Document:

Third Supplemental Indenture

 Exhibit 10.5 
 THIRD SUPPLEMENTAL INDENTURE 
 This THIRD SUPPLEMENTAL INDENTURE (the “Third
Supplemental Indenture”) is dated as of July 11, 2008, between O’Reilly Automotive, Inc., a Missouri corporation (“O’Reilly”), CSK Auto, Inc., an Arizona corporation (the “Company”), the
Guarantors named herein and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). 
 WHEREAS, the Company, CSK Auto Corporation, a Delaware Corporation (“CSK”), and the Trustee are parties to an Indenture, dated as of December 19, 2005, as amended and supplemented by the First
Supplemental Indenture (the “First Supplemental Indenture”) dated as of December 30, 2005 and the Second Supplemental Indenture, dated as of July 27, 2006 (the “Second Supplemental Indenture”) (as amended
and supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”), pursuant to which the Company issued its 45/8% (as increased to 6 3/
4% by the Second Supplemental Indenture) Exchangeable Senior Notes due 2025 (the “Notes”); 
 WHEREAS, on April 1, 2008, CSK entered into an Agreement and Plan of Merger by and among O’Reilly and OC Acquisition Company, a Delaware corporation and an indirect wholly-owned Subsidiary of O’Reilly
(“Merger Sub”) (the “Merger Agreement”), pursuant to which, among other things, Merger Sub will merge with and into CSK (the “Merger”); 
 WHEREAS, Section 11.01 of the Indenture provides that CSK shall not merge or enter into certain other transactions unless certain requirements specified therein are satisfied; 
 WHEREAS, Section 14.06 provides that if a merger or certain other transactions involving CSK occur, as a result of which holders of Common Stock of CSK shall be
entitled to receive cash, securities or other property with respect to or in exchange for such Common Stock, then CSK and the Company shall enter into a supplemental indenture providing that each Note shall be exchangeable into the kind and amount
of cash, securities or other property receivable upon such transaction by holders of Common Stock of CSK; 
 WHEREAS, Section 10.01(b) of the Indenture
provides that the Company, CSK, the Subsidiary Guarantors and the Trustee may enter into indentures supplemental thereto to modify the Indenture in accordance with Section 14.06; 
 WHEREAS, O’Reilly wishes to become a guarantor (in such capacity, the “Guarantor”), on a subordinated basis, of the obligations of the Company under the Indenture and the Notes and enter into an
indenture supplemental to the Indenture providing for such guarantee (the “Subordinated Guarantee”); 
 WHEREAS, Section 10.01(d) of the
Indenture provides that the Company, CSK, the Subsidiary Guarantors and the Trustee may enter into indentures supplemental thereto to add guarantees or guarantors with respect to the Notes; 
 WHEREAS, the execution and delivery of this instrument has been duly authorized and all conditions and requirements necessary to make this instrument a valid and binding
agreement have been duly performed and complied with; and 

 WHEREAS, this Third Supplemental Indenture is being executed and delivered concurrently with the effectiveness of the
Merger. 
 NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows: 
 ARTICLE 1 
 EFFECT OF MERGER 
 Section 1.01 In accordance with Section 14.06 of the Indenture, at and after the effective time of the Merger, each Note shall be exchangeable into the kind and amount of cash, securities or other
property (and in the same proportion) receivable upon the Merger by a holder of a number of shares of Common Stock issuable upon exchange of the Notes immediately prior to the Merger, and as further provided pursuant to Section 14.06.

 Section 1.02 At and after the effective time of the Merger, Section 14.04 of the Indenture shall be amended by deleting
the text of such Section in its entirety and replacing it with the following text: 
 Section 14.04. Exchange
Rate. Each $1,000 Principal Amount of the Notes shall be exchangeable into 0.4285 shares of common stock of O’Reilly and $1.00 in cash (herein called the “Exchange Rate”), subject to adjustment as provided in this Article 14.

 ARTICLE 2 
 SUBORDINATED GUARANTEE 
 Section 2.01 Guarantee. 
 Subject to the provisions of this Article 2, O’Reilly, as Guarantor, hereby unconditionally guarantees to each holder of a Note that the principal of
and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and all other obligations of the Company to the holders of the Notes and the Trustee hereunder, thereunder and under the
Indenture will be promptly paid in full or performed, as the case may be, all in accordance with the terms hereof and thereof; and failing payment when due of any amount so guaranteed or any performance so guaranteed, as the case may be, for
whatever reason, the Guarantor will be obligated to pay or perform the same, as the case may be, immediately. The Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. 
 The Guarantor hereby confirms that it is its intention that this guarantee of the Guarantor not constitute a fraudulent transfer or conveyance for
purposes of applicable bankruptcy laws, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to this Subordinated Guarantee. To effectuate the foregoing intention,
the obligations of the Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of the Guarantor that are relevant under such laws, result in the obligations
of the Guarantor under this Subordinated Guarantee not constituting a fraudulent transfer or conveyance. 
  

 2 

 Section 2.02 Subordination of Guarantee. Payments under this Subordinated Guarantee
shall be subordinated to the prior payment in full of all Guarantor Other Indebtedness (defined below) as follows: 
 No direct or indirect
payment by or on behalf of O’Reilly under this Subordinated Guarantee with respect to any of the obligations on the Notes (a “Note Payment”) will be made, and no action against the Guarantor may be brought, if, at the time of
such payment or the bringing of such action, there exists a default in the payment in cash of all or any portion of the principal of, or interest, if any, on any Guarantor Other Indebtedness when due, or any Guarantor Other Indebtedness has been
accelerated, and such default shall not have been cured or waived in writing or the benefits of this sentence waived in writing by or on behalf of the holders of such Guarantor Other Indebtedness. In addition, during the continuance of any
non-payment event of default with respect to any Guarantor Other Indebtedness, and upon receipt by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee of written notice, referring to the Indenture and entitled
“Payment Blockage Notice” (a “Payment Blockage Notice”), from the holder or holders of any Guarantor Other Indebtedness, then, unless and until such event of default has been cured or waived in writing or has ceased to exist or
any Guarantor Other Indebtedness has been discharged or repaid in full in cash (or such payment shall be duly provided for in a manner satisfactory to holders of any Guarantor Other Indebtedness) or otherwise to the extent holders of any Guarantor
Other Indebtedness in their sole discretion accept satisfaction of amounts due by settlement in other than cash or the benefits of these provisions have been waived in writing by the holders of any Guarantor Other Indebtedness, no Note Payment will
be made to such holders during a period (a “Payment Blockage Period”) commencing on the date of such receipt of the Payment Blockage Notice by a Responsible Officer of the Trustee and ending 364 days thereafter. The Trustee shall
deliver a copy of the Payment Blockage Notice to O’Reilly as soon as reasonably practicable after receipt thereof. In the event that, notwithstanding the foregoing, any Note Payment shall be received by the Trustee at a time when such payment
is prohibited hereunder, such Note Payment shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of any Guarantor Other Indebtedness, as their respective interests may appear. 
 Upon any payment or distribution of assets or securities of O’Reilly of any kind or character, whether in cash, property or securities, to the
creditors of O’Reilly upon any dissolution or winding-up or total or partial liquidation or reorganization of O’Reilly, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other similar proceedings relating to
O’Reilly, any assignment for the benefit of creditors or any marshalling of O’Reilly’s assets and liabilities, the holders of Guarantor Other Indebtedness shall be entitled to receive payment in full in cash of all obligations due in
respect of such Guarantor Other Indebtedness or have provision made for such payment in a manner acceptable to holders of Guarantor Other Indebtedness, before the holders of the Notes or the Trustee on behalf of such holders shall be entitled to
bring any action against O’Reilly with respect to this Subordinated Guarantee. 
 In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, any payment or distribution of assets or securities of O’Reilly of any kind or character, whether in cash, property or securities in respect of the principal, or interest on the Notes, shall
be 

  

 3 

 
received by the Trustee or any Paying Agent or any holder of Notes at a time when such payment or distribution is prohibited by this Subordinated Guarantee
such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Other Indebtedness, as their respective interests may appear, for application to the payment of all
obligations in respect of such Guarantor Other Indebtedness remaining unpaid until all obligations in respect of such Guarantor Other Indebtedness have been paid in full in cash (or such payment shall be duly provided for in a manner satisfactory to
the holders of such Guarantor Other Indebtedness) or otherwise to the extent holders of such Guarantor Other Indebtedness in their sole discretion accept satisfaction of amounts due by settlement in other than cash after giving effect to any prior
or concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Other Indebtedness. 
 O’Reilly shall
give prompt written notice to the Trustee of any fact known to O’Reilly which would prohibit the making of any payment or distribution to or by the Trustee in respect of the Notes pursuant to the provisions of this Subordinated Guarantee. The
Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to Guarantor Other Indebtedness or of any other facts which would prohibit the making of any payment or distribution to or by the Trustee
unless and until a Responsible Officer of the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of O’Reilly, or by a holder of Guarantor Other Indebtedness or agent therefor; and
prior to the receipt of any such written notice, the Trustee shall be entitled to conclusively assume that no such facts exist; provided, however, that if the Trustee shall not have received such notice at least two Business Days prior
to the date upon which by the terms of the Subordinated Guarantee any moneys shall become payable to any Noteholder for any purpose (including, without limitation, the payment of the principal of or interest on any Note), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority to receive any moneys from O’Reilly and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such prior date. The Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of Guarantor Other Indebtedness (or a
trustee on behalf of, or agent or other representative of, such holder) to establish that such notice has been given by a holder of Guarantor Other Indebtedness or a trustee or agent or representative on behalf of any such holder. A holder of
Guarantor Other Indebtedness and any agent on behalf of such holder shall be entitled to deliver all notices required by this Subordinated Guarantee to the Trustee at the Corporate Trust Office. In the event that the Trustee determines in good faith
that any evidence is required with respect to the right of any Person as a holder of Guarantor Other Indebtedness to participate in any payment or distribution pursuant to this Subordinated Guarantee, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Other Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Subordinated Guarantee, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. No right of
any present or future holders of Guarantor Other Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of O’Reilly or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by O’Reilly with the terms of the Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The provisions of this Subordinated
Guarantee are intended to be for the benefit of, and shall be enforceable directly by, the holders of Guarantor Other Indebtedness. 
  

 4 

 Holders of Guarantor Other Indebtedness may, at any time and from time to time, without the consent of or
notice to the Trustee or the holders of the Notes, without incurring responsibility to the holders of the Notes and without impairing or releasing the subordination provided in this Subordinated Guarantee or the obligations hereunder of the holders
of the Notes to the holders of Guarantor Other Indebtedness, do any one or more of the following: (a) change the manner or place or time of payment of Guarantor Other Indebtedness or amend, supplement or otherwise modify any instrument
evidencing the same or any agreement under which Guarantor Other Indebtedness is outstanding, guaranteed or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Other
Indebtedness; (c) release any Person liable in any manner for the collection of Guarantor Other Indebtedness; and (d) exercise or refrain from exercising any rights against O’Reilly and any other Person. 
 “Guarantor Other Indebtedness” means, and without duplication, whether recourse is to all or a portion of the assets of the Guarantor
and whether or not contingent, (i) all indebtedness, obligations and other liabilities of the Guarantor for borrowed money (including obligations of the Guarantor in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments, other than any account payable or other
accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (ii) all reimbursement obligations and other liabilities of the Company with respect to letters of
credit, bank guarantees or bankers’ acceptances; (iii) all obligations and liabilities in respect of leases of the Guarantor required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease
obligations on the balance sheet of the Guarantor and all obligations and other liabilities under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that the Guarantor is
contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of the Guarantor under such lease or related document
to purchase or to cause a third party to purchase such leased property; (iv) all net obligations of the Guarantor with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign
currency hedge, exchange, purchase or similar instrument or agreement; (v) all direct or indirect guaranties or similar agreements by the Guarantor in respect of, and obligations or liabilities of the Guarantor to purchase or otherwise acquire
or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (i) through (iv); (vi) any indebtedness or other obligations described in clauses
(i) through (v) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by the Guarantor, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by
the Guarantor; (vii) all other indebtedness or other obligations designated by Guarantor as “Guarantor Other Indebtedness” and (viii) any and all deferrals, supplements to, any indebtedness, obligation or liability of the kind
described in clauses (i) through (vi); and for avoidance of doubt, Guarantor Other Indebtedness shall not include this Subordinated Guarantee. 
  

 5 

 With respect to the holders of Guarantor Other Indebtedness, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set forth in this Article 2, and no implied covenants or obligations with respect to the holders of Guarantor Other Indebtedness shall be read into this Supplemental Indenture or
the Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Other Indebtedness. The Trustee shall not be liable to any holders of Guarantor Other Indebtedness if the Trustee shall
mistakenly or otherwise pay over or distribute to or on behalf of holders of Notes or to O’Reilly or to the Company or to any other Person, cash, property or securities to which any holders of Guarantor Other Indebtedness shall be entitled by
virtue of this Article 2 or otherwise. The subordination provisions of this Article 2 shall not apply to the Subordinated Guarantee of O’Reilly with respect to amounts due the Trustee, or the rights of the Trustee to indemnification, pursuant
to any provisions of the Indenture. 
 ARTICLE 3 
 MISCELLANEOUS 
 Section 3.01 Capitalized terms used herein and not defined herein
have the meanings ascribed to such terms in the Indenture. 
 Section 3.02 This Third Supplemental Indenture shall become
effective as of the date hereof at such time as executed counterparts of this Third Supplemental Indenture have been delivered by each party hereto to the other party thereto. 
 Section 3.03 On the date hereof, the Indenture shall be supplemented and amended in accordance herewith, and this Third Supplemental
Indenture shall form part of the Indenture for all purposes, and the Holder of every Note heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. The Trustee accepts the trusts created by the Indenture, as
amended and supplemented by this Third Supplemental Indenture, and agrees to perform the same upon the terms and conditions of the Indenture, as amended and supplemented by this Third Supplemental Indenture. 
 Section 3.04 This Third Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture. The Indenture, as
amended and supplemented by this Third Supplemental Indenture, shall be read, taken and construed as one and the same instrument and all provisions in the Indenture and the Notes shall remain in full force and effect in accordance with the terms
thereof and as amended and supplemented by this Third Supplemental Indenture. 
 Section 3.05 In case any one or more of the
provisions contained in this Third Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Third
Supplemental Indenture, but this Third Supplemental Indenture shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 
 Section 3.06 The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 
  

 6 

 Section 3.07 The Trustee shall not be responsible in any manner whatsoever for or in respect
of the validity and sufficiency of this Third Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company. 
 Section 3.08 In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture and the Notes relating to the conduct or affecting the
liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. 
 Section 3.09 All covenants
and agreements in this Third Supplemental Indenture by the Company and the Trustee shall bind their respective successors and assigns. Nothing in this Third Supplemental Indenture, express or implied, shall give to any person, other than the parties
hereto and their successors under the Indenture and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture. 
 Section 3.10 This Third Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of law. 
 [Signature page follows] 
  

 7 

 IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed
as of the day and year first above written. 
  

			
	O’REILLY AUTOMOTIVE, INC.
		
	By:	 	 /s/ THOMAS MCFALL

	Name:	 	Thomas McFall
	Title:	 	Chief Financial Officer
	
	CSK AUTO, INC.
		
	By:	 	 /s/ THOMAS MCFALL

	Name:	 	Thomas McFall
	Title:	 	Vice President
	
	CSK AUTO CORPORATION
		
	By:	 	 /s/ THOMAS MCFALL

	Name:	 	Thomas McFall
	Title:	 	Vice President
	
	CSKAUTO.COM, INC.
		
	By:	 	 /s/ THOMAS MCFALL

	Name:	 	Thomas McFall
	Title:	 	Vice President
	
	 THE BANK OF NEW YORK MELLON
 TRUST COMPANY,
N.A.

		
	By:	 	 /s/ RAYMOND TORRES

	Name:	 	Raymond Torres
	Title:	 	Assistant Vice President

  

 8tec_ex101-80715.htm

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    SENIOR
SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION

     

    CREDIT
AND GUARANTY AGREEMENT

     

    DATED AS
OF JUNE 6, 2008

     

    BETWEEN

     

    TORRENT
ENERGY CORPORATION

     

    AS
BORROWER,

     

    THE
GUARANTORS PARTY HERETO

     

    AND

     

    YA GLOBAL
INVESTMENTS, L.P.

     

    AS

     

    LENDER

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    
      	
              1.

            	
              AMOUNT
      AND TERMS OF CREDIT 

            	
              1

            

    

     

    
      	
               
      

            	
              1.1

            	
              Term
      Loan 

            	
              1

            

    

    
      	
               
      

            	
              1.2

            	
              Repayment
      of Term Loan 

            	
              2

            

    

    
      	
               
      

            	
              1.3

            	
              Use
      of Proceeds 

            	
              2

            

    

    
      	
               
      

            	
              1.4

            	
              Interest
      on Term Loan 

            	
              3

            

    

    
      	
               
      

            	
              1.5

            	
              Fees 

            	
              4

            

    

    
      	
               
      

            	
              1.6

            	
              Receipt
      of Payments 

            	
              4

            

    

    
      	
               
      

            	
              1.7

            	
              Application
      and Allocation of Payments 

            	
              4

            

    

    
      	
               
      

            	
              1.8

            	
              Accounting 

            	
              4

            

    

    
      	
               
      

            	
              1.9

            	
              Indemnity 

            	
              4

            

    

    
      	
               
      

            	
              1.10

            	
              Access 

            	
              5

            

    

    
      	 	
              1.11

            	Chief
      Restructuring Officer	
              6

            
	
               
      

            	
              1.12

            	
              Taxes 

            	
              6

            

    

    
      	
               
      

            	
              1.13

            	
              Super-Priority
      Nature of Obligations and Lender’s Liens 

            	
              6

            

    

    
      	
               
      

            	
              1.14

            	
              Payment
      of Obligations 

            	
              7

            

    

    
      	
               
      

            	
              1.15

            	
              No
      Discharge; Survival of Claims 

            	
              7

            

    

    
      	
               
      

            	
              1.16

            	
              Waiver
      of Any Priming Rights 

            	
              8

            

    

     

    
      	
              2.

            	
              CONDITIONS
      PRECEDENT 

            	
              8

            

    

     

    
      	
               
      

            	
              2.1

            	
              Conditions
      to the Term Loan 

            	
              8

            

    

     

    
      	
              3.

            	
              REPRESENTATIONS
      AND WARRANTIES 

            	
              9

            

    

     

    
      	
               
      

            	
              3.1

            	
              Corporate
      Existence; Compliance with Law 

            	
              9

            

    

    
      	
               
      

            	
              3.2

            	
              Executive
      Offices; Corporate or Other Names; FEIN 

            	
              9

            

    

    
    

    
      	 	

              3.3

            	

              Corporate
      Power; Authorization; Enforceable Obligations

            	
              10

            
	
               
      

            	
              3.4

            	
              Financial
      Statements 

            	
              10

            

    

    
      	
               
      

            	
              3.5

            	
              Material
      Adverse Effect 

            	
              10

            

    

    
      	
               
      

            	
              3.6

            	
              Ownership
      of Property; Liens 

            	
              11

            

    

    
      	
               
      

            	
              3.7

            	
              Restrictions;
      No Default 

            	
              11

            

    

    
      	
               
      

            	
              3.8

            	
              Ventures,
      Subsidiaries and Affiliates; Outstanding Stock and
      Indebtedness 

            	
              11

            

    

    
      	
               
      

            	
              3.9

            	
              Government
      Regulation 

            	
              11

            

    

    
      	
               
      

            	
              3.10

            	
              Taxes 

            	
              12

            

    

    
      	
               
      

            	
              3.11

            	
              ERISA 

            	
              12

            

    

    
      	
               
      

            	
              3.12

            	
              No
      Litigation 

            	
              13

            

    

    
      	
               
      

            	
              3.13

            	
              Brokers 

            	
              13

            

    

    
      	
               
      

            	
              3.14

            	
              Full
      Disclosure 

            	
              14

            

    

    
      	
               
      

            	
              3.15

            	
              Environmental
      Matters 

            	
              14

            

    

    
      	
               
      

            	
              3.16

            	
              Insurance
      Policies 

            	
              14

            

    

    
      	
               
      

            	
              3.17

            	
              Deposit
      and Disbursement Accounts 

            	
              14

            

    

    
      	
               
      

            	
              3.18

            	
              Government
      Contracts 

            	
              14

            

    

    
      	
               
      

            	
              3.19

            	
              Customer
      and Trade Relations 

            	
              14

            

    

    
      	
               
      

            	
              3.20

            	
              Agreements
      and Other Documents 

            	
              15

            

    

     

    
      
        
        

      

      
        -i-

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              3.21

            	
              Bankruptcy
      Matters 

            	
              15

            

    

     

    
      	
              4.

