Exhibit 10.1


 




 





 


CREDIT AGREEMENT


 


by and among


 


EMRISE CORPORATION


 


and


 


EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO


 


as Borrowers,


 


THE LENDERS THAT ARE SIGNATORIES HERETO


 


as the Lenders,


 


and


 


GVEC RESOURCE IV INC.


 


as the Arranger and Agent


 


Dated as of November 30, 2007


 




 





 

















 


 


	
  1.

  	
  DEFINITIONS AND CONSTRUCTION

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
  1.2

  	
  Accounting Terms

  	
  1

  
	
   

  	
  1.3

  	
  Code

  	
  1

  
	
   

  	
  1.4

  	
  Construction

  	
  1

  
	
   

  	
  1.5

  	
  Schedules and Exhibits

  	
  2

  
	
   

  	
  1.6

  	
  Currency Conversion

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Making of Loans

  	
  2

  
	
   

  	
  2.2

  	
  Term Loans

  	
  3

  
	
   

  	
  2.3

  	
  Borrowing Procedures

  	
  4

  
	
   

  	
  2.4

  	
  Payments

  	
  7

  
	
   

  	
  2.5

  	
  Overadvances

  	
  10

  
	
   

  	
  2.6

  	
  Interest: Rates, Payments, and Calculations

  	
  10

  
	
   

  	
  2.7

  	
  Cash Management

  	
  11

  
	
   

  	
  2.8

  	
  Crediting Payments

  	
  12

  
	
   

  	
  2.9

  	
  Designated Account

  	
  12

  
	
   

  	
  2.10

  	
  [Intentionally Omitted]

  	
  12

  
	
   

  	
  2.11

  	
  Fees

  	
  12

  
	
   

  	
  2.12

  	
  [Intentionally Omitted]

  	
  13

  
	
   

  	
  2.13

  	
  Joint and Several Liability of Borrowers

  	
  13

  
	
   

  	
  2.14

  	
  Registered Notes

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS; TERM OF AGREEMENT

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Conditions Precedent to the Initial Extension of
  Credit

  	
  16

  
	
   

  	
  3.2

  	
  Conditions Precedent to all Extensions of Credit;
  Special Conditions Precedent to Term Loan B

  	
  16

  
	
   

  	
  3.3

  	
  Term

  	
  18

  
	
   

  	
  3.4

  	
  Effect of Termination

  	
  19

  
	
   

  	
  3.5

  	
  Early Termination by Borrowers

  	
  19

  
	
   

  	
  3.6

  	
  Conditions Subsequent to Extensions of Credit

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  No Encumbrances

  	
  21

  
	
   

  	
  4.2

  	
  Accounts

  	
  21

  
	
   

  	
  4.3

  	
  Inventory

  	
  21

  
	
   

  	
  4.4

  	
  Equipment

  	
  21

  
	
   

  	
  4.5

  	
  Location of Inventory and Equipment

  	
  21

  
	
   

  	
  4.6

  	
  Inventory Records

  	
  21

  
	
   

  	
  4.7

  	
  State of Incorporation; Location of Chief Executive
  Office; Organizational Identification Number; Commercial Tort Claims

  	
  22

  
	
   

  	
  4.8

  	
  Due Organization and Qualification; Subsidiaries

  	
  22

  
	
   

  	
  4.9

  	
  Due Authorization; No Conflict

  	
  23

  
	
   

  	
  4.10

  	
  Litigation

  	
  23

  



 


i

















 


	
   

  	
  4.11

  	
  No Material Adverse Change

  	
  23

  
	
   

  	
  4.12

  	
  Fraudulent Transfer

  	
  24

  
	
   

  	
  4.13

  	
  Employee Benefits

  	
  24

  
	
   

  	
  4.14

  	
  Environmental Condition

  	
  24

  
	
   

  	
  4.15

  	
  Intellectual Property

  	
  25

  
	
   

  	
  4.16

  	
  Leases

  	
  26

  
	
   

  	
  4.17

  	
  Deposit Accounts and Securities Accounts

  	
  26

  
	
   

  	
  4.18

  	
  Complete Disclosure

  	
  27

  
	
   

  	
  4.19

  	
  Indebtedness

  	
  27

  
	
   

  	
  4.20

  	
  Regulation U

  	
  27

  
	
   

  	
  4.21

  	
  Taxes

  	
  27

  
	
   

  	
  4.22

  	
  Compliance with Law, Etc

  	
  27

  
	
   

  	
  4.23

  	
  Adverse Agreements, Etc

  	
  28

  
	
   

  	
  4.24

  	
  Permits, Etc

  	
  28

  
	
   

  	
  4.25

  	
  Insurance

  	
  28

  
	
   

  	
  4.26

  	
  Employee and Labor Matters

  	
  28

  
	
   

  	
  4.27

  	
  Material Contracts

  	
  29

  
	
   

  	
  4.28

  	
  Capacity

  	
  29

  
	
   

  	
  4.29

  	
  Investment Company Acts

  	
  29

  
	
   

  	
  4.30

  	
  The IFN Credit Facility

  	
  29

  
	
   

  	
  4.31

  	
  The Lloyds Credit Facility

  	
  29

  
	
   

  	
  4.32

  	
  The Wells Fargo Credit Facility

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  AFFIRMATIVE COVENANTS

  	
  29

  
	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Accounting System

  	
  30

  
	
   

  	
  5.2

  	
  Collateral Reporting

  	
  30

  
	
   

  	
  5.3

  	
  Financial Statements, Reports, Certificates

  	
  30

  
	
   

  	
  5.4

  	
  Appraisal

  	
  30

  
	
   

  	
  5.5

  	
  Inspection

  	
  30

  
	
   

  	
  5.6

  	
  Maintenance of Properties

  	
  30

  
	
   

  	
  5.7

  	
  Taxes

  	
  30

  
	
   

  	
  5.8

  	
  Insurance

  	
  31

  
	
   

  	
  5.9

  	
  Location of Inventory and Equipment

  	
  31

  
	
   

  	
  5.10

  	
  Compliance with Laws

  	
  31

  
	
   

  	
  5.11

  	
  Leases

  	
  32

  
	
   

  	
  5.12

  	
  Existence

  	
  32

  
	
   

  	
  5.13

  	
  Environmental

  	
  32

  
	
   

  	
  5.14

  	
  Disclosure Updates

  	
  32

  
	
   

  	
  5.15

  	
  Control Agreements

  	
  32

  
	
   

  	
  5.16

  	
  Assignment of Proceeds

  	
  32

  
	
   

  	
  5.17

  	
  Employee Benefits

  	
  33

  
	
   

  	
  5.18

  	
  Formation of Subsidiaries

  	
  33

  
	
   

  	
  5.19

  	
  Adequate Reserves

  	
  34

  
	
   

  	
  5.20

  	
  Designated Payments

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  NEGATIVE COVENANTS

  	
  34

  



 


ii

















 


	
   

  	
  6.1

  	
  Indebtedness

  	
  34

  
	
   

  	
  6.2

  	
  Liens

  	
  35

  
	
   

  	
  6.3

  	
  Restrictions on Fundamental Changes

  	
  35

  
	
   

  	
  6.4

  	
  Disposal of Assets

  	
  35

  
	
   

  	
  6.5

  	
  Change Name

  	
  35

  
	
   

  	
  6.6

  	
  Nature of Business

  	
  35

  
	
   

  	
  6.7

  	
  Prepayments and Amendments

  	
  36

  
	
   

  	
  6.8

  	
  Change of Control

  	
  36

  
	
   

  	
  6.9

  	
  Consignments

  	
  36

  
	
   

  	
  6.10

  	
  Distributions

  	
  36

  
	
   

  	
  6.11

  	
  Accounting Methods

  	
  36

  
	
   

  	
  6.12

  	
  Investments

  	
  36

  
	
   

  	
  6.13

  	
  Transactions with Affiliates

  	
  37

  
	
   

  	
  6.14

  	
  Use of Proceeds

  	
  37

  
	
   

  	
  6.15

  	
  Inventory and Equipment with Bailees

  	
  37

  
	
   

  	
  6.16

  	
  Financial Covenants

  	
  37

  
	
   

  	
  6.17

  	
  No Transactions Prohibited Under ERISA; Unfunded
  Liability

  	
  40

  
	
   

  	
  6.18

  	
  Salaries

  	
  41

  
	
   

  	
  6.19

  	
  Obtaining of Permits, Etc

  	
  41

  
	
   

  	
  6.20

  	
  UK Subsidiaries

  	
  41

  
	
   

  	
  6.21

  	
  Changes to Accounts

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  EVENTS OF DEFAULT

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  THE LENDER GROUP’S RIGHTS AND REMEDIES

  	
  43

  
	
   

  	
  8.1

  	
  Rights and Remedies

  	
  43

  
	
   

  	
  8.2

  	
  Remedies Cumulative

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  TAXES AND EXPENSES

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  WAIVERS; INDEMNIFICATION; RELEASE

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Demand; Protest; etc

  	
  45

  
	
   

  	
  10.2

  	
  The Lender Group’s Liability for Collateral

  	
  45

  
	
   

  	
  10.3

  	
  Costs and Expenses

  	
  45

  
	
   

  	
  10.4

  	
  Indemnification

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  NOTICES

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  CHOICE OF LAW AND VENUE; JUDICIAL REFERENCE; WAIVER
  OF JURY TRIAL; SERVICE OF PROCESS

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Assignments and Participations

  	
  49

  
	
   

  	
  13.2

  	
  Successors

  	
  53

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  AMENDMENTS; WAIVERS

  	
  53

  



 


iii

















 


	
   

  	
  14.1

  	
  Amendments and Waivers

  	
  53

  
	
   

  	
  14.2

  	
  No Waivers; Cumulative Remedies

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  AGENT; THE LENDER GROUP

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Appointment and Authorization of Agent

  	
  54

  
	
   

  	
  15.2

  	
  Delegation of Duties

  	
  55

  
	
   

  	
  15.3

  	
  Liability of Agent

  	
  55

  
	
   

  	
  15.4

  	
  Reliance by Agent

  	
  55

  
	
   

  	
  15.5

  	
  Notice of Default or Event of Default

  	
  56

  
	
   

  	
  15.6

  	
  Credit Decision

  	
  56

  
	
   

  	
  15.7

  	
  Costs and Expenses; Indemnification

  	
  57

  
	
   

  	
  15.8

  	
  Agent in Individual Capacity

  	
  57

  
	
   

  	
  15.9

  	
  Successor Agent

  	
  58

  
	
   

  	
  15.10

  	
  Lender in Individual Capacity

  	
  58

  
	
   

  	
  15.11

  	
  Withholding Taxes

  	
  58

  
	
   

  	
  15.12

  	
  Collateral Matters

  	
  62

  
	
   

  	
  15.13

  	
  Restrictions on Actions by Lenders; Sharing of
  Payments

  	
  62

  
	
   

  	
  15.14

  	
  Agency for Perfection

  	
  63

  
	
   

  	
  15.15

  	
  Payments by Agent to the Lenders

  	
  63

  
	
   

  	
  15.16

  	
  Concerning the Collateral and Related Loan Documents

  	
  63

  
	
   

  	
  15.17

  	
  Field Audits and Examination Reports;
  Confidentiality; Disclaimers by Lenders; Other Reports and Information

  	
  63

  
	
   

  	
  15.18

  	
  Several Obligations; No Liability

  	
  64

  
	
   

  	
  15.19

  	
  No Consequential Damages

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  GENERAL PROVISIONS

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Effectiveness

  	
  65

  
	
   

  	
  16.2

  	
  Section Headings

  	
  65

  
	
   

  	
  16.3

  	
  Interpretation

  	
  65

  
	
   

  	
  16.4

  	
  Severability of Provisions

  	
  65

  
	
   

  	
  16.5

  	
  Counterparts; Electronic Execution

  	
  65

  
	
   

  	
  16.6

  	
  Revival and Reinstatement of Obligations

  	
  66

  
	
   

  	
  16.7

  	
  Confidentiality

  	
  66

  
	
   

  	
  16.8

  	
  Integration

  	
  66

  
	
   

  	
  16.9

  	
  Parent as Agent for Borrowers

  	
  67

  
	
   

  	
  16.10

  	
  Compliance With USA Patriot Act

  	
  67

  



 


iv

















 


CREDIT AGREEMENT


 


THIS
CREDIT AGREEMENT (this “Agreement”), is entered
into as of November 30, 2007, by and among the lenders identified on the
signature pages hereof (such lenders, together with their respective successors
and permitted assigns, are referred to hereinafter each individually as a “Lender”
and collectively as the “Lenders”), GVEC RESOURCE IV INC.,
a company organized under the laws of the British Virgin Islands, as the
arranger and administrative agent for the Lenders (in such capacity, together
with its successors and assigns in such capacity, “Agent”), EMRISE CORPORATION, a Delaware corporation (“Parent”),
and each of Parent’s Subsidiaries identified on the signature pages hereof
(such Subsidiaries, together with Parent, are referred to hereinafter each
individually as a “Borrower,” and collectively, jointly and severally,
as the “Borrowers”).


 


INTRODUCTION


 


All defined
terms not otherwise defined above or in this Introduction Statement are as
defined in Schedule 1.1 or as defined elsewhere herein.


 


The Borrowers
have requested that the Lenders agree to make available a secured credit
facility of up to $23,000,000, the proceeds of which will be used to pay
certain specified obligations of the Borrowers, to fund general working capital
requirements and to make certain specified acquisitions.


 


Subject to the
terms and conditions set forth herein, Agent is willing to act as agent for the
Lenders and each Lender is willing to make loans to the Borrowers in an
aggregate amount not in excess of its Commitment hereunder.


 


Accordingly,
the parties hereto hereby agree as follows:


 


1.             DEFINITIONS AND CONSTRUCTION.


 


1.1           Definitions.
Except as otherwise provided herein, capitalized terms used in this Agreement
shall have the meanings specified therefor on Schedule 1.1.


 


1.2           Accounting
Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term “financial
statements” shall include the notes and schedules thereto. Whenever the term “Borrowers”
or the term “Parent” is used in respect of a financial covenant or a related
definition, it shall be understood to mean Parent and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.


 


1.3           Code.
Any terms used in this Agreement that are defined in the Code shall be construed
and defined as set forth in the Code unless otherwise defined herein, provided,
however, that to the extent that the Code is used to define any term herein
and such term is defined differently in different Divisions of the Code, the
definition of such term contained in Article 9 shall govern.


 


1.4           Construction.
Unless the context of this Agreement or any other Loan Document clearly
requires otherwise, references to the plural include the singular, references
to 


 

















 


the singular
include the plural, the terms “includes” and “including” are not
limiting, the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or,” and any provision
that is set forth herein as part of a list or series is to be construed in a
manner that does not result in duplication of any other provision in such list
or series. The words “hereof,” “herein,” “hereby,” “hereunder,”
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not
to any particular provision of this Agreement or such other Loan Document, as
the case may be. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to the satisfaction or repayment in full of the Obligations
shall mean the repayment in full in cash (or cash collateralization in
accordance with the terms hereof) of all Obligations other than contingent
indemnification Obligations. Any reference herein to any Person shall be construed
to include such Person’s successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.


 


1.5           Schedules
and Exhibits. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.


 


1.6           Currency
Conversion. All references to monetary amounts herein shall be
to U.S. Dollars. With respect to any amounts not denominated in U.S. Dollars
and required for or related to any term or definition hereunder, Borrower shall
convert such non-U.S. Dollar denominated amounts to the amount of U.S. Dollars
that would be required to purchase such non-U.S. Dollar denominated amounts on
the applicable date of determination based on the rate at which any applicable
currency may be exchanged into Dollars, as set forth on such date on the relevant
Bloomberg Key Cross Currency Rates screen at or about 11:00 A.M., London time,
on such date.


 


2.             LOAN AND TERMS OF PAYMENT.


 


2.1           Making of
Loans.


 


(a)           Making of Advances.
Subject to the terms and conditions of this Agreement, on and after the Closing
Date and prior to the Revolver Maturity Date, each Lender agrees to make such
portion of the Advances to Borrowers in an amount equal to such Lender’s Pro
Rata Share of the then extant Revolver Commitment; provided that Advances shall
be made in an aggregate amount not to exceed the lesser of: (y) the Maximum
Revolver Amount; and (z) the Borrowing Base.


 


(b)           Nothing to the contrary
in this Section 2.1 notwithstanding, Agent shall have the right to
establish reserves in such amounts as Agent in its Permitted Discretion shall 


 


2

















 


deem necessary
or appropriate, against the Borrowing Base, including reserves with respect to
(i) sums that Borrowers are required to pay by any section of this Agreement or
any other Loan Document (such as taxes, assessments, insurance premiums,
environmental liabilities, or, in the case of leased assets, rents or other
amounts payable under such leases) and have failed to pay, and (ii) amounts
owing by Borrowers to any Person to the extent secured by a Lien on, or trust
over, any of the Collateral (other than a Permitted Lien), which Lien or trust,
in the Permitted Discretion of Agent, likely would have a priority superior to
the Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen,
carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts
for ad valorem, excise, sales, or other taxes where given priority under
applicable law) in and to such item of the Collateral, to the extent that the
sums and amounts described in clauses (i) and (ii) above exceed $250,000 in the
aggregate.


 


(c)           The outstanding unpaid
principal amount of Advances and all accrued and unpaid interest on Advances
shall be due and payable on the earlier of: 
(i) the Revolver Maturity Date; and (ii) the termination of this
Agreement, whether by its terms, by prepayment, or by acceleration. All
Advances and all accrued and unpaid interest on Advances shall constitute
Obligations. Amounts borrowed pursuant to this Section 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time prior to the Revolver Maturity Date. Borrowers may only request Advances
of at least $100,000 and integral multiples of $100,000 in excess thereof,
except in the case of an Advance which, if made, would result in the aggregate
amount of Advances equaling the lesser of (y) the Maximum Revolver Amount and
(z) the Borrowing Base.


 


2.2           Term
Loans.


 


(a)           Subject to the terms
and conditions of this Agreement, on the Closing Date, each Lender agrees to
make term loans (collectively, the “Term Loan A”) to Borrowers in an
amount equal to such Lender’s Pro Rata Share of the Term Loan A Commitment.


 


(b)           Subject to the terms
and conditions of this Agreement, from time to time during the Term Loan B
Commitment Period, each Lender agrees to make term loans (collectively, the “Term
Loan B”) to Borrowers in an aggregate amount equal to such Lender’s Pro
Rata Share of the Term Loan B Commitment.


 


(c)           All amounts outstanding
under the Term Loans shall constitute Obligations. No portion of the Term Loans
which is repaid or prepaid may be reborrowed. The Term Loans shall be repaid in
installments as set forth in the tables set forth in subsections (d) and (e)
below; provided, however, that the outstanding unpaid principal balance and all
accrued and unpaid interest under the Term Loans shall be due and payable on
November 30, 2010 or such earlier date of termination of this Agreement,
whether by prepayment, or by acceleration.


 


(d)           Subject to subsection
(c) above, the principal of Term Loan A shall be repaid in installments as
follows:


 


(i)            commencing December 1,
2008, and continuing on the first day of each of the 11 consecutive months
thereafter, equal installments of $50,000; and


 


3

















 


(ii)           commencing on December
1, 2009, and continuing on the first day of each of the 11 consecutive months
thereafter, equal installments of $120,000.


 


(e)           Subject to subsection
(c) above, the principal of Term Loan B shall be repaid in installments as
follows:


 


(i)            commencing on June 1,
2009 and continuing on the first day of each of the 5 consecutive months
thereafter, installments equal to the quotient of (x) 10% of the aggregate Term
Loan B Amount (as of the Term Loan B Commitment Expiry Date) and (y) six; and


 


(ii)           commencing on December
1, 2009, and continuing on the first day of each of the 11 consecutive months
thereafter, installments equal to the quotient of (x) 20% of the aggregate Term
Loan B Amount (as of the Term Loan B Commitment Expiry Date) and (y) twelve.


 


2.3           Borrowing
Procedures.


 


(a)           Generally.


 


(i)            Each Borrowing of a
Loan shall be made by an irrevocable written request by an Authorized Person
delivered to Agent. Such notice must be received by Agent no later than 10:00
a.m. (California time) on the Closing Date, or if applicable, thereafter on the
Business Day that is one (1) Business Day prior to the requested Funding Date
specifying (i) the pertinent Loan, and (ii) the requested Funding Date, which
shall be a Business Day. At Agent’s election, in lieu of delivering the
above-described written request, any Authorized Person may give Agent
telephonic notice of such request by the required time. In such circumstances,
Borrowers agree that any such telephonic notice will be confirmed in writing
within 24 hours of the giving of such telephonic notice, but the failure to
provide such written confirmation shall not affect the validity of the request.
Each request for the Borrowing of an Advance shall be accompanied by the
concurrent delivery to Agent of a complete and executed Borrowing Base
Certificate.


 


(ii)           Unless Agent receives
notice from a Lender prior to 9:00 a.m. (California time) on the date of a
Borrowing that such Lender will not make available as and when required
hereunder to Agent for the account of Borrowers the amount of that Lender’s Pro
Rata Share of the Borrowing, Agent may assume that each applicable Lender has
made or will make such amount available to Agent in immediately available funds
on the Funding Date and Agent may (but shall not be so required), in reliance
upon such assumption, make available to Borrowers on such date a corresponding
amount. If and to the extent any applicable Lender shall not have made its full
amount available to Agent in immediately available funds and Agent in such
circumstances has made available to Borrowers such amount, that Lender shall on
the Business Day following such Funding Date make such amount available to
Agent, together with interest at the Defaulting Lender Rate for each day during
such period. A notice submitted by Agent to any Lender with respect to amounts
owing under this subsection shall be conclusive, absent manifest error. If such
amount is so made available, such payment to Agent shall constitute such Lender’s
portion of the Loan on the date of Borrowing for all purposes of this 


 


4

















 


Agreement. If
such amount is not made available to Agent on the Business Day following the
Funding Date, Agent will notify Administrative Borrower of such failure to fund
and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent’s
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at
the time to the Loan comprising such Borrowing.


 


(iii)          Borrowers shall borrow
pursuant to Section 2.2(a) an amount equal to the Term Loan A Commitment
in a single drawing.


 


(iv)          Subject to the other
conditions set forth in this Section 2.3(a), each Lender shall make the
amount of such Lender’s Pro Rata Share of the requested Borrowing available to
Agent in immediately available funds, to Agent’s Account, not later than 10:00
a.m. (California time) on the Funding Date applicable thereto. After Agent’s
receipt of such funds, Agent shall make such funds available to Administrative
Borrower on the applicable Funding Date by transferring immediately available
funds equal to such proceeds received by Agent to Administrative Borrower’s
Designated Account; provided, however, that Agent shall not request any
Lender to make, and no Lender shall have the obligation to make, any portion of
the applicable Loan if Agent shall have actual knowledge that one or more of
the applicable conditions precedent set forth in Section 3 will not be
satisfied on the requested Funding Date for the applicable Borrowing unless
such condition has been waived.


 


(v)           Agent shall not be
obligated to transfer to a Defaulting Lender any payments respecting the Loan
made by Borrowers to Agent for the Defaulting Lender’s benefit, and, in the
absence of such transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of the Lender Group
ratably in accordance with their Commitments (but only to the extent that such
Defaulting Lender’s portion of the Loan was funded by the other members of the
Lender Group). Solely for the purposes of voting or consenting to matters with
respect to the Loan Documents, such Defaulting Lender shall be deemed not to be
a “Lender” and such Lender’s Commitment shall be deemed to be zero. This
Section shall remain effective with respect to such Lender until (x) the
Obligations under this Agreement shall have been declared or shall have become
immediately due and payable, (y) the non-Defaulting Lenders, Agent, and
Administrative Borrower shall have waived such Defaulting Lender’s default in
writing, or (z) the Defaulting Lender makes its Pro Rata Share of the
applicable portion of the Loan and pays to Agent all amounts owing by
Defaulting Lender in respect thereof. The operation of this Section shall not
be construed to increase or otherwise affect the Commitment of any Lender, to
relieve or excuse the performance by such Defaulting Lender or any other Lender
of its duties and obligations hereunder, or to relieve or excuse the
performance by Borrowers of their duties and obligations hereunder to Agent or
to the Lenders other than such Defaulting Lender. Any such failure to fund by
any Defaulting Lender shall constitute a material breach by such Defaulting
Lender of this Agreement and shall entitle Administrative Borrower at its
option, upon written notice to Agent, to arrange for a substitute Lender to
assume the Total Commitment of such Defaulting Lender, such substitute Lender
to be reasonably acceptable to Agent. In connection with the arrangement of
such a substitute Lender, the Defaulting Lender shall have no right to refuse
to be replaced hereunder, and agrees to execute and deliver a completed form of
Assignment and Acceptance in favor of the substitute Lender (and agrees that it
shall be deemed to have executed and delivered such document if it fails to do
so) subject only to being repaid its share of the outstanding Obligations without
any 


 


5

















 


premium or
penalty of any kind whatsoever; provided however, that any such assumption of
the Commitment of such Defaulting Lender shall not be deemed to constitute a
waiver of any of the Lender Group’s or Borrowers’ rights or remedies against
any such Defaulting Lender arising out of or in relation to such failure to
fund.


 


(b)           Notation.
Agent shall record on its books the principal amount of each of the Advances
and Term Loans owing to each Lender, and the interests therein of each Lender,
from time to time and such records shall, absent manifest error, gross
negligence or willful misconduct on the part of Agent, conclusively be presumed
to be correct and accurate.


 


(c)           Lenders’
Failure to Perform. All Loans shall be made by the Lenders
contemporaneously and in accordance with their Pro Rata Shares and subject to Sections
2.1 and 2.2. It is understood that (i) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to
make any portion of any Loan (or other extensions of credit) hereunder, nor
shall any Commitment of any Lender be increased or decreased as a result of any
failure by any other Lender to perform its obligations hereunder, and (ii) no
failure by any Lender to perform its obligations hereunder shall excuse any
other Lender from its obligations hereunder.


 


(d)           Settlement.
It is agreed that each Lender’s funded portion of the Advances is intended by
the Lenders to equal, at all times, to such Lender’s Pro Rata Share of the
outstanding Advances. Such agreement notwithstanding, Agent and the other
Lenders agree (which agreement shall not be for the benefit of Borrowers) that
in order to facilitate the administration of this Agreement and the other Loan
Documents, settlement among the Lenders as to the Advances shall take place on
a periodic basis in accordance with the following provisions:


 


(i)            Agent shall request
settlement (“Settlement”) with the Lenders on a weekly basis, or on a
more frequent basis if so determined by Agent, by notifying the Lenders by
telecopy, telephone, or other similar form of transmission, of such requested
Settlement, no later than 11:00 a.m. (California time) on the Business Day
immediately prior to the date of such requested Settlement (the date of such
requested Settlement being the “Settlement Date”). Such notice of a
Settlement Date shall include a summary statement of the amount of outstanding
Advances for the period since the prior Settlement Date. Subject to the terms
and conditions contained herein:  (y) if
a Lender’s balance of the Advances exceeds such Lender’s Pro Rata Share of the
Advances as of a Settlement Date, then Agent shall, by no later than 12:00 p.m.
(California time) on the Settlement Date, transfer in immediately available
funds to a Deposit Account of such Lender (as such Lender may designate), an
amount such that each such Lender shall, upon receipt of such amount, have as
of the Settlement Date, its Pro Rata Share of the Advances, and (z) if a Lender’s
balance of the Advances is less than such Lender’s Pro Rata Share of the
Advances as of a Settlement Date, such Lender shall no later than 12:00 p.m.
(California time) on the Settlement Date transfer in immediately available
funds to the Agent’s Account, an amount such that each such Lender shall, upon
transfer of such amount, have as of the Settlement Date, its Pro Rata Share of
the Advances. Such amounts made available to Agent under clause (z) of the
immediately preceding sentence shall constitute Advances of such Lenders. If
any such amount is not made available to Agent by any Lender on the Settlement
Date applicable thereto to the extent required by the terms hereof, Agent shall
be entitled to 


 


6

















 


recover for
its account such amount on demand from such Lender together with interest
thereon at the Defaulting Lender Rate.


 


(ii)           In determining whether
a Lender’s balance of the Advances is less than, equal to, or greater than such
Lender’s Pro Rata Share of the Advances as of a Settlement Date, Agent shall,
as part of the relevant Settlement, apply to such balance the portion of
payments actually received in good funds by Agent with respect to principal,
interest and fees payable by Borrower and allocable to the Lenders hereunder,
and proceeds of Collateral. To the extent that a net amount is owed to any such
Lender after such application, such net amount shall be distributed by Agent to
that Lender as part of such next Settlement.


 


(iii)          During the period between
Settlement Dates, each Lender (subject to the effect of agreements between
Agent and individual Lenders) with respect to the Advances, shall be entitled
to interest at the applicable rate or rates payable under this Agreement on the
daily amount of funds employed by Agent or the Lenders, as applicable.


 


2.4           Payments.


 


(a)           Payments by
Borrowers.


 


(i)            Except as otherwise
expressly provided herein, all payments by Borrowers shall be made in Dollars
to Agent’s Account for the account of the Lender Group and shall be made in
immediately available funds, no later than 5:00 p.m. (California time) on the
date specified herein. Any payment so received shall be deemed to have been
received the following Business Day. Any payment received by Agent later than
5:00 p.m. (California time) but before 5:00 p.m. (California time) the
following Business Day shall be deemed to have been received on the second
following Business Day, and any applicable interest or fee shall continue to
accrue until such following (or, if applicable, second following) Business Day.


 


(ii)           Unless Agent receives
notice from Administrative Borrower prior to the date on which any payment is
due to the Lenders that Borrowers will not make such payment in full as and
when required, Agent may assume that Borrowers have made (or will make) such
payment in full to Agent on such date in immediately available funds and Agent
may (but shall not be so required), in reliance upon such assumption,
distribute to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent Borrowers do not make such payment in
full to Agent on the date when due, each Lender severally shall repay to Agent
on demand such amount distributed to such Lender, together with interest
thereon at the Defaulting Lender Rate for each day from the date such amount is
distributed to such Lender until the date repaid.


 


(b)           Apportionment
and Application.


