Exhibit
10.2

     

    
      

      

    

    Credit
Agreement

    


    by and
between

    


    Lifecore
Biomedical, LLC,

    


    as
Borrower,

    


    and

    


    Wells
Fargo Bank, National Association,

    


    as
Bank

    


    Dated as
of April 30, 2010

     

    
      

      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    Table of
Contents

     

    
      
        
          	
                  Article I

                	
                  Definitions

                	
                  1

                
	 
      	 
      	 
      
	
                  Section 1.1.

                	
                  Definitions

                	
                  1

                
	
                  Section 1.2.

                	
                  Other
      Definitional Terms; Rules of Interpretation

                	
                  11

                
	 
      	 
      	 
      
	
                  Article II

                	
                  Amount
      and Terms of the Term Loan

                	
                  12

                
	 
      	 
      	 
      
	
                  Section 2.1.

                	
                  Term
      Loan

                	
                  12

                
	
                  Section 2.2.

                	
                  Usury

                	
                  12

                
	
                  Section 2.3.

                	
                  Collection
      of Payments

                	
                  12

                
	
                  Section 2.4.

                	
                  Fees

                	
                  12

                
	
                  Section 2.5.

                	
                  Prepayments

                	
                  12

                
	
                  Section 2.6.

                	
                  Increased
      Costs; Capital Adequacy; Funding Exceptions

                	
                  13

                
	
                  Section 2.7.

                	
                  Liability
      Records

                	
                  15

                
	 
      	 
      	 
      
	
                  Article III

                	
                  Security
      Interest; Guaranties

                	
                  15

                
	 
      	 
      	 
      
	
                  Section 3.1.

                	
                  Guaranties

                	
                  15

                
	
                  Section 3.2.

                	
                  Grant
      of Security Interest

                	
                  15

                
	
                  Section 3.3.

                	
                  Financing
      Statements

                	
                  15

                
	
                  Section 3.4.

                	
                  Pledge
      of Equity Interest in Borrower

                	
                  16

                
	 
      	 
      	 
      
	
                  Article IV

                	
                  Conditions
      of Lending

                	
                  16

                
	 
      	 
      	 
      
	
                  Section 4.1.

                	
                  Conditions
      Precedent to the Loan

                	
                  16

                
	 
      	 
      	 
      
	
                  Article
      V

                	
                  Representations
      and Warranties

                	
                  18

                
	 
      	 
      	 
      
	
                  Section 5.1.

                	
                  Existence
      and Power; Name; Chief Executive Office; Inventory and Equipment
      Locations; Federal Employer Identification Number

                	
                  18

                
	
                  Section 5.2.

                	
                  Capitalization

                	
                  19

                
	
                  Section 5.3.

                	
                  Authorization
      of Borrowing; No Conflict as to Law or Agreements

                	
                  19

                
	
                  Section 5.4.

                	
                  Legal
      Agreements

                	
                  19

                
	
                  Section 5.5.

                	
                  Subsidiaries

                	
                  19

                
	
                  Section 5.6.

                	
                  Financial
      Condition; No Adverse Change

                	
                  19

                
	
                  Section 5.7.

                	
                  Litigation

                	
                  19

                
	
                  Section 5.8.

                	
                  Regulation
      U

                	
                  20

                
	
                  Section 5.9.

                	
                  Taxes

                	
                  20

                
	
                  Section 5.10.

                	
                  Titles
      and Liens

                	
                  20

                
	
                  Section 5.11.

                	
                  Intellectual
      Property Rights

                	
                  20

                
	
                  Section 5.12.

                	
                  Plans

                	
                  21

                
	
                  Section 5.13.

                	
                  Default

                	
                  22

                
	
                  Section 5.14.

                	
                  Environmental
      Matters

                	
                  22

                
	
                  Section 5.15.

                	
                  Submissions
      to Bank

                	
                  22

                


        

      

    

     

    
      
         


      

      
        - i
-

        
          

        

      

      
         


      

    

    


    
      
        	
                Section 5.16.

              	
                Financing
      Statements

              	
                23

              
	
                Section 5.17.

              	
                Rights
      to Payment

              	
                23

              
	
                Section 5.18.

              	
                Broker
      Fees.

              	
                23

              
	
                Section 5.19.

              	
                No
      Default

              	
                23

              
	
                Section 5.20.

              	
                Fraudulent
      Transfer

              	
                23

              
	
                Section 5.21.

              	
                Permits,
      Franchises

              	
                23

              
	
                Section 5.22.

              	
                No
      Subordination

              	
                23

              
	
                Section 5.23.

              	
                Compliance
      with Laws; OFAC

              	
                23

              
	
                Section 5.24.

              	
                Investment
      Company

              	
                24

              
	
                Section 5.25.

              	
                Stock
      Purchase Agreement

              	
                24

              
	 
      	 
      	 
      
	
                Article
      VI

              	
                Covenants

              	
                24

              
	 
      	 
      	 
      
	
                Section 6.1.

              	
                Punctual
      Payments

              	
                24

              
	
                Section 6.2.

              	
                Reporting
      Requirements

              	
                25

              
	
                Section 6.3.

              	
                Financial
      Covenants

              	
                28

              
	
                Section 6.4.

              	
                Permitted
      Liens; Financing Statements

              	
                30

              
	
                Section 6.5.

              	
                Indebtedness

              	
                31

              
	
                Section 6.6.

              	
                Guaranties

              	
                31

              
	
                Section 6.7.

              	
                Investments
      and Subsidiaries

              	
                32

              
	
                Section 6.8.

              	
                Dividends
      and Distributions

              	
                32

              
	
                Section 6.9.

              	
                Salaries

              	
                33

              
	
                Section 6.10.

              	
                Performance
      by Bank

              	
                33

              
	
                Section 6.11.

              	
                Books
      and Records; Inspection and Examination

              	
                33

              
	
                Section 6.12.

              	
                Account
      Verification

              	
                34

              
	
                Section 6.13.

              	
                Compliance
      with Laws; OFAC

              	
                34

              
	
                Section 6.14.

              	
                Payment
      of Taxes and Other Claims

              	
                34

              
	
                Section 6.15.

              	
                Maintenance
      of Properties

              	
                35

              
	
                Section 6.16.

              	
                Insurance

              	
                35

              
	
                Section 6.17.

              	
                Preservation
      of Existence

              	
                35

              
	
                Section 6.18.

              	
                Delivery
      of Instruments, etc

              	
                35

              
	
                Section 6.19.

              	
                Sale
      or Transfer of Assets; Suspension of Business Operations

              	
                36

              
	
                Section 6.20.

              	
                Consolidation
      and Merger; Asset Acquisitions

              	
                36

              
	
                Section 6.21.

              	
                Sale
      and Leaseback

              	
                36

              
	
                Section 6.22.

              	
                Restrictions
      on Nature of Business

              	
                36

              
	
                Section 6.23.

              	
                Accounting

              	
                36

              
	
                Section 6.24.

              	
                Plans

              	
                36

              
	
                Section 6.25.

              	
                Place
      of Business; Name

              	
                37

              
	
                Section 6.26.

              	
                Constituent
      Documents

              	
                37

              
	
                Section 6.27.

              	
                Transactions
      With Affiliates

              	
                37

              
	
                Section 6.28.

              	
                Use
      of Funds

              	
                37

              
	
                Section 6.29.

              	
                Subordination
      of Debt

              	
                37

              
	
                Section 6.30.

              	
                Management
      Fees; Contingent Purchase Price Payments

              	
                37

              
	
                Section 6.31.

              	
                Maintenance
      of Accounts with Bank

              	
                38

              


      

    

     

    
      
         


      

      
        - ii
-

        
          

        

      

      
         


      

    

    


    
      
        	
                Article
      VII

              	
                Events
      of Default, Rights and Remedies

              	
                38

              
	 
      	 
      	 
      
	
                Section 7.1.

              	
                Events
      of Default

              	
                38

              
	
                Section 7.2.

              	
                Rights
      and Remedies

              	
                41

              
	
                Section 7.3.

              	
                Disclaimer
      of Warranties

              	
                43

              
	
                Section 7.4.

              	
                Compliance
      With Laws

              	
                43

              
	
                Section 7.5.

              	
                No
      Marshalling

              	
                43

              
	
                Section 7.6.

              	
                Borrower
      to Cooperate

              	
                43

              
	
                Section 7.7.

              	
                Application
      of Proceeds

              	
                43

              
	
                Section 7.8.

              	
                Remedies
      Cumulative

              	
                44

              
	
                Section 7.9.

              	
                Bank
      Not Liable For The Collateral

              	
                44

              
	 
      	 
      	 
      
	
                Article
      VIII

              	
                Miscellaneous

              	
                44

              
	 
      	 
      	 
      
	
                Section 8.1.

              	
                No
      Waiver

              	
                44

              
	
                Section 8.2.

              	
                Amendments,
      Etc

              	
                44

              
	
                Section 8.3.

              	
                Addresses
      for Notices; Requests for Accounting

              	
                44

              
	
                Section 8.4.

              	
                Further
      Documents

              	
                45

              
	
                Section 8.5.

              	
                Costs
      and Expenses

              	
                45

              
	
                Section 8.6.

              	
                Indemnity

              	
                45

              
	
                Section 8.7.

              	
                Participants

              	
                46

              
	
                Section 8.8.

              	
                Advertising
      and Promotion

              	
                46

              
	
                Section 8.9.

              	
                Execution
      in Counterparts; Telefacsimile Execution

              	
                46

              
	
                Section 8.10.

              	
                Retention
      of Borrower’s Records

              	
                46

              
	
                Section 8.11.

              	
                Binding
      Effect; Assignment; Complete Agreement; Exchanging
    Information

              	
                47

              
	
                Section 8.12.

              	
                Severability
      of Provisions

              	
                47

              
	
                Section 8.13.

              	
                Revival
      and Reinstatement of Obligations

              	
                47

              
	
                Section 8.14.

              	
                Headings

              	
                48

              
	
                Section 8.15.

              	
                Governing
      Law

              	
                48

              
	
                Section 8.16.

              	
                Submission
      to Jurisdiction

              	
                48

              
	
                Section 8.17.

              	
                Waiver
      of Jury Trial

              	
                48

              
	
                Section 8.18.

              	
                Arbitration

              	
                48

              
	
                Section 8.19.

              	
                Confidentiality

              	
                51

              


      

    

     

    
      
         


      

      
        - iii
-

        
          

        

      

      
         


      

    

     

    Credit
Agreement

     

    This
Credit
Agreement (this “Agreement”) is dated and
made as of April 30, 2010, by and between Lifecore
Biomedical, LLC, a Minnesota limited liability company (“Borrower”), and Wells
Fargo Bank, National Association (“Bank”).

     

    Recitals

     

    Whereas,
Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.

     

    NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Bank and Borrower hereby agree as follows:

     

    Article I

    Definitions

     

    Section 1.1.Definitions.  For
all purposes of this Agreement, except as otherwise expressly provided, the
following terms shall have the meanings assigned to them in this Section or in
the Section referenced after such term:

     

    “Account Debtor” means any
Person who is or who may become obligated under, with respect to, or on account
of, an Account, chattel paper, or a General Intangible.

     

    “Accounts” means all of
Borrower’s now owned or hereafter acquired right, title, and interest with
respect to “accounts” (as that term is defined in the UCC), and any and all
supporting obligations in respect thereof.

     

    “Acquisition” means the
acquisition by Parent of all the issuing and outstanding equity interests of
Holdings pursuant to the Stock Purchase Agreement.

     

    “Affiliate” means, as applied
to any Person, any other Person who, directly or indirectly, controls, is
controlled by, or is under common control with, such Person.  For
purposes of this definition, “control” means the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of stock, by contract, or otherwise; provided, however, that, in any
event:  (a) any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other members of the governing body of a Person or 10% or more of
the partnership or other ownership interests of a Person (other than as a
limited partner of such Person) shall be deemed to control such Person,
(b) each director (or comparable manager) of a Person shall be deemed to be
an Affiliate of such Person, and (c) each partnership or joint venture in
which a Person is a partner or joint venturer shall be deemed to be an Affiliate
of such Person.

     

    “Agreement” means this Credit
Agreement.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    “Bankruptcy Code” means
Bankruptcy Reform Act, Title 11 of the United States Code.

     

    “Bond Documents” means all
documents, instruments and agreements related to or governing the indebtedness
arising under or pursuant to the Bonds.

     

    “Bond L/C” means each
irrevocable transferable letter of credit issued by Bank pursuant to the
Reimbursement Agreement to the Trustee to facilitate the payment on the
Bonds.

     

    “Bonds” means the $5,630,000
Variable Rate Demand Purchase Revenue Bonds issued by the City of Chaska,
Minnesota, the proceeds of which were advanced to Borrower in connection with
the construction of the Mortgaged Premises.

     

    “Business Day” means any day
other than a Saturday, Sunday or any other day on which commercial banks in
California are authorized or required by law to close.

     

    “Cal Ex” means Cal Ex Trading
Company, a Delaware corporation.

     

    “Capital Expenditures” means
for a period, any expenditure of money during such period for the purchase or
construction of assets, or for improvements or additions thereto, which are
capitalized on the Companies’ balance sheet.

     

    “Cash Equivalents” has the
meaning set forth in Section 6.7(a).

     

    “Change of Control” means the
occurrence of any of the following events:

     

    (a)     
any Person or “group” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934), other than Parent, is or becomes the
“beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that a Person will be deemed to have “beneficial
ownership” of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than twenty-five percent of the voting power of
all classes of voting stock of Borrower; or

     

    (b)     
the failure of Parent and/or Holdings to own directly or indirectly,
beneficially and of record, 100.00% of the aggregate ordinary voting power and
economic interests represented by the issued and outstanding equity interests of
Borrower; or

     

    (c)     
during any consecutive two-year period, individuals who at the beginning of such
period constituted the board of Directors of Borrower (together with any new
Directors whose election to such board of Directors, or whose nomination for
election by the owners of Borrower, was approved by a vote of 66-2/3% of the
Directors then still in office who were either Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
Directors of Borrower then in office.


    
      
         


      

      
        - 2
-

        
          

        

      

      
         


      

    

     

    “Closing Date” means
April 30, 2010.

     

    “Collateral” means
(a) “Collateral” as such term is defined in the Security Agreement plus
(b) all collateral subject to the Lien of any Security Document other than
the Security Agreement.

     

    “Collateral Account” is
defined in Section 2.5(b) hereof.

     

    “Companies” means Borrower
and Holdings.

     

    “Commitment” is defined in
Section 2.1 hereof.

     

    “Contingent Purchase Price Payments”
means certain payments not to exceed $10,000,000 in the aggregate made by
the Borrower to the Seller and other designated Persons in accordance with the
Stock Purchase Agreement and the Lifecore Biomedical, Inc. Transaction Bonus
Plan.

     

    “Constituent Documents” means
with respect to any Person, as applicable, such Person’s certificate of
incorporation, articles of incorporation, by-laws, certificate of formation,
articles of organization, limited liability company agreement, management
agreement, operating agreement, shareholder agreement, partnership agreement or
similar document or agreement governing such Person’s existence, organization or
management or concerning disposition of ownership interests of such Person or
voting rights among such Person’s owners.

     

    “Credit Facility” means the
credit facility being made available to Borrower by Bank under Article II
hereof.

     

    “Default” means an event, or
condition which, but for the lapse of time or the giving of notice, or both,
would constitute an Event of Default.

     

    “Default Period” means any
period of time beginning on the day a Default or Event of Default occurs and
ending on the date that such Default or Event of Default has been cured or
waived, as determined by Bank in its sole and absolute discretion.

     

    “Default Rate” is defined in
the Note.

     

    “Disposition” means the sale,
lease, conveyance or other disposition of Property, other than sales or other
dispositions expressly permitted under Sections 6.19(v), (w), (x) and (y)
hereof.

     

    “Director” means a director,
member or manager of Borrower or any Guarantor, as applicable.

     

    “Dollars” or “$” means lawful
currency of the United States of America.


    
      
         


      

      
        - 3
-

        
          

        

      

      
         


      

    

     

    “EBITDA” means, as of any
date of determination for any period, Parent’s and its Subsidiaries’
consolidated net profit before tax plus interest expense (net of any capitalized
interest), depreciation expense, and amortization expense.

     

    “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, 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.

     

    “Equipment” means all of
Borrower’s equipment, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools, supplies, and
including specifically the goods described in any equipment schedule or list
herewith or hereafter furnished to Bank by Borrower.

     

    “ERISA” means the Employee
Retirement Income Security Act of 1974.

     

    “ERISA Affiliate” means any
trade or business (whether or not incorporated) that is a member of a group
which includes Borrower and which is treated as a single employer under
Section 414 of the IRC.

     

    “Event of Default” has the
meaning given in Section 7.1.

     

    “Event of Loss” means, with
respect to any Property, any of the following:  (a) any loss,
destruction or damage of such Property or (b) any condemnation, seizure, or
taking, by exercise of the power of eminent domain or otherwise, of such
Property, or confiscation of such Property or the requisition of the use of such
Property.

     

    “Financial Covenants” means
the covenants set forth in Section 6.3.

