on or obtain the full benefit of the Collateral). 




        The
Borrower, by including an Account in any computation of the Borrowing Base, shall be deemed to represent and warrant to the Lender that such Account is not of the type described in
any of (a) through (t) above, and if any Account at any time ceases to be an Eligible Account, then such Account shall promptly be excluded from the calculation of Eligible Accounts. 


        "Eligible Assignee" means (a) an Affiliate of the Lender; (b) an Approved Fund; and (c) any other Person (other than
a natural person) approved by the Borrower (such approval not to be unreasonably withheld or delayed) and the Lender; provided that no such approval
shall be required if an Event of Default has occurred and is continuing. 


        "Eligible Equipment" means Equipment of the Borrower which the Lender, in the exercise of its reasonable commercial discretion, determines
to be Eligible Equipment. Without limiting the discretion of the Lender to establish other criteria of ineligibility, Eligible Equipment shall not include any Equipment: 



        (a)   that
is not legally owned by the Borrower; 


        (b)   that
is not subject to the Lender's Liens, which are perfected as to such Inventory, or that are subject to any other Lien whatsoever (other than the Liens described in  Section 7.01(c) and (d)



7







 




so
long as any such Lien (i) is junior in priority to the Lender's Liens or subject to Reserves and (ii) do not impair the ability of the Lender to realize on or obtain the full benefit
of the Collateral); 


        (c)   that
is not in good working condition for its intended use or for sale; 


        (d)   (other
than with respect to injection molds) that is located outside the United States or at a location other than a place of business of the Borrower; or 


        (e)   that
is located in a facility leased by the Borrower, if the lessor has not delivered to the Lender, if requested by the Lender, a subordination agreement in form and
substance satisfactory to the Lender or if a Reserve for rents has not been established for Equipment at that location. 




        The
Borrower, by including Equipment in any computation of the Borrowing Base, shall be deemed to represent and warrant to the Lender that such Equipment is not of the type described in
any of (a) through (e) above, and if any Equipment at any time ceases to be Eligible Equipment, then such Equipment shall promptly be excluded from the calculation of Eligible Equipment. 


        "Eligible Inventory" means Inventory, valued at the lower of cost (on a first-in, first-out basis) or market,
which the Lender, in its reasonable discretion, determines to be Eligible Inventory. Without limiting the discretion of the Lender to establish other criteria of ineligibility, Eligible Inventory
shall not include any Inventory: 



        (a)   that
is not owned by the Borrower; 


        (b)   for
which, if such Inventory is being purchased from FCI, satisfactory evidence of payment by the Borrower has not been delivered to the Lender; 


        (c)   that
is not subject to the Lender's Liens, which are perfected as to such Inventory, or that are subject to any other Lien whatsoever (other than the Liens described in  Section 7.01(c) and (d) so long
as any such Lien (i) is junior in priority to the Lender's Liens or subject to Reserves and (ii) do not impair the ability of the Lender to realize on or obtain the full benefit of the
Collateral); 


        (d)   that
does not consist of finished goods or raw materials; 


        (e)   that
consists of work-in-process, chemicals, samples, prototypes, supplies, or packing and shipping materials; 


        (f)    that
is not in good condition, is unmerchantable, or does not meet all standards imposed by any Governmental Authority, having regulatory authority over such goods,
their use or sale; 


        (g)   that
is not currently either usable or salable, at prices approximating at least cost, in the normal course of the Borrower's business, or that is slow moving or stale; 


        (h)   that
is obsolete or returned or repossessed or used goods taken in trade; 


        (i)    that
is located outside the United States of America (or that is in-transit from vendors or suppliers (unless insured against risk of loss and Bank of
America is named as loss payee)); 


        (j)    that
is located in a public warehouse or in possession of a bailee or in a facility leased by the Borrower, if the warehouseman, or the bailee, or the lessor has not
delivered to the Lender, if requested by the Lender, a subordination agreement in form and substance satisfactory to the Lender or if a Reserve for rents or storage charges has not been established
for Inventory at that location; 


        (k)   that
contains or bears any IP Rights licensed to a Borrower by any Person, if the Lender is not satisfied that it may sell or otherwise dispose of such Inventory in
accordance with the terms of the Security Agreement and Section 9.2 without infringing the rights of the licensor of such IP 



8







 




Rights
or violating any contract with such licensor (and without payment of any royalties other than any royalties due with respect to the sale or disposition of such Inventory pursuant to the
existing license agreement), and, as to which the Borrower has not delivered to the Lender a consent or sublicense agreement from such licensor in form and substance acceptable to the Lender if
requested; or 


        (l)    that
is Inventory placed on consignment. 




        The
Borrower, by including Inventory in any computation of the Borrowing Base, shall be deemed to represent and warrant to the Lender that such Inventory is not of the type described in
any of (a) through (k) above, and if any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly be excluded from the calculation of Eligible Inventory. 


        "Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials
into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. 


        "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of
any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is
assumed or imposed with respect to any of the foregoing. 


        "Equipment" means all of the Borrower's now owned and hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including embedded software, motor vehicles with respect to which a certificate of title has been issued, aircraft, dies, tools, jigs, molds and office
equipment, as well as all of such types of property leased by the Borrower and all of the Borrower's rights and interests with respect thereto under such leases (including, without limitation, options
to purchase); together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and
all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located. 


        "Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in)
such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of
the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition
from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting
or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination. 


        "ERISA" means the Employee Retirement Income Security Act of 1974. 


        "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). 


9







 



        "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A
of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than
for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate. 


        "Eurodollar Rate Loan" means a Loan that bears interest at a rate based on the LIBOR Daily Floating Rate. 


        "Eurodollar Reserve Percentage" means, for any day, the reserve percentage (expressed as a decimal, carried out to five decimal places) in
effect on such day, whether or not applicable to the Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States for determining the
maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage. 


        "Event of Default" has the meaning specified in Section 8.01. 



        "Excluded Taxes" means, with respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of
the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income
taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located, and (b) any branch profits
taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located. 


        "Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Lender on such day on such transactions as determined by the Lender. 



        "FRB" means the Board of Governors of the Federal Reserve System of the United States. 


        "Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing
in commercial loans and similar extensions of credit in the ordinary course of its business. 


        "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting 


10







 



Standards
Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of
determination, consistently applied. 


        "Governmental Authority" means the government of the United States or any other nation, or of any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank). 


        "Guarantee" means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee
in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other
financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or
(iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such
obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not
such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall
be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning. 



        "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law. 


        "Honor Date" has the meaning specified in Section 2.03(c)(i). 



        "Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as
indebtedness or liabilities in accordance with GAAP: 



        (a)   all
obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; 


        (b)   all
direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety
bonds and similar instruments; 


        (c)   net
obligations of such Person under any Swap Contract; 


        (d)   all
obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in
each case, not past due for more than 60 days after the date on which such trade account payable was created); 


        (e)   indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional
sales or other 



11







 

title
retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; 


        (f)    capital
leases and Synthetic Lease Obligations; 


        (g)   all
obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person,
valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; and 


        (h)   all
Guarantees of such Person in respect of any of the foregoing. 




        For
all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or
limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net
obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date
shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. 


        "Indemnified Taxes" means Taxes other than Excluded Taxes. 


        "Indemnitees" has the meaning specified in Section 9.04(b). 



        "Interest Payment Date" means the last Business Day of each March, June, September and December and the Maturity Date. 


        "Inventory" has the meaning given such term in Section 9-102 of the UCC. 


        "Investment" means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the
purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other
acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the
investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a
business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such
Investment. 


        "IP Rights" has the meaning specified in Section 5.17. 


        "IRS" means the United States Internal Revenue Service. 


        "ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International
Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance). 


        "Issuer Documents" means with respect to any Letter of Credit Application, the Letter of Credit Application and any other document,
agreement and instrument entered into by the Lender and the Borrower or in favor of the Lender and relating to any such Letter of Credit. 


        "Laws" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement,
interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law. 


12







 



        "L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the
increase of the amount thereof. 


        "L/C Obligations" means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of
Credit plus the aggregate of all Unreimbursed Amounts. For purposes
of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with  Section 1.06. For all purposes of this Agreement,
 if on any date of determination a Letter of Credit has expired by its terms but any amount may
still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn. 



        "Lending Office" means the office or offices of the Lender described as such on  Schedule 9.02, or such other office or offices as the Lender may from time to time
notify the Borrower. 


        "Letter of Credit" means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby
letter of credit. 


        "Letter of Credit Application" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from
time to time in use by the Lender. 


        "Letter of Credit Expiration Date" means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a
Business Day, the next preceding Business Day). 


        "Letter of Credit Fee" has the meaning specified in Section 2.03(h). 


        "Letter of Credit Sublimit" means an amount equal to $50,000. The Letter of Credit Sublimit is part of, and not in addition to, the
Commitment. 


        LIBOR Daily Floating Rate" means a rate per annum determined by the Lender pursuant to the following formula: 



	 	 	LIBOR Daily Floating Rate	=	LIBOR Daily Floating Base Rate
 1.00 - Eurodollar Reserve Percentage





        Where,





"LIBOR Daily Floating Base Rate" means, for all Loans, on each day any such Loan is outstanding, the fluctuating rate of interest (rounded upwards, as
necessary, to the nearest 1/100 of 1%) equal to the BBA LIBOR, as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated the Lender from time to
time) at approximately 11:00 a.m., London time, on each day any such Loan is outstanding, for Dollar deposits with a term equivalent to one month. If such rate is not available at such time for
any reason, then the "LIBOR Daily Floating Base Rate" shall be the rate per annum determined by the Lender to be the rate at which deposits in Dollars for delivery in same day funds in the approximate
amount of the LIBOR Floating Rate Loan being made, continued or converted by Bank of America and with a term equivalent to one month would be offered by Bank of America's London Branch to major banks
in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time), on each day any such Loan is outstanding. 