 


(i)            Except as otherwise
provided with respect to Defaulting Lenders and except as otherwise provided in
clause (b)(iv) below and in the other Loan Documents (including
agreements between Agent and individual Lenders), aggregate principal and
interest payments shall be apportioned ratably among the Revolver Lenders, the
Term Loan A Lenders and the Term Loan B Lenders, as applicable (according to
the unpaid principal balance of the Obligations to which such payments relate
held by each Lender), and payments of fees and 


 


7

















 


expenses
(other than fees or expenses that are for Agent’s separate account, after
giving effect to any agreements between Agent and individual Lenders) shall be
apportioned ratably among the Revolver Lenders, the Term Loan A Lenders and the
Term Loan B Lenders, as applicable.


 


(ii)           At any time following
the occurrence of an Event of Default and at the election of Agent, all
proceeds of Collateral and other payments received by Agent shall be applied
against such portions of the Obligations and in such order as Agent may elect.


 


(iii)          Agent promptly shall
distribute to each Lender, pursuant to the applicable wire instructions
received from each Lender in writing, such funds as it may be entitled to
receive, subject to a Settlement delay as provided in Section 2.3(d).


 


(iv)          Except as provided in clause
(b)(ii) above, this Section 2.4(b) shall not apply to any payment
made by Borrowers to Agent for the payment of specific Obligations then due and
payable (or prepayable) under any provision of this Agreement.


 


(v)           For purposes of the
foregoing, “paid in full” means payment of all amounts owing under the
Loan Documents according to the terms thereof, including loan fees, service
fees, professional fees, interest (and specifically including interest accrued
after the commencement of any Insolvency Proceeding), default interest,
interest on interest, and expense reimbursements, except to the extent that
default or overdue interest (but not any other interest) and loan fees, each
arising from or related to a default, are disallowed in any Insolvency Proceeding.


 


(vi)          In the event of a direct
conflict between the priority provisions of this Section 2.4 and other
provisions contained in any other Loan Document, it is the intention of the
parties hereto that such priority provisions in such documents shall be read
together and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of this Section 2.4
shall control and govern.


 


(vii)         The provisions of this Section
2.4 constitute an agreement among Borrowers and the Lender Group as to the
application of payments, Collections and proceeds of Collateral and do not
constitute any subordination of (x) any Obligations or (y) the right to payment
of any Obligations.


 


(c)           Mandatory
Prepayments.


 


(i)            Except as otherwise
may be agreed to by Agent and the Borrowers, immediately upon any voluntary or
involuntary sale or disposition by Borrowers or any of their Subsidiaries of
property or assets (other than sales or dispositions of Inventory or Equipment
in the ordinary course of business), Borrowers shall prepay the outstanding
Obligations in accordance with clause (d) below in an amount equal to
100% of the Net Cash Proceeds received by such Person in connection with such
sales or dispositions to the extent that the aggregate amount of Net Cash
Proceeds received by Borrowers and their Subsidiaries (and not paid to Agent as
a prepayment of the Obligations) for all such sales or dispositions shall
exceed $150,000 in any fiscal year. Nothing contained in this subclause (ii)
shall permit Borrowers or 


 


8

















 


any of their
Subsidiaries to sell or otherwise dispose of any property or assets other than
in accordance with Section 6.4.


 


(ii)           Immediately upon the
receipt by Borrowers or any of their Subsidiaries of any Extraordinary Receipts
in excess of $200,000 in the aggregate in any fiscal year of Parent ending
after the Closing Date, Borrowers shall prepay the outstanding Obligations in
accordance with clause (d) below in an amount equal to 100% of such
Extraordinary Receipts in excess of $200,000 in the aggregate in any fiscal
year of Parent ending after the Closing Date, net of any reasonable expenses
incurred in collecting such Extraordinary Receipts.


 


(d)           Application
of Payments.


 


(i)            Each prepayment
pursuant to subclauses (c)(i) and (c)(ii) above (in each case
except with respect to insurance proceeds and condemnation awards related to a
casualty or loss of Collateral) shall be applied against the remaining
installments of principal of the Term Loans (if any) in the inverse order of
maturity.


 


(ii)           Each prepayment
pursuant to subclauses (c)(i) above and (c)(ii) with respect to
insurance proceeds and condemnation awards related to a casualty or loss of
Collateral shall be applied as follows:


 


(1)           if the proceeds are from any sale or
disposition of any Accounts or Inventory or any insurance policy or
condemnation award with respect to Inventory, such proceeds shall be applied
against the remaining installments of principal of the Term Loans (if any) in
the inverse order of maturity; and


 


(2)           if the proceeds are from the sale or
disposition of any other assets or any insurance policy or condemnation award
not described in clause (1) above, such proceeds shall be applied
against the remaining installments of principal of the Term Loans (if any) in
the inverse order of maturity; provided, however, that, except during the continuation
of a Default or an Event of Default, such proceeds shall not be required to be
so applied to the extent that such proceeds are used to replace, repair, or
restore the properties or assets in respect of which such proceeds were paid if
(i) the amount of proceeds received in respect of such sales, dispositions,
insurance policies, or condemnation awards are less than $5,000,000 in the
aggregate during the term of this Agreement, (ii) Borrowers deliver a
certificate to Agent within 10 days after such sale or 30 days after the date
of such loss, destruction, or taking, as the case may be, stating that such
proceeds shall be used to replace, repair, or restore such properties or assets
within a period specified in such certificate not to exceed the earlier of (x)
180 days after the receipt of such proceeds and (y) the Maturity Date (which
certificate shall set forth estimates of the proceeds to be so expended), and
(iii) such proceeds are immediately deposited in a Deposit Account subject to a
Control Agreement. If all or any portion of such proceeds not so applied to the
prepayment of the Obligations in 


 


9

















 


accordance with this clause (2) are
not used in accordance with the preceding sentence within the period specified
in the relevant certificate furnished pursuant hereto, such remaining portion
shall be applied to the Obligations in accordance with this clause (2)
on the last day of such specified period.


 


(e)           Optional
Prepayment of Term Loans. The Borrowers shall have the privilege of
making full or partial prepayments of the Term Loans, upon five (5) Business
Days prior written notice to the Agent; provided that any such prepayment shall
be accompanied by the applicable Prepayment Premium as provided in the Fee
Letter. Any optional prepayment of the Term Loans shall be in a minimum amount
of $1,000,000. Each such prepayment of the Term Loans shall be applied against
the remaining installments of principal of the applicable Term Loan in the
inverse order of maturity. Notwithstanding anything to contrary contained
herein, the Term Loan B Commitment shall be reduced by an amount equal to the
amount that the principal balance of the Term Loan B is prepaid pursuant to
this Section 2.4(e).


 


2.5           Overadvances.
If, at any time or for any reason, the aggregate amount of outstanding
principal of the Advances accrued and payable by Borrowers to the Lender Group
pursuant to Section 2.1 is greater than any of the limitations set forth
in Section 2.1 (an “Overadvance”), Borrowers immediately shall
pay to Agent, in cash, the amount of such excess, which amount shall be used by
Agent to reduce the aggregate amount of the then outstanding Advances. In
addition, Borrowers hereby promise to pay the Obligations (including principal,
interest, fees, costs, and expenses) in Dollars in full as and when due and
payable under the terms of this Agreement and the other Loan Documents.


 


2.6           Interest:  Rates, Payments, and Calculations.


 


(a)           Interest
Rates. Except as provided in clause (b) below, (i) Term Loans
shall bear interest at a per annum rate equal to the Base Rate plus 4.25
percentage points, and (ii) all other Obligations shall bear interest at a
per annum rate equal to the Base Rate plus 1.25 percentage points.


 


The foregoing
notwithstanding, at no time shall: (x) any portion of the Term Loans bear
interest on the Daily Balance thereof at a per annum rate less than 12.50%, and
(y) any portion of any other Obligations bear interest on the Daily Balance
thereof at a per annum rate less than 9.50%. To the extent that interest
accrued hereunder at the rate set forth herein would be less than the foregoing
minimum daily rate, the interest rate chargeable hereunder for such day
automatically shall be deemed increased to the minimum rate.


 


(b)           Default
Rate. Upon the occurrence and during
the continuation of an Event of Default (and at the election of Agent or the
Required Lenders), all Obligations shall bear interest on the Daily Balance
thereof at a per annum rate equal to 4 percentage points above the per annum
rate otherwise applicable hereunder.


 


(c)           Payment.
Except as provided to the contrary in Section 2.11, interest and all
fees payable hereunder shall be due and payable, in arrears, on the first day
of each month at any time that Obligations or Commitments are outstanding. Any
interest or fees not paid when 


 


10

















 


due shall be
compounded and shall accrue interest at the rate then applicable to the
applicable Loan.


 


(d)           Computation.
All interest and fees chargeable under the Loan Documents shall be computed on
the basis of a 360 day year for the actual number of days elapsed. Any change
in the Base Rate shall take effect on the first day of the month following such
change and shall continue in effect for the balance of such month.


 


(e)           Intent to
Limit Charges to Maximum Lawful Rate. In no event shall the interest
rate or rates payable under this Agreement, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and
manner of payment stated within it; provided, however, that, anything contained herein to
the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from Borrowers in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations
to the extent of such excess.


 


2.7           Cash
Management.


 


(a)           Borrowers shall (i)
establish and maintain cash management services of a type and on terms
satisfactory to Agent at one or more of the banks set forth on Schedule
2.7(a) (each a “Cash Management Bank”), and shall request in writing
and otherwise take such reasonable steps to ensure that all Account Debtors of
the Borrowers and the Guarantors forward payment of the amounts owed by them
directly to such Cash Management Bank, and (ii) deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after
the date of receipt thereof, all of their Collections (including those sent
directly by their Account Debtors to Borrowers or such Guarantors) into a bank
account in Agent’s name (a “Cash Management Account”) at one of the Cash
Management Banks.


 


(b)           Each Cash Management
Bank shall establish and maintain Cash Management Agreements with Agent and
Borrowers, in form and substance reasonably acceptable to Agent. Each such Cash
Management Agreement shall provide, among other things, that (i) the Cash
Management Bank will comply with any instructions originated by Agent directing
the disposition of the funds in such Cash Management Account without further
consent by Borrowers or any Guarantor, (ii) the Cash Management Bank has no
rights of setoff or recoupment or any other claim against the applicable Cash
Management Account, other than for payment of its service fees and other
charges directly related to the administration of such Cash Management Account
and for returned checks or other items of payment, and (iii) it will forward by
daily sweep all amounts in the applicable Cash Management Account to the Agent’s
Account; provided, that, to the extent there are no Advances then
outstanding and no other amounts then due and payable, so long as no Event of
Default has occurred and is continuing, the Agent shall direct that such
amounts be deposited in the Designated Account.


 


11

















 


(c)           So long as no Event of
Default has occurred and is continuing, Administrative Borrower may amend Schedule
2.7(a) to add or replace a Cash Management Bank or Cash Management Account;
provided,
however, that (i) such prospective Cash Management Bank shall be reasonably
satisfactory to Agent, and (ii) prior to the time of the opening of such Cash
Management Account, a Borrower, as applicable, and such prospective Cash
Management Bank shall have executed and delivered to Agent a Cash Management
Agreement. Borrowers shall close any of their Cash Management Accounts (and
establish replacement cash management accounts in accordance with the foregoing
sentence) promptly and in any event within 45 days of written notice from Agent
that the creditworthiness of any Cash Management Bank is no longer acceptable
in Agent’s reasonable judgment, or as promptly as practicable and in any event
within 60 days of notice from Agent that the operating performance, funds
transfer, or availability procedures or performance of the Cash Management Bank
with respect to Cash Management Accounts or Agent’s liability under any Cash
Management Agreement with such Cash Management Bank is no longer acceptable in
Agent’s reasonable judgment.


 


(d)           The Cash Management
Accounts shall be cash collateral accounts subject to Control Agreements.


 


2.8           Crediting
Payments. The receipt of any payment item by Agent (whether from
transfers to Agent by the Cash Management Banks pursuant to the Cash Management
Agreements or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available federal funds
made to the Agent’s Account or unless and until such payment item is honored
when presented for payment. Should any payment item not be honored when
presented for payment, then Borrowers shall be deemed not to have made such
payment and interest shall be calculated accordingly. Anything to the contrary
contained herein notwithstanding, any payment item received by Agent into the
Agent’s Account on a Business Day on or before 5:00 p.m. (California time)
shall be deemed to have been received the following Business Day. If any
payment item is received into the Agent’s Account on a non-Business Day or
after 5:00 p.m. (California time) on a Business Day but before 5:00 p.m.
(California time) the following Business Day, it shall be deemed to have been
received by Agent as of the opening of business on the second following
Business Day.


 


2.9           Designated
Account. Agent is authorized to make the Loans under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person or, without instructions, if pursuant to Section
2.6(d). Administrative Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the purpose of
receiving the proceeds of the Loans requested by Borrowers and made by Agent or
the Lenders hereunder. Unless otherwise agreed by Agent and Administrative
Borrower, any Loan requested by Borrowers and made by Agent or the Lenders
hereunder shall be made to the Designated Account.


 


2.10         [Intentionally
Omitted]


 


2.11         Fees.
Borrowers shall pay to Agent, as and when due and payable under the terms of
the Fee Letter, the fees set forth in the Fee Letter.


 


12

















 


2.12         [Intentionally
Omitted]


 


2.13         Joint and
Several Liability of Borrowers.


 


(a)           Each Borrower is
accepting joint and several liability hereunder and under the other Loan
Documents in consideration of the financial accommodations to be provided by
the Lender Group under this Agreement, for the mutual benefit, directly and
indirectly, of each Borrower and in consideration of the undertakings of the
other Borrowers to accept joint and several liability for the Obligations.


 


(b)           Each Borrower, jointly
and severally, hereby irrevocably and unconditionally accepts, not merely as a
surety but also as a co-debtor, joint and several liability with the other
Borrowers, with respect to the payment and performance of all of the
Obligations (including, without limitation, any Obligations arising under this Section
2.13), it being the intention of the parties hereto that all the
Obligations shall be the joint and several obligations of each Borrower without
preferences or distinction among them.


 


(c)           If and to the extent that
any Borrower shall fail to make any payment with respect to any of the
Obligations as and when due or to perform any of the Obligations in accordance
with the terms thereof, then in each such event the other Borrowers will make
such payment with respect to, or perform, such Obligation.


 


(d)           The Obligations of each
Borrower under the provisions of this Section 2.13 constitute the
absolute and unconditional, full recourse Obligations of each Borrower
enforceable against each Borrower to the full extent of its properties and
assets, irrespective of the validity, regularity or enforceability of this
Agreement or any other circumstances whatsoever.


 


(e)           Except as otherwise
expressly provided in this Agreement, each Borrower hereby waives notice of
acceptance of its joint and several liability, notice of any Loans made under
or pursuant to this Agreement, notice of the occurrence of any Default, Event
of Default, or of any demand for any payment under this Agreement, notice of
any action at any time taken or omitted by Agent or Lenders under or in respect
of any of the Obligations, any requirement of diligence or to mitigate damages
and, generally, to the extent permitted by applicable law, all demands, notices
and other formalities of every kind in connection with this Agreement (except
as otherwise provided in this Agreement). Each Borrower hereby assents to, and
waives notice of, any extension or postponement of the time for the payment of
any of the Obligations, the acceptance of any payment of any of the Obligations,
the acceptance of any partial payment thereon, any waiver, consent or other
action or acquiescence by Agent or Lenders at any time or times in respect of
any default by any Borrower in the performance or satisfaction of any term,
covenant, condition or provision of this Agreement, any and all other
indulgences whatsoever by Agent or Lenders in respect of any of the
Obligations, and the taking, addition, substitution or release, in whole or in
part, at any time or times, of any security for any of the Obligations or the
addition, substitution or release, in whole or in part, of any Borrower. Without
limiting the generality of the foregoing, each Borrower assents to any other
action or delay in acting or failure to act on the part of any Agent or Lender
with respect to the failure by any Borrower to comply with any of its
respective Obligations, including, without limitation, any failure strictly 


 


13

















 


or diligently
to assert any right or to pursue any remedy or to comply fully with applicable
laws or regulations thereunder, which might, but for the provisions of this Section
2.13 afford grounds for terminating, discharging or relieving any Borrower,
in whole or in part, from any of its Obligations under this Section 2.13,
it being the intention of each Borrower that, so long as any of the Obligations
hereunder remain unsatisfied, the Obligations of each Borrower under this Section
2.13 shall not be discharged except by performance and then only to the
extent of such performance. The Obligations of each Borrower under this Section
2.13 shall not be diminished or rendered unenforceable by any winding up,
reorganization, arrangement, liquidation, reconstruction or similar proceeding
with respect to any Borrower or any Agent or Lender.


 


(f)            Each Borrower
represents and warrants to Agent and Lenders that such Borrower is currently
informed of the financial condition of Borrowers and of all other circumstances
which a diligent inquiry would reveal and which bear upon the risk of
nonpayment of the Obligations. Each Borrower further represents and warrants to
Agent and Lenders that such Borrower has read and understands the terms and
conditions of the Loan Documents. Each Borrower hereby covenants that such
Borrower will continue to keep informed of Borrowers’ financial condition, the
financial condition of other guarantors, if any, and of all other circumstances
which bear upon the risk of nonpayment or nonperformance of the Obligations.


 


(g)           Each Borrower waives
all rights and defenses arising out of an election of remedies by Agent or any
Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Agent’s or such Lender’s rights of subrogation and reimbursement against such
Borrower by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.


 


(h)           In the event that any
Obligations are at any time secured by Real Property, each Borrower hereby
waives all rights and defenses that such Borrower may have as a result thereof.
This means, among other things:


 


(i)            Agent and Lenders may
collect from such Borrower without first foreclosing on any Real Property or
other Collateral pledged by Borrowers.


 


(ii)           If Agent or any Lender
forecloses on any Real Property pledged by Borrowers:


 


(A)          The amount of the
Obligations may be reduced only by the price for which that collateral is sold
at the foreclosure sale, even if the collateral is worth more than the sale
price.


 


(B)           Agent and Lenders may
collect from such Borrower even if Agent or Lenders, by foreclosing on the Real
Property, has destroyed any right such Borrower may have to collect from the
other Borrowers.


 


This is an
unconditional and irrevocable waiver of any rights and defenses such Borrower
may have because the Obligations are secured by Real Property. These rights and
defenses include, but are not limited to, any rights or defenses based upon
Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure.


 


14

















 


(i)            The provisions of this
Section 2.13 are made for the benefit of Agent, Lenders and their
respective successors and assigns, and may be enforced by it or them from time
to time against any or all Borrowers as often as occasion therefor may arise
and without requirement on the part of any such Agent, Lender, successor or
assign first to marshal any of its or their claims or to exercise any of its or
their rights against any Borrower or to exhaust any remedies available to it or
them against any Borrower or to resort to any other source or means of
obtaining payment of any of the Obligations hereunder or to elect any other
remedy. The provisions of this Section 2.13 shall remain in effect until
all of the Obligations shall have been paid in full or otherwise fully
satisfied. If at any time, any payment, or any part thereof, made in respect of
any of the Obligations, is rescinded or must otherwise be restored or returned
by any Agent or Lender upon the insolvency, bankruptcy or reorganization of any
Borrower, or otherwise, the provisions of this Section 2.13 will
forthwith be reinstated in effect, as though such payment had not been made.


 


(j)            Each Borrower hereby
agrees that it will not enforce any of its rights of contribution or
subrogation against any other Borrower with respect to any liability incurred
by it hereunder or under any of the other Loan Documents, any payments made by
it to Agent or Lenders with respect to any of the Obligations or any collateral
security therefor until such time as all of the Obligations have been paid in
full in cash. Any claim which any Borrower may have against any other Borrower
with respect to any payments to any Agent or Lender hereunder or under any
other Loan Documents are hereby expressly made subordinate and junior in right
of payment, without limitation as to any increases in the Obligations arising
hereunder or thereunder, to the prior payment in full in cash of the
Obligations and, in the event of any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar proceeding under the laws of any
jurisdiction relating to any Borrower, its debts or its assets, whether
voluntary or involuntary, all such Obligations shall be paid in full in cash
before any payment or distribution of any character, whether in cash,
securities or other property, shall be made to any other Borrower therefor.


 


(k)           Each Borrower hereby
agrees that, after the occurrence and during the continuance of any Default or
Event of Default, the payment of any amounts due with respect to the
indebtedness owing by any Borrower to any other Borrower is hereby subordinated
to the prior payment in full in cash of the Obligations. Each Borrower hereby
agrees that after the occurrence and during the continuance of any Default or
Event of Default, such Borrower will not demand, sue for or otherwise attempt
to collect any indebtedness of any other Borrower owing to such Borrower until
the Obligations shall have been paid in full in cash. If, notwithstanding the
foregoing sentence, such Borrower shall collect, enforce or receive any amounts
in respect of such indebtedness, such amounts shall be collected, enforced and
received by such Borrower as trustee for Agent, and such Borrower shall deliver
any such amounts to Agent for application to the Obligations in accordance with
Section 2.4(b).


 


2.14         Registered
Notes. Agent, acting solely for this purpose as a non-fiduciary
agent on behalf of Borrowers (or in the case of an assignment not recorded
in the Register in accordance with Section 13.1(i), the assigning
Lender) agrees to record the Commitments and Loans on the Register (or in the
case of an assignment not recorded in the Register in accordance with Section 13.1(i),
a Related Party Register). Each Commitment and Loan recorded on the Register
(or Related Party Register) may not be evidenced by promissory notes other than



 


15

















 


Registered
Notes (as defined below). Upon the registration of each Commitment and Loan,
each Borrower agrees, at the request of any Lender, to execute and deliver to
such Lender a promissory note, in conformity with the terms of this Agreement,
in registered form to evidence such Registered Loan, in form and substance
reasonably satisfactory to such Lender, and registered as provided in Section
13.1(i) (a “Registered Note”), payable to the order of such Lender
or its registered assigns and otherwise duly completed. Once recorded on the
Register (or Related Party Register), no Commitment or Loan may be removed from
the Register (or Related Party Register) so long as it or they remain
outstanding, and a Registered Note may not be exchanged for a promissory note
that is not a Registered Note.


 


3.             CONDITIONS; TERM OF AGREEMENT.


 


3.1           Conditions
Precedent to the Initial Extension of Credit. The obligation of
each Lender to make its initial extension of credit provided for hereunder, is
subject to the fulfillment, to the satisfaction of Agent and each Lender of
each of the conditions precedent set forth on Schedule 3.1 (the making
of such initial extension of credit by a Lender being conclusively deemed to be
its satisfaction or waiver of the conditions precedent).


 


3.2           Conditions
Precedent to all Extensions of Credit; Special Conditions Precedent to Term
Loan B.


 


(a)           Subject to Section
3.1, the obligation of the Lender Group (or any member thereof) to make any
Advances or any portion of either Term Loan hereunder at any time (or to extend
any other credit hereunder) shall be subject to the following conditions
precedent:


 


(i)            the representations
and warranties contained in this Agreement and in the other Loan Documents
shall be true and correct in all material respects on and as of the date of
such extension of credit, as though made on and as of such date (except to the
extent that such representations and warranties relate solely to an earlier
date);


 


(ii)           no Default or Event of
Default shall have occurred and be continuing on the date of such extension of
credit, nor shall either result from the making thereof;


 


(iii)          no injunction, writ,
restraining order, or other order of any nature restricting or prohibiting,
directly or indirectly, the extending of such credit shall have been issued and
remain in force by any Governmental Authority against any Borrower, Agent, any
Lender, or any of their Affiliates;


 


(iv)          no Material Adverse
Change shall have occurred; and


 


(v)           with respect to any
Advance, a Borrowing Base Certificate.


 


(b)           Subject to Sections
3.1 and 3.2(a), the obligation of the Term Loan B Lenders (or any
member thereof) to make any portion of the Term Loan B hereunder during the
Term Loan B Commitment Period shall be subject to the following additional
conditions precedent:


 


16

















 


(i)            the proceeds shall be
used for the acquisition (whether by merger or otherwise) by any Borrower or
any Subsidiary of the Borrower of eighty percent (80%) of the outstanding
capital stock, membership interest, 
partnership interest or other similar ownership interest of a Person
which is engaged in a line of business similar to the business of such Borrower
or such Subsidiary of the Borrower, or the purchase of all or substantially all
of the assets owned by such Person;


 


(ii)           Agent shall have received
fifteen (15) days prior written notice of such proposed acquisition from the
Acquiring Person;


 


(iii)          such acquisition has
been (A) approved by the board of directors or other appropriate governing body
of the Person that is the subject of the acquisition or (B) agreed to by the
requisite shareholders, members, partners or owners of the Person that is the
subject of the acquisition, as required under applicable law or by the
Governing Documents of such Person;


 


(iv)          no Default or Event of
Default shall have occurred and be continuing or would result after giving
effect to such acquisition;


 


(v)           such acquisition is
undertaken in accordance with all applicable requirements of law;


 


(vi)          if the consideration to
be paid in connection with such acquisition includes an “earn out”, the
applicable purchase agreement related to such acquisition includes a maximum
dollar amount that may be payable pursuant to the “earn out” provisions;


 


(vii)         Agent shall have received
a pro forma balance sheet and income statements
of the Acquiring Person and its Subsidiaries (after giving effect to the
proposed acquisition) as of the then most recent fiscal quarter ended for which
a financial statement has been delivered in accordance with Section 5.3,
together with a certificate of the Acquiring Person, in form and substance
satisfactory to Agent, demonstrating that upon the consummation of such
acquisition, the Borrowers will be in compliance with the financial covenants
contained in Section 6.16, such evidence of compliance to be in form and
substance reasonably satisfactory to Agent;


 


(viii)        Agent shall have received
financial statements which include balance sheets, income statements and
statements of cash flows of the Person being acquired, (A) in the same
form and substance as those required to be delivered by the Borrowers under Section
5.3, to the extent such are available, or (B) if unavailable, in the form
relied upon by the Acquiring Person in connection with such transaction, in
each case for the previous three (3) fiscal years, or if less than three (3)
years are existing, for such shorter period of time as does exist;


 


(ix)           Agent shall have
received lien searches or other evidence satisfactory to Agent that the shares
or other interest in the Person, or the assets of the Person, which is the
subject of the proposed acquisition are (or will be at the closing of the
proposed acquisition) free and clear of all Liens, except Permitted Liens,
including, without limitation, with respect to the acquisition of shares or other
equity interests, free of any restrictions on 


 


17

















 


transfer other
than restrictions applicable to the sale of securities under federal and state
securities laws and regulations generally;


 


(x)            the aggregate
consideration to be paid in connection with such acquisition shall not exceed
the greater of (A) the greater of (i) three (3) times EBITDA (adjusted for
actual expenses incurred in connection with such acquisition) calculated in
accordance with the terms hereof, for the most recent fiscal year ended, as
reflected in the financial statements referred to in clause (vii) above
and (ii) an amount equal to the pro forma
Borrowing Base for the Person that is the subject of the acquisition,
calculated in accordance with the terms hereof as of the date of such proposed
acquisition and (B) an amount mutually agreed upon by the Borrowers, Agent and
the Lender Group taking into consideration the totality of all information
relating to the Person that is the subject of the acquisition, which agreement
by Agent and the Lender Group shall not be unreasonably withheld;


 


(xi)           Agent shall have
received the favorable legal opinion of the applicable Borrower’s counsel in
form and substance satisfactory to Agent;


 


(xii)          Agent shall have
received a true and correct copy of the Acquisition Documents, as well as
evidence of all requisite approvals and permits, all of which shall be in form
and substance satisfactory to Agent; and


 


(xiii)         Agent shall have received
such other documents and instruments as Agent in its reasonable discretion may
require.


 


3.3           Term.


 


(a)           This Agreement shall
continue in full force and effect for a term ending on November 30, 2010 (the “Maturity
Date”), unless terminated earlier in accordance with the terms of this
Agreement. The foregoing notwithstanding, the Lender Group, upon the election
of the Required Lenders, shall have the right to terminate its obligations
under this Agreement pursuant to Section 8.1.


 


(b)           Notwithstanding the
provisions of subsection (a), all Obligations (other than the principal amount
of the Term Loans), including accrued interest to the date of principal
payment, shall be due and payable no later than November 30, 2008 (the “Revolver
Maturity Date”); provided, however, that by written notice to Agent (the
“Revolver Renewal Notice”), Borrowers may elect to require the Lenders
to renew the Revolver Commitment two times, each for a period of one year, so
long as each of the following conditions precedent have fulfilled, to the satisfaction
of Agent, in which case such renewal date shall become the new Revolver
Maturity Date:


 


(i)            Administrative
Borrower delivers the Revolver Renewal Notice to Agent no later than forty-five
(45) days prior to the then extant Revolver Maturity Date;


 


(ii)           No Default or Event of
Default has occurred since the Closing Date (whether or not then continuing);
and


 


18

















 


(iii)          Concurrently with
Administrative Borrower’s delivery of the Revolver Renewal Notice, Borrower
pays Agent a renewal fee (the “Revolver Renewal Fee”) equal to one
percent (1%) of the Maximum Revolver Amount.


 


Each Borrower
hereby acknowledges and agrees that each Revolver Renewal Fee is fully earned
and non-refundable on the date such fee is due and payable as provided in this Section
3.3(b).


 


3.4           Effect of
Termination. On the date of termination of this Agreement, all
Obligations immediately shall become due and payable without notice or demand.
No termination of this Agreement, however, shall relieve or discharge Borrowers
of their duties, Obligations, or covenants hereunder or under any other Loan
Document and the Agent’s Liens in the Collateral shall remain in effect until
all Obligations have been paid in full and the Lender Group’s obligations to
provide additional credit hereunder have been terminated. When this Agreement
has been terminated and all of the Obligations have been paid in full and the
Lender Group’s obligations to provide additional credit under the Loan
Documents have been terminated irrevocably, Agent will, at Borrowers’ sole
expense, execute and deliver any termination statements, lien releases,
mortgage releases, re-assignments of trademarks, discharges of security
interests, and other similar discharge or release documents (and, if
applicable, in recordable form) as are reasonably necessary to release, as of
record, the Agent’s Liens and all notices of security interests and liens
previously filed by Agent with respect to the Obligations.