            	
              FINANCIAL
      STATEMENTS AND INFORMATION 

            	
              15

            

    

     

    
      	
               
      

            	
              4.1

            	
              Reports
      and Notices 

            	
              16

            

    

    
      	
               
      

            	
              4.2

            	
              Communication
      with Accountants 

            	
              16

            

    

    
      	
               
      

            	
              4.3

            	
              Documents
      Filed with the Bankruptcy Court or Delivered to the
      U.S.  Trustee or Committee 

            	
              16

            

    

     

    
      	
              5.

            	
              AFFIRMATIVE
      COVENANTS 

            	
              16

            

    

     

    
      	
               
      

            	
              5.1

            	
              Maintenance
      of Existence and Conduct of Business 

            	
              16

            

    

    
      	
               
      

            	
              5.2

            	
              Payment
      of Charges and Claims 

            	
              17

            

    

    
      	
               
      

            	
              5.3

            	
              Books
      and Records 

            	
              17

            

    

    
      	
               
      

            	
              5.4

            	
              Litigation 

            	
              17

            

    

    
      	
               
      

            	
              5.5

            	
              Insurance 

            	
              17

            

    

    
      	
               
      

            	
              5.6

            	
              Compliance
      with Laws 

            	
              18

            

    

    
      	
               
      

            	
              5.7

            	
              Agreements;
      Leases 

            	
              18

            

    

    
      	
               
      

            	
              5.8

            	
              Intentionally
      Omitted 

            	
              18

            

    

    
      	
               
      

            	
              5.9

            	
              Environmental
      Matters 

            	
              18

            

    

    
      	
               
      

            	
              5.10

            	
              Application
      of Proceeds 

            	
              19

            

    

    
      	
               
      

            	
              5.11

            	
              Fiscal
      Year 

            	
              19

            

    

    
      	
               
      

            	
              5.12

            	
              Subsidiaries 

            	
              19

            

    

    
      	
               
      

            	
              5.13

            	
              Further
      Assurances 

            	
              19

            

    

    
      	
               
      

            	
              5.14

            	
              Appraisals 

            	
              19

            

    

    
      	
               
      

            	
              5.15

            	
              Intellectual
      Property 

            	
              19

            

    

    
      	
               
      

            	
              5.16

            	
              Schedule
      of Financial Affairs 

            	
              19

            

    

     

    
      	
              6.

            	
              NEGATIVE
      COVENANTS 

            	
              19

            

    

     

    
      	
               
      

            	
              6.1

            	
              Mergers,
      Subsidiaries, Etc 

            	
              19

            

    

    
      	
               
      

            	
              6.2

            	
              Indebtedness 

            	
              20

            

    

    
      	
               
      

            	
              6.3

            	
              Affiliate
      and Employee Transactions 

            	
              20

            

    

    
      	
               
      

            	
              6.4

            	
              Capital
      Structure and Business 

            	
              20

            

    

    
      	
               
      

            	
              6.5

            	
              Guaranteed
      Indebtedness 

            	
              20

            

    

    
      	
               
      

            	
              6.6

            	
              Liens 

            	
              20

            

    

    
      	
               
      

            	
              6.7

            	
              Sale
      of Assets 

            	
              20

            

    

    
      	
               
      

            	
              6.8

            	
              ERISA 

            	
              21

            

    

    
      	
               
      

            	
              6.9

            	
              [Intentionally
      Omitted] 

            	
              21

            

    

    
      	
               
      

            	
              6.10

            	
              Restricted
      Payments; Use of Proceeds 

            	
              21

            

    

    
      	
               
      

            	
              6.11

            	
              Hazardous
      Materials 

            	
              21

            

    

    
      	
               
      

            	
              6.12

            	
              Sale-Leasebacks 

            	
              22

            

    

    
      	
               
      

            	
              6.13

            	
              Cancellation
      of Indebtedness 

            	
              22

            

    

    
      	
               
      

            	
              6.14

            	
              Bank
      Accounts 

            	
              22

            

    

    
      	
               
      

            	
              6.15

            	
              Margin
      Regulations 

            	
              22

            

    

    
      	
               
      

            	
              6.16

            	
              Limitation
      on Negative Pledge Clauses 

            	
              22

            

    

     

    
      
        
        

      

      
        -ii-

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              6.17

            	
              Material
      Contracts 

            	
              22

            

    

    
      	
               
      

            	
              6.18

            	
              Leases 

            	
              22

            

    

    
      	
               
      

            	
              6.19

            	
              New
      Premises 

            	
              22

            

    

    
      	
               
      

            	
              6.20

            	
              Repayment
      of Indebtedness 

            	
              22

            

    

    
      	
               
      

            	
              6.21

            	
              Chapter
      11 Claims 

            	
              22

            

    

     

    
      	
              7.

            	
              TERM 

            	
              22

            

    

     

    
      	
               
      

            	
              7.1

            	
              Duration 

            	
              23

            

    

    
      	
               
      

            	
              7.2

            	
              Survival
      of Obligations 

            	
              23

            

    

     

    
      	
              8.

            	
              EVENTS
      OF DEFAULT; RIGHTS AND REMEDIES 

            	
              23

            

    

     

    
      	
               
      

            	
              8.1

            	
              Events
      of Default 

            	
              23

            

    

    
      	
               
      

            	
              8.2

            	
              Remedies 

            	
              27

            

    

    
      	
               
      

            	
              8.3

            	
              Waivers
      by Borrower 

            	
              27

            

    

     

    
      	
              9.

            	
              SUCCESSORS
      AND ASSIGNS 

            	
              28

            

    

     

    
      	
               
      

            	
              9.1

            	
              Successors
      and Assigns 

            	
              28

            

    

    
      	
               
      

            	
              9.2

            	
              Participations;
      Assignments 

            	
              28

            

    

     

    
      	
              10.

            	
              MISCELLANEOUS 

            	
              28

            

    

     

    
      	
               
      

            	
              10.1

            	
              Complete
      Agreement; Modification of Agreement 

            	
              29

            

    

    
      	
               
      

            	
              10.2

            	
              Fees
      and Expenses 

            	
              29

            

    

    
      	
               
      

            	
              10.3

            	
              No
      Waiver 

            	
              30

            

    

    
      	
               
      

            	
              10.4

            	
              Remedies 

            	
              30

            

    

    
      	
               
      

            	
              10.5

            	
              Severability 

            	
              30

            

    

    
      	
               
      

            	
              10.6

            	
              Conflict
      of Terms 

            	
              31

            

    

    
      	
               
      

            	
              10.7

            	
              Right
      of Setoff 

            	
              31

            

    

    
      	
               
      

            	
              10.8

            	
              Authorized
      Signature 

            	
              31

            

    

    
      	
               
      

            	
              10.9

            	
              Notices 

            	
              31

            
	 	
              10.10

            	

              Section
      Titles

            	
              32

            
	 	
              10.11

            	Counterparts	
              32

            
	 	
              10.12

            	Time
      of the Essence	
              33

            
	 	
              10.13

            	GOVERNING
      LAW	
              33

            
	 	
              10.14

            	WAIVER
      OF JURY TRIAL	
              33

            
	 	
              10.15

            	Publicity	
              34

            
	 	
              10.16

            	Dating	
              34

            
	 	
              10.17

            	Parties
      Including Trustees; Bankruptcy Court Proceedings	
              34

            
	 	
              10.18

            	Right
      of First Refusal	
              34

            

    

    
    

     

    
      	
              11.

            	
              GUARANTY 

            	
              35

            

    

     

    
      	
               
      

            	
              11.1

            	
              Guaranty
      of the Obligations 

            	
              35

            

    

    
      	
               
      

            	
              11.2

            	
              Payment
      by Guarantors 

            	
              35

            

    

     

    
      
        
        

      

      
        -iii-

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              11.3

            	
              Liability
      of Guarantors Absolute 

            	
              35

            

    

    
      	
               
      

            	
              11.4

            	
              Waivers
      by Guarantors 

            	
              37

            

    

    
      	
               
      

            	
              11.5

            	
              Guarantors’
      Rights of Subrogation, Contribution, etc 

            	
              37

            

    

    
      	
               
      

            	
              11.6

            	
              Subordination
      of Other Obligations 

            	
              38

            

    

    
      	
               
      

            	
              11.7

            	
              Continuing
      Guaranty 

            	
              38

            

    

    
      	
               
      

            	
              11.8

            	
              Authority
      of Guarantors or Borrower 

            	
              38

            

    

    
      	
               
      

            	
              11.9

            	
              Financial
      Condition of Borrower 

            	
              38

            

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        -iv-

        
          

        

      

      
        
        

      

    

    INDEX OF ANNEXES, SCHEDULES
AND EXHIBITS

     

    
      	
              Annex
      A

            	
              -

            	
              Definitions;
      Rules of Construction

            
	
              Annex
      B

            	
              -

            	
              Financial
      Statements and Notices

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              Schedule
      1.3

            	
              -

            	
              Use
      of Proceeds

            
	
              Schedule
      2.1(a)

            	
              -

            	
              Closing
      Agenda

            
	
              Schedule
      3.2

            	
              -

            	
              Executive
      Offices; Principal Places of Business; Locations of Collateral; Trade
      Names

            
	
              Schedule
      3.5

            	
              -

            	
              Liabilities

            
	
              Schedule
      3.6

            	
              -

            	
              Real
      Estate and Leases

            
	
              Schedule
      3.8

            	
              -

            	
              Ventures,
      Subsidiaries and Affiliates; Outstanding Stock

            
	
              Schedule
      3.10

            	
              -

            	
              Tax
      Matters

            
	
              Schedule
      3.11

            	
              -

            	
              ERISA
      Plans, etc.

            
	
              Schedule
      3.12

            	
              -

            	
              Litigation

            
	
              Schedule
      3.13

            	 
      	
              Brokers

            
	
              Schedule
      3.15

            	
              -

            	
              Environmental
      Matters

            
	
              Schedule
      3.17

            	
              -

            	
              Disbursement
      and Deposit Accounts

            
	
              Schedule
      3.18

            	
              -

            	
              Government
      Contracts

            
	
              Schedule
      3.19

            	
              -

            	
              Customer
      & Trade Relations

            
	
              Schedule
      3.20

            	
              -

            	
              Certain
      Contracts

            
	
              Schedule
      6.2

            	
              -

            	
              Indebtedness

            
	
              Schedule
      6.3

            	
              -

            	
              Loans
      to and Transactions with Employees

            
	
              Schedule
      6.6

            	
              -

            	
              Liens

            
	
              Schedule
      6.11

            	
              -

            	
              Hazardous
      Materials

            
	
              Schedule
      6.19

            	 
      	
              Leases

            
	
              Schedule
      10.8

               

            	
              -

            	
              Authorized
      Signatures

            
	
              Exhibit
      A

            	
              -

            	
              Form
      of Term Loan Note

            

    

     

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    SENIOR
SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT AND GUARANTY AGREEMENT,
dated as of June 6, 2008 (this “Agreement”), between
TORRENT ENERGY CORPORATION, a Colorado corporation (“Borrower”), as
borrower, the subsidiaries of the Borrower party hereto, as guarantors (each, a
“Guarantor” and
collectively, the “Guarantors”) and YA
GLOBAL INVESTMENTS, L.P., a Cayman Islands exempt limited partnership (together
with its successors, assigns and transferees, the “Lender”), as
lender.  Capitalized terms used herein are defined in Annex A or in
the text hereof.

     

    R
E C I T A L S

     

    A.           On
June 2, 2008 (the “Petition Date”),
Borrower commenced Chapter 11 Case No. 08-32638 (the “Borrower’s Case”) by
filing a voluntary petition for reorganization under Chapter 11 of Title 11 of
the United States Code, 11 U.S.C. 101 et seq. (the “Bankruptcy Code”),
with the United States Bankruptcy Court for the District of Oregon (the “Bankruptcy
Court”).  Each Guarantor also commenced a case under Chapter 11
of the Bankruptcy Code (such cases, together with the Borrower’s Case, the
“Chapter 11
Cases”) in the Bankruptcy Court on the Petition Date.  The
Borrower and the Guarantors continue to operate their businesses and manage
their properties as debtors and a debtors-in-possession pursuant to Sections
1107(a) and 1108 of the Bankruptcy Code;

     

    B.           Borrower
has requested that Lender provide a credit facility that is senior secured,
super-priority as to Borrower of Four Million Five Hundred Thousand Dollars
($4,500,000.00) to fund certain of the working capital requirements of
Borrower;

     

    C.           Lender
is willing to provide a credit facility to Borrower of such amount upon the
terms and conditions set forth herein;

     

    D.           Borrower
and the Guarantors have agreed to secure all of their obligations under the Loan
Documents by, among other things, granting Lender a first-lien security interest
in and lien upon substantially all of their existing and after-acquired personal
and real property; and

     

    E.           Unless
otherwise indicated, all references in this Agreement to sections, subsections,
schedules, exhibits, and attachments shall refer to the corresponding sections,
subsections, schedules, exhibits, and attachments of or to this
Agreement.  All schedules, annexes, exhibits and attachments hereto,
or expressly identified to this Agreement, are incorporated herein by reference,
and taken together, shall constitute but a single agreement.  Unless
otherwise expressly set forth herein, or in a written amendment referring to
such schedules and annexes, all schedules and annexes referred to herein shall
mean the schedules and annexes as in effect as of the Closing
Date.  These Recitals shall be construed as part of this
Agreement.

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants hereinafter
contained, the parties hereto agree as follows:

     

    1.    AMOUNT
AND TERMS OF CREDIT

     

    1.1    Term
Loan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)    Upon and
subject to the terms and conditions hereof, the Lender agrees to make Advances
to the Borrower under a loan (the “Term Loan”) in an
aggregate principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000).  Advances shall be made at the discretion of Lender,
pursuant to drawdown requests in accordance with the Budget, as agreed to
between the Borrower and Lender, from the Closing Date until the Termination
Date, for the use of Borrower according to and pursuant to the terms of this
Agreement.  Until Lender declares an Event of Default, Lender agrees
to fund any expense of the Borrower which has been both approved in the Budget
and actually incurred by the Borrower.

     

    (b)    Each
Advance under the Term Loan may be, upon request of Lender, evidenced by a
promissory note issued by Borrower in favor of Lender substantially in the form
of Exhibit A,
dated the Closing Date or the date of the relevant Advance, as applicable,
payable to Lender in the principal amount equal to the amount of such Advance
and otherwise duly completed.

     

    1.2    Repayment of Term
Loan.

     

    (a)    Borrower
hereby promises to pay to Lender the entire outstanding principal amount of the
Term Loan and all other outstanding Obligations, and the Term Loan and all other
outstanding Obligations shall mature, on the Maturity Date.

     

    (b)    Subject
to Section
1.5(c), Borrower shall have the right at any time upon ten (10) days’
prior written notice by Borrower to Lender to voluntarily prepay the Term Loan,
including all accrued and unpaid interest (in whole but not in
part).  Upon the effective date of such termination, notwithstanding
anything to the contrary contained herein or in any Loan Document, the entire
outstanding balance of the Term Loan and all other Obligations shall be
immediately due and payable.  On the date of such termination,
Borrower shall pay to Lender in immediately available funds all of the
Obligations, including any accrued and unpaid interest thereon.

     

    (c)    Subject
to Section
1.5(c), the Borrower shall prepay the Term Loan in an amount equal to
100% of the net proceeds from any sale of assets outside the ordinary course of
business and 100% of any tax refunds or of any insurance proceeds, provided that
the Borrower may retain insurance proceeds in an amount not to exceed $250,000
to repair or replace damaged assets.

     

    1.3    Use of
Proceeds.  Borrower shall utilize the Collateral and the
proceeds of the Term Loan which are incurred on the Closing Date (net of any
amounts used on the Closing Date to pay Fees) as follows:  (i) for
working capital and general corporate purposes including certain fees and
expenses of professionals retained by Borrower, subject to the Final Order, but
excluding in any event the making of any Restricted Payment not specifically
permitted by Section
6.11 and solely for the purposes specified in the Budget, (ii) repayment
of the May 15, 2008 Note issued by Borrower to Lender, (iii) an amount not to
exceed $600,000 to pay certain amounts owed to third parties by Methane Energy
Corp., an amount not to exceed $200,000 for unpaid wages and salaries and (iv)
certain other purposes approved by Lender.  Other than as may be
expressly permitted in the Final Order, Borrower shall not be permitted to use
the proceeds of the Term Loan or the Collateral: (A) to finance in any way any
action, suit, 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    arbitration,
proceeding, application, motion or other litigation of any type adverse to the
interests of Lender or its rights and remedies under this Agreement, the other
Loan Documents or the Final Order; or (B) to make any payment in settlement of
any claim, action or proceeding before any court, arbitrator or other
governmental body without the prior written consent of Lender.  Schedule 1.3 contains
a description of Borrower’s sources and uses of funds as of the Closing Date,
including the Term Loan, and a funds flow memorandum detailing how funds from
each source are to be transferred particular uses.

     

    1.4    Interest on Term
Loan.

     

    (a)    Interest
shall accrue on the outstanding principal balance of the Term Loan in arrears
for the preceding calendar month as of the Closing Date and the first accrual
determination date shall be July 1, 2008, and interest shall be payable (i) on
the Maturity Date, and (ii) if any interest accrues or remains payable after the
Maturity Date, upon demand.  If any interest or other payment under
this Agreement becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.

     

    (b)    Borrower
shall be obligated to pay interest to Lender on the outstanding balance of the
Term Loan at a rate equal to twelve percent (12.0%) per annum.  All
computations of interest shall be made on the basis of a three hundred and sixty
(360) day year, in each case for the actual number of days occurring in the
period for which such interest is payable.

     

    (c)    Upon the
occurrence and during the continuance of any Event of Default, the interest rate
applicable to all of the Obligations automatically shall be the Default
Rate.

     

    (d)    Notwithstanding
anything to the contrary set forth in this Section 1.4, if, at
any time prior to the Termination Date, the rate of interest payable to Lender
hereunder exceeds the highest rate of interest permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto (the “Maximum
Lawful Rate”), then in such event and so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable hereunder to Lender shall be
equal to the Maximum Lawful Rate; provided, however, that if at
any time thereafter the rate of interest payable hereunder is less than the
Maximum Lawful Rate, Borrower shall continue to pay interest hereunder to Lender
at the Maximum Lawful Rate until such time as the total interest received by
Lender from the making of the Term Loan hereunder is equal to the total interest
which Lender would have received had the interest rate payable hereunder been
(but for the operation of this paragraph) the interest rate payable since the
Closing Date as otherwise provided in this Agreement.  Thereafter, the
interest rate payable to Lender hereunder shall be the rate of interest provided
in Sections 1.4
(b) or (c), as
applicable, of this Agreement, unless and until the rate of interest again
exceeds the Maximum Lawful Rate, in which event this paragraph shall again
apply.  In no event shall the total interest received by Lender
pursuant to the terms hereof exceed the amount which Lender could lawfully have
received had the interest due hereunder been calculated for the full term hereof
at the Maximum Lawful Rate.  In the event the Maximum Lawful Rate is
calculated pursuant to this paragraph, such interest shall be calculated at a
daily rate equal to the Maximum Lawful Rate divided by the number of days in the
year in which such calculation is made.  In the event that a court of
competent jurisdiction, notwithstanding the provisions of this Section 1.4(d), shall
make a final determination that Lender has received interest hereunder or under
any of the Loan Documents in excess of the Maximum Lawful Rate, Lender shall, to
the extent permitted by Applicable Law, promptly apply such excess first to any
lawful interest due and not yet paid hereunder, then to the outstanding
principal of the Obligations, then to Fees and any other unpaid Obligations and
thereafter shall promptly refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    1.5    Fees.