13













  





        "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title
retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing). 


        "Loan" has the meaning specified in Section 2.01. 


        "Loan Documents" means this Agreement, the Note, each Issuer Document, each Security Instrument and all other instruments and documents
heretofore or hereafter executed and delivered to or in favor of the Lender in connection with the Loans made, Letters of Credit issued and other transactions between one or more of the Loan Parties
and the Lender contemplated under this Agreement. 


        "Loan Notice" means a notice of a borrowing of a Loan pursuant to Section 2.02(a),
which, if in writing, shall be substantially in the form of Exhibit A. 


        "Loan Parties" means, collectively, the Borrower and each other Person providing Collateral pursuant to any Security Instrument. 



        "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business,
properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment
of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against any Loan Party of any Loan Document to which it is a party. 



        "Maturity Date" means the earlier of (i) April 6, 2006 or (ii) the date of any of closing of any initial public
offering. 


        "Mexican Acquisition" means the potential acquisition by the Borrower of certain assets located in San Francisco del Rincon, Mexico for a
purchase price of not more than $1,400,000. 


        "Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or
any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions. 


        "Net Amount of Eligible Accounts" means, at any time, the gross amount of Eligible Accounts less sales, excise or similar taxes, and less
returns, discounts, claims, credits, allowances, accrued rebates, offsets, deductions, counterclaims, disputes and other defenses of any nature at any time issued, owing, granted, outstanding,
available or claimed. 


        "Net Book Value of Eligible Equipment" means, at any time, the then-current book value of all Eligible Equipment (giving
effect to any adjustments to such book value on or prior to the date of measurement thereof) less all accumulated depreciation and amortization of such
Equipment through the date of measurement. 


        "Net Proceeds" means, with respect to the sale of any Equity Interests of the Borrower or any Subsidiary, an amount equal to
(i) the sum of the cash and cash equivalents received in connection with such sale (before payment of the amounts set forth in the following part (ii)),  minus (ii) the underwriting
discounts and commissions, and other out-of-pocket expenses, incurred in connection with such
sale. 


        "Note" means a promissory note made by the Borrower in favor of the Lender evidencing Loans made by the Lender, substantially in the form
of Exhibit B. 


14







 



        "Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan
Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or
hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such
Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. 


        "Organization Documents" means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws
(or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of
formation or organization and operating agreement; and (c) with respect to any partnership,
joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with
respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any
certificate or articles of formation or organization of such entity. 


        "Other Taxes" means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. 


        "Outstanding Amount" means (i) with respect to Loans on any date, the aggregate outstanding principal amount thereof after giving
effect to any borrowings and prepayments or repayments of Loans occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date
after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements
by the Borrower of Unreimbursed Amounts. 


        "Participant" has the meaning specified in Section 9.06(c). 


        "PBGC" means the Pension Benefit Guaranty Corporation. 


        "Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a
Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an
obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five
plan years. 


        "Permitted Tax Distribution" means a single distribution by the Borrower to those Persons that held Equity Interests in the Borrower prior
to its conversion to a "C" corporation, which such distribution shall not exceed $4,000,000. 


        "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity. 


        "Plan" means any "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with
respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate. 


        "Pledge Agreement" means that certain Securities Pledge Agreement dated as of the Closing Date among the Lender and the Borrower, as
amended or supplemented from time to time. 


15







 



        "Pledged Interests" means the Equity Interests in any Person pledged or required to be pledged as Collateral pursuant to the terms of this
Agreement, the Pledge Agreement or the Subsidiaries Pledge Agreements. 


        "Related Parties" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and
advisors of such Person and of such Person's Affiliates. 


        "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day
notice period has been waived. 


        "Request for Credit Extension" means (a) with respect to a borrowing and (b) with respect to an L/C Credit Extension, a
Letter of Credit Application. 


        "Reserves" means reserves that limit the availability of credit hereunder, consisting of reserves against Availability, Eligible Accounts,
Eligible Inventory or equipment, established by the Lender from time to time in the Lender's reasonable credit judgment. Without limiting the generality of the foregoing, the following reserves shall
be deemed to be a reasonable exercise of the Lender's credit judgment: (a) reserves for rent at leased locations subject to landlord Liens, except to the extent the Lender has received landlord
subordination agreements acceptable to the Lender, (b) Inventory shrinkage, (c) customs charges, (d) dilution, and (e) warehousemen's or bailees' charges. 


        "Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of the
Borrower. Any document delivered hereunder that is signed by a Responsible Officer of the Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or
other action on the part of the Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Borrower. 


        "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital
stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower's stockholders,
partners or members (or the equivalent Person thereof). 


        "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. 


        "Security Agreement" means that certain Security Agreement dated as of the Closing Date among the Borrower and the Lender, as amended or
supplemented from time to time. 


        "Security Instruments" means, collectively, the Pledge Agreement, the Subsidiary Pledge Agreements, the Security Agreement and all other
agreements (including control agreements), instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrower or any other Person shall grant or convey to the
Lender a Lien in, or any other Person shall acknowledge any such Lien in, property as security for all or any portion of the Obligations or any other obligation under any Loan Document, as any of them
may be amended, modified or supplemented from time to time. 


        "Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a
majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by
reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the Borrower. 


16







 



        "Subsidiary Pledge Agreements" means that certain Securities Pledge Agreements dated as of the Closing Date among 4646519
Canada, Inc. and the Lender, as amended or supplemented from time to time, and that certain Securities Pledge Agreements dated as of the Closing Date among Western Brands Holding, Inc.
and the Lender, as amended or supplemented from time to time. 


        "Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate
transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond
or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap
transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into
any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which
are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"),
including any such obligations or liabilities under any Master Agreement. 


        "Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance
therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for
such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the
Lender or any Affiliate of the Lender). 


        "Synthetic Lease Obligation" means the monetary obligation of a Person under (a) a so-called synthetic,
off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but
which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). 



        "Taxes" means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed
by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto. 


        "Threshold Amount" means $250,000. 


        "Total Outstandings" means the aggregate Outstanding Amount of all Loans and all L/C Obligations. 



        "UCC" means the Uniform Commercial Code then in effect in the state of North Carolina or, if the context shall so indicate, another
applicable jurisdiction. 


        "Unaudited Financial Statements" has the meaning specified in Section 5.05(b). 


        "Unfunded Pension Liability" means the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. 


        "United States" and "U.S." mean the United States of America. 


17







 



        "Unreimbursed Amount" has the meaning specified in Section 2.03(c)(i). 



        "Voting Securities" means Equity Interests, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such Person, even if the right to vote has been suspended by the happening of such contingency. 


        1.02    Other Interpretive Provisions.    With reference to this Agreement and each other Loan Document, unless
otherwise specified herein or in such other Loan Document: 



        (a)   The
definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be
construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document
(including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (iii) the words "herein," "hereof" and "hereunder," and words of similar import when used in any Loan Document, shall be construed to refer to such Loan
Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions
consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or
supplemented from time to time, and (vi) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights. 


        (b)   In
the computation of periods of time from a specified date to a later specified date, the word "from" means
"from and including;" the words "to" and "until" each
mean "to but excluding;" and the word "through" means "to and
including." 


        (c)   Section
headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any
other Loan Document. 




        1.03    Accounting Terms.    (a) Generally. All accounting
terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted
pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the
Audited Financial Statements, except as otherwise specifically prescribed herein. 



        (b)   Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set
forth in any Loan Document, and either the Borrower or the Lender shall so request, the Lender and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the
original intent thereof in light of such change in GAAP (subject to the approval of the Lender), provided that, until so amended, (i) such ratio or requirement shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Lender financial statements and other documents required under this Agreement or as reasonably
requested hereunder setting forth a reconciliation 



18







 

between
calculations of such ratio or requirement made before and after giving effect to such change in GAAP. 




        1.04    Rounding.    Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall
be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the
result up or down to the nearest number (with a rounding-up if there is no nearest number). 


        1.05    Times of Day.    Unless otherwise specified, all references herein to times of day shall be references to
Eastern time (daylight or standard, as applicable). 



        1.06    Letter of Credit Amounts.    Unless otherwise specified, all references herein to the amount of a Letter of
Credit at any time shall be deemed to mean the maximum face amount of such Letter of
Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Issuer Documents related thereto, whether or not such maximum face amount is in effect at such time. 


 
 

ARTICLE II.
  THE COMMITMENT AND CREDIT EXTENSIONS    
    



        2.01    Loans.    Subject to the terms and conditions set forth herein, the Lender agrees to make loans (each such
loan, a "Loan") to the Borrower from time to time, on any Business Day during the Availability Period;  provided, however, that after giving effect to any borrowing, the Total Outstandings shall not exceed
the Advance Limit. Within the limits of the Advance Limit, and subject to the other terms and conditions hereof, the Borrower may borrow under this  Section 2.01, prepay under Section 2.04, and reborrow under this  Section 2.01. A Loan may be a Base Rate Loan or a Eurodollar Rate Loan, as further provided herein.
 


