OF SECURITY INTEREST.
BORROWER
GRANTS AND PLEDGES TO LENDER A CONTINUING SECURITY INTEREST IN ALL PRESENTLY
EXISTING AND HEREAFTER ACQUIRED OR ARISING COLLATERAL IN ORDER TO SECURE PROMPT
REPAYMENT OF ANY AND ALL SECURED OBLIGATIONS AND IN ORDER TO SECURE PROMPT
PERFORMANCE BY BORROWER OF EACH OF ITS COVENANTS AND DUTIES UNDER THE LOAN
DOCUMENTS. SUCH SECURITY INTEREST CONSTITUTES A VALID, PERFECTED SECURITY
INTEREST IN THE PRESENTLY EXISTING COLLATERAL, AND WILL CONSTITUTE A VALID,
PERFECTED SECURITY INTEREST IN COLLATERAL ACQUIRED AFTER THE DATE HEREOF IN EACH
CASE, SUBJECT TO ANY LIEN PERMITTED HEREUNDER AND PERMITTED LIENS.
F.
SUBORDINATION.
EXCEPT AS PROVIDED IN
THE IMMEDIATELY FOLLOWING SENTENCE, FOR SO LONG AS NO EVENT OF DEFAULT ON THE
SENIOR INDEBTEDNESS (AS DEFINED BELOW) HAS OCCURRED AND IS CONTINUING, BORROWER
SHALL MAKE NO PAYMENT OF PRINCIPAL ON ACCOUNT OF THE SENIOR INDEBTEDNESS UNTIL
PRIOR PAYMENT IN FULL OF THE SECURED OBLIGATIONS.
NOTWITHSTANDING THE PRECEDING
SENTENCE, IF FOR ANY PERIOD THE BORROWER DOES NOT MAINTAIN (1) TANGIBLE NET
WORTH, AS DETERMINED IN ACCORDANCE WITH U.S. GENERAL ACCEPTED ACCOUNTING
PRINCIPALS (AS DETERMINED AS THE END OF EACH CALENDAR MONTH) OF AT LEAST
$3,000,000 AND (2) A RATIO OF EBITDA (EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION) TO DEBT SERVICE (AS DETERMINED AT THE END OF EACH
CALENDAR MONTH) OF AT LEAST 3.00 TO 1.00, BORROWER SHALL NOT BE PROHIBITED
HEREUNDER FROM MAKING
PAYMENTS OF PRINCIPAL ON ACCOUNT OF THE SENIOR
INDEBTEDNESS PRIOR TO PAYMENT IN FULL OF THE SECURED OBLIGATIONS DURING SUCH
PERIOD.
AFTER, AND DURING THE CONTINUANCE OF, AN EVENT OF DEFAULT ON THE SENIOR
INDEBTEDNESS, THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS EXPRESSLY SUBORDINATE
AND SUBJECT IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR
INDEBTEDNESS OF BORROWER.
1.
DEFINITION OF SENIOR INDEBTEDNESS.
"SENIOR INDEBTEDNESS" MEANS THE PRINCIPAL OF (AND PREMIUM, IF ANY), UNPAID
INTEREST ON AND AMOUNTS REIMBURSED, FEES, EXPENSES, COSTS OF
3
enforcement and other amounts due in connection with any indebtedness of
Borrower with respect to that certain Promissory Note and that certain Security
Agreement, each dated as of June 1, 2004, by and between Borrower and Lakeside
Bank (the "Senior Loan Documents").
2.
INSOLVENCY PROCEEDINGS.
IF THERE SHALL
OCCUR ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT OF CREDITORS,
BANKRUPTCY, REORGANIZATION, OR ARRANGEMENTS WITH CREDITORS (WHETHER OR NOT
PURSUANT TO BANKRUPTCY OR OTHER INSOLVENCY LAWS), SALE OF ALL OR SUBSTANTIALLY
ALL OF THE ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALING OF THE
ASSETS AND LIABILITIES OF BORROWER, NO AMOUNT SHALL BE PAID BY BORROWER IN
RESPECT OF THE PRINCIPAL OF, INTEREST ON OR OTHER AMOUNTS DUE WITH RESPECT TO
THIS NOTE AT THE TIME OUTSTANDING, UNLESS AND UNTIL THE PRINCIPAL OF AND
INTEREST ON THE SENIOR INDEBTEDNESS THEN OUTSTANDING SHALL BE PAID IN FULL.
3.
SUBROGATION.
AFTER, AND DURING THE
CONTINUANCE OF, AN EVENT OF DEFAULT ON THE SENIOR INDEBTEDNESS, SUBJECT TO THE
PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, LENDER'S RIGHTS UNDER THIS NOTE
SHALL BE SUBROGATED TO THE RIGHTS OF THE HOLDER(S) OF