     

    (a)    Monitoring
Fee.  Borrower agrees to pay to Lender a monitoring fee (the
“Monitoring
Fee”) equal to $22,500 per annum, payable monthly in equal installments
of $1,875 per month.

     

    (b)    Commitment
Fee.  On the Closing Date, Borrower agrees to pay to Lender a
one-time commitment fee equal to two percent (2.0%) of the Term
Loan.

     

    (c)    Prepayment Fee. Upon
any prepayment of the Term Loan prior to the one year anniversary of this
Agreement, the Borrower shall pay to the Lender together with such prepayment an
amount equal to one percent (1%) of such prepayment.

     

    1.6    Receipt of
Payments.  Borrower shall make each payment under this
Agreement not later than 2:00 p.m. (Eastern time) on the day when due in Dollars
in immediately available funds to Lender’s account.

     

    1.7    Application and Allocation
of Payments.  Borrower irrevocably waives the right to direct
the application of any and all payments at any time or times hereafter received
from or on behalf of Borrower.  Notwithstanding the foregoing, in the
absence of a specific determination by Lender with respect thereto, or if an
Event of Default shall have occurred and be continuing, such payments shall be
applied in the following order:  (a) then due and payable Fees and
expenses of Lender; (b) then due and payable interest payments on the Term Loan;
(c) Obligations to Lender other than Fees, expenses and interest and principal
payments; (d) principal of the Term Loan; and (e) to the extent there are no
other Obligations then due and payable, to Borrower or its successors or assigns
or as a court of competent jurisdiction may direct.

     

    1.8    Accounting.  Lender
shall maintain a loan account (the “Loan Account”) on its
books to record:  all payments made by Borrower, and all other debits
and credits as provided in this Agreement with respect to the Term Loan or any
other Obligations.  All entries in the Loan Account shall be made in
accordance with Lender’s customary accounting practices as in effect from time
to time.  The balance in the Loan Account, as recorded on Lender’s
most recent printout or other written statement and provided to Borrower, shall,
absent manifest error and following a thirty (30) day period during which the
Borrower may object in writing to such statement, be presumptive evidence of the
amounts due and owing to Lender by Borrower; provided, that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower’s duty to pay the Obligations.  

     

    1.9    Indemnity.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (a)    Borrower
and each Guarantor shall indemnify and hold harmless Lender and its Affiliates,
and its officers, directors, employees, attorneys and representatives (each, an
“Indemnified
Person”), from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses (including reasonable
attorneys’ fees and disbursements and other costs of investigations or defense,
including those incurred upon any appeal) (each, a “Claim”) which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this
Agreement and any other Loan Document and the administration of such credit, and
in connection with or arising out of the transactions contemplated hereunder and
thereunder, and any actions or failures to act in connection therewith,
including any and all Environmental Liabilities and legal costs and expenses
arising out of or incurred in connection with disputes between or among any
parties to any of the Loan Documents (collectively, “Indemnified
Liabilities”); provided, however, that
Borrower and Each Guarantor shall not be liable for any indemnification to an
Indemnified Person to the extent that any such suit, action, proceeding, claim,
damage, loss, liability or expense results solely from that Indemnified Person’s
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY
OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

     

    (b)    Borrower
hereby acknowledges and agrees that Lender (as of the date hereof) is not now
nor has ever been in control of any of the Subject Property or the affairs or
operations of Borrower.

     

    1.10    Access. 

     

    (a)    Borrower
and each Guarantor shall:  (i) provide access during normal business
hours to Lender and any of its officers, employees and agents as frequently as
Lender determines to be appropriate upon reasonable advance notice to Borrower
(unless a Default shall have occurred and be continuing, in which event no such
notice shall be required and such access shall be at any and all times) to the
properties and facilities of Borrower and Guarantors; (ii) permit Lender and any
of its officers, employees and agents, as frequently as Lender determines to be
appropriate, to inspect, audit and make extracts from all of Borrower and
Guarantor’s records, files and books of account upon reasonable advance notice
to Borrower (unless a Default shall have occurred and be continuing, in which
event no such notice shall be required and such access shall be at any and all
times); and (iii) permit Lender and any of its officers, employees and agents,
as frequently as Lender determines to be appropriate, upon reasonable advance
notice to Borrower (unless a Default shall have occurred and be continuing, in
which event no such notice shall be required and such access shall be at any and
all times) to conduct audits and to inspect, review and evaluate the Collateral,
in each case subject to any confidentiality agreements binding Borrower, and
Borrower agrees to render to Lender at Borrower’s cost and expense such clerical
and other assistance as may be reasonably requested with regard
thereto.

     

    
      
        
        

      

      
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    (b)    Borrower
shall make available to Lender and its counsel, as quickly as practicable under
the circumstances, originals or copies of all books, records, board minutes,
contracts, insurance policies, environmental audits, business plans, files,
financial statements (actual and pro forma), filings with federal, state and
local regulatory agencies, other instruments and documents in the custody or
control or otherwise belonging to or property of Borrower and key personnel for
interviews which Lender may reasonably request.  Borrower shall
deliver any document or instrument reasonably necessary for Lender, as it may
from time to time request, to obtain records from any service bureau or other
Person which maintains records for Borrower, and shall maintain duplicate
records or supporting documentation on media, including computer tapes and discs
owned by Borrower.  Borrower shall make available to Lender, upon its
reasonable request, information and records prepared by its certified public
accountants and its banking and other financial institutions.

     

    1.11    Chief Restructuring
Officer.  The Borrower shall hire C. Scott Wilson or another
employee of the Borrower, satisfactory to Lender, at a salary of Five Thousand
Dollars ($5000) per month, as chief restructuring officer (“Chief Restructuring
Officer”) to, among other things, assure to Lender’s satisfaction that
the Borrower has complied with all budgets and payments to be made hereunder and
administer their estates so as to maintain such compliance.  Any cost
for such Chief Restructuring Officer shall be borne by the Borrower but included
in Fees.  In the event that such individual is not an employee of the
Borrower, such individual shall become an employee of the Borrower prior to
serving as Chief Restructuring Officer. Each individual serving as Chief
Restructuring Officer shall be satisfactory to Lender at all times, in Lender’s
sole discretion.

     

    1.12    Taxes.

     

    (a)    Any and
all payments by or on behalf of Borrower hereunder or under the Term Loan Note
or other Loan Document shall be made, in accordance with this Section 1.11, free
and clear of and without deduction for any and all present or future
Taxes.  If Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under the Term Loan Note or other
Loan Document, (i) the sum payable shall be increased as shall be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 1.11), Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with Applicable Law.

     

    (b)    In
addition, Borrower agrees to pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement (hereinafter
referred to as “Other
Taxes”).

     

    (c)    Borrower
shall indemnify and, within ten (10) days of demand therefor, pay Lender for the
full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 1.11) paid by
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted.

     

    
      
        
        

      

      
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    (d)    Within
thirty (30) days after the date of any such payment of Taxes or Other Taxes
described in Sections
1.11(a), (b) or (c), Borrower shall furnish to Lender the original or a
certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to Lender.

     

    1.13    Super-Priority Nature of
Obligations and Lender’s Liens.

     

    (a)    The
priority of Lender’s Liens on the Collateral shall be as set forth in the Final
Order.  Subject to Final Order, no filings, recordings or other
actions shall be necessary to perfect and maintain the perfection and status of
such Liens.

     

    (b)    All
Obligations of Borrower and the Guarantors shall constitute administrative
expenses of such party in the Chapter 11 Cases, with administrative priority and
senior-secured status under Sections 364(c) and 364(d) of the Bankruptcy
Code.  Subject only to the Carve-Out Amount, such administrative claim
shall have priority over all other costs and expenses of the kinds specified in,
or ordered pursuant to, Sections 105, 326, 330, 331, 503(b), 506(c), 507(a),
507(b), 726 or any other provision of the Bankruptcy Code and shall at all times
be senior to the rights of Borrower and the Guarantors, Borrower’ and Guarantors
estates, and any successor trustee or estate representative in the Chapter 11
Cases or any subsequent proceeding or case under the Bankruptcy
Code.  The liens and security interests granted to Lender in and
against the Collateral, and the priorities accorded to the Obligations, shall
have the priority and senior-secured status afforded by Sections 364(c) and
364(d)(1) of the Bankruptcy Code (all as more fully set forth in Final Order)
senior to all claims and interests other than the Carve-Out Expenses up to the
Carve-Out Amount.

     

    (c)    Lender’s
Liens and its administrative claim under Sections 364(c)(1) and 364(d) of the
Bankruptcy Code afforded the Obligations shall also have priority over any
claims arising under Section 506(c) of the Bankruptcy Code, subject and
subordinate only to the  Carve-Out Expenses subject to the Carve-Out
Amount, subject to the right of the Lender and any other party-in-interest to
object to the award of such fees and expenses in accordance with any applicable
Bankruptcy Rule or, if applicable, order of the Bankruptcy Court relating to the
approval of fees and expenses and objections thereto; provided, however, that
Carve-Out Expenses shall not include, and the Carve-Out Amount shall not be
available to pay, any fees or disbursements (A) arising after the conversion of
a Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code or (B)
related to the commencement or prosecution of any claims or proceedings against
Lender or its claims or security interests in, or Liens upon, the Collateral
whether under this Agreement or any other Loan Document.  In the event
of any inconsistency in the definition of “Carve-Out Amount”
between the provisions of this Agreement and the Final Order, the provisions of
the Final Order shall govern.

     

    (d)    Except as
set forth herein or in the Final Order, no other claim having a priority
superior or pari passu to that granted to Lender by the Final Order shall be
granted or approved while any Obligations under this Agreement remain
outstanding.

     

    
      
        
        

      

      
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    1.14    Payment of
Obligations.  Upon the maturity (whether by acceleration or
otherwise) of any of the Obligations under this Agreement or any of the other
Loan Documents, Lender shall be entitled to immediate payment of such
Obligations without further application to, or order of, the Bankruptcy
Court.

     

    1.15    No Discharge; Survival of
Claims.  Borrower and the Guarantors agree, to the extent
applicable, that (a) the Obligations hereunder shall not be discharged by the
entry of an order confirming a plan of reorganization in the Chapter 11 Cases
(and Borrower and the Guarantors, pursuant to Section 1141(d)(4) of the
Bankruptcy Code, hereby waive any such discharge) and (b) any super-priority
administrative claim granted to Lender pursuant to any order described in Section 1.12 and the
Liens granted to Lender pursuant to any order described in Section 1.12 shall
not be affected in any manner by the entry of an order confirming a plan of
reorganization in the Chapter 11 Cases.

     

    1.16    Waiver of Any Priming
Rights.  Upon the Closing Date, and on behalf of itself and its
estate, and for so long as any Obligation shall be outstanding, Borrower and
each Guarantors hereby irrevocably waives any right, pursuant to Sections 364(c)
or 364(d) of the Bankruptcy Code or otherwise, to grant any Lien of equal or
greater priority than the Lien securing the Obligations, or to approve a claim
of equal or greater priority than the Obligations.

     

    2.    CONDITIONS
PRECEDENT

     

    2.1    Conditions to the Term
Loan.  Notwithstanding any other provision of this Agreement
and without affecting in any manner the rights of Lender hereunder, Borrower
shall have no rights under this Agreement (but shall have all applicable
obligations hereunder), and Lender shall not be obligated to make any Advances,
or to take, fulfill, or perform any other action hereunder, until the following
conditions have been fulfilled to the satisfaction of Lender:

     

    (a)    Lender
shall have received duly executed counterparts of the Agreement and the other
Loan Documents from the Borrower and the Guarantors, and such documents,
instruments, certificates, and agreements as Lender shall reasonably request in
connection with the transactions contemplated by this Agreement, including all
documents, instruments, agreements and other materials listed in Schedule 2.1(a), each
in form and substance satisfactory to Lender;

     

    (b)    Lender
shall have received evidence satisfactory to it that Borrower and the Guarantors
have obtained consents and acknowledgments of all Persons whose consents and
acknowledgments may be required, including, but not limited to, all requisite
Governmental Authorities, to the terms and to the execution and delivery, of
this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby.  Lender shall have
received resolutions of the Board of Directors or other governing body of
Borrower and each Guarantor approving and authorizing, among other things, the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party or by which it or its assets may be bound as of
the Closing Date, certified as of the Closing Date by the Borrower as being in
full force and effect without modification or amendment.  Lender shall
have received signature and incumbency certificates of the officers of such
Person executing the Loan Documents;

     

    
      
        
        

      

      
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    (c)    On the
date of any Advance, Lender shall be satisfied in its sole discretion that
Lender has a valid and continuing first priority perfected security interest in
all assets of the Borrower and the Guarantors, including all of Borrower’s and
its Subsidiaries’ rights under and to the Subject Property;

     

    (d)    Lender
shall have received certificates of property and liability insurance of Borrower
and the Guarantors showing loss payable or additional insured clauses or
endorsements, or both, as appropriate, in favor of Lender, in form and substance
satisfactory to Lender;

     

    (e)    No
action, proceeding, investigation, regulation or legislation shall have been
instituted or threatened before any Governmental Authority as of the date of any
Advance to enjoin, restrain or prohibit, or to obtain damages in respect of, or
which is related to or arises out of this Agreement or any of the other Loan
Documents or the consummation of the transactions contemplated hereby and
thereby and which, in Lender’s sole judgment, would make it inadvisable to
consummate the transactions contemplated by this Agreement or any of the other
Loan Documents;

     

    (f)    Other
than the Chapter 11 Cases and as is disclosed in Schedule 2.1(e), none
of the following shall have occurred and be continuing as of the date of any
Advance:  (i) a Material Adverse Effect; (ii) a material increase in
liabilities, liquidated or contingent (net of any offsetting increase in
assets), or a material decrease in assets of Borrower and the Guarantors; or
(iii) any litigation or other proceeding which could reasonably be expected to
be successful is pending or threatened which, if successful, could, individually
or in the aggregate, reasonably be expected to have or result in a Material
Adverse Effect;

     

    (g)    Lender
shall have received all requested financial information and financial statements
requested of Borrower, certified by the Borrower, and in form and substance
satisfactory to Lender; and

     

    (h)    Lender
shall have received the Budget.

     

    3.    REPRESENTATIONS
AND WARRANTIES

     

    To induce
Lender to enter into this Agreement and make the Term Loan, Borrower and each
Guarantor makes the following representations and warranties to Lender on the
date of each Advance (and each such representation and warranty shall survive
the execution and delivery of this Agreement) that:

     

    3.1    Corporate Existence;
Compliance with Law.  Each of the Borrower and each
Guarantor:  (a) is an entity duly organized or formed, validly
existing and in good standing under the laws of the jurisdiction of its
formation and is duly qualified to do business and is validly existing or in
good standing, as the case may be, in each other jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification; (b) subject to the entry of the Final Order by the Bankruptcy
Court, has the requisite power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted; (c) has all material licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all material
notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct; (d) is in compliance with
its certificate or articles of formation and operating agreement; and (e) is in
compliance in all material respects with all Applicable Law except to the extent
that (i) such compliance is excused by the U.S.  Bankruptcy Code or by
an applicable order of the Bankruptcy Court and (ii) such non-compliance would
neither have nor could reasonably be expected to have a Material Adverse
Effect.

     

    
      
        
        

      

      
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    3.2    Executive Offices; Corporate
or Other Names; FEIN.  The current locations of Borrower’s and
Guarantors’ executive offices, principal place of business, corporate offices,
all warehouses and premises within which any Collateral is stored or located,
and the locations of Borrower’s and Guarantors’ records concerning the
Collateral are set forth in Schedule 3.2 and,
except as set forth in Schedule 3.2, such
locations have not changed during the preceding 12 months.  In
addition, the federal employer identification number of Borrower is shown on
Schedule
3.2.  During the prior five (5) years, except as set forth in
Schedule 3.2,
neither Borrower nor any Guarantor has been known as or used any corporate,
fictitious or trade name.

     

    3.3    Corporate Power;
Authorization; Enforceable Obligations.  Upon the entry of the
Final Order by the Bankruptcy Court, the execution, delivery and performance by
each of the Borrower and each Guarantor of the Loan Documents to which it is a
party and all other instruments and documents to be delivered by it hereunder
and thereunder to the extent it is a party thereto and the creation of all Liens
provided for herein and therein:  (a) are within its organizational
power; (b) have been duly authorized by all necessary action; (c) are not in
contravention of any provision of its certificate or articles of organization or
by-laws or other organizational documents; (d) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality;
(e) will not conflict with or result in the breach or termination of, constitute
a default under or accelerate any performance required by, any material
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which it is a party or by which it or any of its material property is bound; (f)
will not result in the creation or imposition of any Lien upon any of the
property of Borrower or any Guarantor other than those in favor of Lender, all
pursuant to the Loan Documents; and (g) do not require the consent or approval
of any Governmental Authority or any other Person, all of which will have been
duly obtained, made or complied with prior to the Closing Date and which are in
full force and effect.  At or prior to the Closing Date, each of the
Loan Documents to which each of the Borrower and each Guarantor is a party shall
have been duly executed and delivered by it and shall then, assuming due
execution and delivery by the other parties thereto, subject to the entry of the
Final Order by the Bankruptcy Court, constitute a legal, valid and binding
obligation of it to the extent it is a party thereto, enforceable against it in
accordance with its terms.

     

    3.4    Financial
Statements.  Borrower has delivered to Lender audited financial
statements of Borrower for the fiscal year ended March 31, 2007 and unaudited
financial statements for each fiscal quarter thereafter (together, the “Financial
Statements”).  The Financial Statements, taken as whole, fairly
present in all material respects, in accordance with GAAP, (i) the financial
condition of Borrower and Guarantors as of the date thereof, and (ii) the
results of operations and cash flow of Borrower for the fiscal year ended March
31, 2007 and the most recently available fiscal quarter, as applicable.

     

    
      
        
        

      

      
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    3.5    Material Adverse
Effect.  Except as set forth in Schedule 3.5,
Borrower and Guarantors have no material obligations, contingent liabilities, or
liabilities for Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the Financial
Statements.  Except as otherwise permitted hereunder or as set forth
in Schedule
3.5, no Restricted Payment has been made since December 31, 2007, and no
shares of Stock of Borrower have been, or are now required to be, redeemed,
retired, purchased or otherwise acquired for value by Borrower.  Other
than as disclosed in the audited financial statements of Borrower for the fiscal
year ended March 31, 2007, since such date no event or events have occurred or
are continuing which, individually or in the aggregate, could reasonably be
expected to have or result in a Material Adverse Effect, other than the
commencement of the Chapter 11 Cases and any such event or events which have
been disclosed in writing to the Lender.

     

    3.6    Ownership of Property;
Liens.  Except as described in Schedule 3.6, the
real estate listed in Schedule 3.6
constitutes all of the real property owned, leased or used in Borrower’s and
Guarantors’ businesses.  Each of Borrower and Guarantors has either
good and marketable title or valid leasehold interests in the properties listed
on such Schedule.  Borrower and Guarantors do not own any real
property or have any real property interests other than as set forth on Schedule
3.6.  None of the properties and assets of Borrower or a
Guarantor are subject to any Liens, except (x) Permitted Encumbrances, (y) the
Pre-Petition Liens and (z) from and after the Closing Date, the Lien in favor of
Lender pursuant to the Collateral Documents.  Except as described in
Schedule 3.6,
Borrower has received all deeds, assignments, waivers, consents, non-disturbance
and recognition or similar material agreements, bills of sale and other
documents, and duly effected all recordings, filings and other material actions
necessary to establish, protect and perfect Borrower’s and Guarantors’ right,
title and interest in and to all such real estate and other assets or
property.  Except as described in Schedule 3.6: (i)
Neither Borrower nor any Guarantor owns, holds or is obligated under or a party
to, any option, right of first refusal or any other contractual right to
purchase, acquire, sell, assign or dispose of any real property owned by
Borrower it as set forth in Schedule 3.6, and
(ii) no material portion of any real property owned by it has suffered any
material damage by fire or other casualty loss which has not heretofore been
completely repaired and restored to its condition before the
casualty.  All permits required to have been issued or appropriate to
enable the real property owned by Borrower or a Guarantor to be lawfully
occupied and used for all of the purposes for which they are currently occupied
and used have been lawfully issued and are, as of the date hereof, in full force
and effect.