     

    “Fixed Charge Coverage Ratio”
means, as of the last day of each fiscal quarter of Borrower, the ratio of
(a) the sum of (i) Net Income after taxes for the four fiscal quarters
then ended, plus
(ii) depreciation expense, amortization expense, cash capital
contributions, increases in subordinated debt and non-cash expenses associated
with the issuance of stock options of the Companies for the four fiscal quarters
then ended, minus
(iii) management fees, dividends, distributions and decreases in
subordinated debt of the Companies for the twelve months then ended, to
(b) (x) the aggregate of the current maturity of long-term debt and
current maturity of subordinated debt as of the last day of the fiscal quarter
ending immediately prior to the last day of such fiscal quarter (or with respect
to each fiscal quarter ending on or prior to May 31, 2011, as of the last
day of such fiscal quarter), and (y) capitalized lease payments of the
Companies as of the last day of such fiscal quarter.

     

    “Funded Debt” means as the
sum of all obligations for Indebtedness for borrowed money (including
subordinated debt) of Parent and its Subsidiaries, plus all capital lease
obligations of Parent and its Subsidiaries, in each case determined on a
consolidated basis.


    
      
         


      

      
        - 4
-

        
          

        

      

      
         


      

    

     

    “GAAP” means generally
accepted accounting principles in the United States of America, consistently
applied, which are in effect as of the date of this Agreement.  If any
changes in accounting principles from those in effect on the date hereof are
hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions by or are otherwise required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found herein,
then the parties hereto agree to enter into and diligently pursue negotiations
in order to amend such financial covenants, standards or terms so as to
equitably reflect such changes, with the desired result that the criteria for
evaluating financial condition and results of operations of Borrower and the
Subsidiaries shall be the same after such changes as if such changes had not
been made.

     

    “General Intangibles” means
all of Borrower’s general intangibles, as such term is defined in the UCC,
whether now owned or hereafter acquired, including all present and future
Intellectual Property Rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use Borrower’s name,
and the goodwill of Borrower’s business.

     

    “Governmental Authority”
means any federal, state, local, or other governmental or administrative body,
instrumentality, department, or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.

     

    “Guarantor” or “Guarantors” is defined in
Section 3.1 hereof.

     

    “Guaranty” or “Guaranties” is defined in
Section 3.1 hereof.

     

    “Hazardous Substances” means
pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and
fractions thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.

     

    “Hedging Obligations” means
all liabilities of Borrower under Swap Contracts entered into with Bank or one
of its Affiliates.

     

    “Holdings” means Lifecore
Biomedical, Inc., a Delaware corporation.

     

    “Immaterial Intellectual Property
Rights” means Intellectual Property Rights that Borrower, in its
commercially reasonable judgment, determines from time to time to be no longer
material to the operation of its business.

     

    “Indebtedness” means of a
Person as of a given date, all items of indebtedness or liability which in
accordance with GAAP would be included in determining total liabilities as shown
on the liabilities side of a balance sheet for such Person and shall also
include the aggregate payments required to be made by such Person at any time
under any lease that is considered a capitalized lease under
GAAP.


    
      
         


      

      
        - 5
-

        
          

        

      

      
         


      

    

     

    “Infringe” means, when used
with respect to Intellectual Property Rights, any infringement or other
violation of such Intellectual Property Rights.

     

    “Insolvency Proceeding” means
any proceeding commenced by or against any Person under any provision of
Bankruptcy Code or under any other state or federal bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

     

    “Intellectual Property
Rights” means all actual or prospective rights arising in connection with
any intellectual property or other proprietary rights, including all rights
arising in connection with copyrights, patents, service marks, trade dress,
trade secrets, trademarks, trade names or mask works.

     

    “Inventory” means all of
Borrower’s inventory, as such term is defined in the UCC, whether now owned or
hereafter acquired, whether consisting of whole goods, spare parts or
components, supplies or materials, whether acquired, held or furnished for sale,
for lease or under service contracts or for manufacture or processing, and
wherever located.

     

    “Investment Property” means
all of Borrower’s investment property, as such term is defined in the UCC,
whether now owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market shares and
U.S. Government securities.

     

    “IRC” means the Internal
Revenue Code of 1986.

     

    “Landec AG” means Landec AG,
Inc., a Delaware corporation.

     

    “Licensed Intellectual
Property” has the meaning given in Section 5.11(c).

     

    “Lien” means any security
interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title
retention agreement or analogous instrument or device, including the interest of
each lessor under any capitalized lease and the interest of any bondsman under
any payment or performance bond, in, of or on any assets or properties of a
Person, whether now owned or hereafter acquired and whether arising by agreement
or operation of law.

     

    “Loan” is defined in
Section 2.1 hereof.

     

    “Loan Documents” means this
Agreement, the Note, any Guaranties, the Security Documents, and each other
instrument or document to be delivered by Borrower or any Guarantor hereunder or
thereunder or otherwise in connection herewith or therewith.

     

    “Management” means
Dennis J. Allingham, Larry Hiebert and James Hall.

     

    “M&I” means M&I
Marshall & Ilsley Bank, a Wisconsin state banking
corporation.


    
      
         


      

      
        - 6
-

        
          

        

      

      
         


      

    

     

    “Material Adverse Effect”
means any of the following:

     

    (i)     
a material adverse effect on the business, operations, results of operations,
assets, liabilities or financial condition of the Companies, taken as a whole,
or Parent and its Subsidiaries, taken as a whole;

     

    (ii)    
a material adverse effect on the ability of Borrower or any Guarantor to perform
its obligations under the Loan Documents;

     

    (iii)   
a material adverse effect on the ability of Bank to enforce the Obligations or
to realize the intended benefits of the Security Documents, including a material
adverse effect on the validity or enforceability of any Loan Document or of any
rights against any Guarantor, or on the status, existence, perfection, priority
(subject to Permitted Liens) or enforceability of any Lien securing payment or
performance of the Obligations; or

     

    (iv)    any
claim against Borrower or any Guarantor or threat of litigation which is
reasonably likely to be determined adversely to Borrower or any Guarantor and,
if so determined, would cause Borrower or such Guarantor to be liable to pay an
amount exceeding $500,000 over applicable insurance coverage, or would be an
event described in clauses (i), (ii) and (iii) above.

     

    “Mortgage” means that certain
Mortgage and Assignment of Rents and Leases dated as of the date of the
Reimbursement Agreement, between the Borrower and the Bank, as the same may be
amended, modified, supplemented, or restated from time to time.

     

    “Mortgaged Premises” means
the real property of Borrower commonly known as 3515 Lyman Boulevard, Chaska,
Minnesota and all buildings and improvements thereon, and all rents, issues, and
profits therefrom.

     

    “Multiemployer Plan” means a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which
Borrower or any ERISA Affiliate contributes or is obligated to
contribute.

     

    “Net Cash Proceeds” means, as
applicable, (a) with respect to any Disposition by a Person, cash and Cash
Equivalent proceeds received by or for such Person’s account, net of
(i) reasonable direct costs relating to such Disposition and
(ii) sale, use or other transactional taxes paid or payable by such Person
as a direct result of such Disposition, (b) with respect to any Event of
Loss of a Person, cash and Cash Equivalent proceeds received by or for such
Person’s account (whether as a result of payments made under any applicable
insurance policy therefor or in connection with condemnation proceedings or
otherwise), net of reasonable direct costs incurred in connection with the
collection of such proceeds, awards or other payments, and (c) with respect
to any offering of equity securities of a Person or the issuance of any
Indebtedness by a Person, cash and Cash Equivalent proceeds received by or for
such Person’s account, net of reasonable legal, underwriting, and other fees and
expenses incurred as a direct result thereof.


    
      
         


      

      
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    “Net Income” means fiscal
year-to-date after-tax net income from continuing operations of the Companies,
as determined in accordance with GAAP; provided, however, that any amounts
deducted in arriving at Borrower’s Net Income shall be determined exclusive of
(i) non-recurring fees and expenses incurred in connection with the Acquisition
in an aggregate amount not to exceed $500,000, (ii) expenses incurred during the
month ended April 30, 2010 relating to a one-time reserve for Accounts and
Inventory in an amount not to exceed $600,000 in the aggregate in connection
with Borrower’s contract with a customer previously disclosed to the Bank, (iii)
expenses incurred during the two months ended April 30, 2010 relating to a
one-time reserve for Inventory in an amount not to exceed $200,000 in the
aggregate, and (iv) expenses related to the one-time adjustment to Inventory in
an aggregate amount not to exceed $1,500,000 as required by GAAP in connection
with the Acquisition.

     

    “Net Income After Taxes” is
defined in Section 6.3(a)(i) hereof.

     

    “Note” is defined in
Section 2.1 hereof.

     

    “Obligations” means the Note,
any Hedging Obligations, any Treasury Management Obligations, and each and every
other debt, liability and obligation of Borrower arising under this Agreement or
any other Loan Document, whether such debt, liability or obligation now exists
or is hereafter created or incurred, whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and whether now in
effect or hereafter entered into.

     

    “OFAC” means the United States
Department of Treasury Office of Foreign Assets Control.

     

    “OFAC Event” means the event specified
in Section 6.13(c) hereof.

     

    “OFAC Sanctions Programs” means all laws,
regulations, and Executive Orders administered by OFAC, including without
limitation, Bank Secrecy Act, anti-money laundering laws (including, without
limitation, the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56 (a/k/a
the USA Patriot Act)), and all economic and trade sanction programs administered
by OFAC, any and all similar United States federal laws, regulations or
Executive Orders, and any similar laws, regulators or orders adopted by any
State within the United States.

     

    “OFAC SDN List” means the list of the
Specially Designated Nationals and Blocked Persons maintained by
OFAC.

     

    “Officer” means a duly
appointed and presently sitting officer of Borrower.

     

    “Owned Intellectual Property”
has the meaning given in Section 5.11(a).

     

    “Parent” means Landec
Corporation, a California corporation.


    
      
         


      

      
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    “Pension Plan” means a
pension plan (as defined in Section 3(2) of ERISA) maintained for employees
of Borrower or any ERISA Affiliate and covered by Title IV of
ERISA.

     

    “Permitted Lien” has the
meaning given in Section 6.4(a).

     

    “Person” means any
individual, corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

     

    “Plan” means an employee
benefit plan (as defined in Section 3(3) of ERISA) maintained for employees
of Borrower or any ERISA Affiliate.

     

    “Premises” means all premises
where Borrower conducts its business and has any rights of possession, including
the premises described in Exhibit C attached hereto.

     

    “Property” means, as to any
Person, all types of real, personal, tangible, intangible or mixed property
owned by such Person whether or not included in the most recent balance sheet of
such Person and its subsidiaries under GAAP.

     

    “Quick Ratio” means, as of
the last day of each fiscal quarter of Borrower, the ratio of (i) the
aggregate of unrestricted cash, unrestricted marketable securities and
receivables convertible into cash of the Companies as of the last day of such
fiscal quarter to (b) total current liabilities of the Companies as of the last
day of the same fiscal quarter.

     

    “Reimbursement Agreement”
means that certain Reimbursement Agreement dated on or about the Closing Date,
between Bank and Borrower, as the same may be amended, modified, restated or
supplemented from time to time.

     

    “Reportable Event” means a
reportable event (as defined in Section 4043 of ERISA), other than an event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the Pension Benefit Guaranty Corporation.

     

    “Security Agreement” means
that certain Security Agreement, dated as of even date herewith, executed by
Borrower in favor of Bank.

     

    “Security Agreement and Collateral
Assignment of Membership Interests” means that certain Security Agreement
and Collateral Assignment of Membership Interests, dated as of even date
herewith, executed by Holdings in favor of Bank.

     

    “Security Agreement re: Patents and
Trademarks” means that certain Security Agreement Re:  Patents
and Trademarks, dated as of even date herewith, executed by Borrower in favor of
Bank.

     

    “Security Documents” means
this Agreement, the Security Agreement, the Security Agreement and Collateral
Assignment of Membership Interests, the Security Agreement re:  Patent
and Trademarks, and any other agreement, instrument or document delivered to
Bank from time to time to secure the Obligations.


    
      
         


      

      
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    “Security Interest” has the
meaning given in Section 3.2.

     

    “Seller” means Warburg Pincus
Private Equity IX, L.P.

     

    “Stock Purchase Agreement”
means that certain Stock Purchase Agreement dated as of April 30, 2010,
by and among Parent, Borrower, Holdings, and the Seller.

     

    “Solvent” means, as to any
Person at any time, that:  (a) the fair value of the property of
such Person on a going concern basis is greater than the amount of such Person’s
liabilities (including contingent liabilities), as such value is established and
such liabilities are evaluated for purposes of Section 101(32) of the
Bankruptcy Code and, in the alternative, for purposes of the California Uniform
Fraudulent Transfer Act or any similar state statute applicable to Borrower
thereof; (b) the present fair salable value of the property of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its debts as they become absolute and matured; (c) such
Person is able to realize upon its property and pay its debts and other
liabilities (including contingent liabilities) as they mature in the normal
course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature; and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person’s property would constitute unreasonably
small capital

     

    “Subsidiary” means, as to any
Person, any Person 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 a Borrower.

     

    “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, that 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 including any
such obligations or liabilities under any such master agreement (in each case,
together with any related schedules).


    
      
         


      

      
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    “Term Loan Maturity Date”
means the earliest of (i) April 30, 2015, or (ii) the date Bank
demands payment of the Obligations after an Event of Default pursuant to
Section 7.2 hereof.

     

    “Treasury Management
Agreement” means any agreement to provide cash management services,
including treasury, depository, overdraft, credit or debit car, electronic funds
transfer or other cash management arrangement, in each case entered into between
Borrower, on the one hand, and Bank or one of its Affiliates, on the other
hand.

     

    “Treasury Management
Obligations” means all obligations of Borrower thereof under all Treasury
Management Agreements.

     

    “Trustee” means Wells Fargo
Bank, National Association, and any co-trustee or successor trustee appointed,
qualified, and then acting under the provisions of Bond Documents.

     

    “UCC” means the Uniform
Commercial Code as in effect in the state designated in Section 8.15 as the
state whose laws shall govern this Agreement, or in any other state whose laws
are held to govern this Agreement or any portion hereof.

     

    Section 1.2.     
Other Definitional Terms;
Rules of Interpretation.  The words “hereof”, “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.  All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.  All terms defined
in the UCC and not otherwise defined herein have the meanings assigned to them
in the UCC.  References to Articles, Sections, subsections, Exhibits,
Schedules and the like, are to Articles, Sections and subsections of, or
Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided.  The words “include”, “includes” and “including” shall be
deemed to be followed by the phrase “without limitation”.  Unless the
context in which used herein otherwise clearly requires, “or” has the inclusive
meaning represented by the phrase “and/or”.  Defined terms include in
the singular number the plural and in the plural number the
singular.  Reference to any agreement (including the Loan Documents),
document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms thereof
(and, if applicable, in accordance with the terms hereof and the other Loan
Documents), except where otherwise explicitly provided, and reference to any
promissory note includes any promissory note which is an extension or renewal
thereof or a substitute or replacement therefor.  Reference to any
law, rule, regulation, order, decree, requirement, policy, guideline, directive
or interpretation means as amended, modified, codified, replaced or reenacted,
in whole or in part, and in effect on the determination date, including rules
and regulations promulgated thereunder.


    
      
         


      

      
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    Article II

    Amount
and Terms of the Term Loan

     

    Section 2.1.     
Term
Loan.  Subject to the terms and conditions hereof, Bank agrees
to make a term loan to Borrower in the principal amount of $20,000,000 (the
“Commitment”, and the
term loan made pursuant thereto being referred to herein as the “Loan”).  The Loan
shall be made on the Closing Date, at which time the commitment of Bank to make
the Loan shall expire.  There shall be only one advance made under the
Commitment, and any portion of the Commitment not advanced on the date of such
borrowing shall thereupon expire.  The Loan shall be made against and
evidenced by a promissory note of Borrower in the form (with appropriate
insertions) attached hereto as Exhibit A (the “Note”).  The Note
shall be dated the date of issuance thereof and be expressed to bear interest as
set forth therein.  The Note, and the Loan evidenced thereby, shall
mature in fifty-nine (59) monthly principal installments,
with each such principal installment to be at the time and in the amounts set
forth in the Note, with a final installment in the amount of all principal not
sooner paid due and payable on the Term Loan Maturity Date.

     

    Section 2.2.     
Usury.  In
any event, no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law.  Notwithstanding
anything to the contrary contained in any Loan Document, all agreements which
either now are or which shall become agreements between Borrower and Bank are
hereby limited so that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional interest and other
charges exceed the applicable limits imposed by any applicable usury
laws.  If any payments in the nature of interest, additional interest
and other charges made under any Loan Document are held to be in excess of the
limits imposed by any applicable usury laws, it is agreed that any such amount
held to be in excess shall be considered payment of principal hereunder, and the
indebtedness evidenced by the Note shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest and
other charges shall not exceed the applicable limits imposed by any applicable
usury laws, in compliance with the desires of Borrower and Bank.  This
provision shall never be superseded or waived and shall control every other
provision of the Loan Documents and all agreements between Borrower and Bank, or
their successors and assigns.

     

    Section 2.3.     
Collection of
Payments.  All payments to Bank shall be made in immediately
available funds and shall be applied to the Obligations upon receipt by
Bank.

     

    Section 2.4.     
Fees.  Except
as set forth in Section 8.5 hereof, there are no fees in connection with
the Loan.

     

    Section 2.5.     
Prepayments.  (a) Optional.  Borrower
may prepay the Note, in whole or in part, on the terms and conditions set forth
therein.


