AND PURCHASED PARTS);
(VII)
IS NOT OF A TYPE HELD FOR SALE IN THE ORDINARY
COURSE OF BORROWER'S OR THE APPLICABLE SECURED GUARANTOR'S BUSINESS;
(VIII)
IS NOT SUBJECT TO A FIRST PRIORITY LIEN IN FAVOR
OF AGENT ON BEHALF OF ITSELF AND LENDERS SUBJECT TO PERMITTED ENCUMBRANCES;
(IX)
BREACHES IN ANY MATERIAL RESPECT ANY OF THE
REPRESENTATIONS OR WARRANTIES PERTAINING TO INVENTORY SET FORTH IN THE LOAN
DOCUMENTS;
(X)
CONSISTS OF ANY COSTS ASSOCIATED WITH
"FREIGHT-IN" CHARGES;
(XI)
CONSISTS OF HAZARDOUS MATERIALS OR GOODS
THAT CAN BE TRANSPORTED OR SOLD ONLY WITH LICENSES THAT ARE NOT READILY
AVAILABLE; OR
17
(XII)
IS NOT COVERED BY CASUALTY INSURANCE IN
ACCORDANCE WITH SECTION 5.4.
(B)
ELIGIBLE INVENTORY - SCHAUBLIN.
ALL OF THE
INVENTORY OWNED BY SCHAUBLIN AND REFLECTED IN THE MOST RECENT SCHAUBLIN
BORROWING BASE CERTIFICATE DELIVERED BY BORROWER TO AGENT SHALL BE "ELIGIBLE
INVENTORY - SCHAUBLIN" FOR PURPOSES OF THIS AGREEMENT, EXCEPT ANY INVENTORY TO
WHICH ANY OF THE EXCLUSIONARY CRITERIA SET FORTH BELOW APPLIES.
AGENT SHALL
HAVE THE RIGHT TO ESTABLISH, MODIFY, OR ELIMINATE RESERVES AGAINST ELIGIBLE
INVENTORY - SCHAUBLIN FROM TIME TO TIME IN ITS REASONABLE CREDIT JUDGMENT TO
REFLECT ISSUES WITH RESPECT TO THE SALABILITY OF INVENTORY ARISING OR DISCOVERED
BY AGENT AFTER THE EFFECTIVE DATE (INCLUDING PURSUANT TO COLLATERAL AUDITS
CONDUCTED AFTER THE EFFECTIVE DATE).
IN ADDITION, AGENT RESERVES THE RIGHT, AT
ANY TIME AND FROM TIME TO TIME AFTER THE EFFECTIVE DATE, TO ADJUST ANY OF THE
CRITERIA SET FORTH BELOW OR TO ESTABLISH NEW CRITERIA IN ITS REASONABLE CREDIT
JUDGMENT TO REFLECT CHANGES IN SCHAUBLIN'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 - SCHAUBLIN SHALL NOT INCLUDE ANY INVENTORY OF
SCHAUBLIN THAT:
(I)
IS NOT OWNED BY SCHAUBLIN 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 SCHAUBLIN'S PERFORMANCE WITH RESPECT TO THAT
INVENTORY), EXCEPT LIENS DESCRIBED IN CLAUSE (E) OF THE DEFINITION OF PERMITTED
ENCUMBRANCES AND THE LIENS IN FAVOR OF AGENT, ON BEHALF OF ITSELF AND LENDERS;
(II)
(A) 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 OR (B) IS LOCATED AT ANY SITE OTHER THAN A WAREHOUSE WITH
RESPECT TO WHICH A SWISS WAREHOUSE CONTROL AGREEMENT HAS BEEN EXECUTED AND
DELIVERED;
(III)
IS PLACED ON CONSIGNMENT OR IS IN TRANSIT;
(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