        2.02    Borrowings.    



        (a)   Each
borrowing shall be made upon the Borrower's irrevocable notice to the Lender, which may be given by telephone. Each such notice must be received by the Lender not
later than 1:00 p.m. one Business Day prior to the requested date of any borrowing of a Eurodollar Rate Loan. Notwithstanding anything to the contrary contained herein, but subject to the
provisions of Section 9.02(d), any such telephonic notice may be given by an individual who has been authorized in writing to do so by a
Responsible Officer of the Borrower. Each such telephonic notice must be confirmed promptly by delivery to the Lender of a written Loan Notice, appropriately completed and signed by a Responsible
Officer of the Borrower. Each borrowing (a "Eurodollar Rate Loan") shall be in a principal amount of $250,000 or a whole multiple of $50,000 in excess thereof. Each Loan Notice (whether telephonic or
written) shall specify (i) the requested date of the borrowing (which shall be a Business Day) and (ii) the principal amount of the Loan to be borrowed. 


        (b)   Upon
satisfaction of the applicable conditions set forth in Section 4.02 (and, if a borrowing is the initial
Credit Extension, Section 4.01), the Lender shall make the proceeds of each Loan available to the Borrower either by (i) crediting the
account of the Borrower on the books of the Lender with the amount of such proceeds or (ii) wire transfer of such proceeds, in each case in accordance with instructions provided to (and
reasonably acceptable to) the Lender by the Borrower; provided, however, that if on the date the Loan
Notice with respect to such borrowing is given, there are drawings under Letters of Credit that have not been reimbursed by the Borrower, then the proceeds of such borrowing shall be applied,  first, to
the payment in full of any such unreimbursed drawings, and second, to the Borrower as provided
above. 


        (c)   Notwithstanding
any other provision herein, all Loans hereunder shall be Eurodollar Rate Loans unless the conditions set forth in  Section 3.02 or 3.03 exist.




19







 

        (d)   The
determination of the Eurodollar Rate by the Lender shall be conclusive in the absence of manifest error. At any time that a Base Rate Loan is outstanding, the Lender
shall notify the Borrower of any change in the Lender's prime rate used in determining the Base Rate promptly following the public announcement of such change. 




        2.03    Letters of Credit.    



        (a)    The Letter of Credit Commitment.    



        (i)    Subject
to the terms and conditions set forth herein, the Lender agrees (A) from time to time on any Business Day during the period from the Closing Date until
the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower, and to amend Letters of Credit previously issued by it, in accordance with subsection
(b) below, and (B) to honor drawings under the Letters of Credit; provided that after giving effect to any L/C Credit Extension with
respect to any Letter of Credit, (y) the Total Outstandings shall not exceed the Advance Limit and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit
Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies
with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower's ability to obtain Letters of Credit
shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and
reimbursed. 


        (ii)   The
Lender shall not issue any Letter of Credit, if: 



        (A)  the
expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance; or 


        (B)  the
expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date. 




        (iii)  The
Lender shall not be under any obligation to issue any Letter of Credit if: 



        (A)  any
order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Lender from issuing such Letter of Credit,
or any Law applicable to the Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Lender shall prohibit, or request
that the Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Lender with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Lender any unreimbursed loss, cost or expense
which was not applicable on the Closing Date and which the Lender in good faith deems material to it; 


        (B)  the
issuance of such Letter of Credit would violate one or more policies of the Lender; 



        (C)  except
as otherwise agreed by the Lender, such Letter of Credit is in an initial stated amount less than $10,000, in the case of a commercial Letter of Credit, or
$25,000, in the case of a standby Letter of Credit; 


        (D)  such
Letter of Credit is to be denominated in a currency other than Dollars; or 


        (E)  such
Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder. 





20







 







        (iv)  The
Lender shall be under no obligation to amend any Letter of Credit if (A) the Lender would have no obligation at such time to issue such Letter of Credit in
its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit. 




        (b)    Procedures for Issuance and Amendment of Letters of Credit.    



        (i)    Each
Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the Lender in the form of a Letter of Credit
Application, appropriately
completed and signed by a Responsible Officer of the Borrower. Such L/C Application must be received by the Lender not later than 1:00 p.m., at least two Business Days (or such later date and
time as the Lender may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial
issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Lender: (A) the proposed issuance date of the requested Letter of Credit
(which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented
by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other
matters as the Lender may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the
Lender (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and
(D) such other matters as the Lender may require. Additionally, the Borrower shall furnish to the Lender such other documents and information pertaining to such requested Letter of Credit
issuance or amendment, including any Issuer Documents, as the Lender may require. 


        (ii)   Upon
the Lender's determination that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions
hereof, the Lender shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with
the Lender's usual and customary business practices. 


        (iii)  Promptly
after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the
Lender will also deliver to the Borrower a true and complete copy of such Letter of Credit or amendment. 




        (c)    Drawings and Reimbursements.    



        (i)    Upon
receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Lender shall notify the Borrower thereof. Not later
than 1:00 p.m. on the date of any payment by the Lender under a Letter of Credit (each such date, an "Honor Date"), the Borrower shall reimburse
the Lender in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the Lender, the Borrower shall be deemed to have requested a borrowing of a Base Rate Loan to be
disbursed on the Honor Date in an amount equal to the amount of such unreimbursed drawing (the "Unreimbursed Amount"), without regard to the minimum and
multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the
Advance Limit and the conditions set forth in Section 4.02 (other than the delivery of a Loan Notice). 




21







 


        (ii)   If
the Borrower fails to reimburse the Lender for any drawing under any Letter of Credit (whether by means of a borrowing or otherwise), such Unreimbursed Amount shall
be due and payable on demand (together with interest) and shall bear interest at the Default Rate. 




        (d)    Obligations Absolute.    The obligation of the Borrower to reimburse the Lender for each drawing under each
Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following: 



        (i)    any
lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document; 


        (ii)   the
existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any
transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction; 


        (iii)  any
draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit; 



        (iv)  any
payment by the Lender under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of
Credit; or any payment made by the Lender under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any
Debtor Relief Law; or 


        (v)   any
other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrower or any Subsidiary. 





        The
Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower's
instructions or other irregularity, the Borrower will immediately notify the Lender. The Borrower shall be conclusively deemed to have waived any such claim against the Lender and its correspondents
unless such notice is given as aforesaid. 



        (e)    Role of Lender.    The Borrower agrees that, in paying any drawing under a Letter of Credit, the Lender shall
not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or
accuracy of any such document or the authority of the Person executing or delivering any such document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee
with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended
to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the Lender, any of its
Affiliates, any of the respective officers, directors, employees, agents or attorneys-in-fact of the Lender and its Affiliates, nor any of the respective correspondents,
participants or assignees of the Lender shall be liable or responsible for any of the matters described in clauses (i) through (v) of  Section 2.03(d); provided, however, that anything
in 



22







 

such
clauses to the contrary notwithstanding, the Borrower may have a claim against the Lender, and the Lender may be liable to the Borrower, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the Lender's willful misconduct or gross negligence or the Lender's willful failure to
pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing, the Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice
or information to the contrary, and the Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 


        (f)    Cash Collateral.    Upon the request of the Lender, (i) if the Lender has honored any full or partial
drawing request under any Letter of Credit and such drawing has not been reimbursed on the applicable Honor Date, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for
any reason remains outstanding, the Borrower shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections
2.04 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this  Section 2.03, Section 2.04 and  Section 8.02(c), "Cash Collateralize" means to pledge and deposit with
or deliver to the Lender,
as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Lender. Derivatives of such term have corresponding
meanings. The Borrower hereby grants to the Lender a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be
maintained in blocked, non-interest bearing deposit accounts at the Lender. 


        (g)    Applicability of ISP and UCP.    Unless otherwise expressly agreed by the Lender and the Borrower when a Letter
of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most
recently published by the International Chamber of Commerce at the time of issuance shall apply to each commercial Letter of Credit. 



        (h)    Letter of Credit Fees.    The Borrower shall pay to the Lender a Letter of Credit fee (the
"Letter of Credit Fee") for each Letter of Credit equal to the Applicable Rate times the daily maximum amount available to be drawn under such Letter of
Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with  Section 1.06. Letter
of Credit Fees shall be (i) computed on a quarterly basis in arrears and (ii) due and payable on the first
Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration
Date and thereafter on demand. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by
the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, while any Event of Default
exists, all Letter of Credit Fees shall accrue at the Default Rate. 


        (i)    Documentary and Processing Charges Payable to Lender.    The Borrower shall pay to the Lender the customary
issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Lender relating to letters of credit as from time to time in effect. Such customary fees and
standard costs and charges are due and payable on demand and are nonrefundable. 



23







 




        (j)    Conflict with Issuer Documents.    In the event of any conflict between the terms hereof and the terms of any
Issuer Document, the terms hereof shall control. 




        2.04    Prepayments.    



        (a)   The
Borrower may, upon notice to the Lender, at any time or from time to time voluntarily prepay any Loan in whole or in part without premium or penalty;  provided that (i) such notice must be received
by the Lender not later than 1:00 p.m. (A) three Business Days prior to any date of
prepayment of a Eurodollar Rate Loan, and (B) on the date of prepayment of a Base Rate Loan; any prepayment of a Loan shall be in a principal amount of $1,000 or a whole multiple thereof; or,
if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make
such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued
interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. 


        (b)   If
for any reason the Total Outstandings at any time exceed the Advance Limit then in effect, the Borrower shall immediately prepay Loans and/or Cash Collateralize the
L/C Obligations in an
aggregate amount equal to such excess; provided, however, that the Borrower shall not be required to
Cash Collateralize the L/C Obligations pursuant to this Section 2.04(b) unless after the prepayment in full of the Loans the Total Outstandings
exceed the Advance Limit then in effect. 