    
      
         


      

      
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    (b)     
Mandatory.  (i) If
Borrower shall at any time or from time to time make or agree to make a
Disposition or shall suffer an Event of Loss with respect to any Property, then
Borrower shall promptly notify Bank of such proposed Disposition or Event of
Loss (including the amount of the estimated Net Cash Proceeds to be received by
Borrower in respect thereof) and, promptly upon receipt by Borrower of the Net
Cash Proceeds of such Disposition or Event of Loss, Borrower shall prepay the
Obligations in an aggregate amount equal to 100% of the amount of all such Net
Cash Proceeds; provided
that (x) so long as no Default or Event of Default then exists, this
subsection shall not require any such prepayment with respect to Net Cash
Proceeds received on account of an Event of Loss so long as such Net Cash
Proceeds are applied to replace or restore the relevant Property in accordance
with the relevant Collateral Documents, (y) this subsection shall not
require any such prepayment with respect to Net Cash Proceeds received on
account of Dispositions during any fiscal year of Borrower not exceeding
$250,000 in the aggregate so long as no Default or Event of Default then exists,
and (z) in the case of any Disposition not covered by clause (y)
above, so long as no Default or Event of Default then exists, if Borrower states
in its notice of such event that Borrower intends to reinvest, within
90 days of the applicable Disposition, the Net Cash Proceeds thereof in
assets similar to the assets which were subject to such Disposition, then
Borrower shall not be required to make a mandatory prepayment under this
subsection in respect of such Net Cash Proceeds to the extent such Net Cash
Proceeds are actually reinvested in such similar assets with such 90-day
period.  Promptly after the end of such 90-day period, Borrower shall
notify Bank whether Borrower has reinvested such Net Cash Proceeds in such
similar assets, and, to the extent such Net Cash Proceeds have not been so
reinvested, Borrower shall promptly prepay the Obligations in the amount of such
Net Cash Proceeds not so reinvested.  The amount of each such
prepayment shall be applied first to the outstanding Term Loan until paid in
full and then to cash collateralize the Bond L/C.   If Bank so request, all
proceeds of such Disposition or Event of Loss shall be deposited with Bank (or
its agent) and held by it in a collateral account for the benefit of Bank (the
“Collateral
Account”).  So long as no Default or Event of Default exists,
Bank is authorized to disburse amounts representing such proceeds from the
Collateral Account to or at Borrower’s direction for application to or
reimbursement for the costs of replacing, rebuilding or restoring such
Property.

     

    (ii)     
If after the Closing Date Borrower shall issue new equity securities (whether
common or preferred stock or otherwise), other than equity securities issued to
Holdings or Parent, Borrower shall promptly notify Bank of the estimated Net
Cash Proceeds of such issuance to be received by or for the account of Borrower
in respect thereof.  Promptly upon receipt by Borrower of Net Cash
Proceeds of such issuance, Borrower shall prepay the Obligations in an aggregate
amount equal to 100% of the amount of such Net Cash Proceeds. The amount of each such
prepayment shall be applied first to the outstanding Term Loan until paid in
full and then to cash collateralize the Bond L/C.  Borrower acknowledges
that its performance hereunder shall not limit the rights and remedies of Bank
for any breach of Section 6.19 or Section 7.1(c) hereof or any other
terms of the Loan Documents.

     

    (iii)    
If after the Closing Date Borrower shall issue any Indebtedness, other than
Indebtedness permitted by Section 6.5 hereof, Borrower shall promptly
notify Bank of the estimated Net Cash Proceeds of such issuance to be received
by or for the account of Borrower in respect thereof.  Promptly upon
receipt by Borrower of Net Cash Proceeds of such issuance, Borrower shall prepay
the Obligations in an aggregate amount equal to 100% of the amount of such Net
Cash Proceeds.  The amount of each such prepayment shall be applied
first to the outstanding Term Loan until paid in full and then to cash
collateralize the Bond L/C.  Borrower acknowledges that its
performance hereunder shall not limit the rights and remedies of Bank for any
breach of Section 6.7 hereof or any other terms of the Loan
Documents.

     

    Section 2.6.     
Increased Costs; Capital
Adequacy; Funding Exceptions.

     

    (a)     
Increased Costs; Capital
Adequacy.  If Bank determines at any time that its Return (as
defined below) has been reduced as a result of any Rule Change (as defined
below), Bank may so notify Borrower and require Borrower, beginning thirty (30)
days after such notice is received by Borrower, to pay it the amount necessary
to restore its Return to what it would have been had there been no Rule
Change.  For purposes of this Section 2.6:


    
      
         


      

      
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    (i)     
“Capital Adequacy Rule”
means any law, rule, regulation, guideline, directive, requirement or request
regarding capital adequacy, or the interpretation or administration thereof by
any Governmental Authority, whether or not having the force of law, that applies
to any Related Bank (as defined below), including rules requiring financial
institutions to maintain total capital in amounts based upon percentages of
outstanding loans, binding loan commitments and letters of credit.

     

    (ii)     “Related Bank” includes (but
is not limited to) Bank, any parent of Bank and any assignee of any interest of
Bank hereunder.

     

    (iii)    “Return”, for any period,
means the percentage determined by dividing (i) the sum of interest and
ongoing fees earned by Bank under this Agreement during such period, by
(ii) the average capital such Bank is required to maintain during such
period as a result of its being a party to this Agreement, as determined by Bank
based upon its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect, costs of
issuing or maintaining the Loan and amounts received or receivable under this
Agreement or the Note with respect to the Loan.  Return may be
calculated for each calendar quarter and for the shorter period between the end
of a calendar quarter and the date of termination in whole of this
Agreement.

     

    (v)     “Rule Change” means any
change in any Capital Adequacy Rule occurring after the date of this Agreement,
but the term does not include any changes that at the Closing Date are scheduled
to take place under the existing Capital Adequacy Rules or any increases in the
capital that Bank is required to maintain to the extent that the increases are
required due to a regulatory authority’s assessment of that Bank’s financial
condition.

     

    (b)     
The initial notice sent by Bank shall be sent as promptly as practicable after
Bank learns that its Return has been reduced, shall include a demand for payment
of the amount necessary to restore Bank’s Return for the subsequent quarter in
which the notice is sent, and shall state in reasonable detail the cause for the
reduction in its Return and its calculation of the amount of such
reduction.  Thereafter, Bank may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter. Bank’s calculation in any such notice shall be
prima facie evidence of such amount.

     

    (c)     
Borrower shall not be required to compensate Bank pursuant to the provisions of
this Section 2.6 for any reduction of its Return suffered more than 90 days
prior to the date that Bank notifies Borrower of the Rule Change giving rise to
such reduction and of Bank’s intention to claim compensation therefore; provided, that any Rule
Change that is applied retroactively shall be applied retroactively, then the 90
day period referred to above shall be extended to include the period of
retroactive effect hereof.


    
      
         


      

      
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    Section 2.7.     
Liability
Records.  Bank may maintain from time to time, at its
discretion, records as to the Obligations.  All entries made on any
such record shall be presumed correct until Borrower establishes the
contrary.  Upon Bank’s demand, Borrower will admit and certify in
writing the exact principal balance of the Obligations that Borrower then
asserts to be outstanding.  Any billing statement or accounting
rendered by Bank shall be conclusive and fully binding on Borrower unless
Borrower gives Bank specific written notice of exception within 30 days after
receipt.

     

    Article III

    Security
Interest; Guaranties

     

    Section 3.1.     
Guaranties  The
payment and performance of the Obligations shall at all times be guaranteed by
Parent, Holdings and each direct and indirect Subsidiary of Parent (Parent,
Holdings and such Subsidiaries shall be collectively referred to herein as the
“Guarantors”) pursuant
to one or more guaranty agreements in form and substance reasonably acceptable
to Bank, as the same may be amended, modified, or supplemented from time to time
(individually a “Guaranty” and collectively
the “Guaranties”).  Notwithstanding
the foregoing or anything contained herein or in any other Loan Document to the
contrary, (i) Parent shall be permitted to sell its interest in Landec AG or Cal
Ex, and/or (ii) Parent in its reasonable business judgment shall be permitted to
authorize Landec AG and/or Cal Ex to wind down, dissolve or ortherwise terminate
its existence (and any such wind down, dissolution or termination shall not
constitute an Event of Default hereunder), in each case without any prior
approval or consent of Bank.

     

    Section 3.2.     
Grant of Security
Interest.  Borrower hereby pledges, assigns and grants to Bank
a Lien and security interest (collectively referred to as the “Security Interest”) in the
Collateral, as security for the payment and performance of the
Obligations.  Upon request by Bank, Borrower will grant Bank a
security interest in all commercial tort claims it may have against any
Person.

     

    All of
the foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements and other documents as Bank shall reasonably
require, all in form and substance satisfactory to Bank (including, without
limitation, the Security Documents).  Borrower shall reimburse Bank
within fifteen (15) days after written demand for all reasonable costs and
expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of appraisals
and audits.

     

    Section 3.3.     
Financing
Statements.  Borrower authorizes Bank to file from time to time
where permitted by law, such financing statements against collateral described
as “all personal property” or describing specific items of collateral including
commercial tort claims as Bank deems necessary or useful to perfect the Security
Interest, including, without limitation, amendments to any financing statements
that were filed prior to the Closing Date.  A carbon, photographic or
other reproduction of this Agreement or of any financing statements authorized
by Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby.


    
      
         


      

      
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    Section 3.4.     
Pledge of Equity Interest in
Borrower.  The Obligations and the Guaranty delivered by
Holdings shall at all times be secured by a pledge of all of Holdings’ equity
interest in Borrower pursuant to the Security Agreement and Collateral
Assignment of Membership Interest.

     

    Article IV

    Conditions
of Lending

     

    Section 4.1.     
Conditions Precedent to the
Loan.  The
obligation of Bank to extend any credit contemplated by this Agreement is
subject to the fulfillment to Bank’s satisfaction of all of the following
conditions:

     

    (a)     
This Agreement, duly executed by Borrower and Bank.

     

    (b)     
The Note, duly executed by Borrower.

     

    (c)     
The Security Documents, duly executed by Borrower and Holdings (as applicable),
together with (i) any financing statements requested by Bank, (ii) an
acknowledgment to the collateral assignment of Holdings’ membership interest in
the Borrower, (iii) deposit account, securities account, and commodity account
control agreements to the extent requested by Bank, and (v) landlord waiver
letters for Borrower’s collateral locations to the extent required by
Bank.

     

    (d)     
The Guaranties, duly executed by each of the Guarantors.

     

    (e)     
One or more certificates of Borrower’s Secretary or Assistant Secretary
certifying that attached to such certificate, or incorporated therein, are
(i) the resolutions of Borrower’s Directors authorizing the execution,
delivery and performance of the Loan Documents to which Borrower is a party,
(ii) true, correct and complete copies of Borrower’s Constituent Documents,
and (iii) examples of the signatures of Borrower’s Officers or agents
authorized to execute and deliver the Loan Documents to which Borrower is a
party and other instruments, agreements and certificates, on Borrower’s
behalf.

     

    (f)     
A current certificate issued by the Secretary of State of Minnesota, certifying
that Borrower is in good standing and is in compliance with all applicable
formation requirements of the State of Minnesota.

     

    (g)     
One or more certificates from each Guarantor’s Secretary or Assistant Secretary
certifying that attached to such certificate, or incorporated therein, are
(i) the resolutions of each Guarantor’s Directors authorizing the
execution, delivery and performance of the Loan Documents to which such
Guarantor is a party, (ii) true, correct and complete copies of each
Guarantor’s Constituent Documents, and (iii) examples of the signatures of
each Guarantor’s corporate officers or agents authorized to execute and deliver
the Loan Documents to which such Guarantor is a party and other instruments,
agreements and certificates on such Guarantor’s behalf.


    
      
         


      

      
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    (h)     
Current copies of the certificates of good standing for each Guarantor from the
office of the secretary of the state of its incorporation or
organization;

     

    (i)     
Evidence that Borrower is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary.

     

    (j)     
A certificate of an Officer of Borrower confirming that the representations and
warranties contained in this Article IV and Article V are correct on and as
of the Closing Date as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier
date.

     

    (k)     
A favorable opinion of counsel to Borrower and Guarantors, addressed to
Bank.

     

    (l)     
Certificates of the insurance required hereunder, with all hazard insurance
containing a lender’s loss payable endorsement in Bank’s favor and with all
liability insurance naming Bank as an additional insured.

     

    (m)     
Payment of reasonable expenses incurred by Bank through such date and required
to be paid by Borrower under Section 8.5 including all reasonable legal
expenses.

     

    (n)     
The capital and organizational structure of Holdings and Borrower shall be
reasonably satisfactory to Bank.

     

    (o)     
Bank shall have received financing statement, tax, and judgment lien search
results against the Property of Borrower and each Guarantor evidencing the
absence of Liens on the Collateral except as permitted by Section 6.4
hereof.

     

    (p)     
Bank shall have received pay-off and lien release letters from secured creditors
of Borrower setting forth, among other things, the total amount of Indebtedness
outstanding and owing to them (or outstanding letters of credit issued for the
account of Borrower) and containing an undertaking to cause to be delivered to
Bank UCC termination statements and any other lien release instruments necessary
to release their Liens on the assets of Borrower, which pay-off and lien release
letters shall be in form and substance reasonably acceptable to
Bank.

     

    (q)     
Intentionally Omitted.

     

    (r)     
Receipt by Bank of copies of the Bond Documents, the management fee agreement
(if any), the
Transaction Bonus Plan and the Stock Purchase
Agreement.

     

    (s)     
Since March 31, 2010, no material adverse change in the financial condition
of the Companies or Parent shall have occurred since the date of the most recent
financial statement of Borrower or Parent, as applicable, received by
Bank.

     

    (t)     
A duly completed Internal Revenue Service Form W-9 for Borrower and each
Guarantor.


    
      
         


      

      
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    (u)     
The representations and warranties in the Stock Purchase Agreement shall be true
and correct in all material respects as of the Closing Date, and the Acquisition
shall close prior to or concurrently with the funding of the Loans without the
waiver by Parent, Holdings or Borrower of any material conditions to any of
their obligations under the Stock Purchase Agreement.

     

    (v)     
The Acquisition shall have been approved by Holdings’ Directors and (if
necessary) owners, and all necessary legal and regulatory approvals with respect
to the Acquisition shall have been obtained.  On the Closing Date,
both before and after giving effect to the Acquisition, there shall be no
injunction, temporary restraining order or other legal action in effect which
would prohibit or seek to unwind the Acquisition or any component thereof, or
would prohibit the making of the Loans, or other litigation which would
reasonably be expected to have a Material Adverse Effect, shall be pending, or
to the best knowledge of Borrower, threatened.

     

    (w)     
No event has occurred and is continuing, or would result from making the Loan,
which constitutes a Default or an Event of Default.

     

    (x)     
Such other documents as Bank may reasonably require.

     

    Section 4.2.     
Conditions Subsequent to the
Loan.  Not later than fifteen (15) days after the Closing Date,
the Borrower shall deliver to Bank the Companies’ pro forma balance sheet as of
the Closing Date after giving effect to the transactions contemplated by this
Agreement.

     

    Article
V

    Representations
and Warranties

     

    Borrower
represents and warrants to Bank as follows:

     

    Section 5.1.     
Existence and Power; Name;
Chief Executive Office; Inventory and Equipment Locations; Federal Employer
Identification Number.  Borrower is a limited liability
company, duly organized, validly existing and in good standing under the laws of
the State of Minnesota, and is duly licensed or qualified to transact business
in all jurisdictions where the  character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse
Effect.  Borrower has all requisite power and authority to conduct its
business, to own its properties and to execute and deliver, and to perform all
of its obligations under, the Loan Documents to which it is a
party.  During its existence, Borrower has done business solely under
the names set forth in Schedule 5.1 and all of Borrower’s records relating
to its business or the Collateral are kept at the location set forth on
Schedule 5.1.  Borrower’s chief executive office and principal
place of business is located at the address set forth in
Schedule 5.1.  All Inventory and Equipment is located at that
location or at one of the other locations listed in
Schedule 5.1.  Borrower’s federal employer identification number
and organizational identification number are each correctly set forth in
Section 5.1.


    
      
         


      

      
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    Section 5.2.     
Capitalization.  Except
as set forth on Schedule 5.2, the Borrower does not own or control or have
any contract to acquire any ownership interests.

     

    Section 5.3.     
Authorization of Borrowing; No
Conflict as to Law or Agreements.  The execution, delivery and
performance by Borrower of the Loan Documents to which it is a party and the
borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent
or approval of Borrower’s owners; (ii) require any authorization, consent
or approval by, or registration, declaration or filing with, or notice to, any
Governmental Authority, or any third Person, except such authorization, consent,
approval, registration, declaration, filing or notice as has been obtained,
accomplished or given prior to the date hereof; (iii) violate any provision
of any law, rule or regulation (including Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to Borrower or of Borrower’s
Constituent Documents; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material agreement,
lease or instrument to which Borrower is a party or by which it or its
properties may be bound or affected, in each case, the failure of which to
comply with would result in a Material Adverse Effect; or (v) result in, or
require, the creation or imposition of any Lien (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by Borrower.

     

    Section 5.4.     
Legal
Agreements.  This Agreement and the other Loan Documents to
which Borrower is a party, upon their execution and delivery in accordance with
the provisions hereof, will constitute the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors’ rights generally or by general principles of
equity.

     

    Section 5.5.     
Subsidiaries.  Borrower
has no Subsidiaries other than as set forth in Schedule 5.5
hereto.

