ADDITION, AGENT RESERVES THE RIGHT, AT ANY
TIME AND FROM TIME TO TIME AFTER THE CLOSING DATE, TO ADJUST ANY OF THE CRITERIA
SET FORTH BELOW OR TO ESTABLISH NEW CRITERIA IN ITS REASONABLE CREDIT JUDGMENT
TO REFLECT CHANGES IN BORROWER'S OR THE APPLICABLE SECURED GUARANTOR'S BUSINESS
OPERATIONS OR SALABILITY OF INVENTORY, SUBJECT TO THE APPROVAL OF REQUISITE
REVOLVING LENDERS IN THE CASE OF ADJUSTMENTS OR NEW CRITERIA WHICH HAVE THE
EFFECT OF MAKING MORE CREDIT AVAILABLE.
ELIGIBLE INVENTORY - U.S. SHALL NOT
INCLUDE ANY INVENTORY OF BORROWER OR ANY SECURED GUARANTOR THAT:
(I)
IS NOT OWNED BY BORROWER OR ANY SECURED
GUARANTOR 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 BORROWER'S OR A SECURED GUARANTOR'S
PERFORMANCE WITH RESPECT TO THAT INVENTORY), EXCEPT LIENS DESCRIBED IN
16
CLAUSES (A), (D), (E) AND (G) OF THE DEFINITION OF PERMITTED ENCUMBRANCES AND
THE LIENS IN FAVOR OF AGENT, ON BEHALF OF ITSELF AND LENDERS;
(II)
(A) IS NOT LOCATED ON PREMISES OWNED,
LEASED OR RENTED BY BORROWER OR ANY SECURED GUARANTOR AND SET FORTH IN
DISCLOSURE SCHEDULE (3.2), OR (B) IS NOT LOCATED ON PREMISES ACQUIRED OR LEASED
BY BORROWER OR ANY SECURED GUARANTOR IN CONNECTION WITH ANY PERMITTED
ACQUISITION, OR (C) IS STORED AT A LEASED LOCATION, UNLESS AGENT HAS GIVEN ITS
PRIOR CONSENT THERETO AND UNLESS EITHER (X) A REASONABLY SATISFACTORY LANDLORD
WAIVER HAS BEEN DELIVERED TO AGENT, OR (Y) RESERVES REASONABLY SATISFACTORY TO
AGENT HAVE BEEN ESTABLISHED WITH RESPECT THERETO, OR (D) IS STORED WITH A BAILEE
OR WAREHOUSEMAN UNLESS A REASONABLY SATISFACTORY, ACKNOWLEDGED BAILEE LETTER HAS
BEEN RECEIVED BY AGENT AND RESERVES REASONABLY SATISFACTORY TO AGENT HAVE BEEN
ESTABLISHED WITH RESPECT THERETO, OR (E) IS LOCATED AT A LOCATION OWNED BY
BORROWER OR ANY SECURED GUARANTOR SUBJECT TO A MORTGAGE IN FAVOR OF A LENDER
OTHER THAN AGENT, UNLESS A REASONABLY SATISFACTORY MORTGAGEE WAIVER HAS BEEN
DELIVERED TO AGENT, OR (F) IS LOCATED AT ANY SITE IF THE AGGREGATE BOOK VALUE OF
INVENTORY AT ANY SUCH LOCATION IS LESS THAN THE DOLLAR EQUIVALENT OF $50,000;
(III)
IS PLACED ON CONSIGNMENT OR IS IN TRANSIT,
EXCEPT FOR INVENTORY IN TRANSIT BETWEEN DOMESTIC LOCATIONS OF CREDIT PARTIES AS
TO WHICH AGENT'S LIENS HAVE BEEN PERFECTED AT ORIGIN AND DESTINATION;
(IV)
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;
(V)
IS EXCESS, OBSOLETE, SLOW MOVING (IN EXCESS
OF 2-YEARS' SUPPLY), UNSALABLE, SHOPWORN, SECONDS, DAMAGED OR UNFIT FOR SALE;
(VI)
CONSISTS OF DISPLAY ITEMS OR PACKING OR
SHIPPING MATERIALS, MANUFACTURING SUPPLIES, CUSTOM-MADE INVENTORY WHICH IS NOT
SUBJECT TO AN OUTSTANDING PURCHASE ORDER THAT IS NOT REVOCABLE BY ITS TERMS OR
IS NOT SOLD IN THE ORDINARY COURSE OF BUSINESS, WORK-IN-PROCESS INVENTORY OR
REPLACEMENT PARTS (EXCLUDING COMPONENT PARTS