        2.05    Termination or Reduction of Commitment.    



        (a)    Optional Reductions.    The Borrower may, upon notice to the Lender, terminate the Commitment, or from time to
time permanently reduce the Commitment; provided that (i) any such notice shall be received by the Lender not later than 1:00 p.m., five Business Days prior to the date of termination or
reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000 or any whole multiple thereof, (iii) the Borrower shall not terminate or reduce the Commitment if,
after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Advance Limit, and (iv) if, after giving effect to any reduction of the
Commitment, the Letter of Credit Sublimit exceeds the amount of the Commitment, such Sublimit shall be automatically reduced by the amount of such excess. All fees accrued until the effective date of
any termination of the Commitment shall be paid on the effective date of such termination. 


        (b)    Mandatory Reductions.    



        (i)    In
addition to any required and optional reduction of the Commitment, payments of principal amount of Loans and imposition of Cash Collateral requirements in respect of
Letters of Credit otherwise set forth herein, there shall occur a permanent reduction of the Commitment in an amount equal to one-hundred percent (100%) of the Net Proceeds of each private
or public offering of Equity Interests of or by the Borrower or any Subsidiary (including in each case, without limitation, any security not constituting Indebtedness exchangeable, exercisable or
convertible for or into equity securities); provided; however, that in the case of a private offering of
Equity Interests, to the extent that the aggregate Net Proceeds of all such offerings do not exceed $3,000,000, no prepayment will be required. 


        (ii)   Simultaneously
with the reduction of the Commitment by an amount equal to the Net Proceeds from each event described in  Section 2.05(b)(i), the Borrower shall repay outstanding Loans in an amount necessary to
reduce the aggregate Outstanding Amount below the
Advance Limit in effect after giving effect to such reduction of the Commitment. If, after repayment of all Loans, the Outstanding Amount exceeds the Commitment then in effect, the Borrower will also
Cash Collateralize the Outstanding Amount of Letters of Credit 




24







 





in
an amount necessary to reduce the aggregate Outstanding Amount below the Advance Limit in effect after giving effect to such reduction of the Commitment. 


        (iii)  Each
reduction of the Commitment, and accompanying prepayment or other application of funds, required by this  Section 2.05(b) will be made within ten (10) Business Days of the issuance of any such
Equity Interests, without regard to any
contingencies, earnouts or future payments, and in each case upon not less than two (2) Business Days' irrevocable written notice to the Lender, and shall include a certificate of a Responsible
Officer of the Borrower setting forth in reasonable detail the calculations utilized in computing the amount of such reduction of the Commitment and accompanying prepayment or Cash Collateralization. 





        2.06    Repayment of Loans.    The Borrower shall repay to the Lender on the Maturity Date the aggregate principal
amount of Loans outstanding on such date. 


        2.07    Interest.    



        (a)   Subject
to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof from the
applicable borrowing date at a rate per annum equal to the Eurodollar Rate plus the Applicable Rate; and (ii) each Base Rate Loan shall bear
interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable
Rate. 


        (b)   (i) If
any amount payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by
applicable Laws. 



        (ii)   While
any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per
annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. 


        (iii)  Accrued
and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand. 




        (c)   Interest
on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest
hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law. 




        2.08    Fees.    In addition to certain fees described in subsections (h) and (i) of  Section 2.03: 



        (a)    Unused Fee.    The Borrower shall pay to the Lender a fee equal to 0.35% per annum  times the actual daily amount by which
the Commitment exceeds the Total Outstandings. The commitment fee shall accrue at all times during the
Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable
quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The commitment
fee shall be calculated quarterly in arrears. 


        (b)    Collateral Shortfall Adjustment Fee.    The Borrower shall pay to the Lender a fee (the
"Collateral Shortfall Adjustment Fee") equal to 2.00% per annum times the amount of the Collateral
Shortfall Adjustment in effect on the last Business Day of the preceding month. The Collateral Shortfall Adjustment Fee shall accrue at all times during which the Collateral Shortfall Adjustment is
greater than $0, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable monthly
in arrears on the last Business Day of March, 



25







 




April,
May and June, commencing with the first such date to occur after the Closing Date, and on the Maturity Date (and, if applicable, thereafter on demand). The Collateral Shortfall Adjustment Fee
shall be calculated monthly in arrears and shall be pro-rated for the month ending March 31, 2005. 




        2.09    Computation of Interest and Fees.    All computations of interest for Base Rate Loans when the Base Rate is
determined by the Lender's "prime rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall
be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day
year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid,  provided
that any Loan that is repaid on the same day on which it is made shall, subject to  Section 2.11(a), bear interest for one day. 


        2.10    Evidence of Debt.    The Credit Extensions made by the Lender shall be evidenced by one or more accounts or
records maintained by the Lender in the ordinary course of business. The accounts or records maintained by the Lender shall be conclusive absent manifest error of the amount of the Credit Extensions
made by the Lender to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower
hereunder to pay any amount owing with respect to the Obligations. The Note shall evidence the Lender's Loans in addition to such accounts or records. The Lender may attach schedules to the Note and
endorse thereon the date, amount and maturity of each Loan and payments with respect thereto. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for
all purposes, absent manifest error. 


        2.11    Payments Generally.    



        (a)   All
payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly
provided herein, all payments by the Borrower hereunder shall be made to the Lender at the applicable Lending Office in Dollars and in immediately available funds not later than 3:00 p.m. on
the date specified herein. All payments received by the Lender after 3:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to
accrue. 


        (b)   If
any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension
of time shall be reflected in computing interest or fees, as the case may be. 


        (c)   Nothing
herein shall be deemed to obligate the Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by the Lender
that it has obtained or will obtain the funds for any Loan in any particular place or manner. 



 
 

ARTICLE III.
  TAXES, YIELD PROTECTION AND ILLEGALITY    
    


        3.01    Taxes.    



        (a)    Payments Free of Taxes.    Any and all payments by or on account of any obligation of the Borrower hereunder or
under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided
that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender receives an amount equal to the sum it would have received had
no 



26







 

such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law. 


        (b)    Payment of Other Taxes by the Borrower.    Without limiting the provisions of subsection (a) above, the
Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. 


        (c)    Indemnification by the Borrower.    The Borrower shall indemnify the Lender, within 10 days after demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by
the Lender with respect to this Agreement and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by the Lender shall be conclusive
absent manifest error. 


        (d)    Evidence of Payments.    As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender. 


        (e)    Treatment of Certain Refunds.    If the Lender determines, in its sole discretion, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the
Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes
giving rise to such refund), net of all out-of-pocket expenses of the Lender, and without interest (other than any interest paid by the relevant Governmental Authority with
respect to such refund), provided that the Borrower, upon the request of the Lender, agrees to repay the amount paid over to the Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender in the event the Lender is required to repay such refund to such Governmental Authority. This
subsection shall not be construed to require the Lender
to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person. 




        3.02    Illegality.    If the Lender determines that any Law has made it unlawful, or that any Governmental Authority
has asserted that it is unlawful, for the Lender or its Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any
Governmental Authority has imposed material restrictions on the authority of the Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by
the Lender to the Borrower, any obligation of the Lender to make Eurodollar Rate Loans shall be suspended until the Lender notifies the Borrower that the circumstances giving rise to such
determination no longer exist. Upon the giving of such notice, all Eurodollar Rate Loans shall be automatically converted to Base Rate Loans. 


        3.03    Inability to Determine Eurodollar Rate.    If the Lender determines that for any reason in connection with any
request for a Eurodollar Rate Loan that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount of such Eurodollar Rate Loan,
(b) adequate and reasonable means do not exist for determining the Eurodollar Base Rate with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Base Rate with respect to a
proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to the Lender of funding such Loan, the Lender will promptly so notify the Borrower. Thereafter, the obligation of the
Lender to make or maintain Eurodollar Rate Loans shall be suspended until the Lender revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a borrowing of
Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a borrowing of Base Rate Loans in the amount specified therein. 


27









  





        3.04    Increased Costs.    



        (a)    Increased Costs Generally. If any Change in Law shall:    



        (i)    impose,
modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Lender (except any reserve requirement reflected in the Eurodollar Rate); 


        (ii)   subject
the Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit or any Eurodollar Loan, or change the basis of taxation of
payments to the Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any
change in the rate of, any Excluded Tax payable by the Lender); or 


        (iii)  impose
on the Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Loans or any Letter of Credit; 





and
the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan), or to increase
the cost to the Lender of issuing or maintaining any Letter of Credit (or of maintaining its obligation to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by the
Lender hereunder (whether of principal, interest or any other amount) then, upon request of the Lender, the Borrower will pay to the Lender such additional amount or amounts as will compensate the
Lender for such additional costs incurred or reduction suffered. 



        (b)    Capital Requirements.    If the Lender determines that any Change in Law affecting the Lender or its Lending
Office or the Lender's holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on the Lender's capital or on the capital of the Lender's
holding company, if any, as a consequence of this Agreement, the Commitment of the Lender or the Loans made by, or the Letters of Credit issued by the Lender, to a level below that which the Lender or
the Lender's holding company could have achieved but for such Change in Law (taking into consideration the Lender's policies and the policies of the Lender's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender or the Lender's holding company for any such reduction suffered. 


        (c)    Certificates for Reimbursement.    A certificate of the Lender setting forth the amount or amounts necessary to
compensate the Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest
error. The Borrower shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof. 


        (d)    Delay in Requests.    Failure or delay on the part of the Lender to demand compensation pursuant to the
foregoing provisions of this Section shall not constitute a waiver of the Lender's right to demand such compensation, provided that the Borrower shall
not be required to compensate the Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that the
Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of the Lender's intention to claim compensation therefor (except that, if the Change in Law
giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof). 



28







 





        3.05    [Reserved].    