     

    Section 5.6.     
Financial Condition; No
Adverse Change.  Borrower has furnished to Bank the Companies’
audited financial statements for the fiscal year ended December 31, 2009
and unaudited financial statements as of and for the period ended March 31,
2010, and those statements fairly present in all material respects the
Companies’ financial condition on the dates thereof and the results of their
operations and cash flows for the periods then ended and were prepared in
accordance GAAP, except with respect to the unaudited financial statements, for
the absence of footnotes and year-end adjustments.  Since
March 31, 2010, there has been no change in the Companies’ business,
properties or condition (financial or otherwise) which has had a Material
Adverse Effect (it being understood that the transactions contemplated in the
Stock Purchase Agreement shall not be deemed to have a Material Adverse
Effect.

     

    Section 5.7.     
Litigation.  There
are no actions, suits or proceedings pending or, to Borrower’s knowledge,
threatened against or affecting Borrower or any of its Affiliates or the
properties of Borrower or any Guarantor before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, is reasonably likely to be adversely determined and, if
determined adversely to Borrower or any of Guarantor, would have a Material
Adverse Effect.


    
      
         


      

      
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    Section 5.8.     
Regulation
U.  Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Loan will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.

     

    Section 5.9.     
Taxes.  Borrower
and the Guarantors have paid or caused to be paid to the proper authorities when
due all federal and other material state and local taxes required to be paid by
each of them (other than taxes that are being contested in good faith through
appropriate processes and for which adequate reserves have been established) and
Borrower has no knowledge of any pending assessments or adjustments of its
income tax payable with respect to any year or the income tax payable by any
Guarantor with respect to any year.  Except as set forth in Schedule
5.9, Borrower and the Guarantors have filed all federal, state and local tax
returns which to the knowledge of the Officers of Borrower or the officers of
any Guarantor, as the case may be, are required to be filed, and Borrower and
the Guarantors have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.

     

    Section 5.10.     
Titles and
Liens.  Borrower has good and absolute title to all Collateral
free and clear of all Liens other than Permitted Liens.  No financing
statement naming Borrower as debtor is on file in any office except to perfect
only Permitted Liens.

     

    Section 5.11.     
Intellectual Property
Rights.

     

    (a)     
Owned Intellectual
Property.  Schedule 5.11 (as updated by written notice to
Bank from time to time) contains a complete list of all patents, applications
for patents, trademarks, applications for trademarks, service marks,
applications for service marks, mask works, trade dress and copyrights for which
Borrower is the registered owner (the “Owned Intellectual
Property”).  Except for Immaterial Intellectual Property Rights
or as otherwise disclosed on Schedule 5.11, (i) Borrower owns the
Owned Intellectual Property free and clear of all Liens other than Permitted
Liens, (ii) no Person other than Borrower owns or has been granted any
right in the Owned Intellectual Property, (iii) all Owned Intellectual
Property is valid, subsisting and enforceable, and there are no existing, or to
Borrower’s knowledge, threatened claims challenging Borrower’s ownership of, or
the validity or enforceability of the owned Intellectual Property, and
(iv) Borrower has taken all commercially reasonable action necessary to
maintain the Owned Intellectual Property.

     

    (b)     
Agreements with Employees and
Contractors.  To Borrower’s knowledge, Borrower has entered
into a legally enforceable agreement with each of its employees and
subcontractors obligating each such Person to assign to Borrower, without any
additional compensation, any Intellectual Property Rights created, discovered or
invented by such Person in the course of such Person’s employment or engagement
with Borrower (except to the extent prohibited by law), and further requiring
such Person to cooperate with Borrower, without any additional compensation, in
connection with securing and enforcing any Intellectual Property Rights therein;
provided that the
foregoing shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are reasonably
foreseeable.


    
      
         


      

      
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      (c)     
Intellectual Property Rights
Licensed from Others.  Schedule 5.11 (as updated by
written notice to Bank from time to time) contains a complete list of all
agreements under which Borrower has licensed Intellectual Property Rights from
another Person (“Licensed
Intellectual Property”) other than readily available, non-negotiated
licenses of computer software and other intellectual property used solely for
performing accounting, word processing and similar administrative tasks (“Off-the-shelf
Software”).  Except as disclosed on Schedule 5.11 and in
written agreements copies of which have been given to Bank, Borrower’s licenses
to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs, whether by
written agreement or otherwise.  Except as disclosed on
Schedule 5.11 (as updated by written notice to Bank from time to time),
Borrower is not obligated or under any liability whatsoever to make any payments
of a material nature by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to, any Intellectual Property
Rights.

       

      (d)      Other Intellectual Property Needed
for Business.  Except for Off-the-shelf Software and as
disclosed on Schedule 5.11 (as updated by written notice to Bank from time
to time), the Owned Intellectual Property and the Licensed Intellectual Property
constitute all Intellectual Property Rights used or necessary to conduct
Borrower’s business as it is presently conducted.

       

      (e)      Infringement.  Except
as disclosed on Schedule 5.11 (as updated by written notice to Bank from
time to time), Borrower has no knowledge of, and has not received any written
claim or notice alleging, any Infringement of another Person’s Intellectual
Property Rights (including any written claim that Borrower must license or
refrain from using the Intellectual Property Rights of any third
party).

       

      Section 5.12.  
Plans.  Except as
disclosed to Bank in writing prior to the date hereof, neither Borrower nor any
ERISA Affiliate (i) maintains or has maintained any Pension Plan,
(ii) contributes or has contributed to any Multiemployer Plan or
(iii) provides or has provided post-retirement medical or insurance
benefits with respect to employees or former employees (other than benefits
required under Section 601 of ERISA, Section 4980B of the IRC or
applicable state law).  Neither Borrower nor any ERISA Affiliate has
received any notice that it is not in full compliance with any of the
requirements of ERISA, the IRC or applicable state law with respect to any
Plan.  To Borrower’s knowledge, no Reportable Event exists in
connection with any Pension Plan.  Each Plan which is intended to
qualify under the IRC is so qualified or exempt by the IRS, to Borrower’s
knowledge, and no fact or circumstance exists which is reasonably likely to have
an adverse effect on the Plan’s tax-qualified status.  Neither
Borrower nor any ERISA Affiliate has (i) any accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the IRC) under
any Plan, whether or not waived, (ii) any liability under Section 4201
or 4243 of ERISA for any withdrawal, partial withdrawal, reorganization or other
event under any Multiemployer Plan or (iii) any liability or knowledge of
any facts or circumstances which could result in any liability to the Pension
Benefit Guaranty Corporation, the Internal Revenue Service, the Department of
Labor or any participant in connection with any Plan (other than routine claims
for benefits under the Plan).


      
        
           


        

        
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      Section 5.13.  
Default.  Borrower
is in compliance with all provisions of all agreements, instruments, decrees and
orders to which it is a party or by which it or its Property is bound or
affected, the breach or default of which would have a Material Adverse
Effect.

       

      Section 5.14.  
Environmental
Matters.  (a) To Borrower’s knowledge, there are not
present in, on or under the Premises, any Hazardous Substances except in the
ordinary course of business and in compliance with applicable Environmental
Law.  Except in the ordinary course of business and in compliance with
applicable Environmental Law, no Hazardous Substances have ever been stored,
buried, spilled, leaked, discharged, emitted or released in, on or under the
Premises.

       

      (b)      To
Borrower’s knowledge, Borrower has not disposed of Hazardous Substances except
in the ordinary course of business and in compliance with applicable
Environmental Law.

       

      (c)      Since
January 1, 2005, to Borrower’s knowledge, Borrower has not received any
written notice of any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to the
Premises or Borrower, alleging material liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto.  To Borrower’s knowledge, no
such matter is threatened or impending.

       

      (d)      To
Borrower’s knowledge, Borrower’s businesses are and have in the past always been
conducted in compliance in all material respects with all Environmental Laws and
all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in Borrower’s possession and are in full force and
effect.

       

      (e)      To
Borrower’s best knowledge, the Premises are not and never have been listed on
the National Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal, state or
local list, schedule, log, inventory or database.

       

      (f)      
Borrower has made available to Bank all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating in any way
to the Mortgaged Premises or Borrower’s businesses.

       

      Section 5.15.  
Submissions to
Bank.  The representations and warranties made by Borrower in
this Agreement and all financial and other information provided to Bank by or on
behalf of Borrower in connection with Borrower’s request for the credit
facilities contemplated hereby are (i) true and correct in all material
respects, (ii) do not omit any material fact necessary to make such
representations, warranties or information not misleading in any material
respect when made, and (iii) as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.


      
        
           


        

        
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      Section 5.16.  
Financing
Statements.  Borrower has authorized the filing of financing
statements sufficient when filed to perfect the Security Interest and the other
security interests created by the Security Documents.  When such
financing statements are filed in the offices noted therein, Bank will have a
valid and perfected security interest in all Collateral which is capable of
being perfected by filing financing statements.  None of the
Collateral is or will become a fixture on real estate, unless a sufficient
fixture filing is in effect with respect thereto.

       

      Section 5.17.  
Rights to
Payment.  To Borrower’s best knowledge, each right to payment
and each instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the Account Debtor or other
obligor named therein or in Borrower’s records pertaining thereto as being
obligated to pay such obligation.

       

      Section 5.18.  
Broker
Fees.  No broker’s or finder’s fee or commission will be
payable with respect hereto or any of the transactions contemplated thereby; and
Borrower hereby indemnifies Bank against, and agrees that it will hold Bank
harmless from, any claim, demand, or liability for any such broker’s or finder’s
fees alleged to have been incurred in connection herewith or therewith and any
expenses (including reasonable attorneys’ fees) arising in connection with any
such claim, demand, or liability.

       

      Section 5.19.  
No
Default.  No Default or Event of Default has occurred and is
continuing.

       

      Section 5.20.  
Fraudulent
Transfer.  Borrower is Solvent.  No transfer of
property is being made by Borrower and no obligation is being incurred by
Borrower in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower.

       

      Section 5.21.  
Permits,
Franchises.  Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law and the failure of which to obtain would result in a Material
Adverse Effect.

       

      Section 5.22.  
No
Subordination.  There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s obligations
subject to this Agreement to any other obligation of Borrower.

       

      Section 5.23.  
Compliance with Laws;
OFAC.  (a) Borrower and the Guarantors are in compliance
with the requirements of all foreign, federal, state and local laws, rules and
regulations applicable to or pertaining to their Property or business operations
(including, without limitation, the Occupational Safety and Health Act of 1970,
the Americans with Disabilities Act of 1990, and laws and regulations
establishing quality criteria and standards for air, water, land and toxic or
hazardous wastes and substances), non-compliance with which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect.  Neither Borrower nor any Guarantor has received notice to the
effect that its operations are not in compliance with any of the requirements of
applicable federal, state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.


      
        
           


        

        
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      (b)     
(i) Borrower is in compliance with the requirements of all OFAC Sanctions
Programs applicable to it; (ii) each Guarantor is in compliance with the
requirements of all OFAC Sanctions Programs applicable to such Guarantor; (iii)
Borrower has provided to Bank all information regarding Borrower and its
Affiliates and the Guarantors necessary for Bank to comply with all applicable
OFAC Sanctions Programs; and (iv) to the best of Borrower’s knowledge,
neither Borrower nor any of its Affiliates or the Guarantors is, as of the date
hereof, named on the current OFAC SDN List.

       

      Section 5.24.   
Investment
Company.  Borrower is not an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

       

      Section 5.25.  
Stock Purchase
Agreement.  Borrower has provided to Bank a true and correct
copy of the Stock Purchase Agreement.  The Stock Purchase Agreement is
in full force and effect and has not, except as reflected in amendments provided
to Bank, been amended or modified in any material respect from the version so
delivered to Bank, and no material condition to the effectiveness thereof or the
obligations of the Seller, Parent, Holdings or Borrower thereunder have been
waived, except to the extent approved by Bank, and Borrower is not aware of any
default thereunder.  No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency, or instrumentality, nor any approval or consent of any other Person, is
or will be necessary to the valid execution, delivery, or performance by
Borrower of the Stock Purchase Agreement or of any other instrument or document
executed and delivered in connection therewith, except for such thereof that
have been heretofore obtained and remain in full force and effect.

       

      Article
VI

      Covenants

       

      So long
as the Obligations shall remain unpaid, or the Credit Facility shall remain
outstanding, Borrower will comply with the following requirements, unless Bank
shall otherwise consent in writing:

       

      Section 6.1.     
Punctual
Payments.  Borrower shall punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at the
times and place and in the manner specified therein.


      
        
           


        

        
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      Section 6.2.     
Reporting
Requirements.  Borrower will deliver, or cause to be delivered,
to Bank each of the following, which shall be in form and detail reasonably
acceptable to Bank:

       

      (a)      
Financial
Statements.

       

      (i)      As
soon as available, and in any event within 90 days after the end of each fiscal
year of Parent (or within 120 days in the case of filing Parent’s annual Form
10-K with the Securities and Exchange Commission), Borrower will deliver, or
cause to be delivered, to Bank, audited financial statements of Parent with the
unqualified opinion of independent certified public accountants selected by
Parent and acceptable to Bank, which annual financial statements shall include
Parent’s balance sheet as at the end of such fiscal year and the related
statements of Parent’s income, reconciliation of retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidated basis to
include Parent’s Subsidiaries and any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (A) copies of all
management letters prepared by such accountants; and (B) a certificate of
the chief financial officer of Parent stating that such financial statements
have been prepared in accordance with GAAP, fairly represent Parent’s financial
position and the results of its operations, and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default and, if so,
stating in reasonable detail the facts with respect thereto.

       

      (ii)     As
soon as available, and in any event within 45 days after the end of each fiscal
quarter of Parent, Borrower will deliver, or cause to be delivered, to Bank,
Parent’s internally-prepared financial statements, which financial statements
shall include Parent’s balance sheet as at the end of such fiscal quarter and
the related statements of Parent’s income, reconciliation of retained earnings
and cash flows for the fiscal quarter then ended, prepared on a consolidated
basis to include Parent’s Subsidiaries and any Affiliates, all in reasonable
detail and prepared in accordance with GAAP.

       

      (iii)    As soon as
available, and in any event within 60 days after the end of each fiscal year of
Borrower, Borrower will deliver to Bank an unaudited/internal balance sheet and
statements of income and reconciliation of retained earnings of the Companies as
at the end of and for such fiscal year, prepared, if Bank so requests, on a
consolidating and consolidated basis to include any Subsidiaries, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments and fairly representing in all material respects
the Companies’ and their Subsidiaries’ financial position and the results of
their operations.

       

      (iv)    As soon as
available, and in any event within 30 days after the end of each fiscal quarter
of Borrower, Borrower will deliver to Bank an unaudited/internal balance sheet
and statements of income and reconciliation of retained earnings of the
Companies as at the end of and for such fiscal quarter and for the year to date
period then ended, prepared, if Bank so requests, on a consolidating and
consolidated basis to include any Subsidiaries, in reasonable detail and stating
in comparative form the figures for the corresponding date and periods in the
previous year, all prepared in accordance with GAAP, subject to year-end audit
adjustments and fairly representing in all material respects the Companies’ and
their Subsidiaries’ financial position and the results of their
operations.


      
        
           


        

        
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      (b)      Other
Information.  Borrower will, or cause Parent to, deliver to
Bank the following documents at the following times in form reasonably
satisfactory to Bank:

      


      
        
          
            
              	
                      Quarterly

                    	
                      (i)

                    	
                      a
      certificate of the chief financial officer of Borrower, substantially in
      the form of Exhibit B-1 hereto stating (i) whether or not such
      officer has knowledge of the occurrence of any Default or Event of Default
      not theretofore reported and remedied and, if so, stating in reasonable
      detail the facts with respect thereto, and (ii) all relevant facts in
      reasonable detail to evidence, and the computations as to, whether or not
      Borrower is compliance with the Financial Covenants set forth in
      Section 6.3(a) and other covenants contained in this
      Agreement,

                    
	 
      	 
      	 
      
	 
      	
                      (ii)

                    	
                      a
      certificate of the chief financial officer of Parent, substantially in the
      form of Exhibit B-2 hereto stating all relevant facts in reasonable
      detail to evidence, and the computations as to, whether or not Parent is
      compliance with the Financial Covenants set forth in
      Section 6.3(b),

                    
	 
      	 
      	 
      
	
                      Upon
      request by Bank

                    	
                      (iii)

                    	
                      such
      other reports or information as to the Collateral, or the financial
      condition of Borrower, or otherwise, as Bank may reasonably
      request.

                    


            

          

        

      

       

      (c)      Projections.  Within
30 days after the beginning of each fiscal year of Parent, Borrower will
deliver, or will cause Parent to deliver, to Bank the projected balance sheets
and income statements for each month of such year for Parent and its
Subsidiaries on a consolidating basis and for Borrower, each in reasonable
detail, representing Borrower’s good faith projections and certified by the
chief financial officer of Borrower and Parent, as applicable, as being the most
accurate projections available and identical to the projections used by Borrower
and Parent for internal planning purposes, together with a statement of
underlying assumptions and such supporting schedules and information as Bank may
in its discretion reasonably require.

       

      (d)      Litigation.  Immediately
after the commencement thereof, Borrower will deliver to Bank notice in writing
of all litigation and of all proceedings before any governmental or regulatory
agency affecting Borrower (i) of the type described in Section 5.14(c)
or (ii) which seek a monetary recovery against Borrower in excess of
$500,000.

       

      (e)      Defaults.  As
promptly as practicable (but in any event not later than five business days)
after an Officer of Borrower obtains knowledge of the occurrence of any Default
or Event of Default, Borrower will deliver to Bank notice of such occurrence,
together with a detailed statement by a responsible Officer of Borrower of the
steps being taken by Borrower to cure the effect thereof.


