THIS AGREEMENT, EXCEPT ANY INVENTORY TO WHICH ANY OF THE
EXCLUSIONARY CRITERIA SET FORTH BELOW APPLIES.
IN ADDITION TO RESERVES
ESTABLISHED ON THE CLOSING DATE, FOLLOWING NOTICE BY AGENT TO BORROWER GIVEN
REASONABLY IN ADVANCE, AGENT SHALL HAVE THE RIGHT TO ESTABLISH OR MODIFY
RESERVES AGAINST ELIGIBLE INVENTORY FROM TIME TO TIME IN ITS GOOD FAITH CREDIT
JUDGMENT BASED ON ITS ANALYSIS OF FACTS OR EVENTS TO REFLECT CHANGES IN THE
SALABILITY OF INVENTORY ARISING OR DISCOVERED BY AGENT AFTER THE CLOSING DATE.
ELIGIBLE INVENTORY SHALL NOT INCLUDE ANY INVENTORY OF ANY CREDIT PARTY THAT:
(A)
IS NOT OWNED BY SUCH CREDIT PARTY FREE AND
CLEAR OF ALL LIENS AND RIGHTS OF ANY OTHER PERSON (INCLUDING THE RIGHTS OF A
PURCHASER THAT HAS MADE PROGRESS PAYMENTS AND THE RIGHTS OF A SURETY THAT HAS
ISSUED A BOND TO ASSURE SUCH CREDIT PARTY'S PERFORMANCE WITH RESPECT TO THAT
INVENTORY), EXCEPT THE LIENS IN FAVOR OF AGENT, ON BEHALF OF ITSELF AND LENDERS,
AND EXCEPT THE PERMITTED ENCUMBRANCES DESCRIBED IN CLAUSE (A), CLAUSE (E) AND
CLAUSE (L) OF THE DEFINITION OF THE TERM "PERMITTED ENCUMBRANCES";
(B)
(I) IS NOT LOCATED ON PREMISES OWNED, LEASED
OR RENTED BY SUCH CREDIT PARTY AND SET FORTH IN SCHEDULE 5.12 (AS SCHEDULE 5.12
MAY BE UPDATED FROM TIME TO TIME IN WRITING BY
16
LISTING ADDITIONAL LOCATIONS OR DELETING EXISTING LOCATIONS DELIVERED BY
BORROWER TO AGENT ON OR PRIOR TO EACH SUCH CHANGE OF LOCATIONS), (II) IS STORED
AT A LEASED LOCATION, UNLESS LISTED ON SCHEDULE 5.12 OR AGENT HAS RECEIVED PRIOR
WRITTEN NOTICE THEREOF FROM BORROWER AND UNLESS (X) A REASONABLY SATISFACTORY
LANDLORD WAIVER HAS BEEN DELIVERED TO AGENT OR NO STATUTORY OR CONTRACTUAL
LANDLORD LIEN EXISTS WITH RESPECT TO SUCH INVENTORY, OR (Y) RESERVES
SATISFACTORY TO AGENT HAVE BEEN ESTABLISHED WITH RESPECT THERETO, (III) IS
STORED WITH A BAILEE OR WAREHOUSEMAN UNLESS A REASONABLY SATISFACTORY BAILEE
LETTER HAS BEEN RECEIVED BY AGENT AND RESERVES REASONABLY SATISFACTORY TO AGENT
HAVE BEEN ESTABLISHED WITH RESPECT THERETO, (IV) IS LOCATED AT AN OWNED LOCATION
SUBJECT TO A MORTGAGE IN FAVOR OF A LENDER OTHER THAN AGENT OR THE SENIOR
SECURED NOTES TRUSTEE, UNLESS A REASONABLY SATISFACTORY MORTGAGEE WAIVER HAS
BEEN DELIVERED TO AGENT, (V) IS LOCATED AT ANY SITE IF THE AGGREGATE BOOK VALUE
OF INVENTORY AT ANY SUCH LOCATION IS LESS THAN $50,000, OR (VI) IS LOCATED ON
THE PREMISES OF, OR IS IN THE POSSESSION OF, A PROCESSOR;
(C)
IS PLACED ON CONSIGNMENT OR IS IN TRANSIT;
(D)
IS COVERED BY A NEGOTIABLE DOCUMENT OF
TITLE, UNLESS SUCH DOCUMENT HAS BEEN DELIVERED TO AGENT WITH ALL NECESSARY
ENDORSEMENTS, FREE AND CLEAR OF ALL LIENS EXCEPT THOSE IN FAVOR OF AGENT AND
LENDERS AND THE SENIOR SECURED NOTES TRUSTEE;
(E)
IS EXCESS, OBSOLETE, UNSALEABLE, SHOPWORN,
SECONDS, DAMAGED OR UNFIT FOR SALE;
(F)
CONSISTS OF DISPLAY ITEMS OR PACKING OR
SHIPPING MATERIALS, MANUFACTURING SUPPLIES OR REPLACEMENT PARTS;
(G)
CONSISTS OF GOODS WHICH HAVE BEEN RETURNED
BY THE BUYER;
(H)
IS NOT OF A TYPE HELD FOR