        3.06    Mitigation Obligations.    If the Lender requests compensation under  Section 3.04, or the Borrower is required to
pay any additional amount to the Lender or any Governmental Authority for the account of the Lender
pursuant to Section 3.01, or if the Lender gives a notice pursuant to Section 3.02, then
the Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of the Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to  Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice
pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject the Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to the Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by the Lender in connection with any such designation or assignment. 


        3.07    Survival.    All of the Borrower's obligations under this  Article III shall survive termination of the Commitment
and repayment of all other Obligations hereunder. 


 
 

ARTICLE IV.
  CONDITIONS PRECEDENT TO CREDIT EXTENSIONS    
    


        4.01    Conditions of Initial Credit Extension.    The obligation of the Lender to make its initial Credit Extension
hereunder is subject to satisfaction of the following conditions precedent: 



        (a)   The
Lender's receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed
by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and
substance satisfactory to the Lender: 



        (i)    executed
counterparts of this Agreement and each other Loan Document, sufficient in number for distribution to the Lender and the Borrower; 


        (ii)   the
Note executed by the Borrower; 


        (iii)  such
certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Lender may
require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to
which such Loan Party is a party; 


        (iv)  such
documents and certifications as the Lender may reasonably require to evidence that each Loan Party is duly organized or formed, and that the Borrower is validly
existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification,
except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; 


        (v)   a
favorable opinion of Eric Revege, Esq., counsel to the Loan Parties, addressed to the Lender, in form and substance reasonably satisfactory to the Lender; 


        (vi)  a
certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the
execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full
force and effect, or (B) stating that no such consents, licenses or approvals are so required; 




29







 





        (vii) a
certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in Sections
4.02(a) and (b) have been satisfied, and (B) that there has been no event or circumstance since the date of the Unaudited
Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; 


        (viii) a
duly completed Compliance Certificate as of the last day of the fiscal quarter of the Borrower most recently ended prior to the Closing Date, pro forma for the
transactions in this Agreement, signed by a Responsible Officer of the Borrower; 


        (ix)  a
duly completed Borrowing Base Certificate as of the last day of the calendar month most recently ended prior to the Closing Date, with such adjustments as are
reasonably requested by the Lender to bring such Borrowing Base Certificate current to the Closing Date, along with such agings, reports and similar information relating to the Collateral as may be
reasonably requested by the Lender; 


        (x)   Uniform
Commercial Code search results showing only those Liens that are (A) terminated on or will be terminated before the Closing Date (provided that
satisfactory evidence of such termination or of satisfactory arrangements for such termination is delivered to the Lender prior to the Closing Date is delivered on or before the Closing Date),
(B) described on Schedule 7.01, or (C) otherwise acceptable to the Lender; 



        (xi)  Uniform
Commercial Code financing statements suitable in form and substance for filing in all places required by applicable law to perfect the Liens of the Lender under
the Security Instruments as a first priority Lien as to items of Collateral in which a security interest may be perfected by the filing of financing statements, and such other documents and/or
evidence of other actions as may be necessary under applicable law to perfect the Liens of the Lender under the Security Instruments as a first priority Lien in and to such other Collateral as the
Lender may require, including without limitation the delivery of any issued and outstanding certificates evidencing Pledged Interests, accompanied in each case by duly executed stock powers (or other
appropriate transfer documents) in blank affixed thereto; 


        (xii) an
initial Request for Credit Extension, if any; 


        (xiii) evidence
that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect; 


        (xiv) such
other assurances, certificates, documents, consents or opinions as the Lender reasonably may require. 




        (b)   Any
fees required to be paid on or before the Closing Date, including, but not limited to, a commitment fee of 0.50% of the Commitment payable to the Lender, shall have
been paid. 


        (c)   The
Borrower shall have paid all fees, charges and disbursements of counsel to the Lender to the extent invoiced prior to or on the Closing Date, plus such additional
amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings
(provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Lender). 




        4.02    Conditions to all Credit Extensions.    The obligation of the Lender to make any Credit Extension is subject
to the following conditions precedent: 



        (a)   The
representations and warranties of the Borrower and each other Loan Party contained in Article V or any other
Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the 



30







 

date
of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier
date, and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of  Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of  Section 6.01. 



        (b)   No
Default shall exist, or would result from such proposed Credit Extension. 


        (c)   The
Lender shall have received a Request for Credit Extension in accordance with the requirements hereof. 


        (d)   If
requested by the Lender, the Lender shall have received an updated Borrowing Base Certificate as of the date of such Credit Extension (or a recent date prior thereto,
but after the date of the most recently delivered Borrowing Base Certificate, reasonably requested by the Lender). 




        Each
Request for Credit Extension submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections
4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension. 


 
 

ARTICLE V.
  REPRESENTATIONS AND WARRANTIES    
    


        The Borrower represents and warrants to the Lender that: 



        5.01    Existence, Qualification and Power; Compliance with Laws.    Each Loan Party (a) is duly organized or
formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental
licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which
it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its
business requires such qualification or license, and (d) is in compliance with all Laws; except in each case referred to in clause (b)(i), (c) or (d), to the extent that failure
to do so could not reasonably be expected to have a Material Adverse Effect. 


        5.02    Authorization; No Contravention.    The execution, delivery and performance by each Loan Party of each Loan
Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such
Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any
Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any
Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law. Each Loan Party and each Subsidiary thereof is in compliance with all
Contractual Obligations referred to in clause (b)(i), except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. 


        5.03    Governmental Authorization; Other Consents.    No approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan
Party of this Agreement or any other Loan Document. 


        5.04    Binding Effect.    This Agreement has been, and each other Loan Document, when delivered hereunder, will have
been, duly executed and delivered by each Loan Party that is party thereto. This 


31







 

Agreement
constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party
thereto in accordance with its terms. 


        5.05    Financial Statements; No Material Adverse Effect.    



        (a)   The
Audited Financial Statements (i) will be prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein; (ii) will fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered
thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) will show all material indebtedness and other
liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness. 


        (b)   The
unaudited consolidated and consolidating balance sheet of the Borrower and its Subsidiaries dated September 30, 2004 (the "Unaudited Financial Statements"),
and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for the three fiscal quarter period ended on that date (i) were prepared
in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of the Borrower
and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to
normal year-end audit adjustments. Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of
the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness. 



        (c)   Since
the date of the Unaudited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably
be expected to have a Material Adverse Effect. 


        (d)   The
consolidated and consolidating pro forma balance sheet of the Borrower and its Subsidiaries as at February 28, 2005, and the related consolidated and
consolidating pro forma statements of income and cash flows of the Borrower and its Subsidiaries for the two-month period then ended, certified by the chief financial officer of the
Borrower, copies of which have been furnished to the Lender, fairly present the consolidated and consolidating pro forma financial condition of the Borrower and its Subsidiaries as at such date and
the consolidated and consolidating pro forma results
of operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with GAAP. 


        (e)   The
consolidated and consolidating forecasted balance sheet and statements of income and cash flows of the Borrower and its Subsidiaries delivered to the Lender prior to
the Closing Date were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts,
and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. 




        5.06    Litigation.    There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of
the Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its
Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby,
or (b) either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect. 


32







 

        5.07    No Default.    Neither the Borrower nor any Subsidiary is in default under or with respect to any Contractual
Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the
consummation of the transactions contemplated by this Agreement or any other Loan Document. 



        5.08    Ownership of Property; Liens.    Each of the Borrower and each Subsidiary has good record and marketable title
in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Borrower and its Subsidiaries is subject to no Liens, other than Liens permitted by  Section 7.01.



        5.09    Environmental Compliance.    The Borrower and its Subsidiaries conduct in the ordinary course of business a
review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and
properties, and as a result thereof the Borrower has reasonably concluded that such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. 


        5.10    Insurance.    The properties of the Borrower and its Subsidiaries are insured with financially sound and
reputable insurance companies not Affiliates of the Borrower, in such amounts, with such
deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary
operates. 


        5.11    Taxes.    The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and
reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance
with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. Neither any Loan Party nor any Subsidiary thereof is party to
any tax sharing agreement. 


        5.12    ERISA Compliance.    



        (a)   Each
Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to
qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect
thereto and, to the best knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Borrower and each ERISA Affiliate have made all required
contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has
been made with respect to any Plan. 


        (b)   There
are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan
that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has
resulted or could reasonably be expected to result in a Material Adverse Effect. 


        (c)   (i) No
ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); 



33







 




(iv) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has
engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA. 




        5.13    Subsidiaries; Equity Interests.    The Borrower has no Subsidiaries other than those specifically disclosed in
Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens. The
Borrower has no equity investments in any other corporation or entity other than those specifically disclosed in Part(b) of Schedule 5.13. All of
the outstanding Equity Interests in the Borrower have been validly issued and are fully paid and nonassessable. 



        5.14    Margin Regulations; Investment Company Act; Public Utility Holding Company Act.    



        (a)   The
Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. 


        (b)   None
of the Borrower, any Person Controlling the Borrower, or any Subsidiary (i) is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is required to be
registered as an "investment company" under the Investment Company Act of 1940. 




        5.15    Disclosure.    The Borrower has disclosed to the Lender all agreements, instruments and corporate or other
restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse
Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Lender in connection with the transactions
contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains
any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;  provided
that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time. 


        5.16    Compliance with Laws.    Each of the Borrower and each Subsidiary is in compliance in all material respects
with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order,
writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. 


        5.17    Intellectual Property; Licenses, Etc.    The Borrower and its Subsidiaries own, or possess the right to use,
all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, "IP
Rights") that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the
Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary
infringes upon any rights held by any other Person. No claim or litigation 


34







 




regarding
any of the foregoing is pending or, to the best knowledge of the Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse
Effect. 