      
        
           


        

        
          - 26
-

          
            

          

        

        
           


        

      

       

      (f)      
Plans.  As
soon as possible, and in any event within 30 days after Borrower knows or has
reason to know that any Reportable Event with respect to any Pension Plan has
occurred, Borrower will deliver to Bank a statement of the chief financial
officer of Borrower setting forth details as to such Reportable Event and the
action which Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation. As soon as possible, and in any event within 10 days after Borrower
fails to make any quarterly contribution required with respect to any Pension
Plan under Section 412(m) of the IRC, Borrower will deliver to Bank a
statement of the chief financial officer of Borrower setting forth details as to
such failure and the action which Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation.  As soon as
possible, and in any event within 10 days after Borrower knows or has reason to
know that it has or is reasonably expected to have any liability under
Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan, Borrower will
deliver to Bank a statement of the chief financial officer of Borrower setting
forth details as to such liability and the action which Borrower proposes to
take with respect thereto.

       

      (g)      Disputes.  Promptly
upon knowledge thereof, Borrower will deliver to Bank notice of (i) any
disputes or claims by Borrower’s customers exceeding $250,000
individually or $500,000 in the aggregate during any fiscal year; or
(ii) any goods returned to or recovered by Borrower with a value exceeding
$250,000 from any individual Account Debtor or $500,000 in the aggregate from
all Account Debtors.

       

      (h)      Officers and
Directors.  Promptly upon knowledge thereof, Borrower will
deliver to Bank notice of any change in the persons constituting Borrower’s
Officers and Directors or Management.

       

      (i)      
Collateral.  Promptly
upon knowledge thereof, Borrower will deliver to Bank notice of any loss of or
material damage to any material portion of the Collateral or of any substantial
adverse change in any material portion of the Collateral or the prospect of
payment thereof.

       

      (j)      
Commercial Tort
Claims.  Promptly upon knowledge thereof, Borrower will deliver
to Bank notice of any commercial tort claims it may bring against any person,
including the name and address of each defendant, a summary of the facts, an
estimate of Borrower’s damages, copies of any complaint or demand letter
submitted by Borrower, and such other information as Bank may
request.

       

      (k)      
Intellectual Property.

       

      (i)     
Borrower will give Bank 30 days prior written notice of its intent to acquire
material Intellectual Property Rights; except for transfers permitted under
Section 6.19, Borrower will give Bank 30 days prior written notice of its
intent to dispose of material Intellectual Property Rights; and upon request,
shall provide Bank with copies of all applicable documents and
agreements.

       

      (ii)     Promptly
upon knowledge thereof, Borrower will deliver to Bank notice of (A) any
Infringement of its Intellectual Property Rights by others, (B) claims that
Borrower is Infringing another Person’s Intellectual Property Rights and
(C) any threatened cancellation, termination or material limitation of its
Intellectual Property Rights.


      
        
           


        

        
          - 27
-

          
            

          

        

        
           


        

      

       

      (iii)    Promptly upon
receipt, Borrower will give Bank copies of all registrations and filings with
respect to its Intellectual Property Rights.

       

      (l)       
Reports to
Owners.  Promptly upon their distribution, Borrower will
deliver to Bank copies of all financial statements, reports and proxy statements
which Parent shall have sent to its shareholders.

       

      (m)      SEC
Filings.  Promptly after the sending or filing thereof,
Borrower will deliver to Bank copies of all regular and periodic reports which
Parent shall file with the Securities and Exchange Commission or any national
securities exchange.

       

      (n)      Violations of
Law.  Promptly upon knowledge thereof, Borrower will deliver to
Bank notice of Borrower’s violation of any law, rule or regulation, the
non-compliance with which could materially and adversely affect Borrower’s
business or its financial condition.

       

      (o)      Contingent Purchase Price
Payments.  Promptly upon notice thereof, Borrower will provide
notice to Bank of any Contingent Purchase Price Payments that are due (including
any accelerated Contingent Purchase Price Payments).

       

      (p)      Other
Reports.  From time to time, with reasonable promptness,
Borrower will deliver to Bank any and all receivables schedules, collection
reports, deposit records, Equipment schedules, copies of invoices to Account
Debtors, shipment documents and delivery receipts for goods sold, and such other
material, reports, records or information as Bank may reasonably
request.

       

      Section 6.3.     
Financial
Covenants.

       

      (a)      
Borrower’s Financial
Covenants.

       

      (i)      Minimum Net Income After Taxes.
(A) Borrower, together with
the other Companies, will maintain, as of the last day each fiscal quarter
(other than the  fiscal quarter ending August 31, 2010), Net Income
After Taxes of not less than $1.00 for the four fiscal quarters then
ended.

       

      (B)     Borrower,
together with other Companies, will maintain, as of August 31, 2010, Net Income
After Taxes of not less than $500,000 for the fiscal quarter ending August 31,
2010.

       

      (C)     Borrower,
together with other Companies, will not, at any time, have Net Income After
Taxes less than or
equal to $1.00 for any two (2) consecutive fiscal quarters.


      
        
           


        

        
          - 28
-

          
            

          

        

        
           


        

      

       

      For
purposes of this Section 6.3(a)(i) Net Income After Taxes shall be
determined, to the extent that the Borrower is treated as a pass-through entity
for tax purposes, by calculating Net Income before taxes for the four fiscal
quarters then ended minus dividends and other
distributions paid during the same four fiscal quarters to each of Holdings and
any other member of the Borrower in connection with its federal income tax
liability (and, if applicable, state income tax liability) attributable to its
share of Borrower’s taxable income (determined in accordance with the Code)
(including estimated tax payments determined in good faith by Borrower which are
required to be made by its members with respect thereto).

       

      (ii)     Minimum Quick
Ratio.  Borrower, together with the other Companies, shall not,
as of the last day of each fiscal quarter, permit its Quick Ratio to be less
than (i) 1.1 to 1.0 for each fiscal quarter ending during the period from
the Closing Date through and including the fiscal quarter ending May 31,
2011, and (ii) 1.25 to 1.0 for each fiscal quarter ending after
June 1, 2011.

       

      (iii)    Fixed Charge Coverage
Ratio.  As of the last day of each fiscal quarter of Borrower
ending during the relevant period set forth below (commencing with the fiscal
quarter ending November 30, 2010), Borrower, together with the other Companies,
will maintain a Fixed Charge Coverage Ratio of not less than the corresponding
ratio set forth opposite such period:

      


      
        
          
            
              
                
                  
                    
                      	
                              Period(s) Ending

                            	 	
                              Fixed Charge Coverage

                              Ratio shall not be less
    than:

                            
	
                              Fiscal
      quarters ending November 30, 2010 through and including May 31,
      2011

                            	 	
                              1.20
      to 1.0

                            
	
                              August 31,
      2011

                            	 	
                              1.30
      to 1.0

                            
	
                              November
      30, 2011

                            	 	
                              1.40
      to 1.0

                            
	
                              January 31,
      2012 and each fiscal quarter ending thereafter

                            	 	
                              1.50
      to
1.0

                            


                    

                  

                

              

            

          

        

      

       

      (iv)    Capital
Expenditures.  Borrower, together with the other Companies,
will not incur financed or unfinanced Capital Expenditures of more than
$3,000,000 in the aggregate during any fiscal year.

       

      (b)      
Parent’s Financial
Covenants.

       

      (i)      Minimum Net Income After Taxes.
Parent, together with its Subsidiaries, will maintain, as of the last day
of each fiscal quarter, Net income after taxes of not less than $1.00 for the
four fiscal quarters then ended.

       

      (ii)     Leverage
Ratio.  Parent, together with its Subsidiaries, shall not, as
the last day of each fiscal quarter of Parent, permit the ratio of Funded
Debt as of the last day of such fiscal quarter, to EBITDA for the four
fiscal quarters then ended to be greater than 2.0 to 1.0.


      
        
           


        

        
          - 29
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      Section 6.4.     
Permitted Liens; Financing
Statements.

       

      (a)     
Borrower will not create, incur or suffer to exist any Lien upon or of any of
its assets, now owned or hereafter acquired, to secure any Indebtedness; excluding, however, from the
operation of the foregoing, the following (collectively, “Permitted
Liens”):

       

      (i)     
covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with Borrower’s business or operations as
presently conducted;

       

      (ii)     Liens in
existence on the date hereof and listed in Schedule 6.4 hereto securing
Indebtedness for borrowed money permitted under Section 6.5;

       

      (iii)    the Security
Interest and Liens created by the Security Documents;

       

      (iv)    liens of
carriers, warehousemen, mechanics, materialmen, vendors, and landlords and other
similar liens imposed by law incurred in the ordinary course of business for
sums not overdue or being contested in good faith, provided that adequate
reserves for the payment thereof have been established in accordance with
GAAP;

       

      (v)    deposits under
workers’ compensation, unemployment insurance and social security laws or to
secure the performance of bids, tenders, contracts (other than for the repayment
of borrowed money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar bonds in the
ordinary course business;

       

      (vi)    banker’s liens
and similar liens (including set-off rights) in respect of bank
deposits;

       

      (vii)   purchase money Liens
incurred in connection with Capital Expenditures otherwise permitted pursuant to
this Agreement; provided that such Liens attach only to the Equipment acquired
thereby;

       

      (viii)  Liens incurred in
connection with extensions, renewals or refinancings of the indebtedness secured
by Liens of the type described above;

       

      (ix)    Liens incurred
in connection with leases, subleases, licenses and sublicenses granted, in the
ordinary course of Borrower’s business, to Persons not interfering in any
material respect with the business of Borrower and its Subsidiaries and any
interest or title of a lessee or licensee under any such lease, sublease,
license or sublicense; and


      
        
           


        

        
          - 30
-

          
            

          

        

        
           


        

      

       

      (x)     so long as
the Bond L/C has not been issued, Liens on a cash of Borrower to secure the
letter of credit issued by M&I Bank to the Trustee; provided, that the aggregate
amount of such cash does not at any one time exceed 105% of the reimbursement
obligations under such letter of credit.

       

      (b)      
Borrower will not amend any financing statements in favor of Bank except as
permitted by law.  Any authorization by Bank to any Person to amend
financing statements in favor of Bank shall be in writing.

       

      Section 6.5.    
Indebtedness.  Borrower
will not incur, create, assume or permit to exist any Indebtedness or liability
on account of deposits or advances or any Indebtedness for borrowed money or
letters of credit issued on Borrower’s behalf, or any other Indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations,
except:

       

      (a)      Indebtedness
arising hereunder;

       

      (b)     
Indebtedness of Borrower in existence on the date hereof and listed in
Schedule 6.5 hereto;

       

      (c)     
Indebtedness relating to Permitted Liens;

       

      (d)     
Indebtedness of Borrower arising from the endorsement of instruments for
collection in the ordinary course of business;

       

      (e)     
Indebtedness of Borrower under initial or successive refinancings of any
Indebtedness permitted by clause (b) or (c) above, provided that (i) the
principal amount of any such refinancing does not exceed the principal amount of
the Indebtedness being refinanced and (ii) the material terms and
provisions of any such refinancing (including maturity, redemption, prepayment,
default and subordination provisions) are no less favorable to Bank than the
Indebtedness being refinanced;

       

      (f)      
Indebtedness evidenced by the Bond Documents and the Bond L/C;

       

      (g)     
Indebtedness of Borrower which may be deemed to exist in connection with any
Contingent Purchase Price Payments;

       

      (h)      so
long as the Bond L/C has not been issued, Indebtedness owing to M&I Bank so
long as such Indebtedness is secured by a Lien permitted pursuant to
Section 6.4(a)(x) hereof; and

       

      (i)       any
Hedging Obligations in connection with bona fide hedging activities in the
ordinary course of business and not for speculative purposes.

       

      Section 6.6.    
Guaranties.  Borrower
will not assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by Borrower for deposit or collection or
similar transactions in the ordinary course of business.


      
        
           


        

        
          - 31
-

          
            

          

        

        
           


        

      

       

      Section 6.7.    
Investments and
Subsidiaries.  Borrower will not purchase or hold beneficially
any stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including any partnership or joint venture,
except:

       

      (a)     
investments in direct obligations of the United States of America or any agency
or instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America having a maturity of one year or
less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
Standard & Poor’s Corporation or “P-1” or “P-2” by Moody’s Investors Service
or certificates of deposit or bankers’ acceptances having a maturity of one year
or less issued by members of the Federal Reserve System having deposits in
excess of $100,000,000 (which certificates of deposit or bankers’ acceptances
are fully insured by the Federal Deposit Insurance Corporation) (each of the
foregoing, collectively, “Cash
Equivalents”);

       

      (b)     
travel advances or loans to Borrower’s Officers and employees not exceeding at
any one time an aggregate of $50,000; and

       

                 (c)       current
investments in the Subsidiaries in existence on the date hereof and listed in
Schedule 5.5 hereto.

       

      Section 6.8.    
Dividends and
Distributions.  Borrower will not declare or pay any dividends
(other than dividends payable solely in stock of Borrower) on any class of its
stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly; provided, however, that the
foregoing shall not operate or prevent:

       

      (i)      the
making of any dividends or distributions by any Subsidiary to
Borrower,

       

      (ii)     Borrower may
make dividends and distributions during any fiscal year in amounts necessary to
allow Holdings to make payments in respect of its federal income tax liability
(and, if applicable, state income tax liability) attributable to its share of
Borrower’s taxable income (determined in accordance with the Code) (including
estimated tax payments determined in good faith by Borrower which are required
to be made by its members with respect thereto) so long as Borrower shall have
elected to be treated as an limited liability company or other pass-through
entity for income tax purposes, and

       

      (iii)    the making
of any other dividends or distributions to Holdings so long as both before and
after giving effect to such dividends or other distributions (A) no Default
or Event of Default has occurred and is continuing and (B) Borrower is in
compliance with the Financial Covenants set forth in Section 6.3(a)
hereof.


      
        
           


        

        
          - 32
-

          
            

          

        

        
           


        

      

       

      Section 6.9.     
Salaries.  Borrower
will not pay excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation to the extent that such payment would
cause an Event of Default.

       

      Section 6.10.  
Performance by
Bank.  If Borrower at any time fails to perform or observe any
of the foregoing covenants contained in this Article VI or elsewhere
herein, and if such failure shall continue for a period of ten calendar days
after Bank gives Borrower written notice thereof (or in the case of the
agreement contained in Section 6.16, immediately upon the occurrence of
such failure, without notice or lapse of time), Bank may, but need not, perform
or observe such covenant or covenants on behalf and in the name, place and stead
of Borrower (or, at Bank’s option, in Bank’s name) and may, but need not, take
any and all other actions which Bank may reasonably deem necessary to cure or
correct such failure (including the payment of taxes, the satisfaction of Liens,
the performance of obligations owed to Account Debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
Borrower shall thereupon pay to Bank within fifteen (15) days after written
demand the amount of all monies expended and all costs and expenses (including
reasonable attorneys’ fees and legal expenses) incurred by Bank in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Bank, together with interest thereon from the date
expended or incurred at the Default Rate.  To facilitate Bank’s
performance or observance of such covenants of Borrower, Borrower hereby
irrevocably appoints Bank, or Bank’s delegate, acting alone, as Borrower’s
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by Borrower under this
Section 6.10.

       

      Section 6.11.  
Books and Records; Inspection
and Examination.  Borrower will keep accurate books of record
and account for itself pertaining to the Collateral and pertaining to Borrower’s
business and financial condition and such other matters as Bank may from time to
time reasonably request in which true and complete entries will be made in
accordance with GAAP and, upon Bank’s request, will permit any officer,
employee, attorney or accountant for Bank to audit, review, make extracts from
or copy any and all company and financial books and records of Borrower during
ordinary business hours and upon one Business Day’s advance notice (unless a
Default Period exists in which case no notice shall be required), and to discuss
Borrower’s affairs with any of its Directors, Officers, and/or accounting
personnel.  Borrower hereby irrevocably authorizes all accountants and
third parties to disclose and deliver to Bank, at Borrower’s expense, all
financial information, books and records, work papers, management reports and
other information in its possession regarding Borrower.  Borrower will
permit Bank, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral or any other property of Borrower during ordinary
business hours and upon one Business Day’s advance notice (unless a Default
Period exists in which case no notice shall be required).


      
        
           


        

        
          - 33
-

          
            

          

        

        
           


        

      

       

      Section 6.12.   Account
Verification.  Bank may at any time and from time to time upon
written notice to Borrower send or require Borrower to send requests for
verification of accounts and amounts owed to Account Debtors and other
obligors.  Bank may also at any time an Event of Default has occurred
and is continuing and from time to time telephone Account Debtors and other
obligors to verify accounts and send such Account Debtors and other obligors
notification of the assignment of Accounts to Bank.

       

      Section 6.13.  
Compliance with Laws;
OFAC.

       

      (a)     
Borrower will (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition and (ii) use and keep the
Collateral, and require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance.

       

      (b)     
Without limiting the foregoing undertakings, Borrower specifically agrees that
it will comply with all applicable Environmental Laws and obtain and comply with
all permits, licenses and similar approvals required by any Environmental Laws,
and will not generate, use, transport, treat, store or dispose of any Hazardous
Substances except in the ordinary course of business and in compliance with
applicable Environmental Law.