 


3.5           Early
Termination by Borrowers. Borrowers have the option, at any time
upon 30 days prior written notice by Administrative Borrower to Agent, to
terminate this Agreement by paying to Agent, in cash, the Obligations in full
including, without limitation, any amounts due under the Fee Letter. If
Administrative Borrower has sent a notice of termination pursuant to the
provisions of this Section, then the Commitments shall terminate and Borrowers
shall be obligated to repay in cash the Obligations in full on the date set
forth as the date of termination of this Agreement in such notice.


 


3.6           Conditions
Subsequent to Extensions of Credit.


 


(a)           The obligation of the
Lender Group (or any member thereof) to continue to make Advances or lend any
portion of the Term Loans (or otherwise extend credit hereunder) is subject to
the fulfillment, on or before the date applicable thereto (unless such date is
extended in writing by Agent), of each of the conditions subsequent set forth
below (the failure by Borrowers to so perform or cause to be performed constituting
an Event of Default):


 


(i)            Within thirty (30)
days after the Closing Date, the Borrowers and their Subsidiaries, as
applicable, shall have entered into Control Agreements with Lloyds TSB Bank
plc, in form and substance satisfactory to Agent, with respect to all accounts
of the Borrowers and their UK Subsidiaries located in the United Kingdom.


 


(ii)           Within ninety (90) days
after the Closing Date, all Accounts of the Borrowers located in the United
States shall be payable to accounts at East West Bank and the Borrowers shall
have entered into Control Agreements with East West Bank, in form and substance
satisfactory to Agent, with respect to such accounts.


 


19
















 


(iii)          To the extent not paid
directly by the Agent, within five (5) Business Days after the Closing Date,
the IFN Credit Facility shall have been paid in full and Agent shall have
received evidence satisfactory to it that (A) the IFN Credit Facility has been
paid off in full, (B) all Liens associated with the IFN Credit Facility have
been released or discharged and (C) all accounts of the French Subsidiary with
IFN Finance S.A. have been closed.


 


(iv)          To the extent not paid
directly by the Agent, within five (5) Business Days after the Closing Date,
the Lloyds Credit Facility shall have been paid in full and Agent shall have
received evidence satisfactory to it that (A) the Lloyds Credit Facility has
been paid off in full and (B) all Liens associated with the Lloyds Credit
Facility have been released or discharged.


 


(v)           To the extent not paid
directly by the Agent, within two (2) Business Days after the Closing Date, the
Wells Fargo Credit Facility shall have been paid in full and Agent shall have
received evidence satisfactory to it that (A) the Wells Fargo Credit Facility
has been paid off in full and (B) all Liens associated with the Wells Fargo
Credit Facility have been released or discharged.


 


(vi)          Within seven (7)
Business Days after the Closing Date, Agent or its counsel shall have received
certificates representing the Pledged Interests (as such term is defined in the
Security Agreement), the Securities (as such term is defined in the UK Share
Pledge) and the Charged Shares (as such term is defined in the UK Debenture) in
each case with an executed stock power or powers with respect thereto endorsed
in blank.


 


(b)           The obligation of the
Lender Group (or any member thereof) to continue to provide the Borrowers with
any Borrowing Base credit with respect to Eligible Finished Goods Inventory or
Eligible Raw Materials Inventory stored at the locations noted in Schedule
4.5 is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth below:


 


(i)            Within thirty (30)
days after the Closing Date, Agent shall have received Collateral Access
Agreements, all in form and substance satisfactory to Agent, with respect to
the locations noted in Schedule 4.5 Part I.


 


(ii)           Within seventy-five
(75) days after the Closing Date, Agent shall have received Collateral Access
Agreements, all in form and substance satisfactory to Agent, with respect to
the locations noted in Schedule 4.5 Part II.


 


If the Agent
does not receive Collateral Access Agreements within the time periods noted in
this Section 3.6(b), any inventory stored at such locations shall cease to be
deemed “Eligible Finished Goods Inventory” or “Eligible Raw Materials
Inventory,” as applicable, for purposes of determination of the Borrowing Base;
provided, however, that Inventory stored at locations for which
Collateral Access Agreements have not been provided may still be deemed “Eligible
Finished Goods Inventory” or “Eligible Raw Materials Inventory,” as applicable,
if the aggregate amount of all Inventory (including, without limitation,
Eligible Finished Goods Inventory and Eligible Raw Materials Inventory) stored
at any one location does not exceed $100,000 and such 


 


20

















 


inventory
otherwise qualifies as “Eligible Finished Goods Inventory” or “Eligible Raw
Materials Inventory.”


 


4.             REPRESENTATIONS AND WARRANTIES.


 


In order to
induce the Lender Group to enter into this Agreement, each Borrower makes the
following representations and warranties to the Lender Group which shall be
true, correct, and complete as of the Closing Date, and at and as of the date
of the making of each Advance (or other extension of credit) made thereafter,
as though made on and as of the date of such Advance (or other extension of credit)
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:


 


4.1           No
Encumbrances. Each Borrower has good and indefeasible title to,
or a valid leasehold interest in, their personal property assets and good and
marketable title to, or a valid leasehold interest in, their Real Property, in
each case, free and clear of Liens except for Permitted Liens.


 


4.2           Accounts.
As to each Account that is identified by Borrowers as an Eligible Account in a
borrowing base report submitted to Agent, such Account is (a) a bona fide
existing payment obligation of the applicable Account Debtor created by the
sale and delivery of Inventory or, if applicable, the rendition of services to
such Account Debtor in the ordinary course of Borrowers’ business, (b) owed to
a Borrower without any known defenses, disputes, offsets, counterclaims, or
rights of return or cancellation, and (c) not excluded as ineligible by virtue
of one or more of the excluding criteria set forth in the definition of
Eligible Accounts.


 


4.3           Inventory.
As to each item of Inventory that is identified by Borrowers as Eligible
Inventory in a borrowing base report submitted to Agent, such Inventory is (a)
of good and merchantable quality, free from known defects, and (b) not excluded
as ineligible by virtue of one or more of the excluding criteria set forth in
the definition of Eligible Inventory.


 


4.4           Equipment.
Each item of Equipment of Borrowers and their Subsidiaries is used or held for
use in their business and is in good working order, ordinary wear and tear and
damage by casualty excepted.


 


4.5           Location
of Inventory and Equipment. The Inventory and Equipment (other
than vehicles or Equipment out for repair) of Borrowers and the UK Subsidiaries
are not stored with a bailee, warehouseman, or similar party except as set
forth in Schedule 4.5 and are located only at, or in-transit between,
the locations identified on Schedule 4.5 (as such Schedule may be
updated pursuant to Section 5.9).


 


4.6           Inventory
Records. Each Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof in all material respects.


 


21

















 


4.7           State of
Incorporation; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims.


 


(a)           The name and
jurisdiction of organization of each Borrower and each of its Subsidiaries is
set forth on Schedule 4.7(a).


 


(b)           The chief executive
office of each Borrower and, as of the Closing Date,  each of its Subsidiaries, is located at the
address indicated on Schedule 4.7(b).


 


(c)           Each Borrower’s and
each of its Subsidiaries’ organizational identification number, if any, is
identified on Schedule 4.7(c).


 


(d)           As of the Closing Date,
Borrowers and their Subsidiaries do not hold any commercial tort claims.


 


4.8           Due
Organization and Qualification; Subsidiaries.


 


(a)           Each Borrower is duly
organized and existing and in good standing under the laws of the jurisdiction
of its organization and qualified to do business in any state or jurisdiction
where the failure to be so qualified reasonably could be expected to result in a
Material Adverse Change.


 


(b)           Set forth on Schedule
4.8(b) is a complete and accurate description of the authorized capital
Stock of each Borrower, by class, and, as of the Closing Date, a description of
the number of shares of each such class that are issued and outstanding. Other
than as described on Schedule 4.8(b), there are no subscriptions,
options, warrants, or calls relating to any shares of each Borrower’s capital
Stock, including any right of conversion or exchange under any outstanding
security or other instrument. No Borrower is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital Stock or any security convertible into or exchangeable
for any of its capital Stock.


 


(c)           Set forth on Schedule
4.8(c) is a complete and accurate list of each Borrower’s direct and
indirect Subsidiaries, showing: (i) the jurisdiction of its organization, (ii)
the number of shares of each class of common and preferred Stock authorized for
each of such Subsidiaries, and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or indirectly by the
applicable Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.


 


(d)           There are no
subscriptions, options, warrants, or calls relating to any shares of any
Borrower’s Subsidiaries’ capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. No Borrower or any
of its respective Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of any
Borrower’s Subsidiaries’ capital Stock or any security convertible into or
exchangeable for any such capital Stock.


 


(e)           Other than the UK
Guarantor Subsidiaries, no other UK Subsidiary has assets in excess of $5,000.


 


22

















 


4.9           Due
Authorization; No Conflict.


 


(a)           As to each Borrower,
the execution, delivery, and performance by such Borrower of this Agreement and
the other Loan Documents to which it is a party have been duly authorized by
all necessary action on the part of such Borrower.


 


(b)           As to each Borrower,
the execution, delivery, and performance by such Borrower of this Agreement and
the other Loan Documents to which it is a party do not and will not (i) violate
any provision of federal, state, or local law or regulation applicable to any
Borrower, the Governing Documents of any Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on any Borrower,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation of any
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of any Borrower, other than
Permitted Liens, or (iv) require any approval of any Borrower’s interest
holders or any approval or consent of any Person under any material contractual
obligation of any Borrower, other than consents or approvals that have been
obtained and that are still in force and effect.


 


(c)           Other than the filing
of financing statements and the recording in the US Copyright Office or the US
Patent and Trademark Office of a notice of Agent’s security interest in
pertinent Intellectual Property, the execution, delivery, and performance by
each Borrower of this Agreement and the other Loan Documents to which such
Borrower is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any Governmental
Authority, other than consents or approvals that have been obtained and that
are still in force and effect.


 


(d)           As to each Borrower,
this Agreement and the other Loan Documents to which such Borrower is a party,
and all other documents contemplated hereby and thereby, when executed and
delivered by such Borrower will be the legally valid and binding obligations of
such Borrower, enforceable against such 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.


 


(e)           The Agent’s Liens are
validly created, perfected and first priority Liens, subject only to Permitted
Liens.


 


4.10         Litigation.
There are no material actions, suits, or proceedings pending or, to the best
knowledge of Borrowers, threatened against Borrowers, or any of their
Subsidiaries, as applicable, except for (a) matters that are fully covered by
insurance (subject to customary deductibles) and (b) matters arising after the
Closing Date that, if decided adversely to Borrowers, or any of their
Subsidiaries, as applicable, reasonably could not be expected to result in a
Material Adverse Change.


 


4.11         No
Material Adverse Change. All financial statements of Borrowers
and their Subsidiaries that have been delivered by Borrowers to the Lender
Group have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and present fairly in all material respects,
Borrowers’ and their Subsidiaries’ financial condition as of the date thereof
and results of operations for the period then ended. There has not been a
Material Adverse Change with 


 


23

















 


respect to
Borrowers and their Subsidiaries since the date of the latest consolidated
financial statements submitted to Agent on or before the Closing Date.


 


4.12         Fraudulent
Transfer.


 


(a)           Each Borrower is
Solvent.


 


(b)           No transfer of property
is being made by any Borrower or any Subsidiary and no obligation is being
incurred by any Borrower or any Subsidiary 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 Borrowers or
their Subsidiaries.


 


(c)           None of the Borrowers
at this time contemplates filing a petition in bankruptcy or for an arrangement
or reorganization or similar proceeding under any law of any jurisdiction, nor,
to the knowledge of the Borrowers, is the subject of any actual, pending or
threatened bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.


 


4.13         Employee
Benefits. Except as set forth on Schedule 4.13, none of
Borrowers, any of their Subsidiaries, or any of their ERISA Affiliates
maintains, contributes to, or has any liability (contingent or otherwise) with
respect to, any Benefit Plan or Multiemployer Plan. Each of Borrowers, their
Subsidiaries and their ERISA Affiliates have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute and has made all contributions required under the terms
of each Multiemployer Plan to which it is obligated to contribute. No ERISA
Event has occurred nor has any other event occurred that may result in an ERISA
Event that reasonably could be expected to result in a Material Adverse Change.
None of Borrowers, any of their Subsidiaries, or any of their ERISA Affiliates
is required to provide security to any Benefit Plan under Section 401(a)(29) of
the IRC. Each Plan has been maintained in all material respects with ERISA and
the IRC, to the extent applicable, and other applicable law.


 


4.14         Environmental
Condition.


 


(a)           The operations of the
Borrowers and their respective Subsidiaries are in compliance with all
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations of Environmental Laws and related orders of any
court or other Governmental Authority;


 


(b)           There are not any
existing, pending or, to the knowledge of any Borrower, threatened actions,
suits, claims, investigations, inquiries or proceedings by or before any court
or any other Governmental Authority directed against Borrowers or their
respective Subsidiaries that pertain or relate to (i) any remedial
obligations under any applicable Environmental Law, (ii) violations by any
Borrower or any of its Subsidiaries of any Environmental Law,
(iii) personal injury or property damage claims relating to a Release of
chemicals or Hazardous Materials, or (iv) response, removal, or remedial costs
under the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”) or any similar state law;


 


(c)           With respect to permits
and licenses, (i) all licenses, permits, consents, or other approvals required
under Environmental Laws that are necessary to the operations of any 


 


24

















 


Borrower or
any of its Subsidiaries have been obtained and are in full force, and effect
and no Borrower has knowledge of any basis for revocation or suspension of any
such licenses, permits, consents or other approvals; (ii) all operations
of each Borrower and its Subsidiaries were constructed and have been operated
in accordance with the representations and conditions made or set forth in the
permit applications and the permits for each Borrower and its Subsidiaries; and
(iii) each Borrower and its Subsidiaries have been operated in compliance
with such permits, licenses, consents, or approvals, and at the production
levels or emission levels specified in such permits, licenses, consents, or
approvals;


 


(d)           No portion of any
property currently or formerly owned, leased or operated by any Borrower or any
of its Subsidiaries is part of a site listed on the National Priorities List
under CERCLA or any similar ranking or listing under any state law;


 


(e)           All Hazardous Materials
generated by each Borrower and its Subsidiaries have been transported, stored,
treated and disposed of by carriers or treatment, storage and disposal
facilities authorized or maintaining valid permits under all applicable
Environmental Laws;


 


(f)            To the knowledge of
the Borrowers and their Subsidiaries, no Person has disposed or Released any
Hazardous Materials on, at, or under any property currently or formerly owned,
leased or operated by any Borrower or any of its Subsidiaries;


 


(g)           No Borrower or any of
its Subsidiaries is currently operating or required to operate under any
compliance order, schedule, decree or agreement, any consent decree, order or
agreement, or corrective action decree, order or agreement issued or entered
into under any Environmental Law; and


 


(h)           There are no
underground storage tanks located on, at or under any property currently or
formerly owned, leased or operated by any Borrower or any of its Subsidiaries.


 


4.15         Intellectual
Property.


 


(a)           Each Borrower and each
Subsidiary of a Borrower owns or has a right to use all Patents, Copyrights,
Trademarks and Licenses that are necessary to the conduct of its business as
currently conducted. Attached hereto as Schedule 4.15 (as updated
semi-annually) is a true, correct, and complete listing of Patents, Copyrights
and Trademarks as to which each Borrower and each Subsidiary of a Borrower is
the owner or is an exclusive licensee (collectively, the “Scheduled
Intellectual Property Collateral”).


 


(b)           Except as set forth in Schedule
4.15:


 


(i)            Each Borrower and each
Subsidiary of a Borrower is the sole owner or is an exclusive licensee of its
Scheduled Intellectual Property Collateral, free and clear of any Lien (other
than any Permitted Lien) without the payment of any monies or royalty except
with respect to off-the-shelf software;


 


25

















 


(ii)           Each Borrower and each
Subsidiary of a Borrower has taken, and will continue to take, all actions
which are necessary or advisable to acquire and protect its Scheduled
Intellectual Property Collateral, including, as applicable: (x) registering all
Copyrights included within the Scheduled Intellectual Property Collateral
which, in such Borrower’s or Subsidiary’s business judgment, are of sufficient
value to merit such treatment, in the U.S. Copyright Office, and (y)
registering all Patents and Trademarks included within the Scheduled
Intellectual Property Collateral which, in such Borrower’s or Subsidiary’s
business judgment, are of sufficient value to merit such treatment, in the
United States Patent and Trademark Office;


 


(iii)          Each Borrower’s and each
Subsidiary of a Borrower’s rights in the Scheduled Intellectual Property
Collateral are valid and enforceable;


 


(iv)          No Borrower or
Subsidiary of a Borrower has received any material demand, claim, notice or
inquiry from any Person in respect of the Scheduled Intellectual Property
Collateral which challenges, threatens to challenge or inquiries as to whether
there is any basis to challenge, the validity of, the rights of Borrowers and
their Subsidiaries in or the right of Borrowers and their Subsidiaries to use,
any such Scheduled Intellectual Property Collateral, and Borrowers and their
Subsidiaries know of no basis for any such challenge;


 


(v)           Borrowers and their
Subsidiaries have not received any written notice of any violation or
infringement of any proprietary rights of any other Person that could
reasonably be expected to result in a Material Adverse Change;


 


(vi)          Borrowers and their
Subsidiaries have not granted any license with respect to any Scheduled
Intellectual Property Collateral to any Person; and


 


(vii)         Borrowers and their
Subsidiaries are not pursuing any claims or causes of actions against any
Person for infringement of the Scheduled Intellectual Property Collateral that
could reasonably be expected to result in a Material Adverse Change.


 


4.16         Leases.
Set forth on Schedule 4.16 is a complete and accurate list of all leases
for Equipment and Real Property entered into by each Borrower or any of its
Subsidiaries, showing: (i) the date on which such lease was entered into, (ii)
the amount of rent due under such lease, (iii) the date on which such rent is
due, and (iv) the term of such lease and any renewal or other extension options.
Borrowers enjoy peaceful and undisturbed possession under all leases of
Equipment and Real Property material to their business and to which they are
parties or under which they are operating, and all of such material leases are
valid and subsisting and no material default by Borrowers exists under any of
them. Borrowers’ Subsidiaries enjoy peaceful and undisturbed possession under
all leases of Equipment and Real Property material to the business of the
Borrowers and their Subsidiaries, taken as a whole, and to which they are
parties or under which they are operating, and all of such material leases are
valid and subsisting and no default material to the business of the Borrowers
and their Subsidiaries, taken as a whole, by any of Borrowers’ Subsidiaries
exists under any of them.


 


4.17         Deposit
Accounts and Securities Accounts. Set forth on Schedule 4.17
is a listing of all of Borrowers’ and their Subsidiaries’ Deposit Accounts and
Securities Accounts, 


 


26

















 


including,
with respect to each bank or securities intermediary (a) the name and address
of such Person, and (b) the account numbers of the Deposit Accounts or
Securities Accounts maintained with such Person. Subject to Section 6.12,
each of the Deposit Accounts and Securities Accounts set forth on Schedule
4.17 is the subject of a Control Agreement.


 


4.18         Complete
Disclosure. All factual information (taken as a whole) furnished
by or on behalf of Borrowers or their Subsidiaries in writing to Agent or any
Lender (including all information contained in the Schedules hereto or in the
other Loan Documents) for purposes of or in connection with this Agreement, the
other Loan Documents, or any transaction contemplated herein or therein is, and
all other such factual information hereafter furnished by or on behalf of
Borrowers or their Subsidiaries in writing to Agent or any Lender will be, true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any fact
necessary to make such information not misleading at such time in light of the
circumstances under which such information was provided. On the Closing Date,
the Closing Date Projections represent, and as of the date on which any other
Projections are delivered to Agent, such additional Projections represent
Parent’s good faith estimate of its consolidated future performance for the
periods covered thereby.


 


4.19         Indebtedness.
Set forth on Schedule 4.19 is a true and complete list of all
Indebtedness of each Borrower and each Subsidiary of each Borrower outstanding
immediately prior to the Closing Date that is to remain outstanding after the
Closing Date, and such Schedule accurately reflects the aggregate principal
amount of such Indebtedness as of the Closing Date.


 


4.20         Regulation
U. No action has been taken or is currently planned by Borrowers
or any of their Subsidiaries which would cause this Agreement or any of the
other Loan Documents to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System, or to violate the Exchange
Act, in each case as in effect now or as the same may hereafter be in effect. Borrower
is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock as one of its important activities and,
except as may be expressly agreed to and documented between Borrower and Agent,
none of the proceeds of the Advances or the Term Loans will be used directly or
indirectly for such purpose.


 


4.21         Taxes.
Each Borrower and its Subsidiaries have timely filed all federal, state,
foreign (if applicable) and local tax returns and other reports which are
required by law to be filed by them, and each Borrower and its Subsidiaries
have paid or caused to be paid to the proper authorities when due all taxes
(including, without limitation, payroll and other employment related taxes)
that are due and payable, except only for taxes subject to a Permitted Protest.


 


4.22         Compliance
with Law, Etc. None of the Borrowers is in violation of its
Governing Documents. No Borrower is in violation of any law (including, without
limitation, any Environmental Laws), rule, regulation, judgment or order of any
Governmental Authority applicable to it or any of its property or assets, or
any term of any agreement or instrument binding on or otherwise affecting it or
any of its properties, which violation could reasonably be expected to result
in, either individually or in the aggregate, a Material Adverse Change. No
Default or Event of Default has occurred and is continuing.


 


27

















 


4.23         Adverse
Agreements, Etc. No Borrower is a party to any agreement or
instrument, or subject to any Governing Document restriction or any judgment,
order, regulation, ruling or other requirement of a court or other Governmental
Authority, which has resulted in, or could reasonably be expected to result in,
a Material Adverse Change.


 


4.24         Permits,
Etc. Each Borrower has been, and is, in compliance with, all
permits, licenses, authorizations, approvals, entitlements and accreditations
required for such Person lawfully to own, lease, manage or operate, or to
acquire, each business currently owned, leased, managed or operated, or to be
acquired, by such Person, other than those permits, licenses, authorizations,
entitlements and accelerations, the lack of which, or the failure to be in
compliance with which, could not reasonably be expected to result in, either
individually or in the aggregate, a Material Adverse Change. As of the Closing
Date, no condition exists or event has occurred which, in itself or with the
giving of notice or lapse of time or both, would result in the suspension,
revocation, impairment, forfeiture or non-renewal of any such permit, license,
authorization, approval, entitlement or accreditation, and, to the knowledge of
any Borrower, there is no claim that any thereof is not in full force and
effect in all material respects.


 


4.25         Insurance.
As of the Closing Date, each Borrower and each of their respective Subsidiaries
keeps its property adequately insured and maintains (i) insurance to such
extent and against such risks, including fire, as is customary with similarly
situated companies in the same or similar businesses, (ii) worker’s
compensation insurance in the amount required by applicable law, (iii) public
liability insurance, which shall include product liability insurance, in the
amount customary with similarly situated companies in the same or similar
business against claims for personal injury or death on properties owned,
occupied or controlled by it, and (iv) such other insurance as may be required
by law or as may be required by Agent, in the exercise of its reasonable
judgment (including, without limitation, against larceny, embezzlement or other
criminal misappropriation and medical malpractice and professional liability
insurance). Such policies are in full force and effect on the Closing Date, and
no Borrower nor any of their respective Subsidiaries has received notice of
cancellation with respect to any such policy.


 


4.26         Employee
and Labor Matters. There is (i) no unfair labor practice
complaint pending or, to the knowledge of any Borrower, threatened against any
Borrower or any Subsidiary of any Borrower before any Governmental Authority
and no grievance or arbitration proceeding pending or threatened against any
Borrower or any Subsidiary of any Borrower which arises out of or under any
collective bargaining agreement which has had or could reasonably be expected
to result in, either individually or in the aggregate, a Material Adverse
Change, (ii) no strike, labor dispute, slowdown, stoppage or similar action or
grievance pending or threatened against any Borrower or any Subsidiary of any
Borrower, other than employee grievances arising in the ordinary course of
business which could not reasonably be expected to result in, either
individually or in the aggregate, a Material Adverse Change or (iii) as of the
Closing Date, to the knowledge of any Borrower, no union representation
question existing with respect to the employees of any Borrower or any
Subsidiary of any Borrower and no union organizing activity taking place with
respect to any of the employees of any Borrower or any Subsidiary of any
Borrower. As of the Closing Date, no any Borrower or any Subsidiary of any
Borrower has incurred any liability or obligation under the Worker Adjustment
and Retraining Notification Act or similar state law, which remains unpaid or
unsatisfied. The hours worked and payments made to employees of any Borrower or
any Subsidiary of any Borrower have not 


 


28

















 


been in
violation of the Fair Labor Standards Act or any other applicable legal
requirements, except to the extent such violations could not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Change.
All material payments due from any Borrower or any Subsidiary of any Borrower
on account of wages and employee health and welfare insurance and other
benefits have been paid or accrued as a liability on the books of any Borrower
or any Subsidiary of any Borrower, except where the failure to do so could not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Change. As of the Closing Date, no Borrower nor any of their
respective Subsidiaries is a party to any collective bargaining agreement.


 


4.27         Material
Contracts. Each of the Borrowers has heretofore made available
to Agent true and complete copies of all of the Material Contracts to which any
Borrower is a party, each of which is set forth on Schedule 4.28. As
of the Closing Date, to the knowledge of any Borrower, all of the Material
Contracts are valid and in full force and effect (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws or by general equitable principles relating to enforceability, and except
to the extent any such Material Contract shall have expired in accordance with
its terms), and no breach or default, or event which, with notice or lapse of
time or both, would constitute a breach or default by any Borrower exists, with
respect thereto. No Borrower has received any notice of cancellation or
non-renewal of any of the Material Contracts. As of the Closing Date, to the
knowledge of any Borrower, none of the Material Contracts nor any rights
thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement.


 


4.28         Capacity.
Each Borrower and each of its Subsidiaries, by reason of its own business and
financial experience has the “capacity to protect its own interests” in
connection with the transactions contemplated by this Agreement within the
meaning of Section 25118(f)(2) and Section 25118(g) of the California
Corporations Code.


 


4.29         Investment
Company Acts. None of the Borrowers or any of its Subsidiaries
is an “investment company” or an “affiliated person” or “promoter” of, or “principal
underwriter” of or for, an “investment company”, as such terms are defined in
the Investment Company Act of 1940, as amended.


 


4.30         The IFN
Credit Facility. The total outstanding amount of the IFN Credit
Facility as of the Closing Date is €845,688.


 


4.31         The
Lloyds Credit Facility. The total outstanding amount of the
Lloyds Credit Facility as of the Closing Date is the sum of $968,209.49 and
£808,512.14.


 


4.32         The Wells
Fargo Credit Facility. The total outstanding amount of the Wells
Fargo Credit Facility as of the Closing Date is $1,926,773.53.


 


5.             AFFIRMATIVE COVENANTS.


 


Each Borrower
covenants and agrees that, until termination of all of the Commitments and
payment in full of the Obligations, Borrowers shall and shall cause each of
their respective Subsidiaries to do all of the following (provided, however, that only
Administrative Borrower is 


 


29

















 


required to comply with Section 5.2 and Section 5.3, in
each case on behalf of itself and the other Borrowers):


 


5.1           Accounting
System. Maintain a system of accounting that enables Borrowers
to produce financial statements in accordance with GAAP and maintain records
pertaining to the Collateral that contain information as from time to time
reasonably may be requested by Agent. Borrowers also shall keep a reporting
system that shows all additions, sales, claims, returns and allowances with
respect to their sales.


 


5.2           Collateral
Reporting. Provide Agent (and if so requested by Agent, with
copies for each Lender) with each of the reports set forth on Schedule 5.2
at the times specified therein. In addition, each Borrower agrees to reasonably
cooperate fully with Agent to maintain a system of electronic collateral
reporting in order to provide electronic reporting of each of the items set
forth above.


 


5.3           Financial
Statements, Reports, Certificates. Deliver to Agent, with copies
to each Lender, each of the financial statements, reports, or other items set
forth on Schedule 5.3 at the time specified herein. In addition, Parent
agrees that no Subsidiary of Parent will have a fiscal year end different from
that of Parent, other than as required by applicable law.


 


5.4           Appraisal.
Permit Agent to have the Inventory reappraised by an appraisal company selected
by Agent from time to time after the Closing Date for the purpose of
redetermining the Borrowing Base.


 


5.5           Inspection.
Permit Agent, each Lender, and each of their duly authorized representatives or
agents to visit any of its properties and inspect any of its assets or books
and records, to examine and make copies of its books and records, and to
discuss its affairs, finances, and accounts with, its officers and employees at
such reasonable times and intervals as Agent or any such Lender may designate
and, so long as no Default or Event of Default exists and is continuing, with
reasonable prior notice to Administrative Borrower.


 


5.6           Maintenance
of Properties. Maintain and preserve all of its properties which
are necessary or useful in the proper conduct to its business in good working
order and condition, ordinary wear, tear, and casualty excepted (and except
where the failure to do so could not be reasonably expected to result in a
Material Adverse Change), and comply in all material respects at all times with
the provisions of all material leases to which it is a party as lessee, so as
to prevent any material loss or forfeiture thereof or thereunder.


 


5.7           Taxes.
Pay or discharge, and cause each of its Subsidiaries to pay or discharge, when
due, (a) all taxes, assessments and charges of any Governmental Authority
(including, without limitation, F.I.C.A., F.U.T.A., state disability, and
federal, state and local income taxes) levied or imposed upon it or upon its
income or profits or upon any properties belonging to it (including, without
limitation, the Collateral), prior to the date on which penalties attach
thereto and (b) all taxes required to be withheld by it; provided, that no
Borrower or Subsidiary shall be required to pay or discharge any such tax,
assessment, charge or claim that is the subject of a Permitted Protest. Borrowers
will and will cause their Subsidiaries to, upon request, furnish Agent with
proof reasonably satisfactory to Agent indicating that the applicable Borrower
or 


 


30

















 


Subsidiary has
made such payments or deposits. Each Borrower will timely file, and will cause
its Subsidiaries to timely file, all tax returns required to be filed in
connection with the payment of taxes required by this Section 5.7. No Borrower
will change its federal tax employer identification number without providing
not less than thirty (30) days advance written notice to Agent, or revoke,
alter or amend any Tax Information Authorization (on IRS Form 8821 or
otherwise) given to Agent.