 
 

ARTICLE VI.
  AFFIRMATIVE COVENANTS    
    


        So long as the Commitment shall be in effect, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain
outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01,  6.02 and 6.03) cause each Subsidiary to: 


        6.01    Financial Statements.    Deliver to the Lender, in form and detail satisfactory to the Lender: 



        (a)   as
soon as available, but in any event within 180 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ended
December 31, 2004), a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating
statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable
detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized
standing reasonably acceptable to the Lender, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any "going concern" or
like qualification or exception or any qualification or exception as to the scope of such audit and such consolidating statements to be certified by a Responsible Officer of the Borrower to the effect
that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries; and 


        (b)   as
soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (commencing
with the fiscal quarter ending March 31, 2005), a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related
consolidated and consolidating statements of income or
operations, shareholders' equity and cash flows for such fiscal quarter and for the portion of the Borrower's fiscal year then ended, setting forth in each case in comparative form the figures for the
corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by a
Responsible Officer of the Borrower as fairly presenting the financial condition, results of operations, shareholders' equity and cash flows of the Borrower and its Subsidiaries in accordance with
GAAP, subject only to normal year-end audit adjustments and the absence of footnotes and such consolidating statements to be certified by a Responsible Officer of the Borrower to the
effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries. 




        As
to any information contained in materials furnished pursuant to Section 6.02(f), the Borrower shall not be separately required
to furnish such information under clause (a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials
described in clauses (a) and (b) above at the times specified therein. 


        6.02    Certificates; Other Information.    Deliver to the Lender, in form and detail satisfactory to the Lender: 



        (a)   concurrently
with the delivery of the financial statements referred to in Section 6.01(a), a certificate of its
independent certified public accountants certifying such financial statements and 



35







 

stating
that in making the examination necessary therefor no knowledge was obtained of any Default or, if any such Default shall exist, stating the nature and status of such event; 



        (b)   concurrently
with the delivery of the financial statements referred to in Sections 6.01(a) and  (b) (commencing with the delivery of the financial statements for the
fiscal quarter ended March 31, 2005), a duly completed Compliance
Certificate signed by a Responsible Officer of the Borrower; 


        (c)   promptly
after any request by the Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit
committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them; 



        (d)   no
later than fifteen (15) days after the end of each calendar month, or more frequently if requested by the Lender (including, upon request of the Lender,
concurrently with any Request for Credit Extension), a Borrowing Base Certificate as of the end of such calendar month; 


        (e)   The
Borrower shall deliver the following agings, reports and other information to the Lender as of the times set forth below: 



        (i)    on
a monthly basis, by the fifteenth (15th) day of the following month, or more frequently if requested by the Lender, an aging of the Borrower's Accounts,
together with a reconciliation to the corresponding Borrowing Base and to the Borrower's general ledger; 


        (ii)   on
a monthly basis, by the fifteenth (15th) day of the following month, or more frequently if requested by the Lender, an aging of the Borrower's accounts
payable; 


        (iii)  on
a monthly basis, by the fifteenth (15th) day of the following month, or more frequently if requested by the Lender, a detailed calculation of Eligible
Accounts, Eligible Inventory and Eligible Equipment; 


        (iv)  on
a monthly basis, by the fifteenth (15th) day of the following month, or more frequently if requested by the Lender, Inventory reports by category and
location, together with a reconciliation to the corresponding Borrowing Base and to the Borrower's general ledger; 


        (v)   upon
request, copies of invoices in connection with the Borrower's Accounts, customer statements, credit memos, remittance advices and reports, deposit slips, shipping
and delivery documents in connection with the Borrower's Accounts and for Inventory and Equipment acquired by the Borrower, purchase orders and invoices; 



        (vi)  upon
request, a statement of the balance of all assets and liabilities, however arising, which are due to the Borrower from, or which are due from the Borrower to, or
which otherwise arise from any transaction by the Borrower with, any Affiliate of the Borrower; 


        (vii) upon
request, such other reports as to the Collateral of the Borrower as the Lender shall reasonably request from time to time; and 


        (viii) with
the delivery of each of the foregoing, a certificate of the Borrower executed by a Responsible Officer certifying as to the accuracy and completeness of the
foregoing. 




36













  




        (f)    promptly
after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the
Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d)
of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Lender pursuant hereto; 


        (g)   promptly,
such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan
Documents, as the Lender may from time to time reasonably request. 




        Documents
required to be delivered pursuant to Section 6.01(a) or (b) or  Section 6.02(f) (to the extent any
such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if
so delivered, shall be deemed to have been delivered on the date on which the Borrower posts such documents, or provides a link thereto on the Borrower's website on the Internet at the website address
listed on Schedule 9.02; provided that: (i) if the Lender so requests, the Borrower shall
deliver paper copies of such documents to the Lender until a written request to cease delivering paper copies is given by the Lender and (ii) the Borrower shall notify (which may be by
facsimile or electronic mail) the Lender of the posting of any such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of
the Compliance Certificates required by Section 6.02(b) to the Lender. If any of the Borrower's records or reports of the Collateral are prepared
by an accounting service or other agent, the Borrower hereby authorizes such service or agent to deliver such records, reports, and related documents to the Lender. 


        6.03    Notices.    Promptly notify the Lender: 



        (a)   of
the occurrence of any Default; 


        (b)   of
any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or
any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and
any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any
applicable Environmental Laws; 


        (c)   of
the occurrence of any ERISA Event; 


        (d)   of
any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary; and 




        Each
notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating
what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with
particularity any and all provisions of this Agreement and any other Loan Document that have been breached. 


        6.04    Payment of Obligations.    Pay and discharge as the same shall become due and payable, all its obligations and
liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by
appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would
by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing
such Indebtedness. 


        6.05    Preservation of Existence, Etc.    (a) Preserve, renew and maintain in full force and effect its legal
existence and good standing under the Laws of the jurisdiction of its organization except in a 


37







 



transaction
permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain
all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to
have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect. 


        6.06    Maintenance of Properties.    (a) Maintain, preserve and protect all of its material properties and
equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements
thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and
maintenance of its facilities. 


        6.07    Maintenance of Insurance.    Maintain with financially sound and reputable insurance companies not Affiliates
of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons that are similarly sized and geographically situated
and that are engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons (including business interruption,
property and medical malpractice and other professional liability insurance), and any other insurance required by any of the Security Instruments, and in each case providing for not less than
30 days' prior notice to the Lender of termination, lapse or cancellation of such insurance. 


        6.08    Compliance with Laws.    Comply in all material respects with the requirements of all Laws and all orders,
writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being
contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 



        6.09    Books and Records.    Maintain proper books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be. 


        6.10    Inspection Rights; Field Audit.    Permit representatives and independent contractors of the Lender to visit
and inspect any of its properties, to examine its corporate, financial and operating records, to perform a field audit of the Borrower's accounts receivable, inventory and equipment, and make copies
thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such
reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, that
any field audit shall be performed at the Borrower's expense no more frequently than annually; provided,  further, however, that when an Event of Default exists the Lender (or any of its representatives or
independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice. 



        6.11    Use of Proceeds.    Use the proceeds of the Credit Extensions for working capital, capital expenditures,
Restricted Payments and general corporate purposes, in each case in compliance with the terms of this Agreement and not in contravention of any Law or of any Loan Document. 


        6.12    Deposit Accounts.    Maintain its primary commercial banking relationship for all traditional commercial
banking products, including all of its business, cash management, operating and administrative deposit accounts, with Bank of America, N.A. 


38







 


 
 

ARTICLE VII.
  NEGATIVE COVENANTS    
    


        So long as the Commitment shall be in effect, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain
outstanding, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly: 



        7.01    Liens.    Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than the following: 



        (a)   Liens
pursuant to any Loan Document; 


        (b)   Liens
existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided
that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased, (iii) the direct or any contingent obligor with respect
thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.03(b); 


        (c)   Liens
for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are
maintained on the books of the applicable Person in accordance with GAAP; 


        (d)   carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of
more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the
applicable Person; 


        (e)   pledges
or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation, other than
any Lien imposed by ERISA; 


        (f)    deposits
to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to
judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business; 



        (g)   Liens
securing Indebtedness permitted under Section 7.03(e);  provided that (i) such Liens do not at any time encumber any property other than the
property financed by such Indebtedness and (ii) the
Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; 


        (h)   easements,
rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person; and 


        (i)    Liens
securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h) or
securing appeal or other surety bonds related to such judgments. 




        7.02    Investments.    Make any Investments, except: 



        (a)   Investments
set forth on Schedule 5.13; 


        (b)   Investments
held by the Borrower or such Subsidiary in the form of cash equivalents (including short-term debt securities issued or fully guaranteed or
insured by the United States federal government or any agency thereof); 



39







 




        (c)   advances
to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $15,000 at any time outstanding, for travel,
entertainment, relocation and analogous ordinary business purposes; 


        (d)   Investments
of (i) the Borrower in any Guarantor, (ii) any Guarantor in the Borrower or in another Guarantor, (iii) any Subsidiary of the Borrower
that is not a Guarantor in another Subsidiary of the Borrower; 


        (e)   Investments
consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of
business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss; 


        (f)    the
Mexican Acquisition; and 


        (g)   Guarantees
permitted by Section 7.03. 