       

      (c)     
(i) Borrower shall at all times comply with the requirements of all OFAC
Sanctions Programs applicable to Borrower and shall cause each Guarantor to
comply with the requirements of all OFAC Sanctions Programs applicable to such
Guarantor; (ii) Borrower shall provide Bank any information regarding
Borrower, its Affiliates, and each Guarantor necessary for Bank to comply with
all applicable OFAC Sanctions Programs; subject however, in the case of
Affiliates and Guarantors, to Borrower’s ability to provide information
applicable to them; and (iii) if Borrower obtains actual knowledge or
receives any written notice that Borrower, any Affiliate or any Guarantor is
named on the then current OFAC SDN List (such occurrence, an “OFAC Event”), Borrower shall
promptly (x) give written notice to Bank of such OFAC Event, and
(y) comply with all applicable laws with respect to such OFAC Event
(regardless of whether the party included on the OFAC SDN List is located within
the jurisdiction of the United States of America), including the OFAC Sanctions
Programs, and Borrower hereby authorizes and consents to Bank taking any and all
steps Bank deems necessary, in its sole but reasonable discretion, to avoid
violation of all applicable laws with respect to any such OFAC Event, including
the requirements of the OFAC Sanctions Programs (including the freezing and/or
blocking of assets and reporting such action to OFAC).

       

      Section 6.14.  
Payment of Taxes and Other
Claims.  Borrower will pay or discharge, when due, (a) all
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, upon any properties belonging to it (including the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach thereto,
(b) all federal, state and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a Lien upon any properties of Borrower; provided that Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.


      
        
           


        

        
          - 34
-

          
            

          

        

        
           


        

      

       

      Section 6.15.   
Maintenance of
Properties.

       

      (a)     
Borrower will keep and maintain the Collateral and all of its other properties
necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair any
worn, defective or broken parts; provided that nothing in this
Section 6.15 shall prevent Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in Borrower’s
commercially reasonable judgment, desirable in the conduct of Borrower’s
business and not disadvantageous in any material respect to
Bank.  Borrower will take all commercially reasonable steps necessary
to protect and maintain its Intellectual Property Rights, other than Immaterial
Intellectual Property Rights.

       

      (b)     
Borrower will defend the Collateral against all Liens, claims or demands of all
Persons (other than Bank) claiming the Collateral or any interest
therein.  Borrower will keep all Collateral free and clear of all
Liens except Permitted Liens.  Borrower will take all commercially
reasonable steps necessary to prosecute any Person Infringing its Intellectual
Property Rights and to defend itself against any Person accusing it of
Infringing any Person’s Intellectual Property Rights.

       

      Section 6.16.  
Insurance.  Borrower
will obtain and at all times maintain insurance with insurers believed by
Borrower to be responsible and reputable, in such amounts and against such risks
as may from time to time be required by Bank, but in all events in such amounts
and against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which
Borrower operates.  Without limiting the generality of the foregoing,
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as Bank
may reasonably request, with any loss payable to Bank to the extent of its
interest, and all policies of such insurance shall contain a lender’s loss
payable endorsement for Bank’s benefit.  All policies of liability
insurance required hereunder shall name Bank as an additional
insured.

       

      Section 6.17.  
Preservation of
Existence.  Borrower will preserve and maintain its existence
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its business and shall conduct its business in an orderly,
efficient and regular manner.

       

      Section 6.18.  
Delivery of Instruments,
etc.  Upon request by Bank, Borrower will promptly deliver to
Bank in pledge all instruments, documents and chattel paper having a face value
in excess of $25,000 constituting Collateral, duly endorsed or assigned by
Borrower.


      
        
           


        

        
          - 35
-

          
            

          

        

        
           


        

      

       

      Section 6.19.  
Sale or Transfer of Assets;
Suspension of Business Operations.  Borrower will not sell,
lease, assign, transfer or otherwise dispose of (i) the stock of any
Subsidiary, (ii) all or a substantial part of its assets, or (iii) any
Collateral or any interest therein (whether in one transaction or in a series of
transactions) to any other Person other than (v) the sale of Inventory in
the ordinary course of business, (w) dispositions of obsolete, surplus,
worn or nonfunctional Equipment, (x) dispositions of cash or Cash
Equivalents not otherwise prohibited under this Agreement, (y) transfers of
Intellectual Property Rights as permitted under this Section 6.19 and
(z) dispositions of other assets in any given fiscal year in an aggregate
amount not to exceed $250,000.  Borrower will not liquidate, dissolve
or suspend business operations.  Borrower will not transfer any part
of its ownership interest in any Intellectual Property Rights except for
transfers of Immaterial Intellectual Property Rights and licensing or
sublicensing of Intellectual Property Rights in the ordinary course of
Borrower’s business.  If Borrower transfers any Intellectual Property
Rights for value, other than transfers of Immaterial Intellectual Property
Rights and licensing or sublicensing of Intellectual Property Rights in the
ordinary course of Borrower’s business, Borrower will pay over the proceeds to
Bank for application to the Obligations in accordance with Section 2.5(b)
hereof.  Bank hereby agrees that in the event Borrower licenses or
sublicenses any Intellectual Property Rights pursuant to the terms of this
Section 6.19, following written demand of Borrower, Bank shall execute a
form of estoppel reasonably acceptable in form and substance to Borrower and
Bank pursuant to which Bank shall represent that upon its exercise of any of its
rights or remedies hereunder or under any other Loan Document with respect to
the licensed or sublicensed Intellectual Property Rights, including a
foreclosure under any Security Document, so long as there shall then exist no
breach, default, or event of default on the part of the related licensee or
sublicensee, as applicable, which breach, default or event of default has
continued beyond any cure periods provided in the license or sublicense, Bank
shall not extinguish or terminate the interest of the licensee or sublicensee,
as applicable, by reason of such foreclosure.

       

      Section 6.20.  
Consolidation and Merger;
Asset Acquisitions.  Borrower will not consolidate with or
merge into any Person, or permit any other Person to merge into Borrower, or
acquire (in a transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all the assets of any other Person.

       

      Section 6.21.  
Sale and
Leaseback.  Borrower will not enter into any arrangement,
directly or indirectly, with any other Person whereby Borrower shall sell or
transfer any real or personal property, whether now owned or hereafter acquired,
and then or thereafter rent or lease as lessee such property or any part thereof
or any other property which Borrower intends to use for substantially the same
purpose or purposes as the property being sold or transferred.

       

      Section 6.22.   Restrictions on Nature of
Business.  Borrower will not engage in any line of business
materially different from that presently engaged in by Borrower or reasonably
incidental thereto and will not purchase, lease or otherwise acquire assets not
related to its business.

       

      Section 6.23.  
Accounting.  Borrower
will not adopt any material change in accounting principles other than as
required by GAAP.  Borrower will not adopt, permit or consent to any
change in its fiscal year.

       

      Section 6.24.  
Plans.  Unless
disclosed to Bank pursuant to Section 5.12, neither Borrower nor any ERISA
Affiliate will (i) adopt, create, assume or become a party to any Pension
Plan, (ii) incur any obligation to contribute to any Multiemployer Plan,
(iii) incur any obligation to provide post-retirement medical or insurance
benefits with respect to employees or former employees (other than benefits
required by law) or (iv) amend any Plan in a manner that would materially
increase its funding obligations.


      
        
           


        

        
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      Section 6.25.  
Place of Business;
Name.  Borrower will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business
location.  Borrower will not permit any tangible Collateral or any
records pertaining to the Collateral to be located in any state or area in
which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest.  Borrower will not change its name or
jurisdiction of organization without giving Bank at least ten (10) days
prior written notice.

       

      Section 6.26.  
Constituent
Documents.  Borrower will not amend its Constituent Documents
in any respect that will result in a Material Adverse Effect.

       

      Section 6.27.  
Transactions With
Affiliates.  Borrower will not directly or indirectly enter
into or permit to exist any transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower’s business, upon
fair and reasonable terms, that are fully disclosed to Bank, and that are no
less favorable to Borrower than would be obtained in an arm’s length transaction
with a non-Affiliate.

       

      Section 6.28.  
Use of
Funds.  Borrower will not use any of the proceeds of the Loan
except for its working capital and general corporate purposes not in
contravention of any law or of any Loan Document.

       

      Section 6.29.  
Subordination of
Debt.  All obligations of Borrower to any Guarantor or any
Affiliate of Borrower (other than amounts
arising pursuant to a tax sharing agreement among the Companies and Parent)
permitted hereunder shall be subordinated in right of repayment to all
obligations of Borrower to Bank, as evidenced by and subject to the terms of
subordination agreements in form and substance satisfactory to
Bank.

       

      Section 6.30.  
Management Fees; Contingent
Purchase Price Payments.  (a) Management
Fees.  The Companies, collectively, will not pay management
fees to Parent in an amount greater than $2,500,000 during any one fiscal year
and, with respect solely to operating expenses paid by Parent on behalf of the
Companies in the ordinary course of business of such parties and in line with
historical practices, will reimburse Parent only for the reasonable portion of
any such expenses; provided during any Default
Period, Borrower shall not make any payments of management fees or expense
reimbursements and any such items that would otherwise be paid notwithstanding
such Default Period shall be accrued until such time, if any, following the
expiration of such Default Period.  Any management fees paid by
Borrower to Parent shall be paid no more frequently than once per
month.

       

      (b)      Contingent Purchase Price
Payments.  The Borrower will not make Contingent Purchase Price
Payments unless and so long as (A) no Default or Event of Default has
occurred and is continuing or would immediately result therefrom and
(B) both before and after giving effect to such Contingent Purchase Price
Payments, the Borrower is in compliance with the Financial Covenants set forth
in Section 6.3(a).  In the event that Borrower is prohibited from
making the Contingent Purchase Price Payments, Borrower shall cause Parent to
make such payments in accordance with its guaranty delivered to Seller under the
Stock Purchase Agreement.


      
        
           


        

        
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      Section 6.31.  
Maintenance of Accounts with
Bank.  No later than 120 days after the Closing Date,
Borrower shall, and shall cause each of the other Companies to, at all times,
maintain its primary depository accounts with Bank pursuant to account
agreements and terms mutually acceptable to Borrower and Bank.

       

      Article
VII

      Events
of Default, Rights and Remedies

       

      Section 7.1.    
Events of
Default.  “Event of Default”, wherever
used herein, means any one of the following events:

       

      (a)     
 Default in the payment when due of all or any part of the principal of the
Loan (whether at the stated maturity thereof or at any other time provided for
in this Agreement), or default for a period of three (3) Business Days in
the payment when due of any interest, fee or other Obligation
payable hereunder or under any other Loan Document;

       

      (b)     
Default not otherwise listed in this Section 7.1 in the performance, or
breach, of any covenant or agreement of Borrower contained in this Agreement or
in any other Loan Document, and (i) with respect to any such default under
Section 6.2, such default shall continue unremedied for a period of five
(5) days, and (ii) and with respect to any such default under
Sections 6.13, 6.14, 6.15 and 6.18, such default shall continue unremedied
for twenty (20) days after the earlier of (A) the date upon which an
Officer or Director of Borrower obtained actual knowledge of such failure or
(B) the date upon which written notice thereof is given to Borrower by
Bank.

       

      (c)      
A Change of Control shall occur;

       

      (d)      An
Insolvency Proceeding is commenced by Borrower or any Guarantor;

       

      (e)      An
Insolvency Proceeding is commenced against Borrower or any Guarantor, and any of
the following events occur:  (a) Borrower or such Guarantor
consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within sixty (60) calendar days of the date of the filing
thereof; provided that,
during the pendency of such period, Bank shall be relieved of its obligations to
extend credit hereunder, (d) an interim trustee is appointed to take
possession of all or any substantial portion of the properties or assets of, or
to operate all or any substantial portion of the business of, Borrower or any
such Guarantor, or (e) an order for relief shall have been entered
therein;

       

      (f)       Any
material portion of Borrower’s or any Guarantor’s assets is attached, seized,
subjected to a writ or distress warrant, levied upon, or comes into the
possession of any third Person;

       

      (g)     
Borrower or any Guarantor is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;


      
        
           


        

        
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      (h)      A
notice of Lien, levy, or assessment is filed of record with respect to any of
Borrower’s or any Guarantor’s assets by the United States, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, or if any taxes or debts owing at any time hereafter to any
one or more of such entities becomes a Lien, whether choate or otherwise, upon
any of Borrower’s or any Guarantor’s assets valued in excess of $500,000 and the
same is not paid before such payment is delinquent;

       

      (i)      
This Agreement or any other Loan Document that purports to create a Lien, shall,
for any reason, fail or cease to create a valid and perfected and, except to the
extent permitted by the terms hereof or thereof, first priority Lien on or
security interest in the Collateral covered hereby or thereby; provided that any such event
described in this clause (i) shall not be an Event of Default for so long
as Borrower is diligently assisting Bank, as determined by Bank in its sole and
absolute discretion, in correcting the applicable problem;

       

      (j)      
Any material provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower, or by any
Governmental Authority having jurisdiction over Borrower, seeking to establish
the invalidity or unenforceability thereof, or Borrower shall deny that Borrower
has any liability or obligation purported to be created under any Loan
Document;

       

      (k)      Any
representation or warranty made by Borrower in this Agreement or in any other
Loan Document, by any Guarantor in any guaranty delivered to Bank, or by
Borrower (or any of its Officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective;

       

      (l)      
The rendering against Borrower of an arbitration award, final judgment, decree
or order for the payment of money in excess of $500,000 over applicable
insurance coverage and the continuance of such arbitration award, judgment,
decree or order unsatisfied and in effect for any period of 60 consecutive days
without a stay of execution;

       

      (m)      A
default under any bond, debenture, note or other evidence of material
Indebtedness of Borrower (other than the Bond Documents) owed to any Person
other than Bank, or under any indenture or other instrument under which any such
evidence of Indebtedness has been issued or by which it is governed, or under
any material lease or other contract, and the expiration of the applicable
period of grace, if any, specified in such evidence of Indebtedness, indenture,
other instrument, lease or contract, and the effect of such failure, event or
condition is to cause, or permit the holder or holders thereof to cause,
Indebtedness of Borrower (other than the Obligations) (in an aggregate amount
exceeding $500,000 in the event that such Indebtedness is unsecured) to become
redeemable, due or otherwise payable (whether at scheduled maturity, by required
prepayment, upon acceleration or otherwise);


      
        
           


        

        
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      (n)      Any
Reportable Event, which Bank determines in good faith might constitute grounds
for the termination of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Pension
Plan, shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to Borrower by Bank; or a trustee shall have been
appointed by an appropriate United States District Court to administer any
Pension Plan; or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Pension Plan or to appoint a trustee to administer
any Pension Plan; or Borrower or any ERISA Affiliate shall have filed for a
distress termination of any Pension Plan under Title IV of ERISA; or
Borrower or any ERISA Affiliate shall have failed to make any quarterly
contribution required with respect to any Pension Plan under Section 412(m)
of the IRC, which Bank determines in good faith may by itself, or in combination
with any such failures that Bank may determine are likely to occur in the
future, result in the imposition of a Lien on Borrower’s assets in favor of the
Pension Plan; or any withdrawal, partial withdrawal, reorganization or other
event occurs with respect to a Multiemployer Plan which results or could
reasonably be expected to result in a material liability of Borrower to the
Multiemployer Plan under Title IV of ERISA.

       

      (o)      An
event of default shall occur under any Security Document;

       

      (p)     
Borrower or any Guarantor shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the ordinary
course, or sell or attempt to sell all or substantially all of its
assets;

       

      (q)     
Default in the payment of any amount owed by Borrower to Bank other than any
Indebtedness arising hereunder after the expiration of any applicable express
grace period related to such amount;

       

      (r)      
Any Guarantor shall repudiate, purport to revoke or fail to perform its
obligations under its guaranty in favor of Bank;

       

      (s)      The
occurrence of any “Default” or “Event of Default” under, and as defined in, any
agreement between any Affiliate of Borrower and Bank (but giving effect to any
applicable grace or cure periods with respect thereto);

       

      (t)      
The occurrence of any “Event of Default” under, and as defined in, the
Reimbursement Agreement, the Bond L/C and the Bond Documents (but giving effect
to any applicable grace or cure periods with respect thereto);

       

      (u)      Any
member of the Management shall become unable to perform, or cease to be
employed, in his current position with Borrower, and shall not be replaced,
within 180 days (or such greater time as approved by the Bank in its
reasonable discretion), by an individual with comparable education, experience
and qualifications as determined by Parent in its reasonable discretion;
or

       

      (v)     
Holdings owns any assets other than the equity interests of Borrower or incurs,
issues, assumes, creates or has outstanding any indebtedness, obligations or
liabilities other than its obligations under its Guaranty or engages in any
operations, other than (i) owning the equity interest in Borrower and
activities reasonably related thereto or to the maintenance of its existence or
compliance with applicable law or (ii) acting as a Guarantor pursuant to
the Guaranty.