 


5.8           Insurance.


 


(a)           At Borrowers’ expense,
maintain insurance respecting their and their Subsidiaries’ assets wherever
located, covering loss or damage by fire, theft, explosion, and all other
hazards and risks as ordinarily are insured against by other Persons engaged in
the same or similar businesses. Borrowers also shall maintain business
interruption, public liability, and product liability insurance, as well as
insurance against larceny and embezzlement. All such policies of insurance
shall be in such amounts as are ordinarily maintained by Persons engaged in the
same or similar businesses and with such insurance companies as are reasonably
satisfactory to Agent. Other than business interruption insurance policies,
Borrowers shall deliver or has delivered certificates of insurance evidencing
all required coverages to Agent with an endorsement naming Agent as loss payee
(under a satisfactory lender’s loss payable endorsement) or additional insured,
as appropriate. Each certificate of insurance or endorsement shall contain a
clause requiring the insurer to give not less than 30 days’ prior written
notice to Agent in the event of cancellation of the policy for any reason
whatsoever.


 


(b)           Administrative Borrower
shall give Agent prompt notice of any loss of the Collateral exceeding $100,000
covered by such insurance. Borrowers shall have the exclusive right to adjust
any such losses payable under any such insurance policies which are less than
$100,000. In the case of any losses of the Collateral payable under such
insurance exceeding $100,000, to the extent permitted under such insurance
policies, Agent shall have the exclusive right to adjust any losses payable
under any such insurance policies (other than business interruption insurance
policies), without any liability to Borrowers whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy mentioned above (other than liability or business interruption insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain of Collateral, shall be paid over to Agent and applied as
provided in Section 2.4(d)(ii).


 


5.9           Location
of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 4.5 or in transit from one
such location to another; provided, however, that Administrative Borrower may
amend Schedule 4.5 so long as such amendment occurs by written notice to
Agent not less than 30 days prior to the date on which such Inventory or
Equipment is moved to such new location, so long as such new location is within
the original country of origin (i.e. continental United States, France, United
Kingdom or Japan), and so long as, at the time of such written notification, if
such location is not owned by a Borrower, the applicable Borrower provides
Agent a Collateral Access Agreement with respect thereto.


 


5.10         Compliance
with Laws. Comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority, other than laws,
rules, regulations, 


 


31

















 


and orders the
non-compliance with which, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Change.


 


5.11         Leases.
Pay, or cause to be paid, when due all rents and other amounts payable under
any material leases to which any Borrower or any Subsidiary of a Borrower is a
party or by which any Borrower’s or any of its Subsidiaries’ properties and
assets are bound.


 


5.12         Existence.
At all times preserve and keep in full force and effect each Borrower’s and
each of its Subsidiaries’ valid existence and good standing and any rights and
franchises, in each case, material to the Borrowers’ businesses taken as a
whole.


 


5.13         Environmental.


 


(a)           Keep any property
owned, leased or operated by any Borrower or any Subsidiary of a Borrower free
of any Environmental Liens or post bonds or other financial assurances
sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Agent documentation of such compliance which Agent
reasonably requests, (c) promptly notify Agent of any release of a Hazardous
Material in any reportable quantity from or onto property owned, leased or
operated by any Borrower or any Subsidiary of a Borrower and take any Remedial
Actions required to abate said release or otherwise to come into compliance
with applicable Environmental Law, and (d) promptly, but in any event within 5
days of its receipt thereof, provide Agent with written notice of any of the
following:  (i) notice that an
Environmental Lien has been filed against any of the real or personal property
of any Borrower that is not a Permitted Lien, (ii) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against any Borrower or any Subsidiary of a Borrower which could reasonably be
expected to cause a Material Adverse Change, and (iii) notice of a violation,
citation, or other administrative order which reasonably could be expected to
result in a Material Adverse Change.


 


5.14         Disclosure
Updates. Promptly and in no event later than 5 Business Days
after obtaining knowledge thereof, notify Agent if any written information,
exhibit, or report furnished to the Lender Group contained, at the time it was
furnished, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements contained therein not misleading
in light of the facts and circumstances in which such statement was made or
known by any Borrower or any Subsidiary of a Borrower to exist at the time such
statement was made.


 


5.15         Control
Agreements. Take all reasonable steps in order for Agent to
obtain control in accordance with Sections 8106, 9104, 9105, 9106, and 9107 of
the Code with respect to (subject to the proviso contained in Section 6.12)
all of its Securities Accounts, Deposit Accounts, electronic chattel paper,
investment property, and letter of credit rights.


 


5.16         Assignment
of Proceeds. Execute and deliver to Agent any and all additional
documents that Agent may request in its Permitted Discretion, in form and
substance reasonably satisfactory to Agent, providing for the assignment of all
proceeds to Agent arising from any license or royalty agreement entered into by
any Borrower with respect to such Borrower’s General Intangibles.


 


32

















 


5.17         Employee
Benefits.


 


(a)           Deliver to Agent:  (i) promptly, and in any event within 10
Business Days after Borrowers or their Subsidiaries know or have reason to know
that an ERISA Event has occurred that reasonably could be expected to result in
a Material Adverse Change, a written statement of the chief financial officer
of such Borrower or such Subsidiary describing such ERISA Event and any action
that is being taking with respect thereto by Borrowers or their Subsidiaries or
their ERISA Affiliates, and any action taken or threatened by the IRS,
Department of Labor, or PBGC; Borrowers and Subsidiaries shall be deemed to
know all facts known by the administrator of any Benefit Plan of which it is
the plan sponsor, (ii) promptly, and in any event within three Business Days
after the filing thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan and all communications received by
Borrowers or their Subsidiaries or, to the knowledge of Borrowers or their
Subsidiaries, any ERISA Affiliate with respect to such request, and (iii)
promptly, and in any event within three Business Days after receipt by
Borrowers or their Subsidiaries or, to the knowledge of Borrowers or their
Subsidiaries or any of their ERISA Affiliates, of the PBGC’s intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.


 


(b)           Cause to be delivered
to Agent, upon Agent’s request, each of the following:  (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all material written interpretations thereof and material written
descriptions thereof that have been distributed to employees or former
employees of Borrowers or their Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each Benefit Plan; (iii)
for the three most recent Plan years, annual reports on Form 5500 Series required
to be filed with any governmental agency for each Benefit Plan; (iv) all
actuarial reports prepared for the last three Plan years for each Benefit Plan;
(v) a listing of all Multiemployer Plans, with the aggregate amount of the most
recent annual contributions required to be made by Borrowers or their
Subsidiaries or any of their ERISA Affiliates to each such plan and copies of
the collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to Borrowers or their Subsidiaries or any of
their ERISA Affiliates regarding withdrawal liability under any Multiemployer
Plan; and (vii) the aggregate amount of the most recent annual payments made to
former employees of Borrowers or its Subsidiaries under any Retiree Health
Plan.


 


5.18         Formation
of Subsidiaries. At the time that any Borrower forms any direct
or indirect Subsidiary or acquires any direct or indirect Subsidiary after the
Closing Date, such Borrower shall (a), if such new Subsidiary is a Domestic
Subsidiary, cause such new Subsidiary to provide to Agent a joinder to this
Agreement, together with such other security documents (including, if requested
by Agent, Mortgages with respect to any Real Property of such new Subsidiary),
as well as appropriate financing statements (and with respect to all property
subject to a Mortgage, fixture filings), all in form and substance satisfactory
to Agent (including being sufficient to grant Lender a first priority Lien
(subject to Permitted Liens) in and to the assets of such newly formed or
acquired Subsidiary), (b) provide to Agent a pledge agreement and appropriate
certificates and powers or financing statements, hypothecating all of the
direct or beneficial ownership interest in any such new Subsidiary, in form and
substance satisfactory to Agent, and (c) provide to Agent all other
documentation, including one or more opinions of counsel satisfactory to Agent,
which in its opinion is appropriate with respect to the execution 


 


33

















 


and delivery
of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a
Mortgage). Any document, agreement, or instrument executed or issued pursuant to
this Section 5.18 shall be a Loan Document.


 


5.19         Adequate
Reserves. Set up and maintain on its books such reserves as may
be required by GAAP with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims with respect to its business, and
include such reserves in its quarterly as well as year-end financial
statements.


 


5.20         Designated
Payments. Within seven (7) Business Days of the Closing Date,
provide evidence satisfactory to Agent that all the Designated Payments
referenced in Schedule 3.1(r) have been paid in accordance with the
Designated Payments List.


 


6.             NEGATIVE COVENANTS.


 


Each Borrower
covenants and agrees that, until termination of all of the Commitments and
payment in full of the Obligations, Borrowers will not and will not permit any
of their respective Subsidiaries to do any of the following without the prior
written consent of Agent:


 


6.1           Indebtedness.
Create, incur, assume, suffer to exist, guarantee, or otherwise become or
remain, directly or indirectly, liable with respect to any Indebtedness,
except:


 


(a)           Indebtedness evidenced
by this Agreement and the other Loan Documents,


 


(b)           Indebtedness set forth
on Schedule 4.19,


 


(c)           Permitted Purchase
Money Indebtedness,


 


(d)           Indebtedness relating
to letters of credit, guaranties and performance bonds of Borrower in an
aggregate principal amount at any time not to exceed the lesser of (x)
$1,000,000 and (y) the amount of Advances which the Borrower would be able to
borrow at such time under Section 2.1(c),


 


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


 


(f)            refinancings,
renewals, or extensions of Indebtedness permitted under clauses (b) through (e)
of this Section 6.1 or this Section 6.1(f) (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended or add one or more Borrowers as liable with
respect thereto if such additional Borrowers were not liable with respect to
the original Indebtedness, (ii) such refinancings, renewals, or extensions do
not result in a shortening of the average weighted maturity of the Indebtedness
so refinanced, renewed, or extended, nor are they on terms or conditions, that,
taken as a whole, are materially more burdensome or restrictive to the
applicable Borrower, (iii) if the Indebtedness that is refinanced, renewed, or
extended was subordinated in right of payment to the Obligations, then the
terms and conditions of the 


 


34

















 


refinancing,
renewal, or extension Indebtedness must include subordination terms and
conditions that are at least as favorable to the Lender Group as those that
were applicable to the refinanced, renewed, or extended Indebtedness, and (iv)
the Indebtedness that is refinanced, renewed, or extended is not recourse to
any Person that is liable on account of the Obligations other than those
Persons which were obligated with respect to the Indebtedness that was
refinanced, renewed, or extended,


 


(g)           endorsement of
instruments or other payment items for deposit, and


 


(h)           Indebtedness comprising
Permitted Investments.


 


6.2           Liens.
Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on
or with respect to any of its assets, of any kind, whether now owned or
hereafter acquired, or any income or profits therefrom, except for Permitted
Liens (including Liens that are replacements of Permitted Liens to the extent
that the original Indebtedness is refinanced, renewed, or extended under Section
6.1(e) and so long as the replacement Liens only encumber those assets that
secured the refinanced, renewed, or extended Indebtedness).


 


6.3           Restrictions
on Fundamental Changes.


 


(a)           Enter into any merger
or consolidation, reorganization or recapitalization (other than any merger (x)
between any Domestic Subsidiary and Parent in which Parent is the surviving
corporation or (y) between two Foreign Subsidiaries) not otherwise permitted
under the Loan Documents, or reclassify its Stock other than pursuant to the
terms of such Stock;


 


(b)           Liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution),


 


(c)           Convey, sell, lease,
license, assign, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or substantially all of its assets, or


 


(d)           Other than Permitted
Dispositions, suspend or go out of a substantial portion of its or their
business.


 


6.4           Disposal
of Assets. Other than Permitted Dispositions, convey, sell,
lease, license, assign, transfer, or otherwise dispose of any of the assets of
any Borrower or any Subsidiary of a Borrower.


 


6.5           Change
Name. Change any Borrower’s or any of its Subsidiaries’ name,
organizational identification number, state of organization, or organizational
identity; provided, however, that a Borrower or a Subsidiary of a Borrower may change
its name upon at least 30 days’ prior written notice by Administrative Borrower
to Agent of such change and so long as, at the time of such written
notification, such Borrower or such Subsidiary provides any financing
statements necessary to perfect and continue perfected the Agent’s Liens.


 


6.6           Nature of
Business. Make any change in the principal nature of their
business.


 


35

















 


6.7           Prepayments
and Amendments. Except in connection with a refinancing
permitted by Section 6.1(e):


 


(a)           optionally prepay,
redeem, defease, purchase, or otherwise acquire any Indebtedness of any
Borrower or a Subsidiary of a Borrower, other than the Obligations in
accordance with this Agreement,


 


(b)           make any payment on
account of Indebtedness that has been contractually subordinated in right of
payment if such payment is not permitted at such time under the subordination
terms and conditions, or


 


(c)           directly or indirectly,
amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing or
concerning Indebtedness permitted under Section 6.1(b).


 


6.8           Change of
Control. Cause or permit, directly or indirectly, any Change of
Control.


 


6.9           Consignments.
Consign any of their Inventory or sell any of their Inventory on bill and hold,
sale or return, sale on approval, or other conditional terms of sale.


 


6.10         Distributions.
Other than distributions or declaration and payment of dividends by a Borrower
to another Borrower, by any Subsidiary to a Borrower, or by any Foreign
Subsidiary to any other Subsidiary, make any distribution or declare or pay any
dividends (in cash or other property, other than common Stock) on, or purchase,
acquire, redeem, or retire any of any Stock of any Borrower, of any class,
whether now or hereafter outstanding.


 


6.11         Accounting
Methods. Modify or change their fiscal year or materially modify
or change their method of accounting (other than as may be required to conform
to GAAP) or enter into, modify, or terminate any agreement currently existing
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrowers’ accounting records
in a manner that would result in said accounting firm or service bureau declining
to provide Agent information regarding Borrowers’ and their Subsidiaries’
financial condition.


 


6.12         Investments.
Except for Permitted Investments, directly or indirectly, make or acquire any
Investment, or incur any liabilities (including contingent obligations) other
than Indebtedness permitted under Section 6.1 for or in connection with
any Investment; provided, however, that Borrowers shall not have
Permitted Investments (other than in the Cash Management Accounts) in Deposit
Accounts or Securities Accounts in an aggregate amount in excess of $50,000 in
each of the United States, the United Kingdom, France and Japan at any one time
unless Administrative Borrower and the applicable securities intermediary or
bank have entered into Control Agreements (or have otherwise provided
sufficient security to Agent’s satisfaction) governing such Permitted
Investments in order to perfect (and further establish) the Agent’s Liens in
such Permitted Investments. Subject to the foregoing proviso, Borrowers shall not
establish or maintain any Deposit Account or Securities Account unless Agent
shall have received a Control Agreement in respect of such Deposit Account or
Securities Account.


 


36

















 


6.13         Transactions
with Affiliates. Directly or indirectly enter into or permit to
exist any transaction with any Affiliate of any Borrower except for
transactions that (a) are upon fair and reasonable terms, and (b) are no less
favorable to Borrowers or their respective Subsidiaries, as applicable, than
would be obtained in an arm’s length transaction with a non-Affiliate.


 


6.14         Use of
Proceeds. Use the proceeds of: 
(a) the Advances for any purpose other than (i) on the Closing Date, to
pay transactional fees, costs, and expenses incurred in connection with this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, (ii) as of the Closing Date and thereafter, for working capital,
and (iii) after the Closing Date, consistent with the terms and conditions
hereof, for Borrowers’ lawful and permitted purposes, (b) the Term Loan A for
any purpose other than, as of the Closing Date, to pay certain specified
obligations of Borrower, including the Existing Credit Facilities, and (c) the
Term Loan B for any purpose other than, as of the Closing Date and thereafter,
to fund the purchase price of Permitted Acquisitions.


 


6.15         Inventory
and Equipment with Bailees. Except as set forth on Schedule
4.5, store any Inventory or Equipment of Borrowers at any time now or
hereafter with a bailee, warehouseman, or similar party without Agent’s prior
written consent.


 


6.16         Financial
Covenants.


 


(a)           Minimum
EBITDA. Fail to achieve EBITDA, measured on a fiscal quarter-end
basis, of not less than the required amount set forth in the following table
for the applicable period set forth opposite thereto; provided, however,
that any EBITDA in excess of the amounts required in any given quarter may be
used to satisfy future minimum EBITDA quarterly requirements and provided,
further, that such excess shall not be applied to any quarter more than
twelve (12) months following the end of the quarter as to which such excess
existed:


 


	
  Applicable Period

  	
   

  	
  Applicable Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2007

  	
   

  	
  $

  	
  866,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2008

  	
   

  	
  $

  	
  (50,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2008

  	
   

  	
  $

  	
  400,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2008

  	
   

  	
  $

  	
  625,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2008

  	
   

  	
  $

  	
  1,116,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2009

  	
   

  	
  $

  	
  792,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2009

  	
   

  	
  $

  	
  1,056,000

  	
   

  



 


37

















 


	
  For Borrowers’
  fiscal quarter ending in September 2009

  	
   

  	
  $

  	
  1,069,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2009

  	
   

  	
  $

  	
  1,419,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2010

  	
   

  	
  $

  	
  1,130,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2010

  	
   

  	
  $

  	
  1,403,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2010

  	
   

  	
  $

  	
  1,528,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2010

  	
   

  	
  $

  	
  2,033,000

  	
   

  



 


(b)           Debt Service
Coverage Ratio. Fail to achieve a Debt Service Coverage Ratio,
measured quarterly at the end of each calendar quarter, of not less than the
amount set forth in the following table for the applicable period set forth
opposite thereto or 1.10:1.00, whichever is less; provided, however,
that any EBITDA in excess of the amounts required in any given quarter may be
used to satisfy future Debt Service Coverage Ratio requirements and provided,
further, that such excess shall not be applied to any quarter more than
twelve (12) months following the end of the quarter as to which such excess
existed:


 


	
  Applicable Period

  	
   

  	
  Fixed Charge Coverage Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2007

  	
   

  	
  0.40:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2008

  	
   

  	
  (0.26):1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2008

  	
   

  	
  0.44:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2008

  	
   

  	
  0.85:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2008

  	
   

  	
  1.20:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2009

  	
   

  	
  0.68:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2009

  	
   

  	
  1.09:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2009

  	
   

  	
  1.09:1.00

  	
   

  



 


38

















 


	
  For Borrowers’
  fiscal quarter ending in December 2009

  	
   

  	
  1.15:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in March 2010

  	
   

  	
  1.04:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2010

  	
   

  	
  1.45:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2010

  	
   

  	
  1.62:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2010

  	
   

  	
  0.36:1.00

  	
   

  



 


(c)           Maximum
Leverage Ratio. Fail to achieve a Leverage Ratio, measured quarterly
at the end of each calendar quarter, of not greater than the amount set forth
in the following table for the applicable period set forth opposite thereto:


 


	
  Applicable Period

  	
   

  	
  Maximum Leverage Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in December 2007

  	
   

  	
  1.25:1.00

  	
   

  



 


39

















 


	
  For Borrowers’
  fiscal quarter ending in March 2008

  	
   

  	
  1.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in June 2008

  	
   

  	
  1.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarter ending in September 2008

  	
   

  	
  1.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Borrowers’
  fiscal quarters ending in December 2008 and each fiscal quarter thereafter

  	
   

  	
  1.25:1.00

  	
   

  



 


(d)           Capital
Expenditures. Make Capital Expenditures (in the aggregate for the
Borrowers and their Subsidiaries) in any fiscal year in excess of $500,000.


 


6.17         No
Transactions Prohibited Under ERISA; Unfunded Liability.


 


(a)           Directly or indirectly


 


(i)            engage in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;


 


(ii)           permit to exist with
respect to any Benefit Plan any accumulated funding deficiency (as defined in
Sections 302 of ERISA and 412 of the IRC), whether or not waived;


 


(iii)          fail to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;


 


(iv)          terminate any Benefit
Plan where such event would result in any liability of Borrowers, any
Subsidiary of a Borrower or any of their ERISA Affiliates under Title IV of
ERISA which was not paid in connection with such termination;


 


(v)           fail to make any
required contribution or payment to any Multiemployer Plan;


 


(vi)          fail to pay any required
installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment;


 


(vii)         amend a Plan resulting in
an increase in current liability for the Plan year such that any of Borrowers,
any Subsidiary of a Borrower or any of their ERISA Affiliates is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or


 


40

















 


(viii)        withdraw from any
Multiemployer Plan where such withdrawal is reasonably likely to result in any
liability of such entity under Title IV of ERISA;


 


which,
individually or in the aggregate, results in or reasonably would be expected to
result in a claim against or liability of any Borrower, any of their
Subsidiaries or any of their ERISA Affiliates in excess of $100,000.


 


6.18         Salaries.
Pay excessive or unreasonable salaries, bonuses, commissions, consultant fees
or other compensation..


 


6.19         Obtaining
of Permits, Etc. Each Borrower will obtain, maintain and
preserve, and cause each of its Subsidiaries to obtain, maintain and preserve,
and take all necessary action to timely renew, all permits, licenses,
authorizations, approvals, entitlements and accreditations, and file all
reports required to be filed with any Governmental Authority, which are
necessary in the proper conduct of its business, except for such permits,
license, authorizations, approvals, entitlements and accreditations, the lack
of which could not reasonably be expected to result in, either individually or
in the aggregate, a Material Adverse Change.


 


6.20         UK
Subsidiaries. Permit any UK Subsidiary, that is not a UK
Guarantor Subsidiary, to have assets in excess of $5,000.


 


6.21         Changes
to Accounts. Make any changes or modifications (including,
without limitation, to the signing authority of the Agent or its designees)
with respect to any Deposit Accounts or other accounts (maintained with banks
or lending institutions) of the Borrowers or their Subsidiaries located in the
United States, the United Kingdom or Japan; provided, however,
that during an Event of Default, Agent may make any changes or modifications it
deems necessary to such Deposit Accounts or accounts without the prior consent
of the Borrowers or their Subsidiaries.


 


7.             EVENTS OF DEFAULT.


 


Any one or
more of the following events shall constitute an event of default (each, an “Event
of Default”) under this Agreement:


 


7.1           If Borrowers fail to
pay when due and payable, or when declared due and payable, (a) all or any
portion of the Obligations consisting of interest, fees, or charges due the
Lender Group, reimbursement of Lender Group Expenses, or other amounts (other
than any portion thereof constituting principal) constituting Obligations
(including any portion thereof that accrues after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or
in part as a claim in any such Insolvency Proceeding), and such failure
continues for a period of 3 Business Days, or (b) all or any portion of the
principal of the Obligations);


 


7.2           If Borrowers or any
Subsidiary of any Borrower


 


(a)           fail to perform or
observe any covenant or other agreement contained in any of Sections 2.7,
5.5, 5.8, 5.10, 5.12, 5.14, 5.16, 5.20,
6.1 through 6.17, 6.20 or 6.21 of this Agreement;


 


41

















 


(b)           fail to perform or
observe any covenant or other agreement contained in any of Sections 5.6,
5.7, 5.9, 5.11, or 5.15 of this Agreement and such
failure continues for a period of 20 days after the earlier of (i) the date on
which such failure shall first become known to any officer of any Borrower or
(ii) written notice thereof is given to Administrative Borrower by Agent;


 


(c)           fail to perform any
covenant or other agreement contained in Sections 5.2 or 5.3 and
such failure or neglect is not cured within 15 days after the date on which
such failure or neglect first occurs;


 


(d)           fail to perform any
covenant or other agreement contained in Section 5.1 and such failure or
neglect is not cured within 15 days after the date on which such failure or
neglect first occurs; or


 


(e)           fail to perform or
observe any covenant or other agreement contained in this Agreement, or in any
of the other Loan Documents; in each case, other than any such covenant or
agreement that is the subject of another provision of this Section 7 (in
which event such other provision of this Section 7 shall govern), and
such failure continues for a period of 20 days after the earlier of (i) the
date on which such failure shall first become known to any officer of any
Borrower or (ii) written notice thereof is given to Administrative Borrower by
Agent;


 


7.3           If any material portion
of the assets of any Borrower or any material portion of the assets of the
Borrowers and their Subsidiaries, taken as a whole, is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any third Person and the same is not discharged before the
earlier of 30 days after the date it first arises or 5 days prior to the date
on which such property or asset is subject to forfeiture by such Borrower or
the applicable Subsidiary;


 


7.4           If an Insolvency
Proceeding is commenced by any Borrower;


 


7.5           If an Insolvency
Proceeding is commenced against any Borrower or any Subsidiary of a Borrower
and any of the following events occur: 
(a) the applicable Borrower or Subsidiary 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 60 calendar days of the date
of the filing thereof; provided, however, that, during the
pendency of such period, Agent (including any successor agent) and each other
member of the Lender Group shall be relieved of their 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, any Borrower or any Subsidiary of a
Borrower, or (e) an order for relief shall have been issued or entered therein;


 


7.6           If any Borrower or any
Subsidiary of a Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;


 


7.7           If one or more
judgments, orders, or awards involving an aggregate amount of $500,000 or more
(except to the extent covered by insurance pursuant to which the insurer has 


 


42

















 


accepted
liability therefor in writing) shall be entered or filed against any Borrower
or any Subsidiary of a Borrower or with respect to any of their respective
assets, and the same is not released, discharged, bonded against, or stayed
pending appeal before the earlier of 30 days after the date it first arises or
5 days prior to the date on which such asset is subject to being forfeited by
the applicable Borrower or the applicable Subsidiary;


 


7.8           If there is a default
in any agreement to which any Borrower or any Subsidiary of a Borrower is a
party with one or more third Persons relative to Indebtedness of any Borrower
involving in an amount of $500,000 or more, and such default (i) occurs at the
final maturity of the obligations thereunder, or (ii) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of the applicable Borrower’s or Subsidiary’s obligations thereunder;


 


7.9           If any warranty,
representation, statement, or Record made herein or in any other Loan Document
or delivered to Lender in connection with this Agreement or any other Loan
Document by any Borrower or Subsidiary thereof or any officer, employee or
director of any Borrower or such Subsidiary, proves to have been untrue in any
material respect when made;


 


7.10         If any Acquiring Party
shall breach its obligations under any of the Acquisition Documents;


 


7.11         If the Security 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 (to the extent that
perfection can be effected by the measures required to be taken under the Loan
Documents for such purpose) 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, except as a result of a disposition of the
applicable Collateral in a transaction permitted under this Agreement;


 


7.12         A Material Adverse Change
shall have occurred; or


 


7.13         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 any
Borrower or any Subsidiary of a Borrower, or a proceeding shall be commenced by
any Borrower or any Subsidiary of a Borrower, or by any Governmental Authority
having jurisdiction over any Borrower or any Subsidiary of a Borrower, seeking
to establish the invalidity or unenforceability thereof.


 


8.             THE LENDER GROUP’S RIGHTS AND REMEDIES.


 


8.1           Rights
and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, the Required Lenders (at their election but without
notice of their election and without demand) may authorize and instruct Agent
to do any one or more of the following on behalf of the Lender Group (and
Agent, acting upon the instructions of the Required Lenders, shall do the same
on behalf of the Lender Group), all of which are authorized by Borrowers:


 


(a)           Declare all or any
portion of the Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable;


 


43
















 


(b)           Cease advancing money
or extending credit to or for the benefit of Borrowers under this Agreement,
under any of the Loan Documents, or under any other agreement between Borrowers
and the Lender Group;


 


(c)           Terminate this
Agreement and any of the other Loan Documents as to any future liability or
obligation of the Lender Group, but without affecting any of the Agent’s Liens
in the Collateral and without affecting the Obligations; and


 


(d)           The Lender Group shall
have all other rights and remedies available at law or in equity or pursuant to
any other Loan Document.


 


The foregoing
to the contrary notwithstanding, upon the occurrence of any Event of Default
described in Section 7.4 or Section 7.5, in addition to the
remedies set forth above, without any notice to Borrowers or any other Person
or any act by the Lender Group, the Commitments shall automatically terminate
and the Obligations then outstanding, together with all accrued and unpaid
interest thereon and all fees and all other amounts due under this Agreement
and the other Loan Documents, shall automatically and immediately become due
and payable, without presentment, demand, protest, or notice of any kind, all
of which are expressly waived by Borrowers.


 


8.2           Remedies
Cumulative. The rights and remedies of the Lender Group under
this Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No exercise
by the Lender Group of one right or remedy shall be deemed an election, and no
waiver by the Lender Group of any Event of Default shall be deemed a continuing
waiver. No delay by the Lender Group shall constitute a waiver, election, or
acquiescence by it.


 


9.             TAXES AND EXPENSES.


 


If any
Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other
amounts payable under such leases) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as and to the
extent required under the terms of this Agreement, then, Agent, in its sole
discretion and without prior notice to any Borrower, may do any or all of the
following:  (a) make payment of the same
or any part thereof, (b) set up such reserves against the Borrowing Base as
Agent deems necessary to protect the Lender Group from the exposure created by
such failure, or (c) in the case of the failure to comply with Section 5.8
hereof, obtain and maintain insurance policies of the type described in Section
5.8 and take any action with respect to such policies as Agent deems
prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses
and any such payments shall not constitute an agreement by the Lender Group to
make similar payments in the future or a waiver by the Lender Group of any
Event of Default under this Agreement. Agent need not inquire as to, or contest
the validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.


 


44

















 


10.          WAIVERS; INDEMNIFICATION; RELEASE.


 


10.1         Demand;
Protest; etc. Each Borrower waives demand, protest, notice of
protest, notice of default or dishonor (other than any notice required under
this Agreement), notice of payment and nonpayment (other than any notice
required under this Agreement), nonpayment at maturity, release, compromise,
settlement, extension, or renewal of documents, instruments, chattel paper, and
guarantees at any time held by the Lender Group on which any such Borrower may
in any way be liable.


 


10.2         The
Lender Group’s Liability for Collateral. Each Borrower hereby
agrees that:  (a) so long as the Lender
Group complies with its obligations, if any, under the Code, the Lender Group
shall not in any way or manner be liable or responsible for:  (i) the safekeeping of the Collateral, (ii)
any loss or damage thereto occurring or arising in any manner or fashion from
any cause, (iii) any diminution in the value thereof, or (iv) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other
Person, and (b) all risk of loss, damage, or destruction of the Collateral
shall be borne by Borrowers.