        7.03    Indebtedness.    Create, incur, assume or suffer to exist any Indebtedness, except: 



        (a)   Indebtedness
under the Loan Documents; 


        (b)   Indebtedness
outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals
or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension
except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing
commitments unutilized thereunder; 


        (c)   Guarantees
of (i) the Borrower or any Guarantor in respect of Indebtedness otherwise permitted hereunder of the Borrower or any other Guarantor, and
(ii) any Subsidiary of the Borrower that is not a Guarantor in respect of Indebtedness otherwise permitted hereunder of the Borrower or any of its Subsidiaries; 


        (d)   obligations
(contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract,  provided that (i) such obligations are (or were) entered into by such Person in the ordinary
course of business for the purpose of directly
mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person,
and not for purposes of speculation or taking a "market view;" and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to
make payments on outstanding transactions to the defaulting party; 


        (e)   Indebtedness
in respect of capital leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in  Section 7.01(g); provided, however, that the
aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $1,250,000; and 


        (f)    unsecured
Indebtedness in an aggregate principal amount not to exceed $250,000 at any time outstanding. 




        7.04    Fundamental Changes.    Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of
(whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no
Default exists or would result therefrom: 



        (a)   any
Subsidiary may merge with (i) the Borrower, provided that the Borrower shall be the continuing or surviving
Person, or (ii) any one or more other Subsidiaries, provided that when any 



40







 

Guarantor
is merging with another Subsidiary, the Guarantor shall be the continuing or surviving Person; 


        (b)   any
Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary;  provided that if the transferor in such a transaction
is a Guarantor, then the transferee must either be the Borrower or a Guarantor; and 



        (c)   the
Borrower may reincorporate under the laws of the State of Delaware, upon giving not less than thirty (30) days' prior notice to the Lender. 




        7.05    Dispositions.    Make any Disposition or enter into any agreement to make any Disposition, except: 



        (a)   Dispositions
of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business; 


        (b)   Dispositions
of inventory in the ordinary course of business; 


        (c)   Dispositions
of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property; 


        (d)   Dispositions
of property by any Subsidiary to the Borrower or to a wholly-owned Subsidiary; provided that if the
transferor of such property is a Guarantor, the transferee thereof must either be the Borrower or a Guarantor; and 


        (e)   Dispositions
permitted by Section 7.04; 




        provided, however, that any Disposition pursuant to clauses (a) through
(e) shall be for fair market value. 


        7.06    Restricted Payments.    Declare or make, directly or indirectly, any Restricted Payment, or incur any
obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests, except that, so long as no Default shall have occurred and be continuing at the time of any action described below
or would result therefrom: 



        (a)   each
Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any other Person that owns an Equity Interest in such Subsidiary, ratably according to
their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made; 



        (b)   the
Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of
such Person; 


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


        (d)   the
Borrower may issue and sell shares of its common stock, so long as the Net Proceeds thereof (in excess, in the aggregate, of $3,000,000 with respect to any private
offering) are required to be applied to the prepayment of the Loans pursuant to Section 2.05(b) and are so applied; and 


        (e)   the
Borrower may make the Permitted Tax Distribution, so long as after giving effect thereto the Borrower, and the Borrower and its Subsidiaries on a consolidated basis,
would be solvent. 



41







 





        7.07    Change in Nature of Business.    Engage in any material line of business substantially different from those
lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto. 


        7.08    Transactions with Affiliates.    Enter into any transaction of any kind with any Affiliate of the Borrower,
whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such
Subsidiary at the time in a comparable arm's length transaction with a Person other than an Affiliate. 


        7.09    Burdensome Agreements.    Enter into any Contractual Obligation (other than this Agreement or any other Loan
Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to the Borrower or any
Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property
of such Person; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person. 


        7.10    Use of Proceeds.    Use the proceeds of any Credit Extension, whether directly or indirectly, and whether
immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or
carrying margin stock or to refund indebtedness originally incurred for such purpose. 


        7.11    Financial Covenants.    



        (a)    Consolidated Fixed Charge Coverage Ratio.    Permit the Consolidated Fixed Charge Coverage Ratio as of the end
of any fiscal quarter of the Borrower to be less than 1.50 to 1.00. 


        (b)    Consolidated Leverage Ratio.    Permit the Consolidated Leverage Ratio at any time to be greater than 1.75 to
1.00. 


        (c)    Consolidated EBITDA.    Permit Consolidated EBITDA at any time during the periods set forth below to be less
than that set forth opposite each such period: 



	Period
 
	 	Consolidated EBITDA

	Four the fiscal quarters ending March 31, 2005	 	$	5,250,000
	As of June 30, 2005	 	$	7,750,000
	As of September 30, 2005 and all times thereafter	 	$	11,250,000






        7.12    Capital Expenditures.    Make or become legally obligated to make any expenditure in respect of the purchase
or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), except for capital expenditures in the ordinary
course of business not exceeding, in the aggregate for the Borrower and it Subsidiaries, $5,000,000 during any fiscal year of the Borrower. 


 
 

ARTICLE VIII.
  EVENTS OF DEFAULT AND REMEDIES    
    


        8.01    Events of Default.    Any of the following shall constitute an Event of Default: 



        (a)    Non-Payment.    The Borrower or any other Loan Party fails to pay (i) when and as required
to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee
due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or 



42







 

        (b)    Specific Covenants.    The Borrower fails to perform or observe any term, covenant or agreement contained in
any of Section 6.01, 6.02, 6.03,  6.05, 6.10, 6.11,  6.12, 6.13 or Article VII; or 


        (c)    Other Defaults.    Any Loan Party fails to perform or observe any other covenant or agreement (not specified in
subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or 



        (d)    Representations and Warranties.    Any representation, warranty, certification or statement of fact made or
deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or
misleading (in any material way, with respect to any such document other than a Loan Document) when made or deemed made; or 


        (e)    Cross-Default.    (i) The Borrower or any Subsidiary (A) fails to make any payment when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap
Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of
more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary
or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be
demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to
its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined
in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or
(B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination
Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or 



        (f)    Insolvency Proceedings, Etc.    Any Loan Party or any of its Subsidiaries institutes or consents to the
institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar
officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law
relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for
relief is entered in any such proceeding; or 


        (g)    Inability to Pay Debts; Attachment.    (i) The Borrower or any Subsidiary becomes unable or admits in
writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any
material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or 



        (h)    Judgments.    There is entered against the Borrower or any Subsidiary (i) a final judgment or order for
the payment of money in an aggregate amount exceeding the Threshold Amount (to 



43







 




the
extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or
could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such
judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or 


        (i)    ERISA.    (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has
resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the
Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or 


        (j)    Invalidity of Loan Documents.    Any Loan Document, at any time after its execution and delivery and for any
reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Lien granted thereunder at any time after
its creation and perfection and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect or have
the priority required hereby or thereby; or any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document or the validity, perfection or priority of any
Lien granted thereunder; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or 


        (k)    Change of Control.    There occurs any Change of Control. 


        (l)    Material Adverse Effect.    There occurs any event or circumstance that has a Material Adverse Effect. 




        8.02    Remedies Upon Event of Default.    If any Event of Default occurs and is continuing, the Lender may take any
or all of the following actions: 



        (a)   declare
the Commitment to be terminated, whereupon the Commitment shall be terminated; 


        (b)   declare
the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any
other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; 


        (c)   require
that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and 


        (d)   exercise
all rights and remedies available to it under the Loan Documents or applicable law; 




        provided, however, that upon the occurrence of an actual or deemed entry of an order for
relief with respect to the Borrower under the Bankruptcy Code of the United States, the Commitment shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest
and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become
effective, in each case without further act of the Lender. 


44







 

        8.03    Application of Funds.    After the exercise of remedies provided for in  Section 8.02 (or after the Loans have
automatically become immediately due and payable and the L/C Obligations have automatically been required
to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by
the Lender in such order as it elects in its sole discretion. 


 
 

ARTICLE IX.
  MISCELLANEOUS    
    


        9.01    Amendments; Etc.    No amendment or waiver of any provision of this Agreement or any other Loan Document, and
no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Lender and the Borrower or the applicable Loan Party, as the case may
be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 


        9.02    Notices, Effectiveness; Electronic Communication.    



        (a)    Notices Generally.    



        (i)    Except
in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices
and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows,
and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the address, facsimile number, electronic mail address or telephone number specified
for such Person on Schedule 9.02. 



        (ii)   Notices
sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by
facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the
next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such
subsection (b). 




        (b)    Electronic Communications.    



        (i)    Notices
and other communications to the Lender hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites)
pursuant to procedures approved by the Lender. The Lender or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant
to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. 


        (ii)   Unless
the Lender otherwise prescribes, (A) notices and other communications sent to an e-mail address shall be deemed received upon the sender's
receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement),  provided that if such notice
or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be
deemed to have been sent at the opening of business on the next business day for the recipient, and (B) notices or communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (A) of notification that such notice or communication is
available and identifying the website address therefor. 




        (c)    Change of Address, Etc.    Each of the Borrower and the Lender may change its address, facsimile or telephone
number for notices and other communications hereunder by notice to the other parties hereto. 



45









  



        (d)    Reliance by Lender.    The Lender shall be entitled to rely and act upon any notices (including telephonic Loan
Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other
form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Lender and the Related Parties
of the Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to
and other telephonic communications with the Lender may be recorded by the Lender, and the Borrower hereby consents to such recording. 




        9.03    No Waiver; Cumulative Remedies.    No failure by the Lender to exercise, and no delay by the Lender in
exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law. 


        9.04    Expenses; Indemnity; Damage Waiver.    



        (a)    Costs and Expenses.    The Borrower shall pay (i) all reasonable out of pocket expenses incurred by the
Lender and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Lender), in connection with the preparation, negotiation, execution, delivery and administration
of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out of pocket expenses incurred by the Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out of pocket expenses incurred by the Lender (including the fees, charges and disbursements of any counsel for the Lender), and shall pay all fees and time
charges for attorneys who may be employees of the Lender, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents,
including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out of pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit. 