      
        
           


        

        
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      Section 7.2.    
Rights and
Remedies.  Upon the occurrence and during the continuation of
an Event of Default, Bank may exercise any or all of the following rights and
remedies, all of which Borrower acknowledges and agrees are commercially
reasonable:

       

      (a)      
Bank may, by notice to Borrower, declare the Credit Facility to be terminated,
whereupon the same shall forthwith terminate;

       

      (b)      Bank
may, by notice to Borrower, declare the Obligations to be forthwith due and
payable, whereupon all Obligations shall become and be forthwith due and
payable, without presentment, notice of dishonor, protest or further notice of
any kind, all of which Borrower hereby expressly waives;

       

      (c)      
Bank may, without notice to Borrower and without further action, apply any and
all money owing by Bank to Borrower to the payment of the
Obligations;

       

      (d)      Bank
may settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Bank considers advisable, and in such cases, Bank
will credit the Obligations with only the net amounts received by Bank in
payment of such disputed Accounts after deducting all expenses incurred or
expended by Bank in connection therewith;

       

      (e)      Bank
may cause Borrower to hold all returned Inventory in trust for Bank, segregate
all returned Inventory from all other assets of Borrower or in Borrower’s
possession and conspicuously label said returned Inventory as the property of
Bank;

       

      (f)      
without notice to or demand upon Borrower or any Guarantor, Bank may make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interests in the Collateral.  Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to Bank
at a place that Bank may designate which is reasonably convenient to both
parties.  Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any Lien that in Bank’s
determination appears to conflict with Bank’s Liens and to pay all expenses
incurred in connection therewith and to charge the Obligations
therefor.  With respect to any of Borrower’s owned or leased premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, in order to exercise any of Bank’s
rights or remedies provided herein, at law, in equity, or
otherwise;

       

      (g)     
without notice to Borrower (such notice being expressly waived), and without
constituting a retention of any collateral in satisfaction of an obligation
(within the meaning of the UCC), Bank may set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank (including
any amounts received in the Lockbox), or (ii) Indebtedness at any time
owing to or for the credit or the account of Borrower held by
Bank;


      
        
           


        

        
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      (h)      Bank
may hold, as cash collateral, any and all balances and deposits of Borrower held
by Bank, and any amounts received in the Lockbox, to secure the full and final
repayment of all of the Obligations;

       

      (i)       
Bank may ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral;

       

      (j)       
Bank may sell the Collateral at either a public or private sale, or both, by way
of one or more contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower’s premises) as Bank determines is
commercially reasonable.  It is not necessary that the Collateral be
present at any such sale;

       

      (k)      
Bank shall give notice of the disposition of the Collateral as
follows:

       

      (i)      Bank
shall give Borrower a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, the time on or after which the private
sale or other disposition is to be made; and

       

      (ii)     The notice
shall be personally delivered or mailed, postage prepaid, to Borrower as
provided in Section 8.3, at least 10 days before the earliest time of
disposition set forth in the notice; no notice needs to be given prior to the
disposition of any portion of the Collateral that is perishable or threatens to
decline speedily in value or that is of a type customarily sold on a recognized
market;

       

      (l)       
Bank may credit bid and purchase at any public sale;

       

      (m)      Bank
may seek the appointment of a receiver or keeper to take possession of all or
any portion of the Collateral or to operate the same and, to the maximum extent
permitted by law, may seek the appointment of such a receiver without the
requirement of prior notice or a hearing;

       

      (n)      If
Bank sells any of the Collateral on credit, the Obligations will be reduced only
to the extent of payments actually received.  If the purchaser fails
to pay for the Collateral, Bank may resell the Collateral and shall apply any
proceeds actually received to the Obligations;

       

      (o)      Bank
shall have no obligation to attempt to satisfy the Obligations by collecting
them from any third Person which may be liable for them or any portion thereof,
and Bank may release, modify or  waive any collateral provided by any
other Person as security for the Obligations or any portion thereof, all without
affecting Bank’s rights against Borrower.  Borrower waives any right
it may have to require Bank to pursue any third Person for any of the
Obligations;

       

      (p)      Bank
may make demand upon Borrower and, forthwith upon such demand, Borrower will pay
to Bank in immediately available funds for deposit in the Special Account an
amount equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions for
drawing thereunder;


      
        
           


        

        
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      (q)      Bank
may exercise and enforce its rights and remedies under the Loan Documents;
and

       

      (r)      
Bank may exercise any other rights and remedies available to it by law or
agreement.

       

      Notwithstanding
the foregoing, upon the occurrence of an Event of Default described in
subsections (d) or (e) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.

       

      Section 7.3.    
Disclaimer of
Warranties.  Bank may sell the Collateral without giving any
warranties as to the Collateral.  Bank may specifically disclaim any
warranties of title or the like.  This procedure will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.

       

      Section 7.4.    
Compliance With
Laws.  Bank may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral, and Bank’s
compliance therewith will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

       

      Section 7.5.    
No
Marshalling.  Bank shall be under no obligation to marshal any
assets in favor of Borrower, or against or in payment of the Obligations or any
other obligation owned to Bank by Borrower or any other Person.

       

      Section 7.6.    
Borrower to
Cooperate.  Upon the exercise by Bank of any power, right,
privilege, or remedy pursuant to this Agreement which requires any consent,
approval, registration, qualification, or authorization of any Governmental
Authority, Borrower agrees to execute and deliver, or will cause the execution
and delivery of, all applications, certificates, instruments, assignments, and
other documents and papers that Bank or any purchaser of the Collateral may be
required to obtain for such governmental consent, approval, registration,
qualification, or authorization.

       

      Section 7.7.     
Application of
Proceeds.  All proceeds realized as the result of any sale of
the Collateral shall be applied by Bank:

       

      FIRST to
the costs, expenses, liabilities, obligations and attorneys’ fees incurred by
Bank in the exercise of its rights under this Agreement;

       

      SECOND to
the interest and fees due upon any of the Obligations; and

       

      THIRD to
the principal of the Obligations and to cash collateralize the Bond L/C by an
amount not less than 105% of the obligations arising under or pursuant to the
Reimbursement Agreement, in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency.


      
        
           


        

        
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    Section 7.8.      Remedies
Cumulative.  The rights and remedies of Bank under this
Agreement, the other Loan Documents, and all other agreements contemplated
hereby and thereby shall be cumulative.  Bank shall have all other
rights and remedies not inconsistent herewith as provided under the UCC, by law,
or in equity.  No exercise by Bank of any one right or remedy shall be
deemed an election of remedies, and no waiver by Bank of any default on
Borrower’s part shall be deemed a continuing waiver of any further
defaults.

     

    Section 7.9.      Bank Not Liable For The
Collateral.  So long as Bank complies with the obligations, if
any, imposed by the UCC,  Bank shall not otherwise be liable or
responsible in any way or manner for:  (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion or from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever, in each case, other than arising
as a result of the gross negligence or willful misconduct of
Bank.  Borrower bears the risk of loss or damage of the
Collateral.

     

    Article
VIII

    Miscellaneous

     

    Section 8.1.      No Waiver.  No
failure or delay by Bank in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents.

     

    Section 8.2.      Amendments,
Etc.  No amendment, modification, termination or waiver of any
provision of any Loan Document or consent to any departure by Borrower therefrom
or any release of a Security Interest shall be effective unless the same shall
be in writing and signed by Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.  No notice to or demand on Borrower in any case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances.

     

    Section 8.3.      Addresses for Notices; Requests for
Accounting.  Except as otherwise expressly provided herein, all
notices, requests, demands and other communications provided for under the Loan
Documents shall be in writing and shall be (a) personally delivered,
(b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each
case addressed or telecopied to the party to whom notice is being given at its
address or telecopier number as set forth below next to its signature or, as to
each party, at such other address or telecopier number as may hereafter be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section.  All such notices, requests,
demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in
the mail if delivered by mail, (c) the date sent if sent by overnight
courier, or (d) the date of transmission if delivered by telecopy, except
that notices or requests to Bank pursuant to any of the provisions of
Article II shall not be effective until received by Bank.  All
requests under Section 9210 of the UCC (i) shall be made in a writing
signed by a person authorized under Section 2.1(d), (ii) shall be
personally delivered, sent by registered or certified mail, return receipt
requested, or by overnight courier of national reputation (iii) shall be
deemed to be sent when received by Bank and (iv) shall otherwise comply
with the requirements of Section 9210.  Borrower requests that
Bank respond to each such request which on its face appears to come from an
authorized individual and releases Bank from any liability for so
responding.  Borrower shall pay Bank the maximum amount allowed by law
for responding to such requests.


    
      
         


      

      
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    Section 8.4.     Further
Documents.  Borrower will from time to time execute and deliver
or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements, control agreements and other
agreements and writings that Bank may reasonably request in order to secure,
protect, perfect or enforce the Security Interest or Bank’s rights under the
Loan Documents (but any failure to request or assure that Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).

     

    Section 8.5.     Costs and
Expenses.  Borrower shall pay within fifteen (15) days after
written demand all costs and expenses, including reasonable attorneys’ fees and
expenses relating to a survey, an environmental report, and an appraisal report,
incurred by Bank in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including all such costs, expenses and
fees incurred in connection with the negotiation, preparation, execution,
amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation, perfection,
protection, satisfaction, foreclosure or enforcement of the Security
Interest.

     

    Section 8.6.     Indemnity.  In
addition to the payment of expenses pursuant to Section 8.5, Borrower shall
indemnify, defend and hold harmless Bank, and any of its participants, parent
corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the “Indemnitees”) from and
against any of the following (collectively, “Indemnified Liabilities”),
in each, other than arising as a result of the gross negligence or willful
misconduct of any Indemnitee:

     

    (i)      any
and all transfer taxes, documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of the Loan
Documents or the making of the Loan;

     

    (ii)     any
claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Section 5.14 proves to be incorrect
in any respect or as a result of any violation of the covenant contained in
Section 6.13(b); and


    
      
         


      

      
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    (iii)    any
and all other liabilities, losses, damages, penalties, judgments, suits, claims,
costs and expenses of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the Credit Facility and the Loan Documents
or the use or intended use of the proceeds of the Line of Credit.

     

    If any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon such Indemnitee’s request,
Borrower, or counsel designated by Borrower and satisfactory to the Indemnitee,
will resist and defend such action, suit or proceeding to the extent and in the
manner directed by the Indemnitee, at Borrower’s sole costs and
expense.  Each Indemnitee will use its best efforts to cooperate in
the defense of any such action, suit or proceeding.  If the foregoing
undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable
law.  Borrower’s obligation under this Section 8.6 shall survive
the termination of this Agreement and the discharge of Borrower’s other
obligations hereunder.

     

    Section 8.7.     Participants.  Borrower
hereby authorizes Bank to disclose to any assignee or any participant
(either, a “Transferee”) and any
prospective Transferee any and all financial information in Bank’s possession
concerning Borrower which has been delivered to Bank by Borrower pursuant to
this Agreement or which has been delivered to Bank by Borrower in connection
with Bank’s credit evaluation prior to entering into this
Agreement.  Bank and its participants, if any, are not partners or
joint venturers, and Bank shall not have any liability or responsibility for any
obligation, act or omission of any of its participants.  All rights
and powers specifically conferred upon Bank may be transferred or delegated to
any of Bank’s participants, successors or assigns.

     

    Section 8.8.     Advertising and
Promotion.  Borrower agrees that Bank may use Borrower’s name
in advertising and promotional materials, and in conjunction therewith, Bank may
disclose the amount of the Credit Facility and the purpose thereof, only upon
the express consent of Borrower, which consent shall not be unreasonably
withheld.

     

    Section 8.9.    
Execution in Counterparts;
Telefacsimile Execution.  This Agreement and the other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same
instrument.  Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement.  Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.

     

    Section 8.10.   Retention of Borrower’s
Records.  Bank shall have no obligation to maintain any
electronic records or any documents, schedules, invoices, or other papers
delivered to Bank by Borrower or in connection with the Loan Documents for more
than twelve months after receipt by Bank; provided that Borrower shall
not have any obligation to provide Bank with duplicate records and documents
after the same have been destroyed by Bank.


    
      
         


      

      
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    Section 8.11.    Binding Effect; Assignment; Complete
Agreement; Exchanging Information.  The Loan Documents shall be
binding upon and inure to the benefit of Borrower and Bank and their respective
successors and assigns, except that Borrower shall not have the right to assign
its rights thereunder or any interest therein without Bank’s prior written
consent.  Bank shall not assign any of its rights and obligations
arising under this Agreement or the Note without the prior written consent of
Borrower, which consent shall not be unreasonably withheld or delayed; provided notwithstanding the
foregoing, Borrower’s consent to any such assignment shall not be required
(i) if a Default Period has occurred and is continuing, (ii) if Bank
assigns this Agreement in connection with any sale or all or any portion of its
loan portfolio,  (iii) if Bank assigns this Agreement to any
Affiliate of Bank, or (iv) Bank may pledge or grant a security interest in all
or any portion of this Agreement to secure its obligations, including any such
pledge or grant to a Federal Reserve Bank, and this Section shall not apply to
any such grant or pledge; provided, that no such pledge
or grant of a security interest shall release Bank from any of its obligations
hereunder or substitute any such pledgee or secured party for Bank as party
hereto.  To the extent permitted by law, Borrower waives and will not
assert against any assignee any claims, defenses or set-offs which Borrower
could assert against Bank.  This Agreement shall also bind all Persons
who become a party to this Agreement as Borrower.  This Agreement,
together with the Loan Documents, comprises the complete and integrated
agreement of the parties on the subject matter hereof and supersedes all prior
agreements, written or oral, on the subject matter hereof.  Without
limiting Bank’s right to share information regarding Borrower and its Affiliates
with Bank’s participants, accountants, lawyers and other advisors, Bank, Wells
Fargo & Company, and all direct and indirect subsidiaries of Wells Fargo
& Company, may exchange any and all information they may have in their
possession regarding Borrower and its Affiliates, and Borrower waives any right
of confidentiality it may have with respect to such exchange of such
information.

     

    Section 8.12.    Severability of
Provisions.  Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.

     

    Section 8.13.    Revival and Reinstatement of
Obligations.  If the incurrence or payment of the Obligations
by Borrower or any Guarantor or the transfer to Bank of any property should for
any reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors’ rights, including provisions of Bankruptcy
Code relating to fraudulent conveyances, preferences, or other voidable or
recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if
Bank is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Bank is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Bank related thereto, the liability of Borrower or any
Guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.


    
      
         


      

      
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    Section 8.14.   Headings.  Article,
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

     

    Section 8.15.   Governing
Law. This
Agreement and the other loan documents (except as otherwise specified therein),
and the rights and duties of the parties hereto, shall be construed and
determined in accordance with the internal laws of the State of
California.

     

    Section 8.16.   Submission
to Jurisdiction.  Subject
to Section 8.17:  (i) any legal action or proceeding with
respect to this Agreement or any other Loan Document may be brought solely in
the courts of the state of California or of the United States for the Northern
District of California, and, by execution and delivery hereof, each of Borrower
and Bank consents, for itself and in respect of its property, to the
jurisdiction of those courts; (ii) each of Borrower and Bank irrevocably
waives any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this
agreement or any document related hereto.  Each of Borrower and Bank
waives personal service of any summons, complaint or other process, which may be
made by any other means permitted by California law.

     

    Section 8.17.   Waiver
of Jury Trial.  Each
of Borrower and Bank, to the fullest extent permitted by applicable law, hereby
irrevocably waives all right to a trail by jury in any action, proceeding,
counterclaim or other litigation in any way arising out of or relating to this
Agreement, any other of the Loan Documents or any of the transactions or events
referenced herein or therein or contemplated hereby or thereby, whether with
respect to contract claims, tort claims or otherwise.  This waiver
shall apply to any subsequent amendments, renewals, supplements or modifications
to this Agreement or any other of the Loan Documents.  A copy of this
Section 8.17 may be filed with any court as written evidence of the waiver
of the right to trial by jury and the consent to trial by
court.

     

    Section 8.18.   Arbitration.  (a) Arbitration.  The
parties hereto agree, upon demand by any party, to submit to binding arbitration
all claims, disputes and controversies between or among them (and their
respective employees, officers, directors, attorneys, and other agents), whether
in tort, contract or otherwise in any way arising out of or relating to
(i) any credit subject hereto, or any of the Loan Documents, and their
negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (ii) requests for additional
credit.


    
      
         


      

      
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    (b)      Governing
Rules.  Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association (“AAA”); (ii) be governed
by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to herein, as applicable, as the “Rules”).  If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control.  Any party who fails or
refuses to submit to arbitration following a demand by any other party shall
bear all costs and expenses incurred by such other party in compelling
arbitration of any dispute.  Nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. §91 or any similar applicable state law.

     

    (c)      No Waiver of Provisional Remedies,
Self-Help and Foreclosure.  The arbitration requirement does
not limit the right of any party to (i) foreclose against the Collateral;
(ii) exercise self-help remedies relating to Collateral or proceeds of
Collateral such as setoff or repossession; or (iii) obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency of any
arbitration proceeding.  This exclusion does not constitute a waiver
of the right or obligation of any party to submit any dispute to arbitration or
reference hereunder, including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.

     

    (d)      Arbitrator Qualifications and
Powers.  Any arbitration proceeding in which the amount in
controversy is $5,000,000.00 or less will be decided by a single arbitrator
selected according to the Rules, and who shall not render an award of greater
than $5,000,000.00.  Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided
however, that all three arbitrators must actively participate in all
hearings and deliberations.  The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge of the state or
federal judiciary of California, in either case with a minimum of ten years
experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated.  The arbitrator will determine whether or
not an issue is arbitratable and will give effect to the statutes of limitation
in determining any claim.  In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication.  The
arbitrator shall resolve all disputes in accordance with the substantive law of
California and may grant any remedy or relief that a court of such state could
order or grant within the scope hereof and such ancillary relief as is necessary
to make effective any award.  The arbitrator shall also have the power
to award recovery of all costs and fees, to impose sanctions and to take such
other action as the arbitrator deems necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law.  Judgment upon the award rendered
by the arbitrator may be entered in any court having
jurisdiction.  The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.


    
      
         


      

      
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    (e)      Discovery.  In any
arbitration proceeding, discovery will be permitted in accordance with the
Rules.  All discovery shall be expressly limited to matters directly
relevant to the dispute being arbitrated and must be completed no later than 20
days before the hearing date.  Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for
obtaining information is available.