 


10.3         Costs and
Expenses. The Borrowers shall pay on demand all costs and
expenses, including reasonable attorneys’ fees, incurred by Agent and the
Lenders 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 (including, without limitation, UCC and
judgment and tax Lien searches). Without limiting the foregoing, the Borrowers
shall pay all taxes (other than taxes based upon or measured by each Lender’s
net income or any personal property tax), imposts, charges, duties and fees, if
any, in connection with the issuance of any note described in Section 2.14, if
any, and the filing and/or recording of any documents and/or financing
statements.


 


10.4         Indemnification.
In addition to the payment of expenses pursuant to Section 10.3, each
Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the
Lender-Related Persons, and each Participant (each, an “Indemnified Person”)
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and
all reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration (including
any restructuring or workout with respect hereto) of this Agreement, any of the
other Loan Documents, or the transactions contemplated hereby or thereby or in
connection with the monitoring of Borrowers’ or their Subsidiaries’ compliance
with the terms of the Loan Documents, and (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any
act, omission, event, or circumstance in any manner related thereto (all the
foregoing, collectively, the “Indemnified Liabilities”). The foregoing
to the contrary notwithstanding, Borrowers shall have no obligation to any
Indemnified Person under this Section 10.3 with 


 


45

















 


respect to any
Indemnified Liability that a court of competent jurisdiction finally determines
to have resulted from the gross negligence or willful misconduct of such
Indemnified Person. This provision shall survive the termination of this
Agreement and the repayment of the Obligations. WITHOUT LIMITATION, THE
FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER
PERSON.


 


11.          NOTICES.


 


Unless
otherwise provided in this Agreement, all notices or demands by Borrowers or
Agent to the other relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, electronic mail (at such email
addresses as Administrative Borrower or Agent, as applicable, may designate to
each other in accordance herewith), or telefacsimile to Borrowers in care of
Administrative Borrower or to Agent, as the case may be, at its address set
forth below:


 


	
  If to
  Administrative Borrower:

  	
  Emrise Corporation

  
	
   

  	
  9485 Haven Avenue, Suite 100

  
	
   

  	
  Rancho Cucamonga, CA 91730

  
	
   

  	
  Attn: D. John Donovan

  
	
   

  	
  Fax No.: (909) 354-3568

  
	
   

  	
   

  
	
  With a copy to:

  	
  Rutan & Tucker, LLP

  
	
   

  	
  611 Anton Blvd., Suite 1400

  
	
   

  	
  Costa Mesa, CA 92626

  
	
   

  	
  Attn: Larry A. Cerutti, Esq.

  
	
   

  	
  Fax No.: (714) 546-9035

  
	
   

  	
   

  
	
  If to Agent:

  	
  GVEC Resource IV Inc.

  
	
   

  	
  1 Park Plaza, Suite 550

  
	
   

  	
  Irvine, California 92614

  
	
   

  	
  Attention: Peter Paul Mendel, Esq., General

  Counsel

  
	
   

  	
  Fax No.: (949) 757-0978

  
	
   

  	
   

  
	
  With a copy to:

  	
  Fulbright & Jaworski L.L.P.

  
	
   

  	
  666 Fifth Avenue

  
	
   

  	
  New York, New York 10103

  
	
   

  	
  Attn: Charles D. Schmerler, Esq.

  
	
   

  	
  Fax No.: (212) 318-3021

  



 


Agent and
Borrowers may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 11,
other than notices by Agent in connection with 


 


46

















 


enforcement rights against the Collateral under the provisions of the
Code, shall be deemed received on the earlier of the date of actual receipt or
3 Business Days after the deposit thereof in the mail. Each Borrower
acknowledges and agrees that notices sent by the Lender Group in connection
with the exercise of enforcement rights against Collateral under the provisions
of the Code shall be deemed sent when deposited in the mail or personally
delivered, or, where permitted by law, transmitted by telefacsimile or any
other method set forth above.


 


12.          CHOICE OF LAW AND VENUE; JUDICIAL REFERENCE; WAIVER
OF JURY TRIAL; SERVICE OF PROCESS.


 


(a)           THE VALIDITY
OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF,
AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO ITS CONFLICTS OF LAWS PRINCIPLES.


 


(b)           EACH
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA LOCATED IN LOS ANGELES COUNTY AND OF THE FEDERAL COURTS LOCATED IN
THE CENTRAL DISTRICT OF CALIFORNIA, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND
EACH BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
CALIFORNIA STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH
BORROWER HEREBY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND BINDING UPON IT AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING
IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE AGENT OR ANY LENDER MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO OR ARISING OUT OF
THIS AGREEMENT OR ANY LOAN DOCUMENT AGAINST ANY BORROWER OR ITS ASSETS OR
PROPERTIES IN THE COURTS OF ANY JURISDICTION WHERE SUCH BORROWER OR ITS ASSETS
OR PROPERTIES MAY BE LOCATED OR IN WHICH IT OTHERWISE MAY BE SUBJECT TO
JURISDICTION.


 


(c)           EACH
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
IT MAY LEGALLY AND EFFECTIVELY DO SO (i) ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS IN ANY COURT
REFERRED TO IN PARAGRAPH (b) OF THIS 


 


47

















 


SECTION;
(ii) THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT; AND (iii) ANY RIGHT IT MAY HAVE, HOWEVER ARISING,
TO REMOVE OR TRANSFER ANY SUIT, ACTION OR PROCEEDING BROUGHT AGAINST IT IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY LOAN DOCUMENT IN A
STATE COURT OF THE UNITED STATES OF AMERICA TO ANY FEDERAL COURT OF THE UNITED
STATES OF AMERICA IF SUCH FEDERAL COURT OF THE UNITED STATES OF AMERICA WOULD
NOT HAVE OR ACCEPT JURISDICTION THEREOF.


 


(d)           ALL CLAIMS,
CAUSES OF ACTION OR OTHER DISPUTES CONCERNING THIS AGREEMENT AND THE MATTERS
CONTEMPLATED HEREBY (EACH A “CLAIM”), ARISING IN A PROCEEDING IN
CALIFORNIA STATE COURT INCLUDING ANY AND ALL QUESTIONS OF LAW OR FACT RELATING
THERETO, SHALL, AT THE WRITTEN REQUEST OF THE AGENT OR ANY LENDER, BE
DETERMINED BY JUDICIAL REFERENCE PURSUANT TO THE CALIFORNIA CODE OF CIVIL
PROCEDURE (“REFERENCE”). THE PARTIES SHALL SELECT A SINGLE NEUTRAL
REFEREE, WHO SHALL BE A RETIRED STATE OR FEDERAL JUDGE. IN THE EVENT THAT THE
PARTIES CANNOT AGREE UPON A REFEREE, THE REFEREE SHALL BE APPOINTED BY THE
COURT. THE REFEREE SHALL REPORT A STATEMENT OF DECISION TO THE COURT. NOTHING
IN THIS PARAGRAPH SHALL LIMIT THE RIGHT OF ANY PARTY AT ANY TIME TO EXERCISE
SELF-HELP REMEDIES, FORECLOSE AGAINST COLLATERAL OR OBTAIN PROVISIONAL REMEDIES.
THE PARTIES SHALL BEAR THE FEES AND EXPENSES OF THE REFEREE EQUALLY UNLESS THE
REFEREE ORDERS OTHERWISE. THE REFEREE SHALL ALSO DETERMINE ALL ISSUES RELATING
TO THE APPLICABILITY, INTERPRETATION, AND ENFORCEABILITY OF THIS PARAGRAPH. THE
PARTIES ACKNOWLEDGE THAT THE CLAIMS WILL NOT BE ADJUDICATED BY A JURY.


 


(e)           OTHER THAN
WITH RESPECT TO ANY PROCEEDING IN THE STATE COURTS OF CALIFORNIA, EACH BORROWER
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH BORROWER
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.


 


(f)            EACH
BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS THE
ADMINISTRATIVE BORROWER, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE,
ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY,
SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES 


 


48

















 


AND
DOCUMENTS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS
AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. EACH BORROWER
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY TO THE ADMINISTRATIVE
BORROWER AT ITS ADDRESS SET FORTH IN SECTION 11. EACH BORROWER SHALL TAKE SUCH
ACTIONS AS ARE REASONABLE, INCLUDING THE EXECUTION AND FILING OF ANY AND ALL
FURTHER AGREEMENTS, INSTRUMENTS AND OTHER DOCUMENTS AS MAY BE NECESSARY, TO
FULLY IMPLEMENT AND EFFECT SUCH APPOINTMENTS AND TO CONTINUE THEM IN FULL FORCE
AND EFFECT. EACH BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING
IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH BORROWER IRREVOCABLY AGREES
AND UNDERTAKES TO ENTER ITS UNCONDITIONAL APPEARANCE WITHIN FORTY-FIVE (45)
DAYS AFTER THE COMPLETION OF SERVICE ON THE AUTHORIZED AGENT AS PROVIDED IN
THIS SECTION.


 


13.          ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.


 


13.1         Assignments
and Participations.


 


(a)           Any Lender may assign
and delegate to one or more assignees (each an “Assignee”) that are
Eligible Transferees all, or any ratable part of all, of the Obligations, the
Commitments and the other rights and obligations of such Lender hereunder and
under the other Loan Documents, in a minimum amount of $2,000,000 (except such
minimum amount shall not apply to an assignment and delegation by a Lender to
(x) any other Lender or an Affiliate of such Lender or a Related Fund of such
Lender, (y) a group of new Lenders, each of which is an Affiliate or Related
Fund of each other so long as the aggregate amount to be assigned to such group
is at least $2,000,000 or (z) if as a result of such assignment such Lender
shall cease to be a party hereto); provided, however, that, except as otherwise provided
in Section 13.1(c) hereof, Borrowers and Agent may continue to deal
solely and directly with such Lender in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses, and related information with respect to
the Assignee, have been given to Agent by such Lender and the Assignee, (ii)
such Lender and its Assignee have delivered to Agent an Assignment and
Acceptance, and (iii) the assigning Lender or Assignee has paid to Agent for
Agent’s separate account a processing fee in the amount of $3,500. Anything
contained herein to the contrary notwithstanding, the payment of any fees shall
not be required and the Assignee need not be an Eligible Transferee if (x) such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of the assigning Lender or (y) the assignee is a Lender or an
Affiliate of a Lender or a Related Fund of a Lender.


 


49

















 


(b)           Except as otherwise
provided in Section 13.1(c) hereof, from and after the date that Agent
notifies the assigning Lender (with a copy to Administrative Borrower) that it has
received an executed Assignment and Acceptance and payment of the above
referenced processing fee (if required), (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the
rights and obligations of a Lender under the Loan Documents, and (ii) the
assigning Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (except with respect to Section
10.4 and Section 15.11 hereof) and be released from any future
obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender’s
rights and obligations under this Agreement and the other Loan Documents, such
Lender shall cease to be a party hereto and thereto), and such assignment shall
effect a novation between Borrowers and the Assignee; provided, however, that nothing
contained herein shall release any assigning Lender from obligations that
survive the termination of this Agreement, including such assigning Lender’s
obligations under Article 15 and Section 16.7 of this Agreement.


 


(c)           Notwithstanding
anything contained in this Section 13.1 to the contrary, a Lender may
assign any or all of its rights hereunder to a Qualified Affiliate of such
Lender or a Qualified Related Fund of such Lender without (i) providing any
notice to Agent or any other Person or (ii) delivering an executed Assignment
and Acceptance to Agent; provided, however, that (x) Borrowers and Agent may
continue to deal solely and directly with the assigning Lender until an
Assignment and Acceptance has been delivered to Agent, (y) the failure of such
assigning Lender to deliver an Assignment and Acceptance to Agent or any other
Person shall not affect the legality, validity or binding effect of such
assignment, and (z) an Assignment and Acceptance between an assigning Lender
and its Qualified Affiliate or Qualified Related Fund shall be effective as of
the date specified in such Assignment and Acceptance.


 


(d)           By executing and
delivering an Assignment and Acceptance, the assigning Lender thereunder and
the Assignee thereunder confirm to and agree with each other and the other
parties hereto as follows:  (1) other
than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto, (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrowers or the performance or observance by Borrowers of any of their
obligations under this Agreement or any other Loan Document furnished pursuant
hereto, (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such Assignment
and Acceptance, (4) such Assignee will, independently and without reliance upon
Agent, such assigning Lender or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement, (5)
such Assignee appoints and authorizes Agent to take such actions and to
exercise such powers under this Agreement as are delegated to Agent, by the
terms hereof, together with such powers as are reasonably 


 


50

















 


incidental
thereto, and (6) such Assignee agrees that it will perform all of the
obligations which by the terms of this Agreement are required to be performed
by it as a Lender.


 


(e)           Immediately upon Agent’s
receipt of any processing fee payment (if required) and the fully executed
Assignment and Acceptance (or, in the case of an assignment from a Lender to
one or more of its Qualified Affiliates or Qualified Related Funds pursuant to Section
13.1(c), upon the effective date specified in such Assignment and
Acceptance), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning
Lender pro tanto.


 


(f)            Any Lender may at any
time, without the consent of the Borrowers, sell to one or more commercial
banks, financial institutions, or other Persons (a “Participant”)
participating interests in all or any portion of its Obligations, its
Commitments, and the other rights and interests of that Lender (the “Originating
Lender”) hereunder and under the other Loan Documents; provided, however,
that (i) the Participant receiving the participating interest in the
Obligations, the Commitments, and the other rights and interests of the
Originating Lender hereunder shall not constitute a “Lender” hereunder or under
the other Loan Documents and such Originating Lender’s obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, (ii)
the Originating Lender shall remain solely responsible for the performance of
such obligations, (iii) Borrowers, Agent, and the Lenders shall continue to
deal solely and directly with the Originating Lender in connection with the
Originating Lender’s rights and obligations under this Agreement and the other
Loan Documents, (iv) no Originating Lender shall transfer or grant any
participating interest under which the Participant has the right to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would (A)
extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating, (C) release
all or substantially all of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums, and (v) all amounts
payable by Borrowers hereunder shall be determined as if such Lender had not
sold such participation, except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender
under this Agreement. The rights of any Participant only shall be derivative
through the Originating Lender with whom such Participant participates and no
Participant shall have any rights under this Agreement or the other Loan
Documents or any direct rights as to the other Lenders, Agent, Borrowers, the
Collections of Borrowers or their Subsidiaries, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by the Lenders among themselves. Subject to
Section 15.11(g), the Borrowers agree that each Participant shall be
entitled to be 


 


51

















 


benefits of Section
15.11 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to this Section 13.1. The
provisions of this Section 13.1(f) are solely for the benefit of the
Lender Group, and Borrowers shall not have any rights as third party
beneficiaries of any such provisions.


 


(g)           In connection with any
such assignment or participation or proposed assignment or participation, a
Lender may, subject to the provisions of Section 16.7, disclose all
documents and information which it now or hereafter may have relating to
Borrowers and their Subsidiaries and their respective businesses.


 


(h)           Any other provision in
this Agreement notwithstanding, any Lender may at any time create a security
interest in, or pledge, all or any portion of its rights under and interest in
this Agreement in favor of any Federal Reserve Bank in accordance with
Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR
§203.24 or any other Person, including, without limitation, as provided in Section
2.15, and such Person may enforce such pledge or security interest in any
manner permitted under applicable law; provided, that no such pledge or grant
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or secured party (or any transferee thereof)
for such Lender as a party hereto unless such pledgee or secured party (or
transferee) becomes a Lender hereunder.


 


(i)            Agent shall, acting
solely for this purpose as a non-fiduciary agent of Borrowers, maintain, or
cause to be maintained, a register (the “Register”) on which it shall
enter the names and addresses of the Lenders and the Commitments of, and the
principal amount of the Advances and the Term Loans (and stated interest
thereon) owing to, each Lender from time to time. Subject to the last sentence
of this Section 13.1(i), the entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and Borrowers, Agent and
Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by Administrative Borrower and any Lender at any
reasonable time and from time to time upon reasonable notice. In the case of an
assignment to a Qualified Affiliate or Qualified Related Fund pursuant to Section
13.1(c) as to which an Assignment and Acceptance is not delivered to Agent,
the assigning Lender shall, acting solely for this purpose as a non-fiduciary
agent of Borrowers, maintain a register (the “Related Party Register”)
comparable to the Register on behalf of Borrowers.


 


(j)            A Registered Loan (and
the Registered Note, if any, evidencing the same) may be assigned or sold in
whole or in part only by registration of such assignment or sale on the
Register or the Related Party Register (and each Registered Note shall
expressly so provide). Any assignment or sale of all or part of such Registered
Loan (and the Registered Note, if any, evidencing the same) may be effected
only by registration of such assignment or sale on the Register or the Related
Party Register, together with the surrender of the Registered Note, if any,
evidencing the same duly endorsed by (or accompanied by a written instrument of
assignment or sale duly executed by) the holder of such Registered Note, whereupon,
at the request of the designated assignee(s) or transferee(s), one or more new
Registered Notes in the same aggregate principal amount shall be issued to the
designated assignee(s) or transferee(s). Prior to the registration of
assignment or sale of any Registered Loan (and the Registered Note, if any 


 


52

















 


evidencing the same), Agent and Borrowers
shall treat the Person in whose name such Registered Loan (and the Registered
Note, if any, evidencing the same) is registered as the owner thereof for the
purpose of receiving all payments thereon, notwithstanding notice to the
contrary.


 


13.2         Successors.
This Agreement shall bind and inure to the benefit of the respective successors
and assigns of each of the parties; provided, however, that Borrowers may not assign this
Agreement or any rights or duties hereunder without the Lenders’ prior written
consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall
release any Borrower from its Obligations. A Lender may assign this Agreement
and the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 13.1 hereof and, except as expressly required
pursuant to Section 13.1 hereof, no consent or approval by any Borrower
is required in connection with any such assignment.


 


14.          AMENDMENTS; WAIVERS.


 


14.1         Amendments
and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by Borrowers therefrom, shall be effective unless the same shall be
in writing and signed by the Required Lenders (or by Agent at the written
request of the Required Lenders) and Administrative Borrower (on behalf of all
Borrowers) and then any such waiver or consent shall be effective, but only in
the specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in
writing and signed by all of the Lenders and Administrative Borrower (on behalf
of all Borrowers), do any of the following:


 


(a)           increase or extend any
Commitment of any Lender,


 


(b)           postpone or delay any
date fixed by this Agreement or any other Loan Document for any payment of
principal, interest, fees, or other amounts due hereunder or under any other
Loan Document,


 


(c)           reduce the principal
of, or the rate of interest on, any loan or other extension of credit
hereunder, or reduce any fees or other amounts payable hereunder or under any other
Loan Document,


 


(d)           change the Pro Rata
Share that is required to take any action hereunder,


 


(e)           amend or modify this
Section or any provision of this Agreement providing for consent or other
action by all Lenders,


 


(f)            other than as
permitted by Section 15.12, release Agent’s Lien in and to any of the
Collateral,


 


(g)           change the definition
of “Required Lenders” or “Pro Rata Share”,


 


(h)           contractually
subordinate any of the Agent’s Liens,


 


53

















 


(i)            release any Borrower
from any obligation for the payment of money,


 


(j)            change the definition
of Borrowing Base, any of the definitions used therein, the definition of “Maximum
Revolver Amount,” the definition of “Term Loan Amount,” or Sections
2.1, 2.2 or 2.4(b), or


 


(k)           amend any of the
provisions of Section 15


 


and, provided
further, however, that no amendment, waiver or consent shall, unless
in writing and signed by Agent, affect the rights or duties of Agent under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of, or with
respect to, any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrowers, shall not require
consent by or the agreement of Borrowers.


 


14.2         No
Waivers; Cumulative Remedies. No failure by Agent or any Lender
to exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent’s and each
Lender’s rights thereafter to require strict performance by Borrowers of any
provision of this Agreement. Agent’s and each Lender’s rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.


 


15.          AGENT; THE LENDER GROUP.


 


15.1         Appointment
and Authorization of Agent. Each Lender hereby designates and
appoints GVECR as its representative under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to execute and
deliver each of the other Loan Documents on its behalf and to take such other
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Section 15. The
provisions of this Section 15 (other than Section 15.11) are
solely for the benefit of Agent, and the Lenders, and Borrowers and their
Subsidiaries shall have no rights as a third party beneficiary of any of the
provisions contained herein. Any provision to the contrary contained elsewhere
in this Agreement or in any other Loan Document notwithstanding, Agent shall
not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word “Agent” is for convenience only, that
GVECR is merely the representative of the Lenders, and only has the contractual
duties set forth herein. Except as expressly otherwise provided in this
Agreement, Agent shall have and may use its sole discretion with respect to
exercising or 


 


54

















 


refraining from exercising any discretionary
rights or taking or refraining from taking any actions that Agent expressly is
entitled to take or assert under or pursuant to this Agreement and the other
Loan Documents. Without limiting the generality of the foregoing, or of any
other provision of the Loan Documents that provides rights or powers to Agent,
Lenders agree that Agent shall have the right to exercise the following powers
as long as this Agreement remains in effect: 
(a) maintain, in accordance with its customary business practices, ledgers
and records reflecting the status of the Obligations, the Collateral, the
Collections of Borrowers and their Subsidiaries, and related matters, (b)
execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to the Loan Documents, (c)
make portions of the Loans, for itself or on behalf of Lenders as provided in
the Loan Documents, (d) exclusively receive, apply, and distribute the
Collections of Borrowers and their Subsidiaries as provided in the Loan
Documents, (e) open and maintain such bank accounts and cash management
accounts as Agent deems necessary and appropriate in accordance with the Loan
Documents for the foregoing purposes with respect to the Collateral and the
Collections of Borrowers and their Subsidiaries, (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrowers, the Obligations, the Collateral, the Collections of Borrowers and
their Subsidiaries, or otherwise related to any of same as provided in the Loan
Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents.


 


15.2         Delegation
of Duties. Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys in fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney in fact that it selects as
long as such selection was made without gross negligence or willful misconduct.


 


15.3         Liability
of Agent. None of the Agent Related Persons shall (a) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by any Borrower or
Affiliate of any Borrower, or any officer or director thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
Agent under or in connection with, this Agreement or any other Loan Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document, or for any failure of any Borrower
or any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the books and records or properties of Borrowers or the
books or records or properties of any of Borrowers’ Subsidiaries or Affiliates.


 


15.4         Reliance
by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telefacsimile or other electronic
method of transmission, telex or telephone message, statement 


 


55

















 


or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent, or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to Borrowers or counsel to any
Lender), independent accountants and other experts selected by Agent. Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless Agent shall first receive such
advice or concurrence of the requisite Lenders as it deems appropriate and
until such instructions are received, Agent shall refrain from acting as it
deems advisable. If Agent so requests, it shall first be indemnified to its
reasonable satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take
any such action. Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the requisite Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.


 


15.5         Notice of
Default or Event of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees,
and expenses required to be paid to Agent for the account of the Lenders and
except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Administrative
Borrower referring to this Agreement, describing such Default or Event of
Default, and stating that such notice is a “notice of default.”  Agent promptly will notify the Lenders of its
receipt of any such notice or of any Event of Default of which Agent has actual
knowledge. If any Lender obtains actual knowledge of any Event of Default, such
Lender promptly shall notify the other Lenders and Agent of such Event of
Default. Each Lender shall be solely responsible for giving any notices to its
Participants, if any. Subject to Section 15.4, Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Required Lenders in accordance with Section 8; provided, however, that unless
and until Agent has received any such request, Agent may refrain from taking
such action with respect to such Default or Event of Default as it shall deem
advisable.


 


15.6         Credit
Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by Agent hereinafter taken, including any review of the affairs of
Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person party to a Loan Document,
and all applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and
to extend credit to Borrowers. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to
make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person party to a Loan Document. Except
for notices, reports, and other documents 


 


56

















 


expressly
herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Borrowers and any other Person party
to a Loan Document that may come into the possession of any of the
Agent-Related Persons.


 


15.7         Costs and
Expenses; Indemnification. Agent may incur and pay Lender Group
Expenses to the extent Agent reasonably deems necessary or appropriate for the
performance and fulfillment of its functions, powers, and obligations pursuant
to the Loan Documents, including court costs, reasonable attorneys fees and
expenses, fees and expenses of financial accountants, advisors, consultants,
and appraisers, costs of collection by outside collection agencies, auctioneer
fees and expenses, and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not Borrowers are obligated to reimburse
Agent or Lenders for such expenses pursuant to this Agreement or otherwise. Agent
is authorized and directed to deduct and retain sufficient amounts from the
Collections of Borrowers and their Subsidiaries received by Agent to reimburse
Agent for such out-of-pocket costs and expenses prior to the distribution of
any amounts to Lenders. In the event Agent is not reimbursed for such costs and
expenses from the Collections of Borrowers and their Subsidiaries received by
Agent, each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender’s Pro Rata Share thereof. Whether
or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agent Related Persons (to the extent not reimbursed
by or on behalf of Borrowers and without limiting the obligation of Borrowers
to do so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; provided, however, that no Lender shall be liable for
the payment to any Agent Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person’s gross negligence or willful
misconduct nor shall any Lender be liable for the obligations of any Defaulting
Lender in failing to make any portion of a Loan or any other extension of
credit hereunder. Without limitation of the foregoing, each Lender shall
reimburse Agent upon demand for such Lender’s Pro Rata Share of any costs or
out of pocket expenses (including reasonable fees and expenses of attorneys,
accountants, advisors, and consultants fees and expenses) incurred by Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that Agent is not
reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this
Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.


 


15.8         Agent in
Individual Capacity. GVECR and its Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire
equity interests in, and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Borrowers and their
Subsidiaries and Affiliates and any other Person party to any Loan Documents as
though GVECR were not Agent hereunder, and, in each case, without notice to or
consent of the other members of the Lender Group. The other members of the
Lender Group acknowledge that, pursuant to such activities, GVECR or its
Affiliates may receive information regarding Borrowers or their Affiliates and
any other Person party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrowers or such other 


 


57

















 


Person and
that prohibit the disclosure of such information to the Lenders, and the
Lenders acknowledge that, in such circumstances (and in the absence of a waiver
of such confidentiality obligations, which waiver Agent will use its reasonable
best efforts to obtain), Agent shall not be under any obligation to provide
such information to them. The terms “Lender” and “Lenders”
include GVECR in its individual capacity.


 


15.9         Successor
Agent. Agent may resign as Agent upon 45 days notice to the
Lenders (or such shorter period agreed to by the Agent and the Required
Lenders). If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. If Agent has materially
breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon
the acceptance of its appointment as successor Agent hereunder, such successor
Agent shall succeed to all the rights, powers, and duties of the retiring Agent
and the term “Agent” shall mean such successor Agent and the retiring
Agent’s appointment, powers, and duties as Agent shall be terminated. After any
retiring Agent’s resignation hereunder as Agent, the provisions of this Section
15 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement. If no successor Agent has
accepted appointment as Agent by the effective date of a retiring Agent’s
notice of resignation, the retiring Agent’s resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.


 


15.10       Lender in
Individual Capacity. Any Lender and its respective Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with Borrowers and
their Subsidiaries and Affiliates and any other Person party to any Loan
Documents as though such Lender were not a Lender hereunder without notice to
or consent of the other members of the Lender Group. The other members of the
Lender Group acknowledge that, pursuant to such activities, such Lender and its
respective Affiliates may receive information regarding Borrowers or their
Affiliates and any other Person party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrowers or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver such Lender will use its reasonable
best efforts to obtain), such Lender shall not be under any obligation to
provide such information to them.


 


15.11       Withholding
Taxes.


 


(a)           Subject to clause
(h) below, any and all payments to a Lender or Agent made by or on account
of any Obligation shall be made free and clear of, and without deduction or
withholding for, any and all present or future taxes, levies, imposts,
deductions, charges, fees, withholdings, restrictions or conditions of any
nature, and all liabilities with respect thereto (including penalties, interest
and additions to tax), excluding, in the case of each Lender and Agent, such
taxes (including income taxes or franchise taxes) as are imposed on or measured
by the net income of such Lender or Agent, respectively, by the jurisdiction in
which such Lender or 


 


58

















 


Agent, as the case may be, is organized or
maintains a lending office or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, fees, withholdings,
restrictions, conditions and liabilities being hereinafter collectively
referred to as “Taxes”).


 


(b)           In addition, each
Borrower agrees to pay any present or future stamp, documentary, sales,
transfer, excise, mortgage recording, or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, performance, recordation, registration or filing of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter
referred to as “Other Taxes”).


 


(c)           If any Borrower shall
be required to deduct or withhold any Taxes or Other Taxes from or in respect
of any amount payable hereunder or under any other Loan Document to any Lender
or Agent, then, subject to clause (h) below:


 


(i)            the amount so payable
shall be increased so that after making all required deductions and
withholdings (including deductions and withholdings applicable to additional
amounts payable pursuant to this Section 15.11), such Lender or Agent, as the case may be, receives
an amount equal to the sum it would have received had no such deductions or
withholdings been made,


 


(ii)           such Borrower shall
make such deductions or withholdings,


 


(iii)          such Borrower shall pay
the full amount deducted or withheld to the relevant Governmental Authority in
accordance with applicable law, and


 


(iv)          within ten (10) days
thereafter, such Borrower shall send Agent (and the applicable Lender) the
original or a certified copy of a receipt (or, if the original or a certified
copy is not available, such other documentation as shall be satisfactory to
Agent and the applicable Lender) evidencing payment of the amount or amounts so
deducted or withheld.


 


(d)           Subject to clause
(h) below, the Borrowers hereby jointly and severally indemnify and agree
to hold each Lender and Agent harmless on an after-tax basis from and against
the full amount of any and all Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 15.11)
paid by such Lender or Agent and any liability (including penalties, interest
and expenses for nonpayment, late payment or otherwise) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. Payments under this indemnification shall be made within
ten (10) days from the date on which any Lender or Agent makes written demand
therefor.