     

    3.7    Restrictions; No
Default.  No Contract, lease, agreement, instrument or other
document to which Borrower is a party or by which it or any of its properties or
assets is bound or affected and no provision of any charter, corporate
restriction, Applicable Law or governmental regulation, individually or in the
aggregate, has had a Material Adverse Effect since December 31,
2007.  Borrower and Guarantors are not in default, and to the
knowledge of Borrower and Guarantors, no third party is in default, under or
with respect to any Contract, lease, agreement, instrument or other documents to
which Borrower or a Guarantor is a party, which default or defaults,
individually or in the aggregate, could reasonably be expected to have or result
in a Material Adverse Effect.  No Default has occurred and is
continuing.

     

    3.8    Ventures, Subsidiaries and
Affiliates; Outstanding Stock and Indebtedness.  Borrower has
no Subsidiaries other than the Guarantors.  Borrower and the
Guarantors are not engaged in any joint venture or partnership with another
Person, except as set forth in Schedule
3.8.  Except as set forth in Schedule 3.8, there
are no outstanding rights to purchase options, warrants or similar rights or
agreements pursuant to which Borrower may be required to issue, sell or purchase
any Stock or other equity security.  Schedule 3.8 lists
all outstanding Stock of Borrower and the Guarantors and the percentage of
ownership and voting interests of the owners thereof as of the Closing
Date.

     

    
      
        
        

      

      
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    3.9    Government
Regulation.  Borrower and the Guarantors are not (a) an
“investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company,” as such terms are defined in the
Investment Company Act of 1940 as amended; or (b) subject to regulation under
the Federal Power Act, the Interstate Commerce Act or any other federal or state
statute that restricts or limits Borrower’s and Guarantors’ ability to incur
Indebtedness, pledge their assets, or to perform their obligations hereunder, or
under any other Loan Document, and the making of the Term Loan by Lender, the
application of the proceeds and repayment thereof by Borrower and the Guarantors
and the consummation of the transactions contemplated by this Agreement and the
other Loan Documents, will not violate any provision of any such statute or any
rule, regulation or order issued by the Securities and Exchange
Commission.

     

    3.10    Taxes.  Except
as set forth in Schedule 3.10, all
federal, state, local and foreign tax returns, reports and statements, including
information returns required to be filed with respect to Borrower and the
Guarantors have been timely filed, all such tax returns, reports and statements
are correct and complete in all material respects, and except as otherwise
prohibited by the Chapter 11 Cases, all Charges and other impositions due and
payable with respect to Borrower and the Guarantors (whether or not shown on any
such tax returns, reports and statements) have been paid prior to the date on
which any fine, penalty, interest or late charge may be added thereto for
nonpayment thereof.  Borrower and the Guarantors have adequately
provided for in their books and records all unpaid Charges and other
impositions, being those not yet due and payable.  Proper and accurate
amounts have been withheld by Borrower and the Guarantors from their employees
and other third parties for all periods and such withholdings have been timely
paid to the respective Governmental Authorities.  Schedule 3.10 sets
forth those taxable years for which any of the tax returns of Borrower and the
Guarantors are currently being audited by the IRS or any other applicable
Governmental Authority, and any currently, pending or threatened assessments,
actions, disputes or claims with respect to taxes are listed
thereon.  There are no liens on any of the assets of Borrower and the
Guarantors with respect to Taxes except for Permitted
Encumbrances.  Except as described in Schedule 3.10,
Borrower and the Guarantors have not executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges or
the filing of any tax return.  None of the property owned by Borrower
and the Guarantors is property which it is required to treat as being owned by
any other Person pursuant to the provisions of IRC Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, and in effect immediately prior to
the enactment of the Tax Reform Act of 1986 or is “tax-exempt use property”
within the meaning of IRC Section 168(h).  Borrower and the Guarantors
have not agreed or been requested to make any adjustment under IRC Section
481(a) by reason of a change in accounting method or
otherwise.  Borrower and the Guarantors have no obligation under any
tax-sharing agreement or arrangement, or liability for Charges or impositions
for any other Person under applicable law, as transferee or successor, or by
contract, except as described in Schedule
3.10.

     

    
      
        
        

      

      
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    3.11    ERISA.  Schedule 3.11 lists
all Plans maintained or contributed to by Borrower and the Guarantors and all
Qualified Plans, Pension Plans, Retiree Welfare Plans or Welfare Plans
maintained or contributed to by any ERISA Affiliate.  Except as set
forth on Schedule
3.11, none of the Borrower, any Guarantors or any current or former ERISA
Affiliate sponsors (or has sponsored), contributes to (or has contributed to),
or is (or was) required to contribute to or has any liability with respect to
any Title IV Plan, any Plan subject to IRC Section 412 or ERISA Section 302, or
any Retiree Welfare Plan.  Except as set forth on Schedule 3.11, none
of Borrower, any Guarantor or any current or former ERISA Affiliate contributes
to (or has contributed to) or is (or was) required to contribute to any
Multiemployer Plan.  IRS determination letters regarding the qualified
status under IRC Section 401 of each Qualified Plan have been received as of the
dates listed in Schedule
3.11.  Each of the Qualified Plans has been amended to comply
with the Tax Reform Act of 1986 and to make other changes required under the IRC
or ERISA, and if such required amendments are not subject to the determination
letters described in the previous sentence, each Qualified Plan so amended will
be submitted to the IRS for a determination letter as to the ongoing qualified
status of the Plan under the IRC within the applicable IRC Section 401(b)
remedial amendment period; and each such Plan shall be amended, including
retroactive amendments, as required during such determination letter process to
maintain the qualified status of such Plans.  To the knowledge of
Borrower and the Guarantors, the Qualified Plans as amended continue to qualify
under Section 401 of the IRC, the trusts created thereunder continue to be
exempt from tax under the provisions of IRC Section 501(a), and nothing has
occurred which would cause the loss of such qualification or tax-exempt
status.  Except as set forth on Schedule 3.11, each
Plan is in compliance in all material respects with the applicable provisions of
ERISA and the IRC, including the filing of all reports required under the IRC or
ERISA which are true and correct as of the date filed, and all required
contributions and benefits have been paid in accordance with the provisions of
each such Plan.  Borrower and the Guarantors have not engaged in a
prohibited transaction, as defined in IRC Section 4975 or Section 406 of ERISA,
in connection with any Plan which would subject any such Person (after giving
effect to any exemption) to a material tax on prohibited transactions imposed by
IRC Section 4975 or any other material liability.  Except as set forth
in Schedule
3.11:  (i) there are no pending, or to the knowledge of
Borrower and the Guarantors, threatened claims, actions or lawsuits (other than
claims for benefits in the normal course), asserted or instituted against (x)
any Plan or its assets, (y) any fiduciary with respect to any Plan or (z)
Borrower or the Guarantors or any ERISA Affiliate with respect to any Plan; (ii)
Borrower and the Guarantors and each ERISA Affiliate have complied with the
notice and continuation coverage requirements of IRC Section 4980B and the
proposed or final regulations thereunder; and (iii) no liability under any Plan
has been funded, nor has such obligation been satisfied with, the purchase of a
contract from an insurance company that is not A rated by A.M.  Best
and the equivalent by each other nationally recognized rating
agency.

     

    3.12    No
Litigation.  Other than the Chapter 11 Cases and except as set
forth in Schedule
3.12 as of the Closing Date, no litigation, action, suit, arbitration,
investigation or other proceeding is now pending or, to the knowledge of
Borrower and the Guarantors, threatened against it, at law, in equity or
otherwise; and no such matter (whether shown on Schedule 3.12 as of
the Closing Date or subsequently arising) (a) challenges any such Person’s
right, power, or competence to enter into or perform any of its obligations
under the Loan Documents, or the validity or enforceability of any Loan Document
or any action taken thereunder or any Liens granted to Lender, or (b) if
determined adversely and if it could be reasonably expected to be determined
adversely, individually or in the aggregate, could reasonably be expected to
have or result in a Material Adverse Effect.  To the knowledge of
Borrower and the Guarantors other than the Chapter 11 Cases and except as set
forth in Schedule 3.12
as of the Closing Date, there does not exist a state of facts which could
reasonably be expected to give rise to any such litigation, action, suit, claim,
arbitration, investigation or other proceeding.

     

    
      
        
        

      

      
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    3.13    Brokers.  Except
as set forth in Schedule 3.13, no
broker or finder, investment banker or other intermediary of any kind acting on
behalf of Borrower and the Guarantors brought about the obtaining, making or
closing of the credit extended pursuant to this Agreement or the transactions
contemplated by the Loan Documents, and Borrower and the Guarantors have no
obligation to any Person in respect of any finder’s, brokerage investment
banking, placement or other fees or amounts (including expenses) due in
connection therewith.

     

    3.14    Full
Disclosure.  No information contained in this Agreement, the
other Loan Documents, the Financial Statements or any written statement
furnished by or on behalf of Borrower and the Guarantors pursuant to the terms
of this Agreement or any other Loan Document, which has previously been
delivered to Lender, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made.  

     

    3.15    Environmental
Matters.  Except as set forth on Schedule 3.15 and for
routine operations in the ordinary course of business in compliance with
applicable permits issued by or law of a Governmental Authority, the Subject
Property is free of any Hazardous Material and Borrower and the Guarantors have
not caused or suffered to occur any Release at, under, above or within any
Subject Property, which violated any Environmental Law.  Except as set
forth on Schedule
3.15, there are no existing or potential Environmental Liabilities for
Borrower and the Guarantors of which they have knowledge.  Borrower
and the Guarantors are not involved in operations which are reasonably likely to
result in material Environmental Liabilities on it, or any owner of any premises
which it occupies, or any Lien securing the same under any Environmental
Law.  Borrower and the Guarantors have provided to Lender copies of
all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities relating
to or affecting the Subject Property.  Borrower and the
Guarantors hereby acknowledge and agree that Lender is not now, and has not ever
been, in control of any of the Subject Property or Borrower’s and the
Guarantors’ affairs, and (ii) does not have the capacity through the provisions
of this Agreement or the other Loan Documents or otherwise to influence
Borrower’s and the Guarantors’ conduct with respect to the ownership, operation
or management of any of the Subject Property or compliance (or not) with
Environmental Laws.

     

    3.16    Insurance
Policies.  Borrower’s and Guarantors’ insurance is reasonable
and standard for Borrower’s and Guarantors’ industry and geographic
location.

     

    3.17    Deposit and Disbursement
Accounts.  Schedule 3.17 lists
all banks and other financial institutions at which Borrower and the Guarantors
maintain deposits or other accounts or post office lock boxes and such Schedule
correctly identifies the name, address and telephone number of each depository,
the name in which the account is held, a description of the purpose of the
account, and the complete account number.  Borrower and the Guarantors
have delivered to Lender true, correct and complete copies of all agreements,
instruments and other documents relating to any credit card programs,
arrangements or agreements to which they are a party.  

     

    
      
        
        

      

      
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    3.18    Government
Contracts.  Except as set forth in Schedule 3.18, as of
the Closing Date, Borrower and the Guarantors are not party to any contract or
agreement with the federal government and no Borrower’s or Guarantors’ Accounts
are subject to the Federal Assignment of Claims Act (31
U.S.C.  Section 3727).

     

    3.19    Customer and Trade
Relations.  As of the Closing Date, except as set forth on
Schedule 3.19,
there exists no actual or threatened termination or cancellation of, or any
material adverse modification or change in: (a) the business relationship of
Borrower and the Guarantors with any customer or group of customers whose
purchases during the preceding twelve (12) months caused them to be ranked among
the ten (10) largest customers of Borrower and the Guarantors; or (b) the
business relationship of Borrower and the Guarantors with any supplier material
to its operations.

     

    3.20    Agreements and Other
Documents.  As of the Closing Date, Borrower and the Guarantors
have provided Lender and its counsel, accurate and complete copies (or
summaries) of all of the following Material Contracts to which Borrower and the
Guarantors are subject and each of which are listed on Schedule
3.20:  (a) supply agreements and purchase agreements not
terminable by Borrower and the Guarantors within sixty (60) days following
written notice issued by Borrower and the Guarantors and involving transactions
in excess of $100,000 per annum; (b) any lease of Equipment having a remaining
term of one year or longer and requiring aggregate rental and other payments in
excess of $50,000 per annum; (c) licenses and permits held by Borrower and the
Guarantors, the absence of which could be reasonably likely to have a Material
Adverse Effect; (d) instruments or documents evidencing Indebtedness of Borrower
and the Guarantors and any security interest granted by Borrower and the
Guarantors with respect thereto; and (e) instruments and agreements evidencing
the issuance of any Stock, warrants, rights or options to purchase Stock of
Borrower and the Guarantors.

     

    3.21    Bankruptcy Matters.

     

    (a)    The
Chapter 11 Cases were commenced on the Petition Date in accordance with
Applicable Law and proper notice thereof and proper notice of the hearing for
the approval of the Final Order has been given.

     

    (b)    Pursuant
to and to the extent permitted in the Final Order, the Obligations will
constitute allowed administrative expense claims in the Chapter 11 Cases having
priority over all administrative expense claims and unsecured claims against
Borrower now existing or hereafter arising, of any kind whatsoever, including,
without limitation, all administrative expense claims of the kind specified in
Sections 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, or any
other provision of the Bankruptcy Code, as provided under Section 364(c)(1) of
the Bankruptcy Code, subject, as to priority only, to the Carve-Out
Amount.

     

    
      
        
        

      

      
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    (c)    Pursuant
to and to the extent provided in the Final Order, the Obligations will be
secured by a valid and perfected first priority Lien in and against all of the
Collateral.

     

    (d)    The Final
Order is in full force and effect and has not been reversed, stayed, modified or
amended (except as may be modified or amended with Lender’s express written
consent).

     

    (e)    Notwithstanding
the provisions of Section 362 of the Bankruptcy Code, upon the maturity (whether
by acceleration or otherwise) of any of the Obligations, Lender shall be
entitled to immediate payment of such Obligations and to enforce the remedies
provided for hereunder, without further application to or order by the
Bankruptcy Court.

     

    4.    FINANCIAL
STATEMENTS AND INFORMATION

     

    4.1    Reports and
Notices.  Borrower covenants and agrees that from and after the
Closing Date and until the Termination Date, it shall deliver to Lender the
Financial Statements, budgets, cash flow forecasts, reports and notices at the
times and in the manner set forth in Annex
B.  

     

    4.2    Communication with
Accountants.  Borrower authorizes Lender to communicate
directly with its independent certified public accountants and tax advisors
(excluding legal counsel) and authorizes those accountants and advisors to
disclose to Lender any and all work papers and financial statements and other
supporting financial documents and schedules, including copies of any management
letter with respect to the business, financial condition and other affairs of
Borrower; provided, however, that Lender
shall give Borrower reasonable prior notice of any such communications and
Borrower shall be invited to be present during any such communications (but such
presence shall not be a prerequisite of such communications).  At
Lender’s request, Borrower shall send a letter to such accountants and tax
advisors, and deliver a copy thereof to Lender, instructing them to make
available to Lender such information and records as Lender may reasonably
request and to otherwise comply with the provisions of this Section
4.  In addition, at or before the Closing Date and on each date
the annual audited consolidated financial statements are delivered to Lender as
required by Annex
B, such accountants and tax advisors shall deliver a letter to Lender
stating that (a) Lender is entitled to rely upon any such accountant’s
certification of Borrower’s audited financial statements delivered after the
Closing Date and (b) such accountants and tax advisors shall otherwise comply
with this Section
4 (including making available such information and records as Lender may
reasonably request).

     

    4.3    Documents Filed with the
Bankruptcy Court or Delivered to the U.S.  Trustee or
Committee.  At the time any report (including, without
limitation, monthly reports), projection, prospectus or other similar document
is filed with the Bankruptcy Court and not otherwise served on counsel to
Lender, Borrower shall deliver to Lender copies of any such report, projection,
prospectus or other similar document.  Borrower shall also promptly
provide Lender with copies of all reports provided by or on behalf of Borrower
to the Committee, if any, with respect to the Chapter 11 Case.

     

    5.    AFFIRMATIVE
COVENANTS

     

    
      
        
        

      

      
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    Borrower
and each Guarantor covenants and agrees that, unless Lender shall otherwise
consent in writing, from and after the date hereof and until the Termination
Date, Borrower and each Guarantor shall comply with the following affirmative
covenants:

     

    5.1    Maintenance of Existence and
Conduct of Business.  (a) Except as occasioned by the Chapter
11 Cases, do or cause to be done all things necessary to preserve and keep in
full force and effect its statutory existence and corporate franchises; (b)
continue to conduct its business substantially as now conducted or as otherwise
permitted hereunder; (c) at all times maintain, preserve and protect all of its
material Intellectual Property, and preserve all the remainder of its material
property, in use or useful in the conduct of its business and keep the same in
good repair, working order and condition (taking into consideration ordinary
wear and tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times, provided that nothing in
this Section 5.1(c) shall prevent Borrower from discontinuing the use or
operation of any property if such discontinuance, in the judgment of Borrower’s
Board of Directors, is desirable in the conduct of its business; and (d)
transact business only under the names set forth in Schedule
3.2.

     

    5.2    Payment of Charges and
Claims.  To the extent permitted hereunder and to the extent
applicable in the Chapter 11 Cases, pay and discharge, or cause to be paid and
discharged in accordance with the terms thereof, (a) all Charges imposed upon it
or its income and profits, or any of its property (real, personal or mixed)
prior to the date on which penalties attach thereto, and (b) all lawful claims
for labor, materials, supplies and services or otherwise, which, if unpaid,
might or could become a Lien on its property; provided, however, that
Borrower shall not be required to pay any such Charge or claim which is being
contested in good faith by proper legal actions or proceedings, so long as at
the time of commencement of any such action or proceeding and during the
pendency thereof (i) reserves with respect thereto are established and are
maintained in accordance with GAAP, (ii) such contest operates to suspend
collection of the contested Charges or claims and is maintained and prosecuted
continuously with diligence, (iii) none of the Collateral would be subject to
forfeiture or loss by reason of the institution or prosecution of such contest,
(iv) no Liens securing an aggregate amount in excess of $25,000 shall exist for
such Charges or claims during such action or proceeding (excluding Liens
securing obligations fully covered by insurance or otherwise bonded to the
satisfaction of Lender), and (v) if such contest is terminated or discontinued
adversely to Borrower, Borrower shall promptly pay or discharge such contested
Charges and all additional charges, interest penalties and expenses, if any, and
shall deliver to Lender evidence reasonably acceptable to Lender of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to Borrower.

     

    5.3    Books and
Records.  Keep adequate records and books of account with
respect to its business activities, in which proper entries, reflecting all of
its consolidated and consolidating financial transactions, are made in
accordance with GAAP and on a basis consistent with the Financial Statements in
all material respects.

     

    5.4    Litigation.  Notify
Lender in writing, promptly upon learning thereof, of any litigation, action,
suit, claim, investigation, arbitration or other proceeding commenced or
threatened, at law, in equity or otherwise against it, and of the institution
against it of any suit or administrative proceeding which (a) could reasonably
be expected to involve an amount in excess of $25,000 individually or in the
aggregate, or (b) if adversely determined, individually or in the aggregate,
could reasonably be expected to have or result in a Material Adverse
Effect.

     

    
      
        
        

      

      
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    5.5    Insurance.

     

    (a)    At its
sole cost and expense, maintain or cause to be maintained policies of insurance
of such type and in such amounts as is reasonable and standard in Borrower’s
industry and geographic location and as is satisfactory to Lender and with
insurers recognized as adequate by Lender.  Borrower shall notify
Lender promptly of any adverse occurrence causing a material loss or material
decline in value of any real or personal property and the estimated (or actual,
if available) amount of such loss or material decline.  Borrower
hereby directs all present and future insurers under its “All Risk” policies of
insurance to pay all proceeds payable thereunder directly to
Lender.  Each of the Borrower and each Guarantor irrevocably makes,
constitutes and appoints Lender (and all officers, employees or agents
designated by Lender) as its true and lawful agent and attorney in-fact for the
purpose of, upon the occurrence and during the continuance of a Default, making,
settling and adjusting claims under the “All Risk” policies of insurance,
endorsing the name of such Person on any check, draft, instrument or other item
of payment for the proceeds of such “All Risk” policies of insurance, and for
making all determinations and decisions with respect to such “All Risk” policies
of insurance.  In the event Borrower at any time or times hereafter
shall fail to obtain or maintain (or fail to cause to be obtained or maintained)
any of the policies of insurance required above or to pay any premium in whole
or in part relating thereto, Lender, without waiving or releasing any
Obligations or Default hereunder, may at any time or times thereafter (but shall
not be obligated to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which Lender deems
advisable.  All sums so disbursed, including reasonable attorneys’
fees, court costs and other charges related thereto, shall be payable, on
demand, by Borrower to Lender and shall be additional Obligations hereunder
secured by the Collateral.