     

    (f)      Class Proceedings and
Consolidations.  No party hereto shall be entitled to join or
consolidate disputes by or against others in any arbitration, except parties who
have executed any Loan Document, or to include in any arbitration any dispute as
a representative or member of a class, or to act in any arbitration in the
interest of the general public or in a private attorney general
capacity.

     

    (g)      Payment Of Arbitration Costs And
Fees.  The arbitrator shall award all costs and expenses of the
arbitration proceeding.

     

    (h)      Real Property Collateral; Judicial
Reference.  Notwithstanding anything herein to the contrary, no
dispute shall be submitted to arbitration if the dispute concerns indebtedness
secured directly or indirectly, in whole or in part, by any real property unless
(i) the holder of the mortgage, lien or security interest specifically
elects in writing to proceed with the arbitration, or (ii) all parties to
the arbitration waive any rights or benefits that might accrue to them by virtue
of the single action rule statute of California, thereby agreeing that all
indebtedness and obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.  If any such dispute is not submitted to
arbitration, the dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638.  A referee with the qualifications
required herein for arbitrators shall be selected pursuant to the AAA’s
selection procedures.  Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and
645.

     

    (i)    
  Miscellaneous.  To
the maximum extent practicable, the AAA, the arbitrators and the parties shall
take all action required to conclude any arbitration proceeding within
180 days of the filing of the dispute with the AAA.  No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation.  If more than one agreement for arbitration by or between
the parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control.  This arbitration provision shall survive termination,
amendment or expiration of any of the Loan Documents or any relationship between
the parties.

     

    (j)    
  Small Claims
Court.  Notwithstanding anything herein to the contrary, each
party retains the right to pursue in Small Claims Court any dispute within that
court’s jurisdiction.  Further, this arbitration provision shall apply
only to disputes in which either party seeks to recover an amount of money
(excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of
the Small Claims Court.


    
      
         


      

      
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    Section 8.19.   Confidentiality.  Except
as set forth in Section 8.7 and Section 8.8 hereof, Bank shall hold
all confidential non-public information obtained by Bank in accordance with
Bank’s customary procedures for handling confidential information of this
nature; provided that
Bank may disclose such confidential information (i) to its examiners,
Affiliates, outside auditors, counsel and other professional advisors on a need
to know basis, (ii) to any prospective participant or transferee of Bank’s
rights or obligations hereunder, provided such participant or transferee agrees,
prior to the disclosure of such information by Bank, to be bound by the terms of
this Section 8.19 with respect to such information and (iii) as
required or requested by any Governmental Authority or representative thereof or
pursuant to legal process; provided further that this
duty shall expire if such information becomes publicly available through no
breach of this Section 8.19 by Bank; provided further that unless
specifically prohibited by applicable law or court order, Bank shall use
commercially reasonable efforts, prior to disclosure thereof, to notify Borrower
of the request for disclosure of such non-public information (A) by a
Governmental Authority or representative thereof or (B) pursuant to legal
process.  Notwithstanding anything herein to the contrary, Bank may
disclose to any and all Persons, without limitation of any kind, any information
with respect to the “tax treatment” and “tax structure” (in each case, within
the meaning of Treasury Regulation Section 1.6011-4) of the transactions
contemplated hereby and all materials of any kind (including opinions or other
tax analyses) that are provided Bank relating to such tax treatment and tax
structure; provided
that with respect to any document or similar item that in either case contains
information concerning the tax treatment or tax structure of the transaction as
well as other information, this sentence shall only apply to such portions of
the document or similar item that relate to the tax treatment or tax structure
of the transactions contemplated hereby.

    


    [Signatures
on Next Page]



    
      
         


      

      
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    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written.

    


    
      
        
          	
                  Lifecore
      Biomedical, LLC

                	
                  Lifecore
      Biomedical, LLC, a Minnesota

                
	
                  3515
      Lyman Boulevard

                	
                  limited
      liability company

                
	
                  Chaska,
      MN  55318

                	 
      
	
                  Telecopier:
      (952) 368-3411

                	
                  By:

                	
                  /s/Dennnis J. Allingham

                
	
                  Attention:
      Director of Finance

                	 
      	
                  Dennis
      J. Allingham

                
	
                  e-mail:
      scott.collins@lifecore.com

                	 
      	
                  President
      and Chief Executive Officer

                
	 	 
	
                  Wells
      Fargo Bank, N.A.

                	
                  Wells
      Fargo Bank, National Association

                
	
                  Peninsula
      RCBO

                	 
      
	
                  400
      Hamilton Avenue, P.O. Box 150

                	 
      
	
                  Palo
      Alto, CA  94302

                	
                  By:

                	
                  /s/TimPalmer

                
	
                  Telecopier:  (650)
      328-0814

                	 
      	
                  Tim
      Palmer

                
	
                  Attention:
      Caroline Peyton

                	 
      	
                  Vice
      President

                
	
                  e-mail:
      caroline.peyton@wellsfargo.com

                	 
      


        

      

    


    
      
         


      

      
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    Table
of Exhibits and Schedules

     

    
      
        
          
            
              	
                      Exhibit
      A

                    	
                      Form
      of Note

                    
	 
      	 
      
	
                      Exhibit
      B-1

                    	
                      Form
      of Compliance Certificate (Borrower)

                    
	 
      	 
      
	
                      Exhibit
      B-2

                    	
                      Form
      of Compliance Certificate (Parent)

                    
	 
      	 
      
	
                      Exhibit
      C

                    	
                      Premises

                    
	 
      	 
      
	
                      Schedule
      5.1

                    	
                      Trade
      Names, Chief Executive Office, Principal Place of Business, and Locations
      of Collateral

                    
	 
      	 
      
	
                      Schedule
      5.2

                    	
                      Capitalization
      and Organizational Chart

                    
	 
      	 
      
	
                      Schedule
      5.5

                    	
                      Subsidiaries

                    
	 
      	 
      
	
                      Schedule
      5.9

                    	
                      Taxes

                    
	 
      	 
      
	
                      Schedule
      5.11

                    	
                      Intellectual
      Property Disclosures

                    
	 
      	 
      
	
                      Schedule
      6.4

                    	
                      Permitted
      Liens

                    
	 
      	 
      
	
                      Schedule
      6.5

                    	
                      Permitted
      Indebtedness and
Guaranties

                    


            

          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    Exhibit
A

    TERM
NOTE

     

    
      
        	
                $20,000,000

              	
                Palo
      Alto, California

              


      

    

    April 30,
2010

     

    FOR VALUE
RECEIVED, the undersigned LIFECORE BIOMEDICAL, LLC, a Minnesota limited
liability company (“Borrower”) promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”) at its office at  400 Hamilton Avenue,
Palo Alto, California  94302, California, or at such other place as
the holder hereof may designate, in lawful money of the United States of America
and in immediately available funds, the principal sum of Twenty Million and
No/100 Dollars ($20,000,000), with interest thereon as set forth
herein.

     

    
      DEFINITIONS:

    

     

    Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Credit Agreement (as defined below).  As used herein, the
following terms shall have the meanings set forth after each, and any other term
defined in this Note shall have the meaning set forth at the place
defined:

     

    (a)      “Business
Day” means any day except a Saturday, Sunday or any other day on which
commercial banks in California are authorized or required by law to
close.

     

    (b)      “Credit
Agreement” means that certain Credit Agreement dated as of even day herewith
between Borrower and Bank, as the same may be amended, modified, restated or
supplemented from time to time.

     

    (c)      “Daily
Three Month LIBOR” means, for any day, the rate of interest equal to LIBOR then
in effect for delivery for a three (3) month period.

     

    (d)      “Fixed
Rate Term” means a period commencing on a Business Day and continuing for 1, 2,
or 3 months, as designated by Borrower, during which all or a portion of the
outstanding principal balance of this Note bears interest determined in relation
to LIBOR; provided however, that no Fixed Rate Term may be selected for a
principal amount less than Two Hundred Fifty and No/100 Dollars ($250,000); and
provided further, that no Fixed Rate Term shall extend beyond the Term Loan
Maturity Date.  If any Fixed Rate Term would end on a day which is not
a Business Day, then such Fixed Rate Term shall be extended to the next
succeeding Business Day.

     

    (e)      “LIBOR”
means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8
of 1%) and determined pursuant to the following formula:

    
      
        
          
            	 	 	 	 
	
                    LIBOR
      =

                  	 	
                    Base
      LIBOR

                  	 
      
	 
      	 	
                    100%
      - LIBOR Reserve Percentage

                  	 
      


          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    
      (i)    
  “Base LIBOR” means the rate per annum for United States dollar
deposits quoted by Bank (A) for the purpose of calculating effective
rates of interest for loans making reference to LIBOR, as the Inter-Bank Market
Offered Rate, with the understanding that such rate is quoted by Bank for the
purpose of calculating effective rates of interest for loans making reference
thereto, on the first day of a Fixed Rate Term for delivery of funds on said
date for a period of time approximately equal to the number of days in such
Fixed Rate Term and in an amount approximately equal to the principal amount to
which such Fixed Rate Term applies, or (B) for the purpose of calculating
effective rates of interest for loans making reference to the Daily Three Month
LIBOR Rate, as the Inter-Bank Market Offered Rate in effect from time to time
for delivery of funds for three (3) month in amounts approximately equal to the
principal amount of such loans.  Borrower understands and agrees that
Bank may base its quotation of the Inter-Bank Market Offered Rate upon such
offers or other market indicators of the Inter-Bank Market as Bank in its
discretion deems appropriate including, but not limited to, the rate offered for
U.S. dollar deposits on the London Inter-Bank Market.

    

     

    (ii)      “LIBOR
Reserve Percentage” means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for “Eurocurrency
Liabilities” (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Bank for expected changes in such reserve percentage
during the applicable term of this Note.

     

    
      INTEREST:

    

     

    (a)      Interest.  The
outstanding principal balance of this Note shall bear interest (computed on the
basis of a 360-day year, actual days elapsed) as selected by Borrower either
(i) at a fluctuating rate per annum determined by Bank to be two percent
(2.0%) above the Daily Three Month LIBOR Rate in effect from time to time, or
(ii) at a fixed rate per annum determined by Bank to be two percent (2.0%)
above LIBOR in effect on the first day of the applicable Fixed Rate
Term.  When interest is determined in relation to the Daily Three
Month LIBOR Rate, each change in the interest rate shall become effective each
Business Day that Bank determines that the Daily Three Month LIBOR Rate has
changed.  Bank is hereby authorized to note the date, principal amount
and interest rate applicable thereto and any payments made thereon on Bank’s
books and records (either manually or by electronic entry) and/or on any
schedule attached to this Note, which notations shall be prima facie evidence of
the accuracy of the information noted.


    
      
         


      

      
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    (b)      Selection of Interest Rate
Options.  At any time any portion of this Note bears interest
determined in relation to LIBOR for a Fixed Rate Term, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Daily Three Month
LIBOR Rate or to LIBOR for a new Fixed Rate Term designated by
Borrower.  At any time any portion of this Note bears interest
determined in relation to the Daily Three Month LIBOR Rate, Borrower may at any
time convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower.  At
such time as Borrower requests an advance hereunder or wishes to select an
interest rate determined in relation to the Daily Three Month LIBOR Rate or a
Fixed Rate Term for all or a portion of the outstanding principal balance
hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice
specifying:  (i) the interest rate option selected by Borrower;
(ii) the principal amount subject thereto; and (iii) for each LIBOR
selection for a Fixed Rate Term, the length of the applicable Fixed Rate
Term.  Any such notice may be given by telephone (or such other
electronic method as Bank may permit) so long as, with respect to each LIBOR
selection for a Fixed Rate Term, (A) if requested by Bank, Borrower
provides to Bank written confirmation thereof not later than three (3)
Business Days after such notice is given, and (B) such notice is given to
Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a
later time during any Business Day if Bank, at its sole option but without
obligation to do so, accepts Borrower’s notice and quotes a fixed rate to
Borrower.  If Borrower does not immediately accept a fixed rate when
quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request
from Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate.  If no specific designation of interest is made at the
time any advance is requested hereunder or at the end of any Fixed Rate Term,
Borrower shall be deemed to have made a Daily Three Month LIBOR Rate interest
selection for such advance or the principal amount to which such Fixed Rate Term
applied.

     

    (c)      Taxes and Regulatory
Costs.  Borrower shall pay to Bank immediately within
fifteen (15) days after written demand, in addition to any other amounts
due or to become due hereunder, any and all (i) withholdings, interest
equalization taxes, stamp taxes or other taxes (except income and franchise
taxes) imposed by any domestic or foreign governmental authority and related in
any manner to LIBOR, and (ii) future, supplemental, emergency or other
changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal
Deposit Insurance Corporation, or similar requirements or costs imposed by any
domestic or foreign governmental authority or resulting from compliance by Bank
with any request or directive (whether or not having the force of law) from any
central bank or other governmental authority and related in any manner to LIBOR
to the extent they are not included in the calculation of LIBOR.  In
determining which of the foregoing are attributable to any LIBOR option
available to Borrower hereunder, any reasonable allocation made by Bank among
its operations shall be conclusive and binding upon Borrower.

     

    (d)      Payment of
Interest.  Interest accrued on this Note shall be payable on
the last day of each month, commencing May 31, 2010.

     

    (e)      Default
Interest.  From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, or at Bank’s option upon the occurrence, and during
the continuance of an Event of Default, the outstanding principal balance of
this Note shall bear interest at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to two percent (2%) above
the rate of interest from time to time applicable to this Note (“Default
Interest”).

     

    
      
        REPAYMENT
AND PREPAYMENT:

      

    

     

    (a)      Repayment.  Principal
shall be payable on the last day of each month in installments of Three Hundred
Thirty-Three Thousand Three Hundred Thirty Three and 33/100 Dollars
($333,333.33) each, commencing May 31, 2010, and continuing up to and
including March 31, 2015, with a final installment consisting of all
remaining unpaid principal due and payable in full on the Term Loan Maturity
Date.


    
      
         


      

      
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    (b)      Application of
Payments.  Each payment made on this Note shall be credited
first, to any interest then due and second, to the outstanding principal balance
hereof.  All payments credited to principal shall be applied first, to
the outstanding principal balance of this Note which bears interest determined
in relation to the Daily Three Month LIBOR Rate, if any, and second, to the
outstanding principal balance of this Note which bears interest determined in
relation to LIBOR, with such payments applied to the oldest Fixed Rate Term
first.

     

    (c)      Prepayment.  Borrower
shall repay the Note in accordance with Section 2.5(b) of the Credit
Agreement and may prepay the Note as follows:

     

    Daily Three Month LIBOR
Rate.  Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Daily Three Month LIBOR
Rate at any time, in any amount and without penalty.

     

    LIBOR.  Borrower
may prepay principal on any portion of this Note which bears interest determined
in relation to LIBOR at any time and in the minimum amount of Two Hundred Fifty
Thousand and No/100 Dollars ($250,000); provided however, that if the
outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the entire outstanding principal
balance thereof.  In consideration of Bank providing this prepayment
option to Borrower, or if any such portion of this Note shall become due and
payable at any time prior to the last day of the Fixed Rate Term applicable
thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:

     

    
      
        	
              	
                (i)

              	
                Determine the
      amount of interest which would have accrued each month on the amount
      prepaid at the interest rate applicable to such amount had it remained
      outstanding until the last day of the Fixed Rate Term applicable
      thereto.

              


      

    

     

    
      
        	
              	
                (ii)

              	
                Subtract from
      the amount determined in (i) above the amount of interest which would have
      accrued for the same month on the amount prepaid for the remaining term of
      such Fixed Rate Term at LIBOR in effect on the date of prepayment for new
      loans made for such term and in a principal amount equal to the amount
      prepaid.

              


      

    

     

    
      
        	
              	
                (iii)

              	
                If
      the result obtained in (ii) for any month is greater than zero, discount
      that difference by LIBOR used in (ii)
above.

              


      

    

     

    Borrower
acknowledges that prepayment of such amount may result in Bank incurring
additional costs, expenses and/or liabilities, and that it is difficult to
ascertain the full extent of such costs, expenses and/or
liabilities.  Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank.  If
Borrower fails to pay any prepayment fee when due, the amount of such prepayment
fee shall thereafter bear interest until paid at a rate per annum two percent
(2.0%) above the Daily Three Month LIBOR Rate in effect from time to time
(computed on the basis of a 360-day year, actual days elapsed).


    
      
         


      

      
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    All
prepayments of principal shall be applied on the most remote principal
installment or installments then unpaid.

     

    
      EVENTS
OF DEFAULT:

    

     

    This Note
is made pursuant to and is subject to the terms and conditions of the Credit
Agreement.  Any default in the payment or performance of any
obligation under this Note, or any Event of Default under the Credit Agreement,
shall constitute an “Event of Default” under this Note.

     

    
      MISCELLANEOUS:

    

     

    (a)    
Remedies.  Upon
the occurrence of any Event of Default, the holder of this Note, at the holder’s
option and in addition to any other remedies set forth in the Credit Agreement,
may declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of which
are expressly waived by Borrower.  Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys’ fees (to include outside
counsel fees and all allocated costs of the holder’s in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder’s
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.

     

    (b)    
Obligations Joint and
Several.  Should more than one person or entity sign this Note
as a Borrower, the obligations of each such Borrower shall be joint and
several.

     

    (c)    
Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of California.

     

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

    


    Lifecore
Biomedical, LLC, a

      Minnesota
limited liability company

    


    
      
        
          	
                  By:

                	
                     

                
	 
      	
                  Dennis
      J. Allingham

                
	 
      	
                  President
      and Chief Executive
Officer

                


        

      

    


    
      
         


      

      
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