 


(e)           Subject to clause (h)
below, in the event that by reason of any law, regulation or requirement or in
the interpretation or administration thereof by any Governmental Authority,
whether or not having the force of law, any Lender (or its applicable lending
office) shall, with respect to any Loan or Loan Document, be subjected to any
tax, levy, impost, charge, fee, duty, deduction or withholding of any kind
whatsoever (except for changes in the tax on the net income of such Lender or
its applicable lending office imposed by the jurisdiction in which such Lender
is organized or maintains a lending office), and if any such measures or any other
similar measure shall result in an increase in the cost to such Lender of
making or maintaining 


 


59

















 


any Loan or in a reduction in the amount of
any sum receivable by such Lender in respect thereof, then such Lender shall
promptly notify the Borrowers stating the reasons therefor. The Borrowers shall
thereafter pay to such Lender, upon demand and as additional consideration
hereunder, such additional amount or amounts as shall fully compensate such
Lender on an after-tax basis for such increased cost or reduced amount. A
certificate as to any such increased cost or reduced amount, setting forth the
calculations therefor, shall be submitted by such Lender to the Borrowers and
shall, in the absence of manifest error, be conclusive and binding as to the
amount thereof.


 


(f)            Each Lender that is
not a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States (or
any jurisdiction thereof), or any estate or trust that is subject to federal
income taxation regardless of the source of its income or is otherwise a “foreign
person” within the meaning of Treasury Regulation Section 1.1441-1(c) (a “Non-U.S.
Lender”) shall deliver to the Borrowers and Agent (or, in the case of an
assignment that is not disclosed to Agent or the Borrowers in accordance with Section
13.1(c), solely to the assigning Lender and not to Agent or the Borrowers)
two (2) copies of each applicable IRS Form W-8BEN, Form W-8IMY or Form W-8ECI,
or any subsequent versions thereof or successors thereto, properly completed
and duly executed by such Non-U.S. Lender claiming complete exemption from, or
a reduced rate of, United States federal withholding tax on all payments by the
Borrowers under this Agreement and the other Loan Documents. Such forms shall
be delivered by each Non-U.S. Lender on or before the date it becomes a party
to this Agreement. In addition, each Non-U.S. Lender shall deliver such forms
upon the obsolescence or invalidity of any form previously delivered by such
Non-U.S. Lender. In addition to properly completing and duly executing Forms
W-8BEN or W-8IMY (or any subsequent versions thereof or successor thereto), if
such Non-U.S. Lender is claiming an exemption from withholding of United States
federal income tax under Section 871(h) or Section 881(c) of the IRC, such
Non-U.S. Lender hereby represents and warrants that such Non-U.S. Lender is (A)
not a “bank” within the meaning of Section 881(c)(3)(A) of the IRC, (B) not a “10
percent shareholder” within the meaning of Section 871(h)(3)(B) of the IRC and
(C) not a controlled foreign corporation receiving interest from a related
person within the meaning of Section 864(d)(4) of the IRC, and such Non-U.S.
Lender agrees that it shall provide Agent, and Agent shall provide to the
Borrowers (or, in the case of an assignment that is not disclosed to Agent in
accordance with Section 13.1(c), solely to the assigning Lender and not
to Agent or the Borrowers), with notice at any time after becoming a Lender
hereunder that it can no longer make the foregoing representations and
warranties. Each Non-U.S. Lender shall notify the Borrowers (or, in the case of
an assignment that is not disclosed to Agent or the Borrowers in accordance
with Section 13.1(c), solely to the assigning Lender and not to Agent or
the Borrowers) at any time it determines that it is no longer in a position to
provide any previously delivered form (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this Section 15.11, a Non-U.S. Lender shall not be
required to deliver any form pursuant to this Section 15.11(f) that such
Non-U.S. Lender is not legally able to deliver.


 


(g)           Each Person that shall
become a Participant pursuant to Section 13.1(f) above
shall, on or before the date of the effectiveness of the related transfer, be
required to provide all of the applicable forms required pursuant to clause
(f) above, and shall be deemed to make the representations and warranties
set forth in subclauses (A) - (C) of clause (f) above, 


 


60

















 


provided that the obligations of such
Participant, pursuant to this clause (g), shall be determined as if such
Participant were a Lender except that such Participant shall furnish all such
required forms and make such representations and warranties to the Lender from
which the related participation shall have been purchased.


 


(h)           Notwithstanding
anything in this Section 15.11 to the contrary, the Borrowers shall not
be required to pay additional amounts pursuant to clause (c)(i) above to
any Lender or Agent on account of any Taxes collected by means of withholding
at the source (“Withholding Taxes”) or to indemnify any Lender or Agent
pursuant to clause (d) above on account of any Withholding Taxes, unless
such Withholding Taxes would not have arisen but for (i) any failure by a
Borrower or its representative to qualify as a “United States person” as
defined in Section 7701(a)(30)
of the IRC, (ii) any payment to a Lender or Agent made by or on account of any
Obligation having been made through an account or branch outside the United
States, (iii) any other act or omission to act of a Borrower or its
representative or (iv) a breach of
any representation, warranty or covenant made by a Borrower in this Agreement.


 


(i)            If a Borrower is
required to pay additional amounts to or for the account of any Lender or Agent
pursuant to this Section 15.11, then such Lender or Agent shall use its
reasonable efforts (consistent with its internal policies and legal and
regulatory restrictions) to designate a lending office from a different
jurisdiction (if such a lending office exists) so as to eliminate or reduce any
such additional payments by such Borrower which may accrue in the future if
such designation in the reasonable judgment of such Lender or Agent, would not
require such Lender to disclose information such Lender deems confidential and
is not, in the sole determination of such Lender or Agent, as the case may be,
otherwise disadvantageous to such Lender or Agent.


 


(j)            If Agent or a Lender
receives a refund of any Taxes or Other Taxes as to which it has been
indemnified by the Borrowers or with respect to which a Borrower has paid
additional amounts pursuant to this Section 15.11, it shall pay to the
Borrowers, to the extent permitted by applicable law, the net amount of any
such refund (including any interest paid thereon by such Governmental
Authority) after deducting taxes and other expenses attributable thereto and
any taxes which Agent or such Lender is required to withhold from the payment
to the Borrowers; provided, that no Default which if not cured would
become an Event of Default or Event of Default is continuing, and provided
further, that the Borrowers, upon the request of Agent or such Lender,
shall promptly repay the amount paid over to the Borrowers (plus any penalties,
interest or other charges imposed by the relevant Governmental Authority) to
Agent or such Lender in the event Agent or such Lender is required to repay the
applicable refund to such Governmental Authority.


 


(k)           If any Borrower fails
to perform any of its obligations under this Section 15.11, the
Borrowers shall indemnify Agent, Lenders and/or each Participant for any taxes,
interest or penalties that may become payable as a result of any such failure. The
agreements and obligations of the Borrowers under this Section 15.11
shall survive the termination of this Agreement and the payment of the Loans
and all other Obligations and all other amounts payable hereunder.


 


61

















 


15.12       Collateral
Matters.


 


(a)           The Lenders hereby
irrevocably authorize Agent, at its option and in its sole discretion, to
release any Lien on any Collateral (i) upon the termination of the Commitments
and payment and satisfaction in full by Borrowers of all Obligations, (ii)
constituting property being sold or disposed of if a release is required or
desirable in connection therewith and if Administrative Borrower certifies to
Agent that the sale or disposition is permitted under Section 6.4 of
this Agreement or the other Loan Documents (and Agent may rely conclusively on
any such certificate, without further inquiry), (iii) constituting property in
which no Borrower or its Subsidiaries owned any interest at the time the Agent’s
Lien was granted nor at any time thereafter, or (iv) constituting property
leased to a Borrower or its Subsidiaries under a lease that has expired or is
terminated in a transaction permitted under this Agreement. Except as provided
above, Agent will not execute and deliver a release of any Lien on any
Collateral without the prior written authorization of (y) if the release is of
all or substantially all of the Collateral, all of the Lenders, or (z)
otherwise, the Required Lenders. Upon request by Agent or Administrative
Borrower at any time, the Lenders will confirm in writing Agent’s authority to
release any such Liens on particular types or items of Collateral pursuant to
this Section 15.12; provided, however, that (1) Agent shall not be required
to execute any document necessary to evidence such release on terms that, in
Agent’s opinion, would expose Agent to liability or create any obligation or entail
any consequence other than the release of such Lien without recourse,
representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of Borrowers in respect of) all
interests retained by Borrowers, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.


 


(b)           Agent shall have no
obligation whatsoever to any of the Lenders to assure that the Collateral
exists or is owned by Borrowers or is cared for, protected, or insured or has
been encumbered, or that the Agent’s Liens have been properly or sufficiently
or lawfully created, perfected, protected, or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent pursuant to any of
the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission, or event related thereto, subject to the
terms and conditions contained herein, Agent may act in any manner it may deem
appropriate, in its sole discretion given Agent’s own interest in the
Collateral in its capacity as one of the Lenders and that Agent shall have no
other duty or liability whatsoever to any Lender as to any of the foregoing,
except as otherwise provided herein.


 


15.13       Restrictions
on Actions by Lenders; Sharing of Payments.


 


(a)           Each of the Lenders
agrees that it shall not, without the express written consent of Agent, and
that it shall, to the extent it is lawfully entitled to do so, upon the written
request of Agent, set off against the Obligations, any amounts owing by such
Lender to Borrowers or any Deposit Accounts of Borrowers now or hereafter
maintained with such Lender. Each of the Lenders further agrees that it shall
not, unless specifically requested to do so in writing by Agent, take or cause
to be taken any action, including, the commencement of any legal or equitable
proceedings, to foreclose any Lien on, or otherwise enforce any security
interest in, any of the Collateral.


 


62

















 


(b)           If, at any time or
times any Lender shall receive (i) by payment, foreclosure, setoff, or
otherwise, any proceeds of Collateral or any payments with respect to the
Obligations, except for any such proceeds or payments received by such Lender
from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent
in excess of such Lender’s ratable portion of all such distributions by Agent,
such Lender promptly shall (1) turn the same over to Agent, in kind, and with
such endorsements as may be required to negotiate the same to Agent, or in
immediately available funds, as applicable, for the account of all of the
Lenders and for application to the Obligations in accordance with the
applicable provisions of this Agreement, or (2) purchase, without recourse or
warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that to the extent that such excess payment received by the
purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to
such purchasing party, but without interest except to the extent that such
purchasing party is required to pay interest in connection with the recovery of
the excess payment.


 


15.14       Agency
for Perfection. Agent hereby appoints each other Lender as its
agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent’s Liens in assets which, in accordance with Division 8 or
Division 9, as applicable, of the Code can be perfected only by possession or
control. Should any Lender obtain possession or control of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent’s request
therefor shall deliver possession or control of such Collateral to Agent or in
accordance with Agent’s instructions.


 


15.15       Payments
by Agent to the Lenders. All payments to be made by Agent to the
Lenders shall be made by bank wire transfer of immediately available funds
pursuant to such wire transfer instructions as each party may designate for
itself by written notice to Agent. Concurrently with each such payment, Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium, fees, or interest of the Obligations.


 


15.16       Concerning
the Collateral and Related Loan Documents. Each member of the
Lender Group authorizes and directs Agent to enter into this Agreement and the
other Loan Documents. Each member of the Lender Group agrees that any action
taken by Agent in accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent of its powers
set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.


 


15.17       Field
Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information. By becoming a party to this Agreement,
each Lender:


 


(a)           is deemed to have
requested that Agent furnish such Lender, promptly after it becomes available,
a copy of each field audit or examination report (each a “Report” and
collectively, “Reports”) prepared by or at the request of Agent, and
Agent shall so furnish each Lender with such Reports,


 


63

















 


(b)           expressly agrees and
acknowledges that Agent does not (i) make any representation or warranty as to
the accuracy of any Report, and (ii) shall not be liable for any information
contained in any Report,


 


(c)           expressly agrees and
acknowledges that the Reports are not comprehensive audits or examinations,
that Agent or other party performing any audit or examination will inspect only
specific information regarding Borrowers and will rely significantly upon the
books and records of Borrowers and their Subsidiaries, as well as on
representations of Borrowers’ personnel,


 


(d)           agrees to keep all
Reports and other material, non-public information regarding Borrowers and
their Subsidiaries and their operations, assets, and existing and contemplated
business plans in a confidential manner in accordance with Section 16.7,
and


 


(e)           without limiting the
generality of any other indemnification provision contained in this Agreement,
agrees:  (i) to hold Agent and any such
other Lender preparing a Report harmless from any action the indemnifying Lender
may take or fail to take or any conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to Borrowers,
or the indemnifying Lender’s participation in, or the indemnifying Lender’s
purchase of, a loan or loans of Borrowers; and (ii) to pay and protect, and
indemnify, defend and hold Agent, and any such other Lender preparing a Report
harmless from and against, the claims, actions, proceedings, damages, costs,
expenses, and other amounts (including, attorneys fees and costs) incurred by
Agent and any such other Lender preparing a Report as the direct or indirect
result of any third parties who might obtain all or part of any Report through
the indemnifying Lender.


 


In addition to
the foregoing:  (x) any Lender may from
time to time request of Agent in writing that Agent provide to such Lender a
copy of any report or document provided by Borrowers to Agent that has not been
contemporaneously provided by Borrowers to such Lender, and, upon receipt of
such request, Agent promptly shall provide a copy of same to such Lender, (y)
to the extent that Agent is entitled, under any provision of the Loan
Documents, to request additional reports or information from Borrowers, any
Lender may, from time to time, reasonably request Agent to exercise such right
as specified in such Lender’s notice to Agent, whereupon Agent promptly shall
request of Administrative Borrower the additional reports or information reasonably
specified by such Lender, and, upon receipt thereof from Administrative
Borrower, Agent promptly shall provide a copy of same to such Lender, and (z)
any time that Agent renders to Administrative Borrower a statement regarding
the Loan Account, Agent shall send a copy of such statement to each Lender.


 


15.18       Several
Obligations; No Liability. Notwithstanding that certain of the
Loan Documents now or hereafter may have been or will be executed only by or in
favor of Agent in its capacity as such, and not by or in favor of the Lenders,
any and all obligations on the part of Agent (if any) to make any credit
available hereunder shall constitute the several (and not joint) obligations of
the respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such credit not to exceed, in principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing contained herein shall 


 


64

















 


confer upon any
Lender any interest in, or subject any Lender to any liability for, or in
respect of, the business, assets, profits, losses, or liabilities of any other
Lender. Each Lender shall be solely responsible for notifying its Participants
of any matters relating to the Loan Documents to the extent any such notice may
be required, and no Lender shall have any obligation, duty, or liability to any
Participant of any other Lender. Except as provided in Section 16.7, no
member of the Lender Group shall have any liability for the acts of any other
member of the Lender Group. No Lender shall be responsible to any Borrower or
any other Person for any failure by any other Lender to fulfill its obligations
to make credit available hereunder, nor to advance for it or on its behalf in
connection with its Commitment, nor to take any other action on its behalf
hereunder or in connection with the financing contemplated herein.


 


15.19       No
Consequential Damages. Neither Agent nor any Lender, nor any
agent or attorney of Agent or any Lender, shall be liable to a Borrower or any
other Person on any theory of liability for any special, indirect,
consequential or punitive damages.


 


16.          GENERAL PROVISIONS.


 


16.1         Effectiveness.
This Agreement shall be binding and deemed effective when executed by
Borrowers, Agent, and each Lender whose signature is provided for on the
signature pages hereof.


 


16.2         Section
Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.


 


16.3         Interpretation.
Neither this Agreement or any of the other Loan Documents nor any uncertainty
or ambiguity herein or therein shall be construed or resolved against the
Lender Group or Borrowers, whether under any rule of construction or otherwise.
On the contrary, this Agreement and the other Loan Documents have been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto and thereto. Time is of the essence in
Borrowers’ payment and performance of the Obligations.


 


16.4         Severability
of Provisions. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.


 


16.5         Counterparts;
Electronic Execution. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile
or other electronic method of transmission 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 or other
electronic method of transmission 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 


 


65

















 


binding effect
of this Agreement. The foregoing shall apply to each other Loan Document mutatis  mutandis.


 


16.6         Revival
and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by any Borrower or the transfer to the Lender Group 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 the 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 the Lender Group
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 the Lender Group
is required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
of Borrowers automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.


 


16.7         Confidentiality.
Agent and Lenders each individually (and not jointly or jointly and severally)
agree that material, non-public information regarding Borrowers and their
Subsidiaries, their operations, assets, and existing and contemplated business
plans shall be treated by Agent and the Lenders in a confidential manner, and
shall not be disclosed by Agent and the Lenders to Persons who are not parties
to this Agreement, except:  (a) to
attorneys for and other advisors, accountants, auditors, and consultants to any
member of the Lender Group, (b) to Subsidiaries and Affiliates of any member of
the Lender Group, provided that any such Subsidiary or Affiliate shall have
agreed to receive such information hereunder subject to the terms of this Section
16.7, (c) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation, (d) as may be agreed to in advance
by Administrative Borrower or its Subsidiaries or as requested or required by
any Governmental Authority pursuant to any subpoena or other legal process, (e)
as to any such information that is or becomes generally available to the public
(other than as a result of prohibited disclosure by Agent or the Lenders), (f)
in connection with any assignment, prospective assignment, sale, prospective
sale, participation or prospective participations, or pledge or prospective
pledge of any Lender’s interest under this Agreement, provided that any such
assignee, prospective assignee, purchaser, prospective purchaser, participant,
prospective participant, pledgee, or prospective pledgee shall have agreed in
writing to receive such information hereunder subject to the terms of this Section
16.7, and (g) in connection with any litigation or other adversary
proceeding involving parties hereto which such litigation or adversary
proceeding involves claims related to the rights or duties of such parties
under this Agreement or the other Loan Documents; provided, however, that, unless
prohibited by applicable law, statute, regulation, or court order, such Lender
or Agent shall:  (y) notify
Administrative Borrower of any request by any court, governmental or administrative
agency, or pursuant to any subpoena or other legal process for disclosure of
any such non-public material information concurrent with, or where practicable,
prior to the disclosure thereof, and (z) notify all other Persons described in clause
(a) above that they are bound by, the provisions of this Section 16.7.
The provisions of this Section 16.7 shall survive the payment in full of
the Obligations.


 


16.8         Integration.
This Agreement, together with the other Loan Documents, reflects the entire
understanding of the parties with respect to the transactions contemplated
hereby and 


 


66

















 


shall not be contradicted or qualified by any
other agreement, oral or written, before the date hereof.


 


16.9         Parent as
Agent for Borrowers. Each Borrower hereby irrevocably appoints
Parent as the borrowing agent and attorney-in-fact for all Borrowers (the “Administrative
Borrower”) which appointment shall remain in full force and effect unless
and until Agent shall have received prior written notice signed by each
Borrower that such appointment has been revoked and that another Borrower has
been appointed Administrative Borrower. Each Borrower hereby irrevocably
appoints and authorizes the Administrative Borrower (i) to provide Agent with
all notices with respect to portions of the Loans obtained for the benefit of
any Borrower and all other notices and instructions under this Agreement and
(ii) to take such action as the Administrative Borrower deems appropriate on
its behalf to obtain portions of the Loans and to exercise such other powers as
are reasonably incidental thereto to carry out the purposes of this Agreement. It
is understood that the handling of the Loan Account and Collateral of Borrowers
in a combined fashion, as more fully set forth herein, is done solely as an
accommodation to Borrowers in order to utilize the collective borrowing powers
of Borrowers in the most efficient and economical manner and at their request,
and that Lender Group shall not incur liability to any Borrower as a result
hereof. Each Borrower expects to derive benefit, directly or indirectly, from
the handling of the Loan Account and the Collateral in a combined fashion since
the successful operation of each Borrower is dependent on the continued
successful performance of the integrated group. To induce the Lender Group to
do so, and in consideration thereof, each Borrower hereby jointly and severally
agrees to indemnify each member of the Lender Group and hold each member of the
Lender Group harmless against any and all liability, expense, loss or claim of
damage or injury, made against the Lender Group by any Borrower or by any third
party whosoever, arising from or incurred by reason of (a) the handling of the
Loan Account and Collateral of Borrowers as herein provided, (b) the Lender
Group’s relying on any instructions of the Administrative Borrower, or (c) any
other action taken by the Lender Group hereunder or under the other Loan
Documents, except that Borrowers will have no liability to the relevant
Agent-Related Person or Lender-Related Person under this Section 16.9
with respect to any liability that has been finally determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of such Agent-Related Person or Lender-Related Person, as
the case may be.


 


16.10       Compliance
With USA Patriot Act. Agent is subject to the USA Patriot Act
and hereby notifies Borrower that pursuant to the requirements of the USA
Patriot Act Agent is required to obtain, verify and record information that
identifies Borrower and certain of its Affiliates, which information includes
the name and address of Borrower and these Affiliates and other information
that will allow Agent to identify Borrower and these Affiliates in accordance
with the USA Patriot Act.


 


67

















 


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


 


	
   

  	
  EMRISE
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
      D.
  JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
   V.P. of
  Finance & Administration

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EMRISE
  ELECTRONICS

  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
      D.
  JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
   Secretary
  & Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CXR
  LARUS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
      D.
  JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
       Secretary
  & Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RO
  ASSOCIATES INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
      D.
  JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
   Secretary
  & Treasurer

  	
   

  
							



 


68

















 


	
   

  	
  GVEC
  RESOURCE IV INC., as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  ROBERT J. ANDERSON

  	
   

  
	
   

  	
  Name:

  	
      Robert
  J. Anderson

  	
   

  
	
   

  	
  Title:

  	
   Authorized
  Signatory

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  PETER PAUL MENDEL

  	
   

  
	
   

  	
  Name:

  	
      Peter
  Paul Mendel

  	
   

  
	
   

  	
  Title:

  	
   Authorized
  Signatory

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GVEC
  RESOURCE IV INC., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  ROBERT J. ANDERSON

  	
   

  
	
   

  	
  Name:

  	
      Robert
  J. Anderson

  	
   

  
	
   

  	
  Title:

  	
   Authorized
  Signatory

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /S/
  PETER PAUL MENDEL

  	
   

  
	
   

  	
  Name:

  	
      Peter
  Paul Mendel

  	
   

  
	
   

  	
  Title:

  	
   Authorized
  Signatory

  	
   

  
							



 


69
















EXHIBIT
A-1


 


FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT


 


This ASSIGNMENT AND ACCEPTANCE AGREEMENT (“Assignment
Agreement”) is entered into as of                between                                 “Assignor”)
and                         (“Assignee”).
Reference is made to the agreement described in Item 2 of Annex I
annexed hereto (the “Credit Agreement”). Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the
Credit Agreement.


 


1.             In
accordance with the terms and conditions of Section 13 of the Credit
Agreement, the Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and
to the Assignor’s rights and obligations under the Loan Documents as of the
date hereof with respect to the Obligations owing to the Assignor, and Assignor’s
portion of the Revolver Commitment, the Term Loan A Commitment, and the Term
Loan B Commitment, all as specified on Annex I.


 


2.             The
Assignor (a) represents and warrants that (i) it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any adverse claim and (ii) it has full power and authority,
and has taken all action necessary, to execute and deliver this Assignment
Agreement and to consummate the transactions contemplated hereby; (b) makes no
representation or warranty and assumes no responsibility with respect to (i)
any statements, warranties or representations made in or in connection with the
Loan Documents, or (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other instrument
or document furnished pursuant thereto; (c) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under the Loan Documents or any other instrument or document
furnished pursuant thereto, and (d) represents and warrants that the amount set
forth as the Purchase Price on Annex I represents the amount owed by
Borrowers to Assignor with respect to Assignor’s share of the Advances and Term
Loans assigned hereunder, as reflected by the Register.


 


3.             The
Assignee (a) confirms that it has received copies of the Credit Agreement and
the other Loan Documents, together with copies of the financial statements
referred to therein and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment Agreement; (b) agrees that it will, independently and without
reliance upon Agent, Assignor, or any other Lender, based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents; (c)
confirms that it is an Eligible Transferee; (d) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers under
the Loan Documents as are delegated to Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; (e) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Lender; [and (f) attaches the forms required under Section 15.11
of the Credit Agreement as prescribed by the IRS certifying as to 


 


EXHIBIT A-1 - 1

















 


the Assignee’s status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to the Assignee under the Credit Agreement.]


 


4.             Following
the execution of this Assignment Agreement by the Assignor and Assignee, it
will be delivered by the Assignor (if required by the Credit Agreement) to the
Agent for recording by the Agent. The effective date of this Assignment (the “Settlement
Date”) shall be the latest to occur of (a) the date of the execution hereof
by the Assignor and the Assignee, the payment by Assignor or Assignee to Agent
for Agent’s sole and separate account of a processing fee in the amount of
$5,000 (if required by the Credit Agreement), and the receipt of any required
consent of the Agent, (b) the Settlement Date specified on Annex I, and
(c) the receipt by Assignor of the Purchase Price specified in Annex I.


 


5.             Upon
recording by the Agent, as of the Settlement Date (a) the Assignee shall be a
party to the Credit Agreement and, to the extent of the interest assigned
pursuant to this Assignment Agreement, have the rights and obligations of a
Lender thereunder and under the other Loan Documents, and (b) the Assignor
shall, to the extent of the interest assigned pursuant to this Assignment
Agreement, relinquish its rights and be released from its obligations under the
Credit Agreement and the other Loan Documents, provided, however, that nothing contained herein shall
release any assigning Lender from obligations that survive the termination of
this Agreement, including such assigning Lender’s obligations under Article
15 and Section 16.7 of the Credit Agreement.


 


6.             Upon
recording by the Agent, from and after the Settlement Date, the Agent shall
make all payments under the Credit Agreement and the other Loan Documents in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and commitment fees (if applicable) with
respect thereto) to the Assignee. Upon the Settlement Date, the Assignee shall
pay to the Assignor the Purchase Price (as set forth on Annex I) of the
principal amount of any outstanding loans under the Credit Agreement and the
other Loan Documents. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the other Loan Documents
for periods prior to the Settlement Date directly between themselves on the
Settlement Date.


 


7.             This
Assignment Agreement may be executed in counterparts and by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all of which shall together constitute one and the same
instrument. This Assignment Agreement may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect
as if the same were a fully executed and delivered original manual counterpart.


 


8.             THIS
ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ITS
CONFLICTS OF LAW RULES.


 


EXHIBIT A-1 - 2

















 


IN WITNESS
WHEREOF, the parties hereto have caused this Assignment Agreement and Annex
I hereto to be executed by their respective officers, as of the first date
written above.


 


	
   

  	
  [NAME OF
  ASSIGNOR]

  	 

	
   

  	
   

  	 

	
   

  	
  as Assignor

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
   

  	
   

  	 

	
   

  	
   

  	
  Title:

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  [NAME OF
  ASSIGNEE]

  	 

	
   

  	
   

  	 

	
   

  	
  as Assignee

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
  ACCEPTED THIS     DAY OF

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	 

	
  GVEC RESOURCE IV INC.

  	
   

  	 

	
  as Agent

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
  By:

  	
   

  	
   

  	
   

  	 

	
   

  	
  Name:

  	
   

  	
   

  	
   

  	 

	
   

  	
  Title:

  	
   

  	
   

  	
   

  	 

												



 


EXHIBIT A-1 - 3

















 


ANNEX FOR ASSIGNMENT AND ACCEPTANCE


 


ANNEX I


 


	
  1.

  	
  Borrowers:
  EMRISE CORPORATION and each of its Subsidiaries party to the Credit Agreement
  described below.

  
	
   

  	
   

  
	
  2.

  	
  Name and Date of
  Credit Agreement:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Credit
  Agreement, dated as of November 30, 2007, by and among Borrowers, the lenders
  from time to time a party thereto (the “Lenders”), and GVEC Resource
  IV Inc., a company organized under the laws of the British Virgin Islands, as
  the arranger and administrative agent for the Lenders

  
	
   

  	
   

  
	
  3.

  	
  Date of
  Assignment Agreement:

  	
                           

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Amounts:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  a.

  	
  Assigned Amount of Revolver Commitment

  	
  $                         

  
	
   

  	
  b.

  	
  Assigned Amount of Term Loan A

  	
  $                         

  
	
   

  	
  c.

  	
  Assigned Amount of Term Loan B

  	
  $                         

  
	
   

  	
  d.

  	
  Assigned Amount of Term Loan B Commitment

  	
  $                         

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Settlement Date:

  	
                           

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Purchase Price

  	
  $                         

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Notice and
  Payment Instructions, etc.

  	
   

  
					



 


	
   

  	
  Assignee:

  	
  Assignor:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 


EXHIBIT A-1

















 


EXHIBIT
B-1


 


FORM
OF BORROWING BASE CERTIFICATE


 


GVEC Resource IV Inc., as Agent

under the below referenced Credit Agreement

1 Park Plaza, Suite 550

Irvine, California 92614

Attention:  Peter Paul Mendel, Esq.,
General Counsel


 


Reference is
made to that certain CREDIT AGREEMENT (the “Credit Agreement”) dated as
of November 30, 2007, by and among the lenders identified on the signature
pages thereof (such lenders, together with their respective successors and
permitted assigns, are referred to hereinafter each individually as a “Lender”
and collectively as the “Lenders”), GVEC Resource IV Inc., a company organized
under the laws of the British Virgin Islands, as the arranger and
administrative agent for the Lenders (“Agent”), EMRISE CORPORATION, a
Delaware corporation (“Parent”), and each of its Subsidiaries party
thereto.


 


The
undersigned, Emrise Corporation (“Administrative Borrower”), pursuant to
Schedule 5.2 of the Credit Agreement, hereby certifies to Agent that the
items set forth on Annex I hereto, calculated in accordance with the terms and
definitions set forth in the Credit Agreement for such items are true and
correct, and that Borrower is in compliance with and, after giving effect to
any currently requested Advances, will be in compliance with, the terms,
conditions, and provisions of the Credit Agreement.


 


All initially
capitalized terms used in this Borrowing Base Certificate have the meanings set
forth in the Credit Agreement unless specifically defined herein.


 


[Includes form attached]


 


EXHIBIT B-1


 


1

















 


IN WITNESS
WHEREOF, this Borrowing Base Certificate is executed by the undersigned this           day
of                                      ,                     .