     

    (b)    Lender
reserves the right at any time, upon review of Borrower’s risk profile, to
reasonably require additional forms and limits of insurance to adequately
protect Lender’s interests.  Borrower shall, if so requested by
Lender, deliver to Lender, as often as Lender may reasonably request, a report
of a reputable insurance broker reasonably satisfactory to Lender with respect
to its insurance policies.

     

    5.6    Compliance with Laws.
Comply in all material respects with all federal, state and local laws
(including those relating to bankruptcy and insolvency laws), permits and
regulations applicable to it, including those relating to licensing,
environmental, ERISA and labor matters.

     

    5.7    Agreements;
Leases.  (i) Perform, within all required time periods (after
giving effect to any applicable grace periods), all of its material obligations
(except where Borrower is contesting such obligation reasonably and in good
faith or where performance is excused by the Bankruptcy Code or by an applicable
order of the Bankruptcy Court and such non-compliance would neither have nor
could be reasonably expected to have a Material Adverse Effect on Borrower’s
business or assets or upon any of the rights, remedies or interests of the
Lender) and (ii) enforce all of its material rights under each Contract or other
document or instrument to which it is a party.  Borrower shall perform
and comply in all material respects with all obligations in respect of Chattel
Paper, Instruments, Contracts, Licenses, and Documents and all other agreements
constituting or giving rise to Collateral, except to the extent that (i) such
compliance is excused by the Bankruptcy Code or by an applicable order of the
Bankruptcy Court as to Borrower and (ii) such non-compliance would neither have
nor could reasonably be expected to have a Material Adverse Effect on Borrower’s
business or assets or upon any of the rights, remedies or interests of the
Lender.

     

    
      
        
        

      

      
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    5.8    Intentionally
Omitted.

     

    5.9    Environmental
Matters.  Except as otherwise prohibited by the Chapter 11
Case, comply in all material respects with all Environmental Laws and permits
applicable to it, (b) notify Lender promptly after Borrower becomes aware of any
Release upon any Subject Property which, individually or in the aggregate, could
reasonably be expected to have or result in a Material Adverse Effect, and (c)
promptly forward to Lender a copy of any order, notice, permit, application, or
any communication or report by any Governmental Authority received by Borrower
in connection with any such Release or any other matter relating to the
Environmental Laws that may affect any Subject Property or
Borrower.  The provisions of this Section 5.9 shall
apply whether or not the Environmental Protection Agency, any other federal
agency or any state or local environmental agency has taken or threatened any
action in connection with any Release or the presence of any Hazardous
Materials.

     

    5.10    Application of
Proceeds.  Use the proceeds of the Term Loan as provided in
Section
1.3.

     

    5.11    Fiscal
Year.  Maintain as its Fiscal Year the year ending March
31st.

     

    5.12    Subsidiaries.  Not
form or acquire any Subsidiary.

     

    5.13    Further
Assurances.  At its sole cost and expense, upon request of
Lender, duly execute and deliver, or cause to be duly executed and delivered, to
Lender such further instruments and documents and do and cause to be done such
further acts as may be necessary or proper in the reasonable opinion of Lender
to carry out more effectively the provisions and purposes of this Agreement or
any other Loan Document.

     

    5.14    Appraisals.  Allow
Lender and its designees from time to time as Lender shall direct, to perform,
and shall assist Lender and its designees in performing, appraisals of
Borrower’s Inventory, Equipment, accounts receivable and Subject
Property.  So long as no Default has occurred and is continuing,
Lender agrees to provide to Borrower upon the request of Borrower any such
appraisal prepared by a third party unaffiliated with Lender which has consented
to Lender so providing such appraisal.  In furtherance of the
foregoing, Lender agrees to use reasonable efforts to obtain any such
consent.  Borrower agrees to pay all reasonable out-of-pocket costs
and expenses incurred by Lender in connection with such appraisals conducted
after a Default.

     

    5.15    Intellectual
Property.  Conduct its business and affairs without
infringement of or interference with any Intellectual Property of any other
Person.

     

    
      
        
        

      

      
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    5.16    Schedule of Financial
Affairs.  On or before June 4, 2008, file with the Bankruptcy
Court completed statements of financial affairs and schedules of assets and
liabilities as required by the Bankruptcy Rules.

     

    6.    NEGATIVE
COVENANTS

     

    Borrower
covenants and agrees that, unless Lender shall otherwise consent in writing,
from and after the date hereof and until the Termination Date, Borrower shall
not, and shall cause each Guarantor not, to do any of the
following:

     

    6.1    Mergers, Subsidiaries,
Etc.  Directly or indirectly, by operation of law or otherwise,
merge, consolidate or otherwise combine with any Person or acquire or hold all
or substantially all of the assets or capital stock of any Person, or form,
acquire or hold any Subsidiary.

     

    6.2    Indebtedness.  Create,
incur, assume or permit to exist any Indebtedness, except:  (a) the
Obligations; (b) Deferred Taxes; (c) Capital Lease Obligations and Indebtedness
secured by purchase money Liens permitted under clause (b) of Section 6.6
(including any such Capital Lease Obligations and Indebtedness set forth in
Schedule 6.2)
and from and after the Closing Date, create, incur or assume vendor debt in a
maximum aggregate amount at any one time outstanding not to exceed $100,000; (d)
Guaranteed Indebtedness permitted under Section 6.5; and (e)
Indebtedness existing on the Closing Date and set forth in Schedule
6.2.

     

    6.3    Affiliate and Employee
Transactions.  Except as set forth in Schedule 6.3 or as
otherwise expressly permitted hereunder, enter into or be party to any lending,
borrowing or other commercial transaction or arrangement with any of its
Affiliates, officers, directors or employees, including payment of any
management, consulting, advisory, service or similar fee or any deferred
compensation (excluding salaries, bonuses and other compensation to its
officers, directors and employees in the ordinary course of business, consistent
with past practices).

     

    6.4    Capital Structure and
Business.  Except as otherwise provided in any plan of
reorganization and contemplated by the Term Sheet, (a) make any changes in its
business operations which, individually or in the aggregate, could adversely
affect the repayment of the Obligations or reasonably be expected to have or
result in a Material Adverse Effect; (b) make any change in its capital
structure or issue of any Stock or make any revision of the terms of its
outstanding Stock or amend or modify any shareholders, voting or similar
agreement to which it is a party or enter into any such agreement, in each case,
without the prior written consent of Lender; (c) amend its articles or
certificate of formation, charter, by-laws or other organizational documents; or
(d) engage in any business other than the businesses engaged in as of the
Closing Date and other business directly related thereto.

     

    6.5    Guaranteed
Indebtedness.  Create, incur, assume or permit to exist any
Guaranteed Indebtedness except for the Obligations under the Loan Documents
and:  (a) endorsements of instruments or items of payment for deposit
to a bank account of Borrower; (b) performance bonds or indemnities entered into
in the ordinary course of business, consistent with past practices; and (c)
Guaranteed Indebtedness outstanding on the Closing Date and listed in Schedule
6.2.

     

    
      
        
        

      

      
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    6.6    Liens.  Create
or permit to exist any Lien on any of its properties or assets except
for:  (a) presently existing or hereafter created Liens in favor of
Lender, to secure the Obligations and (b) Permitted Encumbrances. The
prohibition provided for in this Section 6.6
specifically includes, without limitation, any effort by Borrower, any
Committee, or any other party-in-interest in the Chapter 11 Case to prime or
create pari passu to
any claims or interest of Lender any Lien (other than for the Carve-Out Expenses
up to the Carve-Out Amount) irrespective of whether such claims or interest may
be “adequately protected”.

     

    6.7    Sale of
Assets.  Except as otherwise provided in any plan of
reorganization and contemplated by the Term Sheet, sell, transfer, convey,
assign or otherwise dispose of any of its assets or properties, including any
Collateral; provided, however, that the
foregoing shall not prohibit (a) the sale of Inventory in the ordinary course of
business; and (b) the sale or disposition for fair consideration in any Fiscal
Year of any assets in the ordinary course of business which have become obsolete
or surplus to the business of Borrower having a fair market value of not greater
than $50,000 in the aggregate during such Fiscal Year.

     

    6.8    ERISA.  Acquire
any new ERISA Affiliate that maintains or has an obligation to contribute to a
Pension Plan that has either an “accumulated funding deficiency,” as defined in
Section 302 of ERISA, or any “unfunded vested benefits,” as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a
Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer
Plan.  Additionally, no Borrower nor any ERISA Affiliate
shall:  (a) permit or suffer any condition set forth in Section 3.13
to cease to be met and satisfied at any time, other than permitting an ERISA
Affiliate acquired after the Closing Date to sponsor a Title IV Plan, a Plan
subject to IRC Section 412 or ERISA Section 302, or a Retiree Welfare Plan; (b)
terminate any Title IV Plan where such termination could reasonably be
anticipated to result in liability to Borrower; (c) permit any accumulated
funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred
with respect to any Pension Plan; (d) fail to make any contributions or fail to
pay any amounts due and owing as required by the terms of any Plan before such
contributions or amounts become delinquent; (e) make a complete or partial
withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer
Plan prior; (f) fail to provide Lender with copies of any Plan documents or
governmental reports or filings, if reasonably requested by Lender; (g) fail to
make any contribution or pay any amount due as required by IRC Section 412 or
Section 302 of ERISA; (h) allow any ERISA Event or event described in Section
4062(e) of ERISA to occur with respect to any Title IV Plan; and (i) with
respect to all Retiree Welfare Plans, allow the present value of future
anticipated expenses to increase by $500,000.

     

    6.9    [Intentionally
Omitted].

     

    6.10    Restricted Payments; Use of
Proceeds.  (a) Make any Restricted Payment to any Person,
except that Borrower and Guarantors may make payments between each other in the
ordinary course of business, provided, that any
such payments which are in the nature of loans are evidenced by intercompany
notes, repayment of which is subordinated to repayment of the Obligations, and
which notes shall be collaterally assigned to Lender, to secure the Obligations;
or (b) utilize the Collateral and the proceeds of the Term Loan other than for
(i) working capital and general corporate purposes including certain fees and
expenses of professionals retained by Borrower, subject to the Final Order
solely for the purposes specified in the Budget and (ii) certain other
pre-petition expenses that are approved by the Bankruptcy Court and previously
approved by Lender.  

     

    
      
        
        

      

      
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    6.11    Hazardous
Materials.  Except as set forth in Schedule 6.11, (a)
cause or permit a Release of Hazardous Material on, under, in or about any
Subject Property in breach of any Environmental Law; (b) use, store, generate,
treat or dispose of Hazardous Materials, except in compliance in all material
respects with the Environmental Laws; or (c) transport any Hazardous Materials
to or from any Subject Property, except in compliance in all material respects
with the Environmental Laws.

     

    6.12    Sale-Leasebacks.
Engage in any sale-leaseback, synthetic lease or similar transaction involving
any of its property or assets.

     

    6.13    Cancellation of
Indebtedness.  Cancel any claim or Indebtedness owing to it,
except for adequate consideration negotiated in an arm’s length transaction and
in the ordinary course of its business, consistent with past
practices.

     

    6.14    Bank
Accounts.  Maintain any deposit, operating or other bank
accounts except for those accounts identified in Schedule
3.17.

     

    6.15    Margin
Regulations.  Directly or indirectly, use the proceeds of the
Term Loan to purchase or carry any Margin Stock or any equity security of a
class which is registered pursuant to Section 12 of the Securities Exchange Act
of 1934.

     

    6.16    Limitation on Negative
Pledge Clauses. Directly or indirectly enter into any agreement (other
than the Loan Documents) with any Person which prohibits or limits the ability
of Borrower or any Guarantor to create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired.

     

    6.17    Material
Contracts.  (a) Cancel or terminate any Material Contract
unless, in the discretion of the Board of Directors of Borrower, there occurs an
event of default by any other party to such contract; and (b) waive any default
or breach any Material Contract, or materially amend or otherwise modify any
Material Contract or take (or omit to take) any other material adverse action in
connection with any Material Contract.

     

    6.18    Leases.  (a)
Renew (by amendment, modification or otherwise) any Lease or similar agreements
other than renewals of existing Leases upon substantially the same terms (other
than reasonable increases in rent based on market conditions) as are in effect
on the Closing Date, or (b) enter into any new Lease or similar agreements other
than as permitted under Section
6.19.  

     

    6.19    New
Premises.  Except with respect to Methane Energy Corp., enter
into, or become a lessee under, any Operating Lease of real property without the
prior written consent of Lender.

     

    6.20    Repayment of
Indebtedness.  Except pursuant to a confirmed reorganization
plan and except as specifically permitted hereunder, without the express prior
written consent of Lender or pursuant to an order of the Bankruptcy Court after
notice and hearing, make any payment or transfer with respect to any
Pre-Petition Lien or Pre-Petition Indebtedness that is subject to the automatic
stay provisions of the Bankruptcy Code whether by way of “adequate protection”
under the Bankruptcy Code or otherwise.

     

    
      
        
        

      

      
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    6.21    Chapter 11 Claims.
Incur, create, assume, suffer to exist or permit any other super-priority
administrative claim which is pari passu with or senior to
the claims of Lender against Borrower, except as set forth in Section
1.12.

     

    7.    TERM

     

    7.1    Duration.  The
financing arrangement contemplated hereby shall be in effect until the Maturity
Date.  On the Maturity Date, the Term Loan and all other Obligations
shall immediately become due and payable in full, in cash.

     

    7.2    Survival of
Obligations.  Except as otherwise expressly provided for in the
Loan Documents, no termination or cancellation (regardless of cause or
procedure) of any financing arrangement under this Agreement shall in any way
affect or impair the Obligations, duties, indemnities, and liabilities of
Borrower or other obligor under any of the Loan Documents, or the rights of
Lender relating to any Obligations, due or not due, liquidated, contingent or
unliquidated or any transaction or event occurring prior to such termination, or
any transaction or event, the performance of which is not required until after
the Maturity Date.  Except as otherwise expressly provided herein or
in any other Loan Document, all undertakings, agreements, covenants, warranties
and representations of or binding upon Borrower or other obligor under any of
the Loan Documents, and all rights of Lender, all as contained in the Loan
Documents, shall not terminate or expire, but rather shall survive such
termination or cancellation and shall continue in full force and effect until
the Termination Date on which date they shall cease.

     

    8.    EVENTS
OF DEFAULT; RIGHTS AND REMEDIES

     

    8.1    Events of
Default.  Notwithstanding the provisions of Section 362 of the
Bankruptcy Code and without application or motion to the Bankruptcy Court or any
notice to Borrower, the occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an “Event of Default”
hereunder:

     

    (a)    Borrower
shall fail to make any payment in respect of any Obligations hereunder or under
any of the other Loan Documents when due and payable or declared due and
payable, including any payment of principal of, or interest on, the Term Loan or
reimburse Lender for any expense reimbursable hereunder, any other liabilities
or other payment, fee, charge or expense provided for hereunder when due;
or

     

    (b)    Borrower
shall fail or neglect to perform, keep or observe any of the provisions of Section 4.1, Section 5.2 (solely
insofar as such Section requires and Borrower fails to pay Claims for sales and
use taxes and payroll withholding taxes in accordance with the terms of such
Section) or Section
5.5, within ten (10) days from the date such performance is due, or at
any time any of Section 1.3 or any
subsection of Section
6 (other than Sections 6.18 or
6.19),
including any of the provisions set forth in Annex B; or

     

    
      
        
        

      

      
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    (c)    Borrower
shall fail or neglect to perform, keep or observe any term or provision of this
Agreement (other than any such term or provision referred to in paragraph (a) or
(b) above), or Borrower or any other obligor under any of the other Loan
Documents or contained in any other agreement or arrangement, now or hereafter
entered into between Borrower and Lender relating to the Obligations, shall fail
or neglect to perform, keep or observe any term or provision of any other Loan
Document, and the same shall remain unremedied for a period ending on the tenth
(10th) day
after Borrower shall become aware of such Default; or

     

    (d)    Except
for defaults occasioned by the filing of the Chapter 11 Case and defaults
resulting from Obligations with respect to which the Bankruptcy Code prohibits
Borrower from complying or permits Borrower not to comply, a default or breach
occurs under any other material agreement, document or instrument entered into
either (x) Pre-Petition and which is affirmed after the Petition Date or (y)
Post-Petition, to which Borrower is a party or by which Borrower or its property
is bound, and such default (i) involves the failure to make any payment (after
expiration of any applicable grace period), whether of principal, interest or
otherwise, due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any Indebtedness of Borrower in
an aggregate amount exceeding $100,000 or (ii) causes such Indebtedness, or a
portion thereof in an aggregate amount exceeding $100,000, to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment;
or

     

    (e)    Any
information contained in any Monthly Budget Variance Report is untrue or
incorrect by an amount which exceeds twenty percent (20%) in any line item or
more than ten percent (10%) in the aggregate for all such discrepancies, or any
representation or warranty herein or in any Loan Document or in any written
statement, report, financial statement or certificate (other than a Monthly
Budget Variance Report) made or delivered to Lender by Borrower shall be untrue
or incorrect in any material respect as of the date when made or deemed made;
or

     

    (f)    any
judgments which are in the aggregate in excess of $10,000 as to any postpetition
obligation shall be rendered against Borrower or any Guarantor and the
enforcement thereof shall not be stayed (by court ordered stay or by consent of
the party litigants); or there shall be rendered against Borrower or any
Guarantor a non-monetary judgment with respect to a postpetition event which
causes or would reasonably be expected to cause a material adverse change or a
material adverse effect on the ability of Borrower or any Guarantor to perform
its obligations under the Loan Documents; or

     

    (g)    this
Agreement or any other Loan Document ceases to be in full force and effect
(other than by reason of a release of Collateral in accordance with the terms
hereof or thereof or the satisfaction in full of the Obligations in accordance
with the terms hereof) or shall be declared null and void, or Lender shall not
have or shall cease to have a valid and perfected Lien in any Collateral
purported to be covered by the Collateral Documents with the priority required
by the relevant Collateral Document, in each case for any reason other than the
failure of Lender to take any action within its control; or

     

    (h)    Borrower
or any Guarantor shall contest the validity or enforceability of any of the Loan
Documents in writing or deny in writing that it has any further liability,
including with respect to future advances by Lender, under any Loan Document to
which it is a party or shall contest the validity or perfection of any Lien in
any Collateral purported to be covered by the Collateral Documents;
or

     

    
      
        
        

      

      
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    (i)    at any
time after the execution and delivery thereof, (i) the Guaranty for any reason,
other than the satisfaction in full of all Obligations, shall cease to be in
full force and effect (other than in accordance with its terms) or shall be
declared to be null and void or any Guarantor shall repudiate its obligations
thereunder; or

     

    (j)    there
shall occur a Change of Control; or

     

    (k)    an event
or condition specified in Section 6.9 hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, Borrower or any ERISA Affiliate shall cause or in the opinion of
Lender shall be reasonably likely to cause liability to a Plan, a Multiemployer
Plan or PBGC (or any combination of the foregoing) to increase by $500,000;
or

     

    (l)    The
occurrence of any of the following in any of the Chapter 11 Cases:

     

    (i)    the
bringing of a motion, taking of any action or the filing of any plan of
reorganization or disclosure statement attendant thereto in each case by
Borrower in the Chapter 11 Case:  (A) to obtain additional financing
under Section 364(c) or (d) of the Bankruptcy Code not otherwise permitted
pursuant to this Agreement; (B) to grant any Lien other than Permitted
Encumbrances upon or affecting any Collateral; (C) except as provided in the
Final Order, as the case may be, to use cash collateral of Lender under Section
363(c) of the Bankruptcy Code without the prior written consent of Lender; or
(D) any other action or actions directly adverse to Lender or its rights and
remedies hereunder or its interest in the Collateral; or