        (b)    Indemnification by the Borrower.    The Borrower shall indemnify the Lender and each Related Party of the
Lender (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and
disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising
out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the
performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of
Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with
such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by
the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether 



46







 




brought
by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction
by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan
Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and
nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. 


        (c)    Waiver of Consequential Damages, Etc.    To the fullest extent permitted by applicable law, the Borrower shall
not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising
out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or
Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any
information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby. 


        (d)    Payments.    All amounts due under this Section shall be payable not later than ten Business Days after demand
therefor. 


        (e)    Survival.    The agreements in this Section shall survive the termination of the Commitment and the repayment,
satisfaction or discharge of all the other Obligations. 




        9.05    Payments Set Aside.    To the extent that any payment by or on behalf of the Borrower is made to the Lender,
or the Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or
required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor
Relief Law or otherwise, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred. 


        9.06    Successors and Assigns.    



        (a)   The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby,
except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender and the Lender may not assign or otherwise
transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of
participation in accordance with the provisions of subsection (c) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of
subsection (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed
to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (c) of this Section and, to
the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement. 


        (b)   The
Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of
the Commitment, the 



47







 




Loans
and L/C Obligations at the time owing to it) pursuant to documentation acceptable to the Lender and the assignee, it being understood and agreed that with respect to any Letters of Credit
outstanding at the time of any such assignment, the Lender may sell to the assignee a ratable participation in such Letters of Credit. From and after the effective date specified in such
documentation, such Eligible Assignee shall be a party to this Agreement and, to the extent of the interest assigned by the Lender, have the rights and obligations of the Lender under this Agreement,
and the Lender shall, to the extent of the interest so assigned, be released from its obligations under this Agreement (and, in the case of an assignment of all of the Lender's rights and obligations
under this Agreement, shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01,  3.04, 3.05 and 9.04 with respect to facts and
circumstances occurring prior to the effective date of such assignment, and shall continue to have all of the rights provided hereunder to the Lender in its capacity as issuer of any Letters of Credit
outstanding at the time of such assignment). Upon request, the Borrower (at its expense) shall execute and deliver new or replacement Notes to the Lender and the assignee, and shall execute and
deliver any other documents reasonably necessary or appropriate to give effect to such assignment and to provide for the administration of this Agreement after giving effect thereto. 


        (c)   The
Lender may at any time, without the consent of, or notice to, the Borrower, sell participations to any Person (other than a natural person or the Borrower or any of
the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of the Lender's rights and/or obligations under this Agreement
(including all or a portion of its Commitment and/or the outstanding Letters of Credit and/or the Loans and/or the reimbursement obligations in respect of Letters of Credit);  provided that (i) the
Lender's obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to
the Borrower for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations
under this Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation shall provide that the Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that the Lender
will not, without the consent of the Participant, agree to any amendment, waiver or other modification that would (i) postpone any date upon which any payment of money (other than a mandatory
prepayment) is scheduled to be made to such Participant, (ii) reduce the principal, interest, fees or other amounts payable to such Participant
(provided, however, that the Lender may, without the consent of the Participant, waive the right to be
paid interest at the Default Rate), (iii) release all or substantially all of the Guarantors from the Guaranty or (iv) release all or substantially all of the Collateral. Subject to
subsection (d) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01,  3.04 and
3.05 to the same extent as if it were the Lender and had acquired its interest by assignment
pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of  Section 9.08 as though it were the Lender. 


        (d)   A
Participant shall not be entitled to receive any greater payment under Section 3.01 or  3.04 than the Lender would have been entitled to receive with
respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower's prior written consent. A Participant that is not a "United States person" within the meaning of Section 7701(a)(30) of the Code
shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to provide to the Lender such tax forms prescribed by the IRS as are necessary or desirable to establish an exemption from, or reduction of, U.S.
withholding tax. 



48







 




        (e)   The
Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under the Note, if any) to secure
obligations of the Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party hereto. 




        9.07    Confidentiality.    The Lender agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates and to its Affiliates' respective partners, directors, officers, employees, agents, advisors and representatives (it being
understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority purporting to have jurisdiction over it, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process,
(d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or
any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to
(i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective
counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such
Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Lender on a nonconfidential basis from a source other than
the Borrower. For purposes of this Section, "Information" means all information received from the Borrower or any Subsidiary relating to the Borrower or
any Subsidiary or any of their respective businesses, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary,  provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at
the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 


        9.08    Right of Setoff.    If an Event of Default shall have occurred and be continuing, the Lender and each of its
Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted
by applicable law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever
currency) at any time owing by the Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or
any other Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Lender, irrespective of whether or not the Lender shall have made any demand under this Agreement
or any other Loan Document and although such obligations of the Borrower or any other Loan Party may be contingent or unmatured or are owed to a branch or office of the Lender different from the
branch or office holding such deposit or obligated on such indebtedness. The rights of the Lender and its Affiliates under this Section are in addition to other rights and remedies (including other
rights of setoff) that the Lender or its Affiliates may have. The Lender agrees to notify the Borrower promptly after any such setoff and application;  provided that the failure to give such notice shall
not affect the validity of such setoff and application. 



        9.09    Interest Rate Limitation.    Notwithstanding anything to the contrary contained in any Loan Document, the
interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "Maximum
Rate"). If the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be 


49







 



applied
to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Lender exceeds
the Maximum Rate, the Lender may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the
contemplated term of the Obligations hereunder. 


        9.10    Counterparts; Integration; Effectiveness.    This Agreement may be executed in counterparts (and by different
parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan
Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Lender
and when the Lender shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. 



        9.11    Survival of Representations and Warranties.    All representations and warranties made hereunder and in any
other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and
warranties have been or will be relied upon by the Lender, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of
any Default at the time of any Credit Extension, and shall continue in full force
and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding. 



        9.12    Severability.    If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid
or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and
(b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as
possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. 


        9.13    Governing Law; Jurisdiction; Etc.    



        (a)   THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE; PROVIDED THAT THE LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. 


        (b)   THIS
SECTION 9.13 CONCERNS THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE BORROWER AND THE LENDER, WHETHER
ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS (COLLECTIVELY,
A "CLAIM"). FOR PURPOSES OF THIS SECTION 9.13 ONLY, THE TERM "LENDER" SHALL INCLUDE ANY PARENT
CORPORATION, SUBSIDIARY OR AFFILIATE OF THE LENDER INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED OR EVIDENCED BY THIS AGREEMENT. 



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        (c)   AT
THE REQUEST OF THE BORROWER OR THE LENDER, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE
"ACT"). THE ACT WILL APPLY EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS GOVERNED BY THE LAW OF THE STATE OF NORTH CAROLINA. 


        (d)   ARBITRATION
PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE APPLICABLE RULES AND PROCEDURES FOR THE ARBITRATION OF DISPUTES OF JAMS OR ANY SUCCESSOR
THEREOF ("JAMS") AND THE TERMS OF THIS SECTION
9.13. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION 9.13 SHALL CONTROL. 


        (e)   THE
ARBITRATION SHALL BE ADMINISTERED BY JAMS AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR
THIS CREDIT IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE OF NORTH CAROLINA. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF
CLAIMS EXCEED $5,000,000, UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION AND
CLOSE WITHIN 90 DAYS OF COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN 30 DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND
THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL 60 DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY
COURT HAVING JURISDICTION TO BE CONFIRMED AND ENFORCED. 


        (f)    THE
ARBITRATOR(S) WILL HAVE THE AUTHORITY TO DECIDE WHETHER ANY CLAIM IS BARRED BY THE STATUTE OF LIMITATIONS AND, IF SO, TO DISMISS THE ARBITRATION ON THAT BASIS. FOR
PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON JAMS UNDER APPLICABLE JAMS RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING
THIS ARBITRATION PROVISION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS
AGREEMENT. 


        (g)   THIS
SECTION 9.13 DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (i) EXERCISE SELF-HELP REMEDIES, SUCH AS
BUT NOT LIMITED TO, SETOFF; (ii) INITIATE JUDICIAL OR NONJUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (iii) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR
(iv) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES. 



        (h)   BY
AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE,
WITHOUT INTENDING IN ANY WAY TO LIMIT THIS AGREEMENT TO ARBITRATE, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF SUCH CLAIM. THIS 



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PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT. 




        9.14    USA PATRIOT Act Notice.    The Lender that is subject to the Act (as hereinafter defined) and hereby notifies
the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
"Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the
Borrower and other information that will allow the Lender to identify the Borrower in accordance with the Act. 



        9.15    Time of the Essence.    Time is of the essence of the Loan Documents. 


[Signature
page follows] 


52










        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. 



	 	 	CROCS, INC.
	

 	
 	
By:	

/s/  RONALD SNYDER      

	 	 	Name:	Ronald Snyder
	 	 	Title:	Chief Executive Officer and President









	 	 	BANK OF AMERICA, N.A.
	

 	
 	
By:	

/s/  CHARLES R. DICKERSON      

	 	 	Name:	Charles R. Dickerson
	 	 	Title:	Senior Vice President













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Exhibit 10.17


CREDIT AGREEMENT


TABLE OF CONTENTS


CREDIT AGREEMENT

ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS


ARTICLE II. THE COMMITMENT AND CREDIT EXTENSIONS

ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY


ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

ARTICLE V. REPRESENTATIONS AND WARRANTIES

ARTICLE VI. AFFIRMATIVE COVENANTS


ARTICLE VII. NEGATIVE COVENANTS

ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES

ARTICLE IX. MISCELLANEOUS