 


	
   

  	
  EMRISE
  CORPORATION,

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


EXHIBIT B-1 


 


2

















 


EXHIBIT
C-1


 


FORM
OF COMPLIANCE CERTIFICATE


 


[on Parent’s letterhead]


 


To:          GVEC Resource IV Inc.,
as Agent

under the below referenced Credit Agreement

1 Park Plaza, Suite 550

Irvine, California 92614

Attention:  Peter Paul Mendel, Esq., General
Counsel


 


Re:          Compliance
Certificate dated


 


Ladies and Gentlemen:


 


Reference is
made to that certain CREDIT AGREEMENT (the “Credit Agreement”) dated as
of November 30, 2007, by and among the lenders identified on the signature
pages thereof (such lenders, together with their respective successors and
permitted assigns, are referred to hereinafter each individually as a “Lender”
and collectively as the “Lenders”), GVEC Resource IV Inc., a company
organized under the laws of the British Virgin Islands, as the arranger and
administrative agent for the Lenders (“Agent”), EMRISE CORPORATION, a
Delaware corporation (“Parent”), and each of its Subsidiaries party
thereto. Capitalized terms used in this Compliance Certificate have the
meanings set forth in the Credit Agreement unless specifically defined herein.


 


Pursuant to Schedule
5.3 of the Credit Agreement, the undersigned officer of Parent hereby
certifies that:


 


1.             The
consolidated financial information of Parent and its Subsidiaries furnished in Schedule
1 attached hereto has been prepared in accordance with GAAP (except for
year-end adjustments and the lack of footnotes or as set forth on Schedule 1),
and fairly presents in all material respects the financial condition of Parent
and its Subsidiaries.


 


2.             Such
officer has reviewed the terms of the Credit Agreement and has made, or caused
to be made under his/her supervision, a review in reasonable detail of the
transactions and condition of Parent and its Subsidiaries during the accounting
period covered by the financial statements delivered pursuant to Schedule
5.3 of the Credit Agreement.


 


3.             Such
review has not disclosed the existence on and as of the date hereof, and the
undersigned does not have knowledge of the existence as of the date hereof, of
any event or condition that constitutes a Default or Event of Default, except
for such conditions or events listed on Schedule 2 attached hereto,
specifying the nature and period of existence thereof and what action Borrowers
have taken, are taking, or propose to take with respect thereto.


 


4.             The
representations and warranties of Borrowers set forth in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date hereof 


 


EXHIBIT C-1 - 1

















 


(except to the extent they relate to a specified
date), except as set forth on Schedule 3 attached hereto.


 


5.             Parent
and its Subsidiaries are in compliance with the applicable covenants contained
in Section 6.16 of the Credit Agreement as demonstrated on Schedule 4
hereof and as calculated on Schedule 5 hereof.


 


IN WITNESS
WHEREOF, this Compliance Certificate is executed by the undersigned this             day
of                            ,                  .


 


	
   

  	
  EMRISE
  CORPORATION,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


EXHIBIT C-1 - 2

















 


SCHEDULE
4


 


Financial Covenants


 


1.             Minimum EBITDA.


 


Parent’s and
its Subsidiaries’ EBITDA, measured on a quarter-end basis, for the period of                    consecutive
fiscal quarters ending                 ,                    is
$                  ,
which amount [is/is not] greater than or equal
to the amount set forth in Section 6.16(a) of the Credit Agreement on
the date of measurement.


 


2.             Debt Service Coverage
Ratio.


 


Borrower’s and
its Subsidiaries’ Debt Service Coverage Ratio, measured for the fiscal quarter
ending                  ,
is          1:00, which ratio
[is/is not] greater than or equal to
the ratio set forth in Section 6.16(b) of the Credit Agreement on the
date of measurement.


 


3.             Maximum Leverage Ratio.


 


Borrower’s and
its Subsidiaries’ Leverage Ratio, measured for the fiscal quarter ending                  ,
is            :1.00,
which ratio [is/is not] less than or equal to
the ratio set forth in Section 6.16(c) of the Credit Agreement on the
date of measurement.


 


4.             Capital Expenditures.


 


Parent’s
consolidated Capital Expenditures during Parent’s fiscal year most recently
ended is                   ,
which [is/is not] less than or equal to the
amount set forth in Section 6.16(d) of the Credit Agreement for the
corresponding period.


 


SCHEDULE 4

















 


Schedule B-1


 


Commitments


 


	
  Lender

  	
   

  	
  Loan Commitment

  	
   

  	
  Total Commitment

  	
   

  
	
  Revolver
  Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV
  Inc.

  	
   

  	
  $

  	
  7,000,000

  	
   

  	
  $

  	
  7,000,000

  	
   

  
	
  Term
  Loan A Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV
  Inc.

  	
   

  	
  $

  	
  6,000,000

  	
   

  	
  $

  	
  6,000,000

  	
   

  
	
  Term
  Loan B Lenders:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GVEC Resource IV
  Inc.

  	
   

  	
  $

  	
  10,000,000

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
  All
  Lenders:

  	
   

  	
  $

  	
  23,000,000

  	
   

  	
  $

  	
  23,000,000

  	
   

  



 


SCHEDULE B-1 - 1
















 


Schedule
1.1


 


As used in the
Agreement, the following terms shall have the following definitions:


 


“Account”
means an account (as that term is defined in the Code).


 


“Account
Debtor” means any Person who is obligated on an Account, chattel paper, or
a general intangible.


 


“Acquiring
Party” means the Borrower that consummates the acquisition constituting a
Permitted Acquisition.


 


“Acquisition
Documents” means, collectively, all documents evidencing, securing or
otherwise pertaining to a Permitted Acquisition.


 


“Administrative
Borrower” has the meaning specified therefor in Section 16.9.


 


“Advances”
has the meaning specified therefor in Section 2.1(a).


 


“Affiliate”
means, as applied to any Person, any other Person who controls, is controlled
by, or is under common control with, such Person. For purposes of this
definition, “control” means the possession, directly or indirectly
through one or more intermediaries, 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, for purposes of the definition of Eligible Accounts
and Section 6.13 hereof: (a) any Person which owns directly or
indirectly 10% or more of the Stock 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 be an Affiliate of 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 an Affiliate of
such Person.


 


“Agent”
has the meaning specified therefor in the preamble to the Agreement.


 


“Agent-Related
Persons” means Agent, together with its Affiliates, officers, directors,
employees, attorneys, and agents.


 


“Agent’s
Account” means the Deposit Account of Agent identified on Schedule A-1.


 


“Agent’s
Liens” means the Liens granted by Borrowers or their Subsidiaries to Agent
under the Loan Documents.


 


“Aggregate
Term Loan Exposure” means, as of any date of determination, the sum of (a)
the aggregate outstanding principal amount of the Term Loans and (b) any
remaining Term Loan B Commitments for which Borrowings under Section 2.2(b)
have not been made.


 


“Agreement”
means the Credit Agreement to which this Schedule 1.1 is attached.


 


SCHEDULE 1.1 - 1

















 


“Assignee”
has the meaning specified therefor in Section 13.1(a).


 


“Assignment
and Acceptance” means an Assignment and Acceptance Agreement substantially
in the form of Exhibit A-1.


 


“Authorized
Person” means any officer or employee of Administrative Borrower.


 


“Bankruptcy
Code” means title 11 of the United States Code, as in effect from time to
time.


 


“Base Rate”
means at any time the rate of interest most recently published in the “Money
Rates” column of the Wall Street Journal as the “prime rate,” or if at any time
such rate is for any reason unavailable, the rate of interest most recently
announced by Bank of America, N.A., or such other major U.S. bank as selected
by the Agent, as its “prime rate.”


 


“Benefit
Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which any Borrower or ERISA Affiliate of any Borrower has been an “employer”
(as defined in Section 3(5) of ERISA) within the past six years.


 


“Board of
Directors” means the board of directors (or comparable managers) of Parent
or any committee thereof duly authorized to act on behalf of the board of
directors (or comparable managers).


 


“Borrower”
and “Borrowers” have the respective meanings specified therefor in the
preamble to the Agreement.


 


“Borrowing”
means a borrowing hereunder consisting of: (a) Advances made on the same day by
one or more Lenders with a Revolver Commitment (or Agent on behalf thereof), or
(b) a Term Loan made on the same day by the one or more Lenders with a Term
Loan Commitment (or Agent on behalf thereof).


 


“Borrowing
Base” means, as of any date of determination, the result of:


 


(a)           85% of the amount of
Eligible Accounts, plus


 


(b)           50% of the value of
Eligible Finished Goods Inventory not to exceed

$1,500,000, plus


 


(c)           10% of the value of
Eligible Raw Materials Inventory not to exceed

$600,000, minus


 


(d)           the aggregate amount of
reserves, if any, established by Agent under Section 2.1(b).


 


“Borrowing
Base Certificate” means a certificate in the form of Exhibit B-1.


 


“Business
Day” means any day that is not a Saturday, Sunday, or other day on which
banks are authorized or required to close in the state of California.


 


SCHEDULE 1.1 - 2

















 


“Capital
Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP.


 


“Capitalized
Lease Obligation” means that portion of the obligations under a Capital
Lease that is required to be capitalized in accordance with GAAP.


 


“Capital
Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.


 


“Cash
Equivalents” means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or issued by any agency thereof and backed by
the full faith and credit of the United States, in each case maturing within 1
year from the date of acquisition thereof, (b) marketable direct obligations
issued by any state of the United States or any political subdivision of any
such state or any public instrumentality thereof maturing within 1 year from
the date of acquisition thereof and, at the time of acquisition, having the
highest rating obtainable from either S&P or Moody’s, (c) commercial paper
or other money market instruments maturing no more than 1 year from the date of
acquisition thereof and, at the time of acquisition, having a short term debt
rating of A-1 or P-1, or better, or a long term debt rating of BBB or better,
from S&P or Moody’s, and (d) certificates of deposit or bankers’
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank which has a rating of A or A2, or better, from S&P
or Moody’s, or (ii) constituting certificates of deposit less than or equal to
$100,000 in the aggregate issued by any other bank insured by the Federal
Deposit Insurance Corporation.


 


“Cash
Management Account” has the meaning specified therefor in Section 2.7(a).


 


“Cash Management
Agreements” means those certain cash management agreements, in form and
substance satisfactory to Agent, each of which is among the Administrative
Borrower or one of its Subsidiaries, Agent and one of the Cash Management
Banks.


 


“Cash
Management Bank” has the meaning specified therefor in Section 2.7(a).


 


“Change of
Control” means that (a) any “person” or “group” (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 40%, or more, of the Stock of Parent having the right to vote
for the election of members of the Board of Directors, or (b) a majority of the
members of the Board of Directors do not constitute Continuing Directors.


 


“Closing
Date” means the date on which Agent sends Administrative Borrower a written
notice that each of the conditions precedent set forth in Section 3.1
with respect to the initial Loan either has been satisfied or has been waived.


 


“Closing
Date Projections” means the set of Projections of Parent and the Borrowers
in form and substance (including as to scope and underlying assumptions)
reasonably satisfactory to Agent.


 


“Code”
means the California Uniform Commercial Code, as in effect from time to time.


 


SCHEDULE 1.1 - 3

















 


“Collateral”
means all assets and interests in assets and proceeds thereof now owned or
hereafter acquired by any Borrower or any of its Subsidiaries in or upon which
a Lien is granted under any of the Loan Documents.


 


“Collateral
Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in any of Borrower’s or any of its Subsidiaries books and records, Equipment or
Inventory, in each case, in form and substance satisfactory to Agent.


 


“Collections”
means all cash, checks, notes, instruments,
and other items of payment (including insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds) of or to Borrowers or any of their
Subsidiaries.


 


“Combined”
shall mean, as the context requires, financial information of Borrowers
combined in accordance with GAAP.


 


“Combined
Capital Base” shall mean (x) the sum of (i) Stockholders’ Equity and (ii)
Subordinated Debt, less any receivables from Affiliates that are not Borrowers
appearing on the Borrowers’ balance sheet as of the date such calculation is
made (other than receivables from Affiliates arising in the ordinary course of
business).


 


“Commitment”
means, with respect to each Lender, its Revolver Commitment, its Term Loan A
Commitment, its Term Loan B Commitment, or its Total Commitment, as the context
requires, and, with respect to all Lenders, their Revolver Commitments, their
Term Loan A Commitments, their Term Loan B Commitments, or their Total
Commitments, as the context requires, in each case as such Dollar amounts are
set forth beside such Lender’s name under the applicable heading on Schedule
B-1 or in the Assignment and Acceptance pursuant to which such Lender
became a Lender hereunder, as such amounts shall be reduced by any portion of
the applicable Loan made by such Lender or Lenders, as applicable, and as such
amounts may be: (x) reduced or increased from time to time pursuant to
assignments made in accordance with the provisions of Section 13.1 and
(y) reduced from time to time as required by Section 2.4(e).


 


“Compliance
Certificate” means a certificate substantially in the form of Exhibit
C-1 delivered by the chief financial officer of Parent to Agent.


 


“Continuing
Director” means (a) any member of the Board of Directors who was a director
(or comparable manager) of Parent on the Closing Date, and (b) any individual
who becomes a member of the Board of Directors after the Closing Date if such
individual was appointed or nominated for election to the Board of Directors by
a majority of the Continuing Directors, but excluding any such individual
originally proposed for election in opposition to the Board of Directors in
office at the Closing Date in an actual or threatened election contest relating
to the election of the directors (or comparable managers) of Parent and whose
initial assumption of office resulted from such contest or the settlement
thereof.


 


“Control
Agreement” means a control agreement or other arrangement, in form and
substance reasonably satisfactory to Agent, executed and delivered by the
Administrative 


 


SCHEDULE 1.1 - 4

















 


Borrower or one of its Subsidiaries, Agent, and the applicable
securities intermediary (with respect to a Securities Account) or bank (with
respect to a Deposit Account).


 


“Copyright”
has the meaning specified therefor in the Security Agreement.


 


“Copyright
Security Agreement” has the meaning specified therefor in the Security
Agreement.


 


“Daily
Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.


 


“Debt
Service Coverage Ratio” means, for any period, the ratio of (i) EBITDA less
cash taxes to (ii) cash Interest Expense, plus payments of principal actually
made or scheduled to be made with respect to Indebtedness (including principal
payments on the Term Loans under the Agreement), plus dividends and
distributions.


 


“Default”
means an event, condition, or default that, with the giving of notice, the
passage of time, or both, would be an Event of Default.


 


“Defaulting
Lender” means any Lender that fails to make any Advance (or other extension
of credit) that it is required to make hereunder on the date that it is
required to do so hereunder.


 


“Defaulting
Lender Rate” means (a) for the first 3 days from and after the date the
relevant payment is due, the Base Rate, and (b) thereafter, the interest rate
then applicable to Advances (or the Term Loan, if applicable) that are Base
Rate Loans (inclusive of the margin applicable thereto described in Section
2.6(a)).


 


“Department
of Labor” means the United States Department of Labor.


 


“Deposit
Account” means any deposit account (as that term is defined in the Code).


 


“Designated
Account” means the Deposit Account of Administrative Borrower identified on
Schedule C-1.


 


“Designated
Account Bank” has the meaning specified therefor in Schedule C-1.


 


“Designated
Payments” has the meaning specified therefor in Schedule 3.1(r).


 


“Designated
Payments List” has the meaning specified therefor in Schedule 3.1(r).


 


“Disposition”
means any transaction, or series of related transactions, pursuant to which any
Person or any of its Subsidiaries sells, assigns, transfers or otherwise
disposes of any property or assets (whether now owned or hereafter acquired) to
any other Person, in each case, whether or not the consideration therefor
consists of cash, securities or other assets owned by the acquiring Person.


 


“Dollars”
or “$” means United States dollars.


 


SCHEDULE 1.1 - 5

















 


“Domestic
Subsidiary” means any Subsidiary of a Borrower which is not a Foreign
Subsidiary.


 


“EBITDA”
means, with respect to any fiscal period, Parent’s and its Subsidiaries’
consolidated net earnings (or loss), minus interest income and extraordinary
gains (including gains on sale of assets) plus interest expense, Income Tax
Expense, depreciation and amortization, in each case, as determined in
accordance with GAAP.


 


“Eligible
Accounts” means those Accounts created by an Eligible Credit Party in the
ordinary course of its business, that arise out of its sale of goods, that
comply with each of the representations and warranties respecting Eligible
Accounts made in the Loan Documents, and that are not excluded as ineligible by
virtue of one or more of the excluding criteria set forth below; provided,
however, that such criteria may be revised from time to time by Agent in
Agent’s Permitted Discretion to address the results of any audit performed by
Agent from time to time after the Closing Date. In determining the amount to be
included, Eligible Accounts shall be calculated net of customer deposits and
unapplied cash. Eligible Accounts shall not include the following:


 


(a)           Accounts
that an Account Debtor located in the United States has failed to pay within 90
days of the original invoice date or accounts than an Account Debtor located in
the United Kingdom has failed to pay within 90 days after the end of the month
during which the Account was created,


 


(b)           Accounts
owed by an Account Debtor (or any Affiliate of such Account Debtor) where 37.5%
or more of all Accounts owed by that Account Debtor (or any such Affiliate) are
deemed ineligible under clause (a) above,


 


(c)           Accounts
with respect to which the Account Debtor is an employee, Affiliate or agent of
Borrower,


 


(d)           Accounts
arising in a transaction wherein goods are placed on consignment or are sold
pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and
hold, or any other terms by reason of which the payment by the Account Debtor
may be conditional,


 


(e)           Accounts
that are not payable in Dollars, Euros or Pounds Sterling, unless (y) the
Account is supported by an irrevocable letter of credit satisfactory to Agent
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, or (z) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Agent,


 


(f)            Accounts
with respect to which the Account Debtor either (i) does not maintain its chief
executive office in the United States or the United Kingdom, or (ii) is not
organized under the laws of the United States or any state thereof or under the
laws of the United Kingdom, unless (y) the Account is supported by an
irrevocable letter of credit satisfactory to Agent (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to Agent and is
directly drawable by Agent, or (z) the Account is covered by credit insurance
in form, substance, and amount, and by an insurer, satisfactory to Agent,


 


SCHEDULE 1.1 - 6

















 


(g)           Accounts
with respect to which the Account Debtor is either (i) the United States or any
department, agency, or instrumentality of the United States (exclusive,
however, of Accounts with respect to which Borrower has complied, to the
reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC §
3727), or (ii) any state of the United States,


 


(h)           Accounts
that arise out of the rendering of services by any Person, other than services
provided by an Eligible Credit Party to customers of the Eligible Credit Party
(i) with of value of less than $10,000, or (ii) with a value in excess of
$10,000 if the customer has acknowledged in writing that such services have
been completed prior to invoicing by the Eligible Credit Party and provided
that the Eligible Credit Party confirms to Agent on a monthly basis that
evidence of such acknowledgements exist and makes available such
acknowledgements to Agent upon request of Agent,


 


(i)            Accounts
with respect to which the Account Debtor is a creditor of any Borrower or any
Subsidiary thereof, has or has asserted a right of setoff, or has disputed its
obligation to pay all or any portion of the Account, to the extent of such
right of setoff or disputed obligation,


 


(j)            Accounts
with respect to an Account Debtor whose total obligations owing to Borrower
exceeds 25% (such percentage, as applied to a particular Account Debtor, being
subject to reduction by Agent in its Permitted Discretion if the
creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts
in the aggregate, to the extent of the obligations owing by such Account Debtor
in excess of such percentage,


 


(k)           Accounts
with respect to which the Account Debtor is subject to an Insolvency Proceeding,
is not Solvent, has gone out of business, or as to which Borrower or any
Subsidiary thereof has received notice of an imminent Insolvency Proceeding or
a material impairment of the financial condition of such Account Debtor,


 


(l)            Accounts
not paid by the applicable Account Debtor and for which a credit memo has been
issued no earlier than 60 days following the original due date of the
applicable invoice,


 


(m)          Accounts,
the collection of which, Agent, in its Permitted Discretion, has notified
Borrower that Agent believes to be doubtful by reason of the Account Debtor’s
financial condition,


 


(n)           Accounts
that are not subject to a valid and perfected first priority Agent’s Lien,


 


(o)           Accounts
with respect to which the goods giving rise to such Account have not been
shipped and billed to the Account Debtor,


 


(p)           Accounts
that represent the right to receive progress payments or other advance billings
that are due prior to the completion of performance by the applicable Eligible
Credit Party of the subject contract for goods, or


 


(q)           Accounts
for which the applicable Eligible Credit Party has executory performance
obligations or which have acceptance criteria, until such time as such
performance obligations or acceptance criteria have been completed, accepted or
waived, as applicable.


 


SCHEDULE 1.1 - 7

















 


“Eligible
Credit Party” means the Borrowers and each UK Guarantor Subsidiary.


 


“Eligible
Inventory” means Eligible Finished Goods Inventory and Eligible Raw Materials
Inventory.


 


“Eligible
Finished Goods Inventory” means Inventory of an Eligible Credit Party
consisting of first quality finished goods held for sale in the ordinary course
of Borrower’s business, that complies with each of the representations and warranties
respecting Eligible Inventory made in the Loan Documents, and that is not
excluded as ineligible by virtue of one or more of the excluding criteria set
forth below; provided, however, that such criteria may be revised
from time to time by Agent in Agent’s Permitted Discretion to address the
results of any audit or appraisal performed by Agent from time to time after
the Closing Date. In determining the amount to be so included, Inventory shall
be valued at the lower of cost or market on a basis consistent with Borrower’s
historical accounting practices. An item of Inventory shall not be included in
Eligible Inventory if:


 


(a)           Borrower
does not have good, valid, and marketable title thereto,


 


(b)           it
is not located at one of the locations in the continental United States or the
United Kingdom set forth on Schedule E-1 (or in-transit to any such
location),


 


(c)           it
is located on real property leased by Borrower or in a contract warehouse, in
each case, unless (subject to Section 3.6(b)) it is subject to a Collateral
Access Agreement executed by the lessor, or warehouseman, as the case may be,
and unless it is segregated or otherwise separately identifiable from goods of
others, if any, stored on the premises,


 


(d)           it
is not subject to a valid and perfected first priority Agent’s Lien,


 


(e)           it
consists of goods returned or rejected by Borrower’s customers until such time
as product is deemed to be saleable through a reasonable quality inspection
process,


 


(f)            it
consists of goods that are encumbered by a purchase money Lien,


 


(g)           it
consists of goods that have been characterized as obsolete or slow moving
consistent with each Borrower’s policy of recording obsolete or slow moving
inventory, which policy is in accordance with GAAP,


 


(h)           it
is not covered by insurance acceptable to the Agent for full replacement value,


 


(i)            Borrower
fails to cause Agent to receive timely an appraisal of Borrower’s Inventory in
accordance with the provisions of this Agreement, the results of which shall be
satisfactory to Agent in its sole discretion, or


 


(j)            Borrower
fails to provide to Agent, in form and substance acceptable to the Agent in its
sole discretion, detailed reporting on Eligible Inventory such that it can be
distinguished from other Inventory that does not meet the criteria set forth
above; provided, however, if Borrower fails to provide to Agent,
in form and substance acceptable to the Agent in its sole discretion, detailed
reporting on Eligible Inventory such that Eligible Inventory can be 


 


SCHEDULE 1.1 - 8

















 


distinguished from other Inventory as required by Section
5.2, then on the date that such report is due and thereafter, the amount of
the Eligible Inventory shall be zero.


 


“Eligible
Raw Materials Inventory” means Inventory as to which the following is
applicable:  (i) such Inventory does not
qualify as Eligible Finished Goods Inventory solely because the Inventory does
not consist of finished goods held for sale in the ordinary course of Borrower’s
business, and (ii) such Inventory consists of first quality raw materials held
for use in producing goods in the ordinary course of Borrower’s business.


 


“Eligible
Transferee” means any Affiliate (other than individuals) of a Lender and
any Lender’s Related Funds, and during the continuation of an Event of Default,
any other Person approved by Agent.


 


“Environmental
Actions” means any existing, pending or threatened action, suit, complaint,
summons, citation, notice, directive, order, claim, litigation, investigation,
inquiry, judicial or administrative proceeding, judgment, letter, or other
communication from any Governmental Authority, or any third party involving
violations of Environmental Laws or releases of Hazardous Materials (a) from
any assets, properties, or businesses of any Borrower or any of their
predecessors in interest, (b) from any assets, properties, or businesses of any
Subsidiary of a Borrower (or any predecessor in interest of such
Subsidiary)  material to the business of
Borrowers and their Subsidiaries, taken as a whole, (c) from adjoining
properties or businesses, or (d) from or onto any facilities which received
Hazardous Materials generated by any Borrower, any Subsidiary of a Borrower or
any of their predecessors in interest, including any claim for personal injury,
property damage, damage to natural resources, remediations, or similar costs or
expenses incurred or asserted by any Person pursuant to Environmental Law.


 


“Environmental
Law” means any applicable federal, state, provincial, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on any
Borrower or any Subsidiary of a Borrower, relating to the environment, the
effect of the environment on employee health, or Hazardous Materials, in each
case as amended from time to time. The term “Environmental Laws” shall include,
but not be limited to the following statutes and the regulations promulgated
thereunder: the Clean Air Act, 42 U.S.C. § 7401 et seq.,
the Clean Water Act, 33 U.S.C. § 1251 et seq., the
Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq., the Superfund Amendments and Reauthorization Act,
42 U.S.C. § 11011 et seq., the
Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.,
the Water Pollution Control Act, 33 U.S.C. § 1251 et seq.,
the Safe Drinking Water Act, 42 U.S.C. § 300f et seq.,
the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”),
42 U.S.C. § 9601 et seq., the Occupational Safety
and Health Act, 29 U.S.C. § 651 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., and any state, county, or local regulations similar
thereto.


 


“Environmental
Liabilities” means all liabilities, responsibilities, claims, suits,
monetary obligations, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or 


 


SCHEDULE 1.1 - 9

















 


consultants,
and costs of remediation, removal, response, abatement, clean-up, monitoring,
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand, or Remedial Action
required, by any Governmental Authority or any third party, and which relate to
any Environmental Action.


 


“Environmental
Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities.


 


“Equipment”
means equipment (as that term is defined in the Code).


 


“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute thereto.


 


“ERISA
Affiliate” means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of a Borrower or a
Subsidiary of a Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer
as the employees of a Borrower or a Subsidiary of a Borrower under IRC Section
414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the
IRC, any organization subject to ERISA that is a member of an affiliated
service group of which a Borrower or a Subsidiary of a Borrower is a member
under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA
and Section 412 of the IRC, any Person that is a party to an arrangement with a
Borrower or a Subsidiary of a Borrower and whose employees are aggregated with
the employees of a Borrower or a Subsidiary of a Borrower under IRC Section
414(o).


 


“ERISA
Event” means (a) a Reportable Event with respect to any Benefit Plan or
Multiemployer Plan, (b) the withdrawal of Borrower or ERISA Affiliates from a
Benefit Plan during a Plan year in which it was a “substantial employer” (as
defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent
to terminate a Benefit Plan in a distress termination (as described in Section
4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate
a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that
provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan
or Multiemployer Plan, or (ii) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower or its Subsidiaries or any of their ERISA Affiliates from a Multiemployer
Plan, (g) providing any security to any plan under Section 401(a)(29) of the
IRC by Borrower or its Subsidiaries or any of their ERISA Affiliates, or (h)
the reorganization or insolvency of a Multiemployer Plan under Section 4241 or
4245 of ERISA.


 


“Euro and €”
means the single, unified, lawful currency of those member states of the
European Union participating in the Economic and Monetary Union.


 


“Event of
Default” has the meaning specified therefor in Section 7.


 


“Exchange
Act” means the Securities Exchange Act of 1934, as in effect from time to
time.


 


SCHEDULE 1.1 - 10

















 


“Extraordinary
Receipts” means any Collections received by any Borrower or any of their
Subsidiaries not in the ordinary course of business (and not consisting of
proceeds described in Section 2.4(c)(ii) hereof), including (a) pension
plan reversions, (b) proceeds of insurance (including proceeds of the key man
life insurance policies), (c) judgments, proceeds of settlements or other
consideration of any kind in connection with any cause of action, (d)
condemnation awards (and payments in lieu thereof), (e) indemnity payments and
(f) any purchase price adjustment received in connection with any purchase
agreement.


 


“Existing
Credit Facilities” means those certain credit facilities entered into by
the Borrowers and each of Wells Fargo Bank, National Association (acting
through its Wells Fargo Business Credit operating division) and Lloyds TSB Bank
plc.


 


“Fee Letter”
means that certain fee letter among Borrowers and Agent, in form and substance
satisfactory to Agent.


 


“Foreign
Subsidiary” means any Subsidiary of a Borrower which is organized under the
laws of a jurisdiction other than the United States of America or any state or
Governmental Authority thereof.


 


“French
Bank Account Pledge Agreement” means a bank account pledge agreement, in
form and substance satisfactory to Agent, executed by the French Subsidiary,
the applicable French account bank and Agent and delivered to Agent.


 


“French
Guaranty” means a guaranty agreement, in form and substance satisfactory to
Agent, executed by each French Subsidiary and delivered to Agent.


 


“French
Pledge Over Going Concerns” means a pledge agreement, in form and substance
satisfactory to Agent, executed by the French Subsidiary and delivered to
Agent.


 


“French
Security Documents” means the French Share Pledge, the French Pledge Over
Going Concerns, the French Bank Account Pledge Agreement and the French
Guaranty.


 


“French
Share Pledge” means a share pledge agreement, in form and substance
satisfactory to Agent, executed by each owner of a French Subsidiary and
delivered to Agent.


 


“French
Subsidiary” means any Subsidiary of Borrower incorporated in France.


 


“Funding
Date” means the date on which a Borrowing occurs.


 


“GAAP”
means generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.


 


“Governing
Documents” means, with respect to any Person, the certificate or articles
of incorporation, by-laws, or other organizational documents of such Person.


 


“Governmental
Authority” means any federal, state, local, or other governmental or
administrative body, instrumentality, board, department, or agency or any
court, tribunal, 


 


SCHEDULE 1.1 - 11

















 


administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.