     

    (ii)    the
filing of any plan of reorganization or disclosure statement attendant thereto
by Borrower or any other Person to which Lender does not consent or otherwise
agree to the treatment of its claims; or

     

    (iii)    the entry
of an order in the Chapter 11 Case confirming a plan of reorganization that does
not contain a provision for termination of the Term Loan and repayment in full
in cash of all of the Obligations under this Agreement on or before the
effective date of such plan; or

     

    (iv)    the entry
of an order amending, supplementing, staying, vacating or otherwise modifying
the Loan Documents or the Final Order without the written consent of Lender or
the filing of a motion for reconsideration with respect to the Final Order;
or

     

    (v)    other
than payments permitted pursuant to this Agreement or the Final Order, as
applicable, Borrower or any Guarantor shall make any payment (whether by way of
adequate protection or otherwise) of principal or interest or otherwise on
account of any Indebtedness incurred prior to the Petition Date; or

     

    
      
        
        

      

      
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    (vi)    the
payment of, or application for authority to pay, any pre-petition claim without
Lender’s prior written consent or pursuant to an order of the Bankruptcy Court
after notice and hearing unless otherwise permitted under this Agreement;
or

     

    (vii)    the
allowance of any claim or claims under Section 506(c) of the Bankruptcy Code
against or with respect to any of the Collateral or Pre-Petition Collateral,
other than for the Carve-Out Expenses and subject to the Carve-Out Amount;
or

     

    (viii)    Borrower
or any Guarantor shall file, support or fail to oppose a motion seeking, or the
Bankruptcy Court shall enter, an order in any of the Chapter 11 Cases appointing
(i) a trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, (ii) a
responsible officer or (iii) an examiner, in each case with enlarged powers
relating to the operation of the business (powers beyond those set forth in
subclauses (3) and (4) of Section 1106(a) of the Bankruptcy Code) under Section
1106(b) of the Bankruptcy Code in the Cases; or

     

    (ix)    absent
the written consent of Lender, entry by the Bankruptcy Court of an order under
Section 363 or 365 of the Bankruptcy Code authorizing or approving the sale or
assignment of a material portion of any of the Borrower’s and Guarantors’
assets, or procedures in respect thereof, or any of the Borrower or Guarantors
shall seek, support, or fail to contest in good faith, the entry of such an
order in any of the Chapter 11 Cases; or

     

    (x)    the
dismissal of the Chapter 11 Cases, or the conversion of the Chapter 11 Cases
from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code or
Borrower shall file a motion or other pleading seeking the dismissal of the
Chapter 11 Cases under Section 1112 of the Bankruptcy Code or otherwise;
or

     

    (xi)    the
Bankruptcy Court shall enter an order granting relief from the automatic stay to
any creditor or party in interest (i) to permit foreclosure (or the granting of
a deed in lieu of foreclosure or the like) on any assets of the Borrower or any
Guarantor which have an aggregate value in excess of $50,000 or (ii) to permit
other actions that would have a material adverse affect on the Borrower or any
Guarantor or the Chapter 11 estates; or

     

    (xii)    the
commencement by Borrower or any officer of employee of Borrower or by any
committee in the Chapter 11 Cases, or any other party in interest in the Chapter
11 Cases, of a suit, action or contested matter against Lender or affecting the
Collateral which, in the case only of the Committee or other party of interest
sets forth (a) a claim in excess of $100,000, (b) any claim or legal or
equitable remedy which seeks reduction, setoff, subordination or any
recharacterization of the claim or Lien of Lender; or (c) a claim that would
otherwise have a Material Adverse Effect or a material adverse effect on the
rights and remedies of Lender under any Loan and related documents or the
collectability of all or any portion of the Obligations; or

     

    (xiii)    the entry
of an order in the Chapter 11 Cases avoiding or requiring repayment of any
portion of the payments made on account of the Obligations owing under this
Agreement; or

     

    (xiv)    (i) any
of Borrower or any Guarantor shall fail to comply with the terms of Final Order
in any material respect, (ii) such order shall be amended, supplemented, stayed,
reversed, vacated or otherwise modified without the written consent of Lender,
or (iii) any of Borrower or any Guarantor shall file a motion for
reconsideration with respect to the Final Order, or (iv) the right of Borrower
to borrow under this Agreement is terminated by an order entered by the
Bankruptcy Court; or

     

    
      
        
        

      

      
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    (xv)    except as
provided in Section 1.12, the Borrower or any Guarantor shall file, support or
fail to oppose a motion seeking, or the Bankruptcy Court shall enter, an order
in any of the Chapter 11 Cases (i) approving additional financing under Section
364(c) or (d) of the Bankruptcy Code not otherwise permitted pursuant to this
Agreement, (ii) granting any Lien (other than Permitted Liens or Liens expressly
permitted in the DIP Orders) upon or affecting any Collateral which are pari
passu or senior to the Liens on the Collateral in favor of Lender, (iii)
granting any claim priority senior to or pari passu with the claims of the
Lender under the Credit Documents or any other claim having priority over any or
all administrative expenses of the kind specified in Section 503(b) or Section
507(b) of the Bankruptcy Code, or (iv) granting any other relief that is adverse
to Lender’s interests under any Loan Document or its rights and remedies
hereunder or their interest in the Collateral;

     

    (m)    (i) the
claims of Gordian Group, LLC are allowed in an amount that exceeds $50,000,
unless otherwise agreed in writing by Lender; (ii) the total amount of Allowed
Unsecured Claims (as defined in the Reorganization Plan) is determined to be in
excess of One Million Dollars ($1,000,000); or (iii) the Professional Fee Claims
(as defined in the Reorganization Plan) are determined to be in excess of
Two Hundred and Fifty thousand Dollars ($250,000).

     

    8.2    Remedies.  Upon
entry of the Final Order, if any Event of Default shall have occurred and be
continuing Lender may, notwithstanding the provisions of Section 362 of the
Bankruptcy Code, without any application, motion or notice to or order from, the
Bankruptcy Court, without prior notice, take any one or more of the following
actions:  (a) declare all or any portion of the Obligations to be
forthwith due and payable whereupon such Obligations shall become and be due and
payable; and/or (b) exercise any rights and remedies provided to Lender under
the Loan Documents or at law or equity, including all remedies provided under
the Bankruptcy Code; and, pursuant to the Final Order, the automatic stay of
Section 362 of the Bankruptcy Code shall be modified and vacated to permit
Lender to exercise its remedies under this Agreement and the Loan Documents,
without further application or motion to, or order from, the Bankruptcy Court;
provided, however,
notwithstanding anything to the contrary contained herein, Lender shall be
permitted to exercise any remedy in the nature of a liquidation of, or
foreclosure on, any interest of Borrower in the Collateral only upon 5 Business
Days’ prior written notice to Borrower, counsel to Borrower, the United States
Trustee for the District of Oregon, and any counsel retained and approved by the
Bankruptcy Court for the Committee.  Upon the occurrence of an Event
of Default and the exercise by Lender of its rights and remedies under this
Agreement and the other Loan Documents, Borrower shall assist Lender to the
extent practicable in effecting a sale or other disposition of the Collateral
upon such terms as are designed to maximize the proceeds obtainable from such
sale or other disposition.

     

    8.3    Waivers by
Borrower.  Except as otherwise provided for in this Agreement
and Applicable Law to the fullest extent permitted by Applicable Law, Borrower
waives (a) presentment, demand and protest and notice of presentment, dishonor,
notice of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all Loan Documents, notes, commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which Borrower may in any way be liable, and Borrower hereby ratifies and
confirms whatever Lender may do in this regard, (b) all rights to notice and a
hearing prior to Lender’s taking possession or control of, or to Lender’s
replevy, attachment or levy upon, the Collateral or any bond or security which
might be required by any court prior to allowing Lender to exercise any of its
remedies, and (c) the benefit of any right of redemption and all valuation,
appraisal and exemption laws.  Borrower acknowledges that it has been
advised by counsel of its choice with respect to this Agreement, the other Loan
Documents and the transactions contemplated by this Agreement and the other Loan
Documents, and makes the foregoing waivers knowingly and
voluntarily.

     

    
      
        
        

      

      
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    9.    SUCCESSORS
AND ASSIGNS

     

    9.1    Successors and
Assigns.  This Agreement and the other Loan Documents shall be
binding on and shall inure to the benefit of Borrower, Lender, and their
respective successors and permitted assigns, including, with respect to
Borrower, its estate, any trustee or successor-in-interest of Borrower in its
Chapter 11 Cases or any subsequent case commenced under Chapter 7 of the
Bankruptcy Code, except as otherwise provided herein or
therein.  Borrower may not assign, delegate, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the Loan Documents without the prior express written consent of
Lender.  Any such purported assignment, transfer, hypothecation or
other conveyance by Borrower without such prior express written consent shall be
void.  The terms and provisions of this Agreement and the other Loan
Documents are for the purpose of defining the relative rights and obligations of
Borrower and Lender with respect to the transactions contemplated hereby and
there shall be no third party beneficiaries of any of the terms and provisions
of this Agreement or any of the other Loan Documents.

     

    9.2    Participations;
Assignments.

     

    (a)    Lender
may, at any time sell to one or more banks or other financial institutions
(“Participants”)
participating interests in all or a portion of its rights and obligations under
this Agreement or any other Loan Document (including all or a part of its Term
Note, if any).

     

    (b)    Borrower
agrees that if amounts outstanding under this Agreement are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the maximum extent
permitted by Applicable Law, be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest was owing directly to it
as a Lender under this Agreement.  Borrower also agrees that each
Participant shall be entitled to the benefits of Section 1.9 with
respect to its participation in the Term Loan from time to time as if it was a
Lender.

     

    (c)    This
Agreement and each other Loan Document shall inure to the benefit of the Lender
and all future holders of any Term Note, and each of their respective successors
and assigns.  No rights are intended to be created under any Loan
Document for the benefit of any third party donee, creditor or incidental
beneficiary of the Borrower or Lender.  Borrower acknowledges that
Lender at any time and from time to time, without the consent of the Borrower,
may sell, assign or transfer all or any part of its rights or obligations under
this Agreement, the Term Note and the other Loan Documents and/or the
Collateral.  Such shall have all of the rights and benefits with
respect to this Agreement, the Term Note, the Collateral and/or the other Loan
Documents held by it as fully as if the original holder thereof and shall become
a party to this Agreement by signing a counterpart of this Agreement or a
joinder or similar agreement.  Notwithstanding any other provision of
any Loan Document, Lender may disclose to any potential assignees or
participants all information, reports, financial statements, certificates and
documents obtained under any provision of any Loan Document.

     

    
      
        
        

      

      
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    10.    MISCELLANEOUS

     

    10.1    Complete Agreement;
Modification of Agreement.  This Agreement and the other Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter hereof and thereof and supersede all prior agreements,
commitments, understandings or inducements (oral or written, expressed or
implied).  Neither this Agreement nor any other Loan Document nor any
terms hereof or thereof may be changed, waived, discharged or terminated unless
such change, waiver, discharge or termination is in writing and signed by Lender
and approved by the Bankruptcy Court, if required.

     

    10.2    Fees and
Expenses.

     

    (a)    Subject
to the terms of subsection (e) hereof, Borrower agrees to pay on demand all
reasonable out-of-pocket costs and expenses (including fees and expenses of
counsel and of other advisors) of Lender in connection with the preparation,
negotiation, approval, execution, delivery, administration, modification,
amendment, waiver and enforcement (whether through negotiations, legal
proceedings or otherwise) of the Loan Documents, and commitments relating
thereto, and the other documents to be delivered hereunder or thereunder and the
transactions contemplated hereby and thereby and the fulfillment or attempted
fulfillment of conditions precedent hereunder, including:  (i) any
amendment, modification or waiver of, or consent with respect to, any of the
Loan Documents or advice in connection with the administration of the advances
made pursuant hereto or its rights hereunder or thereunder; (ii) any litigation,
arbitration, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral, any
of the Loan Documents or any other agreements to be executed or delivered in
connection therewith or herewith, whether as party, witness, or otherwise,
including any litigation, arbitration, contest, dispute, suit, case, proceeding
or action, and any appeal or review thereof, in connection with a case commenced
(A) in good faith by or against Borrower or any other Person that may be
obligated to Lender by virtue of the Loan Documents, or (B) under title 7 or 11
of the United States Code, as now constituted or hereafter amended, or any other
applicable Federal, state or foreign bankruptcy or similar insolvency law, provided, however, that
Borrower shall not be required to pay any out-of-pocket costs and expenses of
Lender in any litigation, contest, dispute, suit, proceeding or action resulting
solely from Lender’s gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction; (iii) any attempt to
enforce any rights of Lender against Borrower or any other Person that may be
obligated to Lender by virtue of any of the Loan Documents; (iv) any Default; or
(v) subject to Section 5.14, any effort to (A) monitor the Loans and the Loan
Documents, (B) evaluate, observe, assess Borrower or its affairs, or (C) verify,
protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise
dispose of the Collateral. Lender shall charge Borrower the costs of not more
than one such examination or audit per fiscal quarter, so long as a Default has
not occurred, and Lender’s reimbursement for such field examinations shall not
exceed $10,000 per audit so long as a Default has not occurred (plus all
reasonable out-of-pocket costs and expenses).

     

    
      
        
        

      

      
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    (b)    Subject
to the terms of subsection (e) hereof and as allowable under the Bankruptcy
Code, in addition, Borrower agrees to pay on demand all reasonable out-of-pocket
costs and expenses (including fees and expenses of counsel) of Lender in
connection with any Event of Default and any enforcement or collection
proceedings resulting therefrom or any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents in connection with any Event
of Default.

     

    (c)    Subject
to the terms of subsection (e) hereof and as allowable under the Bankruptcy
Code, in addition,, Borrower agrees to pay on demand all reasonable fees, costs
and expenses (including the fees and expenses of all of its counsel, advisors,
consultants and auditors) incurred in connection with the preparation and review
of pleadings, documents and reports related to the Chapter 11 Cases and any
subsequent case under Chapter 7 of the Bankruptcy Code, attendance at meetings,
court hearings or conferences related to the Chapter 11 Cases and any subsequent
case under Chapter 7 of the Bankruptcy Code, and general monitoring of the
Chapter 11 Cases and any subsequent case under Chapter 7 of the Bankruptcy
Code.

     

    (d)    Without
limiting the generality of clauses (a), (b) and (c) above, Borrower’s obligation
to reimburse Lender for out-of-pocket costs and expenses shall include the
reasonable fees and expenses of counsel (and local, foreign or special counsel,
advisors, consultants and auditors retained by such counsel), as well as the
reasonable fees and expenses of accountants, environmental advisors, appraisers,
investment bankers, management and other consultants and paralegals; court costs
and expenses; photocopying and duplicating expenses; court reporter fees, costs
and expenses; long distance telephone charges; air express charges; telegram
charges; secretarial overtime charges; expenses for travel, lodging and food;
and all other reasonable out-of-pocket costs and expenses of every type and
nature paid or incurred in connection with the performance of such legal or
other advisory services.

     

    (e)    On the Closing Date,
the Borrower will pay to the Lender a non-refundable, fully-earned fee of
$175,000. To the extent the any portion of such fee is not applied to fees and
expenses of the Lender, including, without limitation, reasonably attorneys’
fees, in connection with the due diligence investigations of the Borrower and
the Guarantors, the Chapter 11 Cases, the preparation and negotiations of the
Loan Documents, and related matters, such excess shall be applied to fees and
expenses due and payable under this Agreement.

     

    10.3    No
Waiver.  No failure on the part of Lender, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement and any of the other Loan Documents shall waive, affect or diminish
any right of Lender thereafter to demand strict compliance and performance
therewith.  Any suspension or waiver of a Default shall not suspend,
waive or affect any other Default whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Default by
Borrower shall be deemed to have been suspended or waived by Lender unless such
waiver or suspension is by an instrument in writing signed by an officer of or
other authorized employee of Lender.

     

    
      
        
        

      

      
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    10.4    Remedies.  The
rights and remedies of Lender under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under any
other agreement, including the Loan Documents, by operation of law or
otherwise.  Recourse to the Collateral shall not be
required.

     

    10.5    Severability.  Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under Applicable Law, but if any provision of this
Agreement shall be prohibited by or invalid under Applicable Law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

     

    10.6    Conflict of
Terms.  Except as otherwise provided in this Agreement or any
of the other Loan Documents by specific reference to the applicable provisions
of this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in any of the other Loan Documents,
the provisions contained in this Agreement shall govern and
control.

     

    10.7    Right of
Setoff.  Upon the occurrence and during the continuance of any
Default, Lender is hereby authorized, at any time and from time to time, to the
fullest extent permitted by law, to setoff and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of Borrower against any and all of the Obligations now or hereafter
existing irrespective of whether or not Lender shall have made any demand under
this Agreement or any other Loan Document and although such Obligations may be
unmatured.  Lender agrees to notify Borrower after any such setoff and
application made by Lender; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and
application.  The rights of Lender under this Section are in addition
to the other rights and remedies (including other rights of setoff) which Lender
may have.

     

    10.8    Authorized
Signature.  Until Lender shall be notified by Borrower to the
contrary, the signature upon any document or instrument delivered pursuant
hereto and reasonably believed by Lender or any of Lender’s officers or
employees to be that of an officer or duly authorized representative of Borrower
listed in Schedule
10.8 shall bind Borrower and be deemed to be the act of Borrower affixed
pursuant to and in accordance with resolutions duly adopted by Borrower’s Board
of Directors, and Lender shall be entitled to assume the authority of each
signature and authority of the Person whose signature it is or reasonably
appears to be unless the Person acting in reliance on such signature shall have
actual knowledge of the fact that such signature is false or the Person whose
signature or purported signature is presented is without authority.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    10.9    Notices.  Except
as otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon either of the parties by the other party, or
whenever either of the parties desires to give or serve upon the other party any
communication with respect to this Agreement, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
shall be deemed to have been validly served, given or delivered (a) upon the
earlier of actual receipt and three (3) days after deposit in the United States
Mail, registered or certified mail, return receipt requested, with proper
postage prepaid, (b) upon transmission, when sent by facsimile transmission or
electronic mail, (c) one Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated below or to such other address (or
facsimile number) as may be substituted by notice given as herein
provided.  The giving of any notice required hereunder may be waived
in writing by the party entitled to receive such notice.  Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrower or Lender)
designated below to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.

     

    
      	
              If
      to Lender, at:

            	
              YA
      Global Investments, L.P.

              101
      Hudson Street

              Suit
      3700

              Jersey
      City, NJ 07302

              Telephone:  (201)
      985-8300

              Attention:
      David Fine

            
	 	 
	
              With
      a copy to:

            	
              DLA
      Piper US LLP

              1251
      Avenue of the Americas

              New
      York, New York  10020

              Telephone:  (212)
      335-4500

              Telecopier:   (212)
      335-4501

              Attention:  Thomas
      R. Califano, Esq.

            
	 	 
	
              If
      to Borrower, at:

            	
              Torrent
      Energy Corporation

              11918
      SE Division, Ste 197

              Portland
      Oregon 97266

              Telephone:
      (503) 224-0072

              Telecopier:
      (503) 224-5371

              Attention:  John
      D. Carlson

            
	 	 

    

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    
      	
              With
      a copy to:

            	
              Perkins
      Coie LLP

              1120
      NW Couch Street, 10th Floor

              Portland,
      OR 97209

              Telephone:  (503)
      727-2000

              Telecopier:  (503)
      727-2222

              Attention:  Steven
      M. Hedberg, Esq.

            

    

    

     

    10.10    Section
Titles.  The Section titles and Table of Contents contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of this Agreement.

     

    10.11    Counterparts.  This
Agreement may be executed in any number of separate counterparts, each of which
shall, collectively and separately, constitute one agreement.  Any
signatures delivered by a party by facsimile transmission or by e-mail in
portable document format (.pdf) shall be deemed an original signature
hereto.

     

    10.12    Time of the
Essence.  Time is of the essence of this Agreement and each of
the other Loan Documents.

     

    10.13    GOVERNING
LAW.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  BORROWER AND
EACH GUARANTOR HEREBY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, HOWEVER, THAT LENDER, BORROWER AND EACH GUARANTOR ACKNOWLEDGE THAT ANY
APPEALS FROM THE BANKRUPTCY COURT MAY HAVE TO BE HEARD BY A COURT OTHER THAN THE
BANKRUPTCY COURT AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LENDER.  BORROWER AND EACH GUARANTOR
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER OR ANY GUARANTOR HEREBY WAIVES
ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS.  BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER OR ANY
GUARANTOR AT THE ADDRESS SET FORTH IN SECTION 10.9 OF THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER’S OR
GUARANTOR’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S.  MAILS, PROPER POSTAGE PREPAID AND RETURN RECEIPT
REQUESTED.

     

    
      
        
        

      

      
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    10.14    WAIVER OF JURY
TRIAL.  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED
TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     

    10.15    Publicity.  Borrower
will not, and will not permit any of its Affiliates to, disclose the name of
Lender or any of its Affiliates or refer to this Agreement or the other Loan
Documents in any press release or other public disclosure or in any prospectus,
proxy statement or other materials filed with any Governmental Authority without
Lender’s prior written consent unless Borrower or any of its Affiliates is
required to do so under Applicable Law, and then, in any event, Borrower or such
Affiliate will consult with Lender prior to such disclosure.  Borrower
consents to Lender publishing a tombstone or similar advertising material
relating to the financing transaction contemplated by this
Agreement.  Lender consent to Borrower’s orally disclosing to its
vendors, landlords and prospective landlords, and other third parties, who need
to know in the reasonable judgment of Borrower, only the name of Lender, the
amount of Term Loan (including loan balances and any other information required
to terminate or replace the Term Loan), and the Maturity Date.  Any
written materials of any type disclosing any information of the type referred to
herein shall require the written approval of Lender prior to being disseminated
to any Person.

     

    10.16    Dating.  Although
this Agreement is dated as of the date first written above for convenience, the
actual dates of execution hereof by the parties hereto are respectively the
dates set forth under the signatures hereto, and this Agreement shall be
effective on the latest of such dates.

     

    10.17    Parties Including Trustees;
Bankruptcy Court Proceedings.  This Agreement, the other Loan
Documents, and all Liens created hereby or pursuant hereto or to any other Loan
Document shall be binding upon Borrower each Guarantor, the estate of Borrower
and each Guarantor, and any trustee or successor in interest of Borrower and
each Guarantor in the Chapter 11 Cases or any subsequent case commenced under
Chapter 7 of the Bankruptcy Code, and shall not be subject to Section 365 of the
Bankruptcy Code.  This Agreement and the other Loan Documents shall be
binding upon, and inure to the benefit of, the successors of Lender and its
transferees and endorsees.  The Liens created by this Agreement and
the other Loan Documents shall be and remain valid and perfected in the event of
the conversion of the Chapter 11 Cases or any other bankruptcy case of Borrower
to a case under Chapter 7 of the Bankruptcy Code or in the event of dismissal of
the Chapter 11 Cases or the release of any Collateral from the jurisdiction of
the Bankruptcy Court for any reason, without the necessity that Lender file
financing statements or otherwise perfect its security interests or Liens under
Applicable Law.

     

    
      
        
        

      

      
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    10.18    Right of First
Refusal.  Borrower shall provide Lender with written notice
that it or any Guarantor intends to seek exit financing.  Borrower may
then proceed to negotiate with financing sources.  Once Borrower
obtains a commitment letter or executed term sheet from a financing source (the
“Offer”), Borrower shall present the Offer to Lender.  Lender shall
have 14 days to present to the Borrower a commitment or term sheet having the
same material terms and conditions as the Offer, in which case the Borrower
shall be obligated to take the financing from the Lender.  If the
Lender does not provide such a commitment or term sheet, the Borrower shall be
free to proceed with the Offer, provided that the financing is completed in
accordance with the terms of the Offer.  If there is a material change
to the Offer, Borrower shall promptly notify the Lender and the Lender shall
have 3 Business Days to agree to match the Offer as amended.

     

    11.    GUARANTY

     

    11.1    Guaranty of the
Obligations.  Guarantors jointly and severally hereby
irrevocably and unconditionally guaranty to Lender the due and punctual payment
in full of all Obligations when the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(collectively, the “Guaranteed
Obligations”).

     

    11.2    Payment by
Guarantors.  Guarantors hereby jointly and severally agree, in
furtherance of the foregoing and not in limitation of any other right which
Lender may have at law or in equity against any Guarantor by virtue hereof, that
upon the failure of Borrower to pay any of the Guaranteed Obligations when and
as the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise, Guarantors will upon
demand pay, or cause to be paid, in cash, to Lender, an amount equal to the sum
of the unpaid principal amount of all Guaranteed Obligations then due as
aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including
interest which, but for Borrower’s becoming the subject of a case under the
Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or
not a claim is allowed against Borrower for such interest in the related
bankruptcy case) and all other Guaranteed Obligations then owed to Lender as
aforesaid.

     

    11.3    Liability of Guarantors
Absolute.  Each Guarantor agrees that its obligations hereunder
are irrevocable, absolute, independent and unconditional and shall not be
affected by any circumstance which constitutes a legal or equitable discharge of
a guarantor or surety other than payment in full of the Guaranteed
Obligations.  In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees as follows:

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    (a)    this
Guaranty is a guaranty of payment when due and not of
collectability.  This Guaranty is a primary obligation of each
Guarantor and not merely a contract of surety;

     

    (b)    Lender
may enforce this Guaranty upon the occurrence of an Event of Default
notwithstanding the existence of any dispute between Borrower and Lender with
respect to the existence of such Event of Default;

     

    (c)    the
obligations of each Guarantor hereunder are independent of the obligations of
Borrower and the obligations of any other guarantor (including any other
Guarantor) of the obligations of Borrower, and a separate action or actions may
be brought and prosecuted against such Guarantor whether or not any action is
brought against Borrower or any of such other guarantors and whether or not
Borrower is joined in any such action or actions;

     

    (d)    payment
by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall
in no way limit, affect, modify or abridge any Guarantor’s liability for any
portion of the Guaranteed Obligations which has not been
paid.  Without limiting the generality of the foregoing, if Lender is
awarded a judgment in any suit brought to enforce any Guarantor’s covenant to
pay a portion of the Guaranteed Obligations, such judgment shall not be deemed
to release such Guarantor from its covenant to pay the portion of the Guaranteed
Obligations that is not the subject of such suit, and such judgment shall not,
except to the extent satisfied by such Guarantor, limit, affect, modify or
abridge any other Guarantor’s liability hereunder in respect of the Guaranteed
Obligations;

     

    (e)    Lender,
upon such terms as it deems appropriate, without notice or demand and without
affecting the validity or enforceability hereof or giving rise to any reduction,
limitation, impairment, discharge or termination of any Guarantor’s liability
hereunder, from time to time may (i) renew, extend, accelerate, increase
the rate of interest on, or otherwise change the time, place, manner or terms of
payment of the Guaranteed Obligations; (ii) settle, compromise, release or
discharge, or accept or refuse any offer of performance with respect to, or
substitutions for, the Guaranteed Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guaranteed
Obligations and take and hold security for the payment hereof or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute, compromise,
settle, rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guaranteed Obligations, any other
guaranties of the Guaranteed Obligations, or any other obligation of any Person
(including any other Guarantor) with respect to the Guaranteed Obligations;
(v) enforce and apply any security now or hereafter held by or for Lender
in respect hereof or the Guaranteed Obligations and direct the order or manner
of sale thereof, or exercise any other right or remedy that Lender may have
against any such security, in each case as Lender in its discretion may
determine consistent herewith and any applicable security agreement, including
foreclosure on any such security pursuant to one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable,
and even though such action operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of any Guarantor against
Borrower or any security for the Guaranteed Obligations; and (vi) exercise
any other rights available to it under the Loan Documents; and

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    (f)    this
Guaranty and the obligations of Guarantors hereunder shall be valid and
enforceable and shall not be subject to any reduction, limitation, impairment,
discharge or termination for any reason (other than payment in full of the
Guaranteed Obligations), including the occurrence of any of the following,
whether or not any Guarantor shall have had notice or knowledge of any of them:
(i) any failure or omission to assert or enforce or agreement or election
not to assert or enforce, or the stay or enjoining, by order of court, by
operation of law or otherwise, of the exercise or enforcement of, any claim or
demand or any right, power or remedy (whether arising under the Loan Documents,
at law, in equity or otherwise) with respect to the Guaranteed Obligations or
any agreement relating thereto, or with respect to any other guaranty of or
security for the payment of the Guaranteed Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including provisions relating to events of
default) hereof, any of the other Loan Documents, or any agreement or instrument
executed pursuant thereto, or of any other guaranty or security for the
Guaranteed Obligations, in each case whether or not in accordance with the terms
hereof or such Loan Document, or any agreement relating to such other guaranty
or security; (iii) the Guaranteed Obligations, or any agreement relating
thereto, at any time being found to be illegal, invalid or unenforceable in any
respect; (iv) the application of payments received from any source (other
than payments received pursuant to the other Loan Documents or from the proceeds
of any security for the Guaranteed Obligations, except to the extent such
security also serves as collateral for indebtedness other than the Guaranteed
Obligations) to the payment of indebtedness other than the Guaranteed
Obligations, even though Lender might have elected to apply such payment to any
part or all of the Guaranteed Obligations; (v) any Beneficiary’s consent to
the change, reorganization or termination of the corporate structure or
existence of Borrower or any of its Subsidiaries and to any correspond­ing
restructuring of the Guaranteed Obligations; (vi) any failure to perfect or
continue perfection of a security interest in any collateral which secures any
of the Guaranteed Obligations; (vii) any defenses, set-offs or
counterclaims which Borrower may allege or assert against Lender in respect of
the Guaranteed Obligations, including failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, accord and
satisfaction and usury; and (viii) any other act or thing or omission, or
delay to do any other act or thing, which may or might in any manner or to any
extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed
Obligations.

     

    11.4    Waivers by
Guarantors.  Each Guarantor hereby waives, for the benefit of
Lender: (a) any right to require Lender, as a condition of payment or
performance by such Guarantor, to (i) proceed against Borrower, any other
guarantor (including any other Guarantor) of the Guaranteed Obligations or any
other Person, (ii) proceed against or exhaust any security held from Borrower,
any such other guarantor or any other Person, (iii) proceed against or have
resort to any balance of any Deposit Account or credit on the books of Lender in
favor of Borrower or any other Person, or (iv) pursue any other remedy in the
power of Lender whatsoever; (b) any defense arising by reason of the incapacity,
lack of authority or any disability or other defense of Borrower or any other
Guarantor including any defense based on or arising out of the lack of validity
or the unenforceability of the Guaranteed Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability of
Borrower or any other Guarantor from any cause other than payment in full of the
Guaranteed Obligations; (c) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal; (d) any
defense based upon any Beneficiary’s errors or omissions in the administration
of the Guaranteed Obligations, except behavior which amounts to bad faith; (e)
(i) any principles or provisions of law, statutory or otherwise, which are or
might be in conflict with the terms hereof and any legal or equitable discharge
of such Guarantor’s obligations hereunder, (ii) the benefit of any statute of
limitations affecting such Guarantor’s liability hereunder or the enforcement
hereof, (iii) any rights to set-offs, recoupments and counterclaims, and
(iv) promptness, diligence and any requirement that Lender protect, secure,
perfect or insure any security interest or lien or any property subject thereto;
(f) notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, including acceptance hereof,
notices of default hereunder, or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guaranteed Obligations
or any agreement related thereto, notices of any extension of credit to Borrower
and notices of any of the matters referred to in Section 11.3 and any right
to consent to any thereof; and (g) any defenses or benefits that may be derived
from or afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms hereof.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    11.5    Guarantors’ Rights of
Subrogation, Contribution, etc.  Until the Guaranteed
Obligations shall have been indefeasibly paid in full, each Guarantor hereby
waives any claim, right or remedy, direct or indirect, that such Guarantor now
has or may hereafter have against Borrower or any other Guarantor or any of its
assets in connection with this Guaranty or the performance by such Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise and
including (a) any right of subrogation, reimbursement or indemnification that
such Guarantor now has or may hereafter have against Borrower with respect to
the Guaranteed Obligations, (b) any right to enforce, or to participate in, any
claim, right or remedy that Lender now has or may hereafter have against
Borrower, and (c) any benefit of, and any right to participate in, any
collateral or security now or hereafter held by Lender.  In addition,
until the Guaranteed Obligations shall have been indefeasibly paid in full, each
Guarantor shall withhold exercise of any right of contribution such Guarantor
may have against any other guarantor (including any other Guarantor) of the
Guaranteed Obligations.  Each Guarantor further agrees that, to the
extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth herein
is found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation, reimbursement or indemnification such
Guarantor may have against Borrower or against any collateral or security, and
any rights of contribution such Guarantor may have against any such other
guarantor, shall be junior and subordinate to any rights Lender may have against
Borrower, to all right, title and interest any Beneficiary may have in any such
collateral or security, and to any right any Beneficiary may have against such
other guarantor.  If any amount shall be paid to any Guarantor on
account of any such subrogation, reimbursement, indemnification or contribution
rights at any time when all Guaranteed Obligations shall not have been finally
and indefeasibly paid in full, such amount shall be held in trust for Lender and
shall forthwith be paid over to Lender to be credited and applied against the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms hereof.

     

    11.6    Subordination of Other
Obligations.  Except as provided in Section 1.12, any
Indebtedness of Borrower or any Guarantor now or hereafter held by any Guarantor
(the “Obligee
Guarantor”) is hereby subordinated in right of payment to the Guaranteed
Obligations, and any such Indebtedness collected or received by the Obligee
Guarantor after an Event of Default has occurred and is continuing shall be held
in trust for Lender and shall forthwith be paid over to Lender to be credited
and applied against the Guaranteed Obligations but without affecting, impairing
or limiting in any manner the liability of the Obligee Guarantor under any other
provision hereof.

     

    
      
        
        

      

      
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    11.7    Continuing
Guaranty.  This Guaranty is a continuing guaranty and shall
remain in effect until all of the Guaranteed Obligations shall have been paid in
full and the Obligations paid in full in cash.  Each Guarantor hereby
irrevocably waives any right to revoke this Guaranty as to future transactions
giving rise to any Guaranteed Obligations.

     

    11.8    Authority of Guarantors or
Borrower.  It is not necessary for any Beneficiary to inquire
into the capacity or powers of any Guarantor or Borrower or the officers,
directors or any agents acting or purporting to act on behalf of any of
them.

     

    11.9    Financial Condition of
Borrower.  Lender shall have no obligation to disclose or
discuss with any Guarantor its assessment, or any Guarantor’s assessment, of the
financial condition of Borrower.  Each Guarantor has adequate means to
obtain information from Borrower on a continuing basis concerning the financial
condition of Borrower and its ability to perform its obligations under the Loan
Documents, and each Guarantor assumes the responsibility for being and keeping
informed of the financial condition of Borrower and of all circumstances bearing
upon the risk of nonpayment of the Guaranteed Obligations.  Each
Guarantor hereby waives and relinquishes any duty on the part of Lender to
disclose any matter, fact or thing relating to the business, operations or
conditions of Borrower now known or hereafter known by Lender.

     

    11.10    Right of
Contribution

    .

    (a)    The Borrower and each
Guarantor (each a “Loan Party” and
collectively the “Loan
Parties”) hereby agree as among themselves that, if any Loan Party shall
make an Excess Payment (as defined below), such Loan Party shall have a right of
contribution from each other Loan Party in an amount equal to such other Loan
Party’s Contribution Share (as defined below) of such Excess
Payment.  The payment obligations of any Loan Party under this Section 11.10 shall
be subordinate and subject in right of payment to the Obligations until such
time as the Obligations have been paid in full in cash, and none of the Loan
Parties shall exercise any right or remedy under this Section 11.10 against
any other Loan Party until such time as all Obligations have been performed and
paid in full in cash.  For purposes of this Section 11.10, (a)
“Excess
Payment” shall mean the amount paid by any Loan Party in excess of its
Pro Rata Share of any Obligations; (b) “Pro Rata Share” shall
mean, for any Loan Party in respect of any payment of the Obligations, the ratio
(expressed as a percentage) as of the date of such payment of Obligations of (i)
the amount by which the aggregate present fair salable value of all of its
assets and properties exceeds the amount of all debts and liabilities of such
Loan Party (including contingent, subordinated, un-matured, and un-liquidated
liabilities, but excluding the Obligations of such Loan Party) to (ii) the
amount by which the aggregate present fair salable value of its assets and other
properties of all Loan Parties exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, un-matured, and un-liquidated
liabilities, but excluding the Obligations of all Loan Parties) of the Loan
Parties; and (c) “Contribution Share”
shall mean, for any Loan Party in respect of any Excess Payment made by any
other Loan Party, the ratio (expressed as a percentage) as of the date of such
Excess Payment of (i) the amount by which the aggregate present fair salable
value of all of its assets and properties exceeds the amount of all debts and
liabilities of such Loan Party (including contingent, subordinated, un-matured,
and un-liquidated liabilities, but excluding the Obligations of such Loan Party)
to (ii) the amount by which the aggregate present fair salable value of all
assets and other properties of the Loan Parties other than the maker of such
Excess Payment exceeds the amount of all of the debts and liabilities (including
contingent, subordinated, un-matured, and un-liquidated liabilities, but
excluding the Obligations of the Loan Parties) of the Loan Parties other than
the maker of such Excess Payment.  Nothing in this Section 11.10 shall
require any Loan Party to pay its Contribution Share of any Excess Payment in
the absence of a demand therefor by the Loan Party that has made the Excess
Payment.  Without limiting the foregoing in any manner, it is the
intent of the parties hereto that as of any date of determination, no
Contribution Amount of any Loan Party shall be greater than the maximum amount
of the claim which could then be recovered from such Loan Party under this Section 11.10 without
rendering such claim voidable or avoidable under Section 548 of Chapter 11 of
the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer
Act, Uniform Fraudulent Conveyance Act or similar statute or common
law.

    

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    (b)    This Section 11.10 is
intended only to define the relative rights of the Loan Parties and nothing set
forth in this Section
11.10 is intended to or shall impair the obligations of the Loan Parties,
jointly and severally, to pay any amounts and perform any obligations as and
when the same shall become due and payable or required to be performed in
accordance with the terms of this Agreement or any other Loan
Document.  Nothing contained in this Section 11.10 shall
limit the liability of Borrower to pay the Term Loan and accrued interest, fees
and expenses with respect thereto for which Borrower shall be primarily
liable.

    

    (c)    The parties hereto
acknowledge that the rights of contribution and indemnification hereunder shall
constitute assets of the Loan Parties to which such contribution and
indemnification is owing.

    

    (d)    The rights of any
indemnified Loan Party against the other Loan Parties under this Section 11.10 shall
be exercisable upon, but shall not be exercisable prior to, the full and
indefeasible payment of the Obligations and termination of the commitments under
the Loan Documents.

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    IN
WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.

     

     

    
      
        	 	Borrower:	 
	 	 	 
	 	TORRENT ENERGY
      CORPORATION, as Borrower	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ John
      D. Carlson	 
	 	 	Name: 
      John D. Carlson	 
	 	 	Title: 
      President and CEO	 
	 	 	 	 

      

    

     

    

     

    

    

    
    

    
 

    
      
        
        

      

      
        S-1

        
          

        

      

      
        
        

      

    

     

    
       

      
        
          	 	Guarantors	 
	 	 	 
	 	METHANE ENERGY
      CORPORATION, as a Guarantor	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ John
      D. Carlson	 
	 	 	Name: 
      John D. Carlson	 
	 	 	Title: 
      CEO	 
	 	 	 	 

        

      

    

     

    
      
        	 	Guarantors	 
	 	 	 
	 	CASCADIA ENERGY
      CORPORATION, as a Guarantor	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ John
      D. Carlson	 
	 	 	Name: 
      John D. Carlson	 
	 	 	Title: 
      CEO	 
	 	 	 	 

      

    

     

     

     

     

     

     

    
      
        
        

      

      
        S-2

        
          

        

      

      
        
        

      

    

     

    
      
        
          	 	Lender:	 
	 	 	 
	 	YA GLOBAL INVESTMENTS,
      L.P.	 
	 	 	 