 


“Guarantors”
means French Subsidiary, UK Subsidiary and XCEL Japan, Ltd.


 


“GVECR”
means GVEC Resource IV Inc., a company organized under the laws of the British
Virgin Islands.


 


“Hazardous
Materials” means (a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as “hazardous
substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity,” (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
polychlorinated biphenyls.


 


“IFN Credit
Facility” means that certain credit facility entered into by the French
Subsidiary and IFN Finance S.A.


 


“Income Tax
Expense” means, with respect to any Person for any period of determination,
all provisions for federal, state, local and foreign taxes based on the net
income or profits of such Person (including, without limitation, franchise
taxes, any additions to such taxes, and any penalties and interest with respect
thereto), all as determined for such Person in accordance with GAAP.


 


“Indebtedness”
means (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or
other obligations in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations as a
lessee under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of such Person, irrespective of whether such
obligation or liability is assumed, (e) all obligations to pay the deferred
purchase price of assets (other than trade debt incurred in the ordinary course
of business and repayable in accordance with customary trade practices), and
(f) any obligation guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse)
any obligation of any other Person that constitutes Indebtedness under any of
clauses (a) through (e) above.


 


“Indemnified
Liabilities” has the meaning specified therefor in Section 10.4.


 


“Indemnified
Person” has the meaning specified therefor in Section 10.4.


 


“Individual
Lender Term Loan Exposure” means, for a particular Term Loan Lender, as of
any date of determination, the sum of (a) the aggregate outstanding principal
amount of such Term Loan Lender’s portions of the Term Loans and (b) if a Term
Loan B lender, such Lender’s remaining Term Loan B Commitment for which
Borrowings under Section 2.2(b) have not been made.


 


SCHEDULE 1.1 - 12

















 


“Insolvency
Proceeding” means any proceeding commenced by or against any Person under
any provision of the 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 Collateral” has the meaning specified therefor in the Security
Agreement.


 


“Interest
Expense” means, for any period, the aggregate of the interest expense of
Parent and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.


 


“Inventory”
means inventory (as that term is defined in the Code).


 


“Investment”
means, with respect to any Person, any investment by such Person in any other
Person (including Affiliates) in the form of loans, guarantees, advances, or
capital contributions (excluding (a) commission, travel, relocation and similar
advances to officers and employees of such Person made in the ordinary course
of business, and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practice), purchases or other acquisitions of
Indebtedness, Stock, or all or substantially all of the assets of such other
Person (or of any division or business line of such other Person), and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.


 


“IRC”
means the Internal Revenue Code of 1986, as in effect from time to time (or any
successor statute thereof).


 


“IRS”
means the United States Internal Revenue Service.


 


“Japanese
Guaranty” means a guaranty agreement, in form and substance satisfactory to
Agent, executed by XCEL Japan Ltd. and delivered to Agent.


 


“Lender”
and “Lenders” have the respective meanings set forth in the preamble to
the Agreement, and shall include any other Person made a party to the Agreement
in accordance with the provisions of Section 13.1.


 


“Lender
Group” means, individually and collectively, each of the Lenders (including
the Issuing Lender) and Agent.


 


“Lender
Group Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by a Borrower under any of the Loan
Documents that are paid, advanced, or incurred by the Lender Group, (b) fees or
charges reasonably paid or incurred by Agent in connection with the Lender
Group’s transactions with Borrowers, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax Lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication and appraisal
(including periodic collateral appraisals or business valuations), including
the cost of real estate surveys, real estate title policies and endorsements, 


 


SCHEDULE 1.1 - 13

















 


and
environmental audits, in each case to the extent of the fees and charges (and
up to the amount of any limitation) authorized in the Agreement,  (c) costs and expenses incurred by Agent in
the disbursement of funds to or for the account of Borrowers or other members
of the Lender Group (by wire transfer or otherwise), (d) charges paid or
incurred by Agent resulting from the dishonor of checks, (e) reasonable costs
and expenses paid or incurred by the Lender Group to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) audit fees and expenses of
Agent related to any inspections or audits to the extent of the fees and
charges (and up to the amount of any limitation) authorized in the Agreement,
(g) reasonable costs and expenses of third party claims or any other suit paid
or incurred by the Lender Group in enforcing or defending the Loan Documents or
in connection with the transactions contemplated by the Loan Documents or the
Lender Group’s relationship with any Borrower arising under the Loan Documents,
(h) Agent’s and each Lender’s reasonable costs and expenses (including
attorneys fees) incurred in advising, structuring, drafting, reviewing,
administering, syndicating, or amending the Loan Documents, and (i) Agent’s and
each Lender’s reasonable costs and expenses (including reasonable attorneys,
accountants, consultants, and other advisors fees and expenses) incurred in
terminating, enforcing (including reasonable fees and expenses of attorneys,
accountants, consultants, and other advisors incurred in connection with a “workout,”
a “restructuring,” or an Insolvency Proceeding concerning any Borrower
or in exercising rights or remedies under the Loan Documents), or defending the
Loan Documents, irrespective of whether suit is brought, or in taking any
Remedial Action concerning the Collateral.


 


“Lender-Related
Person” means, with respect to any Lender, such Lender, together with such
Lender’s Affiliates, officers, directors, employees, attorneys, and agents.


 


“Leverage
Ratio” means, with respect to Borrowers for any date of calculation, (i)
all of the Obligations of Borrowers under the Agreement to (ii) the Combined
Capital Base.


 


“Lien”
means any interest in an asset securing an obligation owed to, or a claim by,
any Person other than the owner of the asset, irrespective of whether (a) such
interest is based on the common law, statute, or contract, (b) such interest is
recorded or perfected, and (c) such interest is contingent upon the occurrence
of some future event or events or the existence of some future circumstance or
circumstances. Without limiting the generality of the foregoing, the term “Lien”
includes the lien or security interest arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, conditional sale or trust receipt, or from a lease, consignment, or
bailment for security purposes and also includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases, and other title exceptions and encumbrances affecting Real Property.


 


“Lloyds
Credit Facility” means that certain credit facility entered into by certain
of the UK Subsidiaries and Lloyds TSB Bank plc (or its affiliates).


 


“Loan”
means an Advance or either of the Term Loans, as the context reasonably
requires.


 


SCHEDULE 1.1 - 14

















 


“Loan
Account” has the meaning specified therefor in Section 2.10.


 


“Loan
Documents” means the Agreement, the Cash Management Agreements, the Control
Agreements, the Copyright Security Agreement, the Fee Letter, any Mortgages,
the Patent Security Agreement, the Security Agreement, the Trademark Security
Agreement, the Intellectual Property Security Agreement, the Warrant Agreement,
the UK Security Agreements, the French Security Agreements, the Japanese
Guaranty, the McDermott Subordination Agreement, the Yost Subordination
Agreement, any note or notes executed by a Borrower in connection with the
Agreement and payable to a member of the Lender Group, and any other agreement
entered into, now or in the future, by any Borrower and the Lender Group in
connection with the Agreement.


 


“Loans”
mean one or more of the following, as the context reasonably requires: the
Advances, the Term Loan A and the Term Loan B.


 


“Material
Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of Borrowers or any of its Subsidiaries, (b) a
material impairment of a Borrower’s or a Subsidiary’s ability to perform its
obligations under the Loan Documents to which it is a party or of the Lender Group’s
ability to enforce the Obligations or realize upon the Collateral, or (c) a
material impairment of the enforceability or priority of the Agent’s Liens with
respect to the Collateral as a result of an action or failure to act on the
part of a Borrower or a Subsidiary of a Borrower.


 


“Material
Contracts” means collectively (x) each of the contracts listed on Schedule
4.28 and (y) any other contract entered into by a Borrower, the termination
or non-renewal of which could reasonably be expected to result in a Material
Adverse Change.


 


“Maturity
Date” has the meaning specified therefor in Section 3.3(a).


 


“Maximum
Revolver Amount” means $7,000,000.


 


“McDermott
Subordination Agreement” means a subordination agreement, in form and
substance satisfactory to Agent, executed by the Borrowers and Noel McDermott
and delivered to Agent.


 


“Mortgages”
means, individually and collectively, one or more mortgages, deeds of trust, or
deeds to secure debt, executed and delivered by a Borrower or a Subsidiary of a
Borrower in favor of Agent, in form and substance satisfactory to Agent, that
encumber the Real Property.


 


“Multiemployer
Plan” means a “multiemployer plan” (as defined in Section 3(37) of ERISA)
to which Borrower or any ERISA Affiliate is making, is obligated to make, has
made or has been obligated to make, contributions on behalf of participants who
are or were employed by any of them, other than a plan described in Section
4(b)(4) of ERISA, or with respect to which Borrower or any ERISA Affiliate has
any liability, contingent or otherwise.


 


“Net Cash
Proceeds” means, with respect to any sale or disposition by any Person or
any Subsidiary thereof of property or assets, the amount of Collections
received (directly or 


 


SCHEDULE 1.1 - 15

















 


indirectly)
from time to time (whether as initial consideration or through the payment of
deferred consideration) by or on behalf of such Person or such Subsidiary, in
connection therewith after deducting therefrom only (i) the amount of any
Indebtedness secured by any Permitted Lien on any asset (other than (A)
Indebtedness owing to Agent or any Lender under this Agreement or the other
Loan Documents and (B) Indebtedness assumed by the purchaser of such asset)
which is required to be, and is, repaid in connection with such disposition,
(ii) reasonable expenses related thereto incurred by such Person or such
Subsidiary in connection therewith, and (iii) taxes paid or payable to any
taxing authorities by such Person or such Subsidiary in connection therewith,
in each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid or payable to
a Person that is not an Affiliate and are properly attributable to such
transaction.


 


“Non-U.S.
Lender” has the meaning specified therefor in Section 15.11(f).


 


“Obligations”
means all loans (including the Term Loans), Advances, debts, principal,
interest (including any interest that accrues after the commencement of an
Insolvency Proceeding regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), premiums, liabilities
(including all amounts charged to Borrowers’ Loan Account pursuant hereto),
obligations (including indemnification obligations), fees (including the fees
provided for in the Fee Letter), charges, costs, Lender Group Expenses
(including any fees or expenses that accrue after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or
in part as a claim in any such Insolvency Proceeding), lease payments,
guaranties, covenants, and duties of any kind and description owing by
Borrowers to the Lender Group pursuant to or evidenced by the Loan Documents
and irrespective of whether for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all Lender
Group Expenses that Borrowers are required to pay or reimburse by the Loan
Documents, by law, or otherwise. Any reference in the Agreement or in the other
Loan Documents to the Obligations shall include all or any portion thereof and
any extensions, modifications, renewals, or alterations thereof, both prior and
subsequent to any Insolvency Proceeding.


 


“Originating
Lender” has the meaning specified therefor in Section 13.1(e).


 


“Other
Taxes” has the meaning specified therefor in Section 15.11(b).


 


“Parent”
has the meaning specified therefor in the preamble to the Agreement.


 


“Participant”
has the meaning specified therefor in Section 13.1(f).


 


“Patent”
has the meaning specified therefor in the Security Agreement.


 


“Patent
Security Agreement” has the meaning specified therefor in the Security
Agreement.


 


“PBGC”
means Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or
any successor entity.


 


SCHEDULE 1.1 - 16

















 


“Permitted
Acquisition” means an acquisition by a Borrower which satisfies the
conditions of Section 3.2(b), unless one or more of such conditions have
been waived by Agent in Agent’s sole discretion, and in such case, only to the
extent of such waiver.


 


“Permitted
Discretion” means a determination made honestly in fact and in the exercise
of reasonable (from the perspective of a secured asset-based lender) business
judgment.


 


“Permitted
Dispositions” means (a) sales or other dispositions of Equipment, Inventory
and other fixed assets (other than Real Property) that are substantially worn,
damaged, or obsolete in the ordinary course of business, (b) sales of Inventory
to buyers in the ordinary course of business, (c) the use or transfer of money
or Cash Equivalents in a manner that is not prohibited by the terms of the
Agreement or the other Loan Documents, and (d) the licensing, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business.


 


“Permitted
Investments” means (a) Investments in cash and Cash Equivalents, (b)
Investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, (d) Investments received in settlement of amounts due to a Borrower
or its Subsidiaries effected in the ordinary course of business or owing to a
Borrower or its Subsidiaries as a result of Insolvency Proceedings involving an
Account Debtor or upon the foreclosure or enforcement of any Lien in favor of a
Borrower or its Subsidiaries, (e) Investments by any Foreign Subsidiary in a
Parent or Domestic Subsidiary, (f) Investments by any Foreign Subsidiary in
another Foreign Subsidiary, (g) Investments by any Borrower in another
Borrower, and (h) Permitted Acquisitions.


 


“Permitted
Liens” means (a) Liens held by Agent to secure the Obligations, (b) Liens
for unpaid taxes, assessments, or other governmental charges or levies that
either (i) are not yet delinquent, or (ii) do not constitute an Event of
Default hereunder and are the subject of Permitted Protests, (c) judgment Liens
that do not constitute an Event of Default under Section 7.7 of the
Agreement, (d) Liens set forth on Schedule D-1, (e) the interests of
lessors under operating leases, (f) purchase money Liens or the interests of
lessors under Capital Leases to the extent that such Liens or interests secure
Permitted Purchase Money Indebtedness and so long as such Lien attaches only to
the asset purchased or acquired and the proceeds thereof, (g) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of
Borrowers’ business and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (h) Liens on amounts deposited in connection with
obtaining worker’s compensation or other unemployment insurance, (i) Liens on
amounts deposited in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection
with the borrowing of money, (j) Liens on amounts deposited as security for
surety or appeal bonds in connection with obtaining such bonds in the ordinary
course of business, and (k) with respect to any Real Property, easements,
rights of way, and zoning restrictions that do not materially interfere with or
impair the use or operation thereof.


 


“Permitted
Protest” means the right of Administrative Borrower or any of its
Subsidiaries to protest any Lien (other than any Lien that secures the
Obligations), taxes (other than payroll 


 


SCHEDULE 1.1 - 17

















 


taxes or taxes
that are the subject of a United States federal tax lien), or rental payment,
provided that (a) a reserve with respect to such obligation is established on a
Borrower’s or any of its Subsidiaries’ books and records in such amount as is
required under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Administrative Borrower or any of its Subsidiaries, as
applicable, in good faith, and (c) Agent is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Agent’s Liens.


 


“Permitted
Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate
principal amount outstanding at any one time not in excess of $1,000,000.


 


“Person”
means natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, joint
ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.


 


“Plan”
means any employee benefit plan, program, or arrangement maintained or
contributed to by Borrower or with respect to which it may incur liability.


 


“Projections”
means Parent’s forecasted (a) balance sheets, (b) profit and loss statements
and (c) cash flow statements, all prepared on a basis consistent with Parent’s
historical financial statements, in reasonable detail and accompanied by a
statement of underlying assumptions.


 


“Pro Rata
Share” means:


 


(a)           with respect to a Lender’s
obligation to make Advances and right to receive payments of principal,
interest, fees, costs and expenses with respect thereto, (x) prior to the
Revolver Commitment being reduced to zero, the percentage obtained by dividing
(i) such Lender’s Revolver Commitment by (ii) the aggregate Revolver
Commitments of all Lenders, and (y) from and after the time that the Revolver
Commitment has been terminated or reduced to zero, the percentage obtained by
dividing (i) the aggregate principal amount of such Lender’s Advances by (ii)
the aggregate principal amount of all Advances,


 


(b)           with respect to a Term
Loan Lender’s obligation to make a Term Loan and right to receive payments of
interest, fees, and principal with respect thereto, the percentage obtained by
dividing (x) such Lender’s Individual Lender Term Loan Exposure by (y) the
Aggregate Term Loan Exposure, and


 


(c)           with respect to all
other matters as to a particular Lender (including the indemnification
obligations arising under Section 15.7), the percentage obtained by
dividing (i) such Lender’s Revolver Commitment, plus such Lender’s Individual
Lender Term Loan Exposure by (ii) the aggregate amount of Revolver Commitments
of all Lenders plus the Aggregate Term Loan Exposure; provided, however,
that in the event the Revolver Commitments have been terminated or reduced to
zero, Pro Rata Share shall be the percentage obtained by dividing (A) the
outstanding principal amount of such Lender’s Advances plus such Lender’s
Individual Lender Term Loan Exposure by (B) the principal amount of all
outstanding Advances plus the Aggregate Term Loan Exposure.


 


SCHEDULE 1.1 - 18

















 


“Purchase
Money Indebtedness” means Indebtedness (other than the Obligations, but
including Capitalized Lease Obligations), incurred at the time of, or within 20
days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.


 


“Qualified
Affiliate” is an Affiliate that is exempt from United States withholding
taxes in respect of interest paid or accrued on the Obligations.


 


“Qualified
Related Fund” is a Related Fund that is exempt from United States
withholding taxes in respect of interest paid or accrued on the Obligations.


 


“Rating
Agencies” has the meaning specified therefor in Section 2.15.


 


“Real
Property” means any real property hereafter acquired by any Borrower and
the improvements thereto.


 


“Record”
means information that is inscribed on a tangible medium or which is stored in
an electronic or other medium and is retrievable in perceivable form.


 


“Register”
has the meaning specified therefor in Section 13.1(i).


 


“Registered
Loan” means a loan recorded on the Register (or Related Party Register)
pursuant to Section 13.1(i).


 


“Registered
Note” has the meaning specified therefor in Section 2.14.


 


“Related
Fund” means a fund or account managed by a Lender or an Affiliate of a
Lender or its investment manager.


 


“Related
Party Register” has the meaning specified therefor in Section 13.1(i).


 


“Release”
means any depositing, spilling, leaking, pumping, pouring, placing, emitting,
discarding, abandoning, emptying, discharging, migrating, injecting, escaping,
leaching, dumping, or disposing.


 


“Remedial
Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (d) conduct any other
actions with respect to Hazardous Materials authorized by Environmental Laws.


 


“Replacement
Lender” has the meaning specified therefor in Section 14.2(a).


 


“Report”
has the meaning specified therefor in Section 15.17.


 


SCHEDULE 1.1 - 19

















 


“Reportable
Event” means any of the events described in Section 4043(c) of ERISA or the
regulations thereunder other than a Reportable Event as to which the provision
of 30 days notice to the PBGC is waived under applicable regulations.


 


“Required
Lenders” means, at any time, Lenders whose Pro Rata Share aggregate 50.1%
or more, as determined pursuant to clause (c) of the definition of “Pro
Rata Share.”


 


“Retiree
Health Plan” means an “employee welfare benefit plan” within the meaning of
Section 3(1) of ERISA that provides benefits to individuals after termination
of their employment, other than as required by Section 601 of ERISA.


 


“Revolver
Commitment” means, with respect to each Lender, its Revolver Commitment,
and, with respect to all Lenders, their Revolver Commitments, in each case as
such Dollar amounts are set forth beside such Lender’s name under the
applicable heading on Schedule B-1 or in the Assignment and Acceptance pursuant
to which such Lender became a Lender hereunder, as such amounts may be reduced
or increased from time to time pursuant to assignments made in accordance with
the provisions of Section 13.1.


 


“Revolver
Lenders” means those Lenders designated as having a Revolver Commitment on Schedule
B-1.


 


“Revolver
Maturity Date” has the meaning specified therefor in Section 3.3(b).


 


“Revolver
Renewal Fee” has the meaning specified therefor in Section 3.3(b).


 


“Revolver
Renewal Notice” has the meaning specified therefor in Section 3.3(b).


 


“Revolver
Usage” means, as of any date of determination, the amount of outstanding
Advances.


 


“Scheduled
Intellectual Property Collateral” has the meaning set forth in Section
4.15.


 


“SEC”
means the United States Securities and Exchange Commission and any successor
thereto.


 


“Securities
Account” means a “securities account” (as that term is defined in
the Code).


 


“Security
Agreement” means a security agreement, in form and substance satisfactory
to Agent, executed and delivered by Borrowers and its Subsidiaries to Agent.


 


“Solvent”
means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such Person’s
debts.


 


“Stock”
means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).


 


SCHEDULE 1.1 - 20

















 


“Stock
Pledge Agreement” means a pledge agreement by and among Agent, on the one
hand, and the owners of 100% of the outstanding Stock of Borrower, on the
other, in form and substance satisfactory to Agent.


 


“Stockholders’
Equity” shall mean the Combined capital surplus and retained earnings of
Borrowers, subject to intercompany eliminations and reduced by the outstanding
amount of any note received by Borrowers in payment for Stock, all as
determined in accordance with GAAP.


 


“Subordinated
Debt” shall mean any Indebtedness of Borrowers as to which the subordinated
creditor has agreed in writing on terms acceptable to the Required Lenders in
their sole discretion to be subordinate and junior in right of payment to the
rights of the Lender Group with respect to the Obligations under this
Agreement.


 


“Subsidiary”
of a Person means a corporation, partnership, limited liability company, or
other entity in which that Person directly or indirectly owns or controls the
shares of Stock having ordinary voting power to elect a majority of the board
of directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.


 


“Taxes”
has the meaning specified therefor in Section 15.11(a).


 


“Term Loans”
means, collectively, the Term Loan A and the Term Loan B.


 


“Term Loan
A” has the meaning specified therefor in Section 2.2(a).


 


“Term Loan
A Amount” means, as of any date of determination, the outstanding principal
amount of Term Loan A.


 


“Term Loan
A Commitment” means, with respect to each Lender, its Term Loan A
Commitment, and, with respect to all Lenders, their Term Loan A Commitments, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule B-1.


 


“Term Loan
A Lenders” means those Lenders designated as having a Term Loan A
Commitment on Schedule B-1.


 


“Term Loan
B” has the meaning specified therefor in Section 2.2(b).


 


“Term Loan
B Amount” means, as of any date of determination, the outstanding principal
amount of Term Loan B.


 


“Term Loan
B Commitment” means, with respect to each Lender, its Term Loan B
Commitment, and, with respect to all Lenders, their Term Loan B Commitments, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule B-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts shall
be reduced by any portion of the Term Loan B made by such Lender or Lenders, as
applicable, and as such amounts: (x) may be reduced or increased 


 


SCHEDULE 1.1 - 21

















 


from time to
time pursuant to assignments made in accordance with the provisions of Section
13.1; and (y) reduced from time to time as required by Section 2.4(e).


 


“Term Loan
B Commitment Expiry Date” means May 30, 2009.


 


“Term Loan
B Commitment Period” means the period of time commencing on the Closing
Date and ending on the Term Loan B Commitment Expiry Date.


 


“Term Loan
B Lenders” means those Lenders designated as having a Term Loan B
Commitment on Schedule B-1.


 


“Term Loan
Commitment” means a Term Loan A Commitment or a Term Loan B Commitment.


 


“Term Loan
Lender” means a Term Loan A Lender or a Term Loan B Lender.


 


“Total
Commitment” means, with respect to each Lender, its Total Commitment, and,
with respect to all Lenders, their Total Commitments, in each case as such
Dollar amounts are set forth beside such Lender’s name under the applicable
heading on Schedule B-1 attached hereto or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder, as such amounts may be: (x) reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1;
and (y) reduced from time to time as required by Section 2.4(e).


 


“Trademark”
has the meaning specified therefor in the Security Agreement.


 


“Trademark
Security Agreement” has the meaning specified therefor in the Security
Agreement.


 


“Treasury Regulations” means the final, temporary and
proposed United States Treasury regulations promulgated under the IRC, as such
regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).


 


“UK
Debenture” means a debenture agreement, in form and substance satisfactory
to Agent, executed by each UK Subsidiary and delivered to Agent.


 


“UK
Guaranty” means a guaranty agreement, in form and substance satisfactory to
Agent, executed by each UK Guarantor Subsidiary and delivered to Agent.


 


“UK
Security Documents” means the UK Debenture, the UK Share Pledge and the UK
Guaranty.


 


“UK Share
Pledge” means a share pledge agreement, in form and substance satisfactory
to Agent, executed by each owner of a UK Subsidiary and delivered to Agent.


 


“UK
Guarantor Subsidiary” means the UK Subsidiaries that are parties to the UK
Guaranty.


 


SCHEDULE 1.1 - 22

















 


“UK
Subsidiary” means any Subsidiary of Borrower incorporated in the United
Kingdom.


 


“USA
Patriot Act” means the USA Patriot Act, Title III of Pub.L. 107-56, signed
into law October 26, 2001.


 


“United
States” means the United States of America.


 


“Voidable
Transfer” has the meaning specified therefor in Section 16.6.


 


“Warrant
Agreement” means a warrant agreement, in form and substance satisfactory to
Agent, executed and delivered by Borrowers to Agent.


 


“Wells
Fargo Credit Facility” means that certain credit facility entered into by
the Borrowers and Wells Fargo Bank, National Association (acting through its
Wells Fargo Business Credit operating division).


 


“Withholding
Taxes” has the meaning specified therefor in Section 15.11(h).


 


“Yost
Subordination Agreement” means a subordination agreement, in form and
substance satisfactory to Agent, executed by the Borrowers and Warren and Gail
Yost and delivered to Agent.


 


SCHEDULE 1.1 - 23

















 


Schedule
3.1


 


I.              CONDITIONS PRECEDENT
TO INITIAL EXTENSION OF CREDIT.


 


The obligation
of each Lender to make its initial portion of a Loan (whether as an Advance,
Term Loan A or Term Loan B) provided for in the Agreement is subject to the
fulfillment, to the satisfaction of Agent and each Lender (the making of such
portion of a Loan by any Lender being conclusively deemed to be its
satisfaction or waiver of the following), of each of the following conditions
precedent:


 


(a)           the
Closing Date shall occur on or before December 7, 2007;


 


(b)           Agent
shall have received a letter duly executed by each Borrower authorizing Agent
to file appropriate financing statements in such office or offices as may be
necessary or, in the opinion of Agent, desirable to perfect the security
interests to be created by the Loan Documents;


 


(c)           Agent
shall have received evidence that appropriate financing statements have been
duly filed in such office or offices as may be necessary or, in the opinion of
Agent, desirable to perfect the Agent’s Liens in and to the Collateral;


 


(d)           Agent
shall have received each of the following documents, in form and substance
satisfactory to Agent, duly executed, and each such document shall be in full
force and effect:,


 


(i)            the
Cash Management Agreements,


 


(ii)           the
Control Agreements,


 


(iii)          [intentionally omitted],


 


(iv)          a
disbursement letter executed and delivered by Borrowers to Agent regarding the
extensions of credit to be made on the Closing Date, the form and substance of
which is satisfactory to Agent,


 


(v)           the
Fee Letter,


 


(vi)          the
Patent Security Agreement,


 


(vii)         the Security Agreement,


 


(viii)        [intentionally omitted],


 


(ix)           the
Trademark Security Agreement,


 


(x)            the
Warrant Agreement,


 


(xi)           the
Japanese Guaranty,


 


SCHEDULE 3.1 - 1

















 


(xii)          the UK Security Documents,


 


(xiii)         the French Security Documents,


 


(xiv)        the McDermott Subordination Agreement, and


 


(xv)         the
Yost Subordination Agreement.


 


(e)           Agent
shall have received a certificate from the Secretary of each Borrower (i)
attesting to the resolutions of such Borrower’s Board of Directors authorizing
its execution, delivery, and performance of this Agreement and the other Loan
Documents to which such Borrower is a party, (ii) authorizing specific officers
of such Borrower to execute the same, and (iii) attesting to the incumbency and
signatures of such specific officers of such Borrower;


 


(f)            Agent
shall have received copies of each Borrower’s Governing Documents, as amended,
modified, or supplemented to the Closing Date, certified by the Secretary of
such Borrower;


 


(g)           Agent
shall have received a certificate of status with respect to each Borrower,
dated within 10 days of the Closing Date, such certificate to be issued by the
appropriate officer of the jurisdiction of organization of such Borrower, which
certificate shall indicate that such Borrower is in good standing in such
jurisdiction;


 


(h)           Agent
shall have received certificates of status with respect to each Borrower, each
dated within 30 days of the Closing Date, such certificates to be issued by the
appropriate officer of the jurisdictions (other than the jurisdiction of
organization of such Borrower) in which its failure to be duly qualified or
licensed would constitute a Material Adverse Change, which certificates shall
indicate that such Borrower is in good standing in such jurisdictions;


 


(i)            Agent
shall have received a certificate of insurance, together with the endorsements
thereto, as are required by Section 5.8, the form and substance of which
shall be reasonably satisfactory to Agent;


 


(j)            [intentionally
omitted];


 


(k)           Agent
shall have received opinions of Borrowers’ counsel (including Borrowers’ French
and United Kingdom counsel) in form and substance satisfactory to Agent;


 


(l)            Agent
shall have received the valuation report on each Borrower and Guarantor, in
form and substance satisfactory to Agent;


 


(m)          Agent
shall have received the due diligence report on each Borrower and Guarantor, in
form and substance satisfactory to Agent;


 


(n)           Agent
shall have received the Closing Date Projections;


 


(o)           Borrowers
shall have paid all Lender Group Expenses incurred in 


 


SCHEDULE 3.1 - 2

















 


connection with the
transactions evidenced by this Agreement;


 


(p)           Borrowers
shall have received all licenses, approvals or evidence of other actions
required by any Governmental Authority in connection with the execution and
delivery by Borrowers of the Loan Documents or with the consummation of the
transactions contemplated thereby;


 


(q)           The
Agent shall have received “key man life insurance” insurance policies for each
of Carmine Oliva and Graham Jefferies, each of which shall be in an amount, for
a term and issued by insurers acceptable to Agent;


 


(r)            With
respect to $1,800,000 of the Loan proceeds to be disbursed on the Closing Date
which shall be used to pay off certain accounts payable and unsecured creditors
of the Borrowers (the “Designated Payments”), Borrowers shall provide
Agent with a detailed list (duly executed by the Borrowers) of all recipients
of a Designated Payment and the amounts to be paid to such recipients (the “Designated
Payments List”);


 


(s)           Agent
shall have received evidence satisfactory to it that the prepayment penalty
applicable to Borrowers’ Existing Credit Facility with Wells Fargo Bank,
National Association (acting through its Wells Fargo Business Credit operating
division) has been reduced from 3% to 2%; and


 


(t)            all
other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance reasonably satisfactory to Agent.


 


SCHEDULE 3.1 - 3