	 	By: 
      Yorkville Advisors, LLC	 
	 	 	 
	 	Its:  Investment
      Manager	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Troy
      Rillo	 
	 	 	Name: 
      Troy Rillo	 
	 	 	Title: 
      Senior Managing Director	 
	 	 	 	 

        

      

      

 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

    

    
      
        
        

      

      
        S-3

        
          

        

      

      
        
        

      

    

    ANNEX A
to

    CREDIT
AGREEMENT

     

    DEFINITIONS;
RULES OF CONSTRUCTION

     

    1.           Definitions.  Capitalized
terms used in this Agreement shall have (unless otherwise provided elsewhere in
this Agreement) the following respective meanings when used in this
Agreement.

     

    “Account Debtor” shall
mean any Person who may become obligated to Borrower under, with respect to, or
on account of, an Account, Chattel Paper or General Intangibles.

     

    “Accounts” shall mean,
with respect to any Person, all “accounts” as such term is defined in the Code,
now owned or hereafter acquired by such Person, and shall include, in any event,
(a) all accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to such Person, whether arising out of goods sold or services
rendered by it or from any other transaction (including any such obligations
which may be characterized as an account or contract right under the Code), (b)
all of such Person’s rights in, to and under all purchase orders or receipts now
owned or hereafter acquired by it for goods or services, (c) all of such
Person’s rights to any goods represented by any of the foregoing (including
unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), (d) all monies
due or to become due to such Person under all purchase orders and contracts for
the sale or lease of goods or the performance of services or both by such Person
or in connection with any other transaction (whether or not yet earned by
performance on the part of such Person) now or hereafter in existence, including
the right to receive the proceeds of said purchase orders and contracts, and (e)
all collateral security and guarantees of any kind, now or hereafter in
existence, given by any Person with respect to any of the
foregoing.

     

    “Advance” shall mean
an advance made to the Borrower under the Term Loan.

     

    “Affiliate” shall
mean, with respect to any Person, (a) each Person that, directly or indirectly,
owns or Controls, whether beneficially, or as a trustee, guardian or other
fiduciary, ten percent (10%) or more of the Stock having ordinary voting power
in the election of directors of such Person, (b) each Person that Controls, is
Controlled by or is under common Control with such Person or (c) each of such
Person’s officers, directors, joint venturers and partners.

     

    “Agreement” shall mean
this Senior Secured, Super-Priority Debtor-in-Possession Credit Agreement to
which this Annex
A is attached and of which it forms a part including all Annexes,
Schedules, and Exhibits attached or otherwise identified thereto, restatements
and modifications and supplements hereto and any appendices, attachments,
exhibits or schedules to any of the foregoing, and shall refer to this Agreement
as the same may be in effect at the time such reference becomes operative, provided, however that any
reference to the Schedules to this Agreement shall be deemed a reference to the
Schedules as in effect on the Closing Date or in a written amendment thereto
executed by each of Borrower and Lender.

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

    “Applicable Law” shall
mean, in respect of any Person, all provisions of constitutions, statutes,
rules, regulations, and orders of all governmental bodies or regulatory agencies
applicable to such Person, and all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a party
or by which it is bound.

     

    “Avoidance Action”
means all actions for preferences, fraudulent conveyances, and other avoidance
power claims and any recoveries under Section 552(b), Section 506(c) and
Sections 542, 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy
Code.

     

    “Bankruptcy Code”
shall have the meaning assigned to it in the recitals to the
Agreement.

     

    “Bankruptcy Court”
shall have the meaning assigned to it in the recitals to the
Agreement.

     

    “Borrower” shall have
the meaning assigned to it in the first paragraph of this
Agreement.

     

    “Budget” shall mean
the aggregate, without duplication, of all items approved by the Lender in its
sole discretion that are set forth in the budget of Borrower’s cash receipts and
expenditures for the eighteen (18) months commencing on the Petition Date, as
modified or supplemented from time to time by additional budgets (covering any
time period covered by a prior budget or covering additional time periods)
delivered and approved by Lender in writing in its sole discretion.

     

     “Business Day” shall
mean any day that is not a Saturday, a Sunday or a day on which banks are
required or permitted to be closed in Philadelphia, Pennsylvania.

     

    “Capital Expenditures”
shall mean, with respect to any Person, all payments or accruals (including
Capital Lease Obligations) of such Person for any fixed assets or improvements
or for replacements, substitutions or additions thereto, that are required to be
capitalized under GAAP.

     

    “Capital Lease” shall
mean, with respect to any Person, any lease of any property (whether real,
personal or mixed) by such Person as lessee that, in accordance with GAAP,
either would be required to be classified and accounted for as a capital lease
on a balance sheet of such Person or otherwise be disclosed as such in a note to
such balance sheet.

     

    “Capital Lease
Obligation” shall mean, with respect to any Person, the amount of the
obligation of such Person as lessee under any Capital Lease that, in accordance
with GAAP, would appear on a balance sheet of such Person in respect of such
Capital Lease or otherwise be disclosed in a note to such balance
sheet.

     

    “Carve-Out Amount”
shall have the meaning assigned to it in the Final Order, provided that in no
event shall the Carve-Out Amount exceed $250,000, without the prior consent of
the Lender.

     

    “Carve-Out Expenses”
shall have the meaning assigned to it in the Final Order.

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

    “Cash Equivalents”
shall mean, (a) securities with maturities of 180 days or less from the date of
acquisition issued or fully guaranteed or insured by the United States
government or any agency thereof and backed by the full faith and credit of the
United States, (b) certificates of deposit, eurodollar time deposits, overnight
bank deposits and bankers’ acceptances of any domestic commercial bank having
capital and surplus in excess of $500,000,000 having maturities of one year or
less from the date of acquisition, and (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor’s Corporation or P-1 by Moody’s Investors
Services, Inc., or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments, in each case, with maturities of not greater than sixty (60)
days from the date acquired.

     

    “Change of Control”
shall mean a cumulative change in the common stock ownership of the Stock of
Borrower from that in effect on the Petition Date of more than twenty-five
percent (25%) during the term of this Agreement.

     

    “Chapter 11 Cases”
shall have the meaning assigned to it in the recitals to the
Agreement.

     

    “Charges” shall mean,
for Borrower and Guarantors, all federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes at the time due and
payable), levies, imposts, assessments, charges, Liens, claims or encumbrances
upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees,
payroll, income or gross receipts of Borrower and Guarantors, (d) Borrower’s and
Guarantors’ ownership or use of any of its assets, or (e) imposed upon
Borrower’s and Guarantors’ business.

     

    “Chattel Paper” shall
mean all “chattel paper” as such term is defined in the Code, including
electronic chattel paper, now owned or hereafter acquired by
Borrower.

     

    “Claim” shall have the
meaning assigned to it in Section
1.9.

     

    “Closing Date” shall
mean the Business Day on which the conditions precedent set forth in Section 2 have been
satisfied or waived in writing by Lender and the Term Loan has been
made.

     

    “Code” shall mean the
Uniform Commercial Code as the same may, from time to time, be in effect in the
State of New York; provided, that to the
extent that the Code is used to define any term herein or in any Loan Document
and such term is defined differently in different Articles or Divisions of the
Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, or remedies with respect to, Lender’s security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term “Code” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such
provisions.

     

    “Collateral” shall
have the meaning set forth in the Security Agreement.

     

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

      

    

    “Collateral Documents”
shall mean the Security Agreement, Deeds of Trust, and all other instruments,
waivers and agreements now or hereinafter securing in whole or in part the
Obligations.

     

    “Committee” shall mean
the official committee of unsecured creditors and any other committee formed,
appointed, or approved in the Chapter 11 Cases and each of such Committees shall
be referred to herein as a Committee.

     

    “Contracts” shall
mean, with respect to any Person, all the contracts, undertakings, or agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which such Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.

     

    “Control” shall mean,
with respect to a Person, the possession, directly or indirectly, of the power
to direct or cause the direction of such Person’s management or policies,
whether through the ownership of voting securities, by contract or otherwise,
and “Controlling” and
“Controlled”
shall have meanings correlative thereto.

     

    “Copyrights” shall
mean all of the following now owned or hereafter adopted or acquired by Borrower
or any Guarantor: (i) all copyrights and General Intangibles of like nature
(whether registered or unregistered) all registrations and recordings thereof,
and all applications in connection therewith, including all registrations,
recordings and applications in the United States Copyright Office or in any
similar office or agency of the United States, and any state or territory
thereof, or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.

     

    “Deeds of Trust” shall
mean each deed of trust, substantially in the form attached as Exhibit B to the
Security Agreement.

     

    “Default” shall mean
any Event of Default or any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.

     

    “Default Rate” shall
mean a rate per annum equal to 17.00%.

     

    “Deferred Taxes” shall
mean, with respect to any Person at any date, the amount of deferred taxes of
such Person as shown on the balance sheet of such Person prepared in accordance
with GAAP as of such date.

     

    “Deposit Accounts”
means all “deposit accounts” as such term is defined in the Code, now or
hereafter held in the name of Borrower or any Guarantor.

     

    “Documents” shall mean
any “documents” as such term is defined in the Code and, shall include, in any
event, any bills of lading, dock warrants, dock receipts, warehouse receipts, or
other documents of title.

     

    “Dollars” and “$” shall mean lawful
money of the United States of America.

     

    
      
        
        

      

      
        A-4

        
          

        

      

      
        
        

      

    

    “Environmental Laws”
shall mean all federal, state and local laws, statutes, ordinances, orders and
regulations, now or hereafter in effect, and in each case as amended or
supplemented from time to time, and any applicable judicial or administrative
interpretation thereof relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation).  Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. §§ 9601 et seq.) (“CERCLA”); the
Hazardous Material Transportation Act, as amended (49 U.S.C. §§ 1801 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. §§ 136 et seq.); the Resource
Conservation and Recovery Act, as amended (42 U.S.C. §§ 6901 et seq.) (“RCRA”); the Toxic
Substance Control Act, as amended (15 U.S.C. §§ 2601 et seq.); the Clean Air
Act, as amended (42 U.S.C. §§ 740 et seq.); the Federal
Water Pollution Control Act, as amended (33 U.S.C. §§ 1251 et seq.); the
Occupational Safety and Health Act, as amended (29 U.S.C. §§ 651 et seq.) (“OSHA”); and the Safe
Drinking Water Act, as amended (42 U.S.C. §§ 300(f) et seq.), and any and
all regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.

     

    “Environmental
Liabilities” shall mean, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, operation and maintenance costs,
losses, damages, punitive damages, property damages, natural resource damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
any claim, suit, action, investigation, proceeding or demand by any Person,
whether based in contract, tort, implied or express warranty, strict liability,
criminal or civil statute or common law, including any arising under or related
to any Environmental Laws, Environmental Permits, or in connection with any
Release or threatened Release or the presence of a Hazardous Material whether
on, at, in, under, from or about or in the vicinity of any real or personal
property.

     

    “Environmental
Permits” shall mean all permits, licenses, authorizations, certificates,
approvals or registrations required by any Governmental Authority under any
Environmental Laws.

     

    “Equipment” shall mean
any “equipment” as such term is defined in the Code and in any event shall
include all machinery, equipment, furnishings, fixtures and vehicles and any and
all additions, accessions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.

     

    “ERISA” shall mean the
Employee Retirement Income Security Act of 1974 (or any successor legislation
thereto), as amended from time to time, and any regulations promulgated
thereunder.

     

    “ERISA Affiliate”
shall mean any trade or business (whether or not incorporated) under common
control with Borrower and which, together with a Guarantor or Borrower, is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the IRC.

     

    
      
        
        

      

      
        A-5

        
          

        

      

      
        
        

      

    

    “ERISA Event” shall
mean, with respect to Borrower or any ERISA Affiliate, (a) a Reportable Event
with respect to a Title IV Plan or a Multiemployer Plan; (b) the withdrawal of
Borrower or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA; (c) the failure to make required contributions to a
Qualified Plan; or (d) any other event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Title IV Plan or
Multiemployer Plan or the imposition of any liability under Title IV of ERISA,
other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.

     

    “Event of Default”
shall have the meaning assigned to it in Section
8.1.

     

    “Executive Officers”
shall mean the President, Chief Executive Officer, and Chief Financial Officer
of Borrower.

     

    “Fees” shall mean the
fees due to Lender as set forth in Section 1.5 or
otherwise pursuant to the Loan Documents.

     

    “Final Order” means,
collectively, the order of the Bankruptcy Court entered in the Chapter 11 Cases
after an interim hearing under Bankruptcy Rule 4001(c)(2) and a final hearing
under Bankruptcy Rule 4001(c)(2) or such other procedures as approved by the
Bankruptcy Court which orders shall be in form and substance satisfactory to
Lender, and from which no appeal or motion to reconsider has been timely filed,
or if timely filed, such appeal or motion to reconsider has been dismissed or
denied (unless Lender waives such requirement), together with all extensions,
modifications and amendments thereto, which, among other matters but not by way
of limitation, authorizes Borrower on an interim and final basis to obtain
credit, incur (or guaranty) Indebtedness, and grant superpriority, priming,
first priority Liens under this Agreement and the other Loan Documents, as the
case may be, and provides for the super-priority of Lender’s
claims.

     

    “Financial Statements”
shall have the meaning assigned to it in Section
3.4.

     

    “Fiscal Month” shall
mean any calendar month.

     

    “Fiscal Quarter” shall
mean any calendar quarter.

     

    “Fiscal Year” shall
mean any calendar year.

     

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

     

    “General Intangibles”
shall mean, with respect to any Person, all “general intangibles” as such term
is defined in the Code, now owned or hereafter acquired by such Person and, in
any event, including all right, title and interest which such Person may now or
hereafter have in or under any Contract, all payment intangibles, all customer
lists, Intellectual Property, interests in partnerships, joint ventures and
other business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials and records,
goodwill (including the goodwill associated with any Intellectual Property), all
rights and claims in or under insurance policies, (including insurance for fire,
damage, loss, and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life, key man, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, and other bank accounts, rights to receive tax refunds and
other payments, rights to receive dividends, distributions, cash, Instruments
and other property, and rights of indemnification.

     

    
      
        
        

      

      
        A-6

        
          

        

      

      
        
        

      

    

    “Governmental
Authority” shall mean any nation or government, any state or other
political subdivision thereof, and any agency, department, court, board,
commission, or other entity exercising valid legal executive, legislative,
judicial, regulatory or administrative functions.

     

    “Guaranteed
Indebtedness” shall mean, as to any Person, any obligation of such Person
guaranteeing any indebtedness, lease, dividend, or other obligation (“primary obligations”)
of any other Person (the “primary obligor”) in
any manner including any obligation or arrangement of such Person (a) to
purchase or repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect
thereof.

     

    “Hazardous Material”
shall mean (a) any element, material, compound, mixture, solution, chemical,
substance, or pollutant within the definition of “hazardous substance” under
Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. § 9601(14); petroleum or any fraction, byproduct or
distillation product thereof; asbestos, polychlorinated biphenyls, or any
radioactive substances; and any material regulated as a hazardous substance by
any jurisdiction in which Borrower owns or operates or has owned or operated a
facility; or (b) any element, pollutant, contaminate or discarded material
(including any radioactive material) within the definition of Section 103(6) of
the Resource Conservation and Recovery Act, 42 U.S.C. § 6903(6); and any
material regulated as hazardous waste by any jurisdiction in which Borrower owns
or operates or has owned or operated a facility, or to which Borrower sends
material for treatment, storage or disposal as waste.

     

    “Indebtedness” of any
Person shall mean (a) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services (including reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers’ acceptances, whether or not matured, but not including obligations to
trade creditors incurred in the ordinary course of business that are not unpaid
for more than 90 days past the stated due date therefor, unless being contested
in good faith), (b) all obligations evidenced by notes, bonds, debentures or
similar instruments (including, without limitation, any Subordinated Debt), (c)
all indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
an event of default may be limited to repossession or sale of such property),
(d) all Capital Lease Obligations, (e) all Guaranteed Indebtedness, (f) all
obligations of such Person under any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement, interest rate option contract,
foreign exchange contract, currency swap agreement, futures contract, option
contract, synthetic cap, commodity purchase or option agreements or other
similar agreement or contract designed to protect such Person against
fluctuations in interest rates, currency values or commodity prices, as the case
may be, or other hedging or derivative agreements, (g) all Indebtedness referred
to in clause (a), (b), (c), (d), (e) or (f) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (h) the Obligations, and (i) all
liabilities under Title IV of ERISA.

     

    
      
        
        

      

      
        A-7

        
          

        

      

      
        
        

      

    

    “Indemnified
Liabilities” shall have the meaning assigned to it in Section
1.9.

     

    “Indemnified Person”
shall have the meaning assigned to it in Section
1.9.

     

    “Instruments” shall
mean, for any Person, all “instruments” as such term is defined in the Code, now
owned or hereafter acquired by such Person, wherever located, and in any event
shall include all certificated securities, certificates of deposit and all notes
and other evidences of indebtedness, other than instruments that constitute, or
are a part of a group of writings that constitute, Chattel Paper.

     

    “Intellectual
Property” shall mean, for any Person, collectively, all Trademarks, and
the goodwill associated with such Trademarks, all Patents, all Copyrights, all
Internet Domain Names and all Licenses now held or hereafter acquired by such
Person, together with all franchises, tax refund claims, rights of
indemnification, payments under insurance, indemnities, warranties and
guarantees payable with respect to the foregoing.

     

    “Internet Domain
Names” shall mean all rights in internet web sites and internet domain
names presently registered or used by Borrower.

     

    “Inventory” shall
mean, for any Person, all “inventory” as such term is defined in the Code, now
owned or hereafter acquired by such Person, wherever located, and in any event
shall include inventory, merchandise, goods and other personal property which
are held by or on behalf of such Person for sale or lease or are furnished or
are to be furnished under a contract of service or which constitute raw
materials, work in process, finished goods, returned goods or materials or
supplies of any kind, nature or description used or consumed or to be used or
consumed in such Person’s business or in the processing, production, packaging,
promotion, delivery or shipping of the same, including other supplies, and all
accessions and additions thereto and all documents of title covering any of the
foregoing.

     

    “Investment” shall
mean, for any Person (a) the acquisition (whether for cash, property, services,
securities or otherwise) of capital stock, bonds, notes, debentures, partnership
or other ownership interests or other securities of any other Person or any
agreement to make any such acquisition; (b) the making of any deposit with, or
advance, loan or other extension of credit to, any other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person); and
(c) the entering into of any Guaranteed Indebtedness of, or other contingent
obligation with respect to, Indebtedness or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or extended
to such Person.

     

    
      
        
        

      

      
        A-8

        
          

        

      

      
        
        

      

    

    “Investment Property”
shall mean all investment property as such term is defined in the Code now owned
or hereafter acquired by Borrower, wherever located, including (i) all
securities whether certificated or uncertificated, including stocks, bonds,
interests in limited liability companies, partnerships interests, treasuries,
certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of Borrower to any securities account and the financial assets held
by a securities intermediary with respect to that account; (iii) all securities
accounts of Borrower; (iv) all commodity contracts of Borrower; and (v) all
commodity accounts held by Borrower.

     

    “IRC” shall mean the
Internal Revenue Code of 1986, as amended, and any successor
thereto.

     

    “IRS” shall mean the
Internal Revenue Service, or any successor thereto.

     

    “Leases” shall mean
all of those leasehold estates in real property now owned or hereafter acquired
by a Borrower or a Guarantor, as lessee.

     

    “Lender” shall have
the meaning provided in the first paragraph of this Agreement.

     

    “Letter-of-Credit
Rights” means letter-of-credit rights as such term is defined in the
Code, now owned or hereafter acquired by Borrower, including rights to payment
or performance under a letter of credit, whether or not Borrower, as
beneficiary, has demanded or is entitled to demand payment or
performance.

     

    “License” shall mean,
with respect to any Person, any Patent License, Trademark License or other
license of rights or interests now held or hereafter acquired by such
Person.

     

    “Lien” shall mean any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever, whether or not choate, vested, or perfected
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).

     

    “Loan Documents” shall
mean this Agreement, the Term Loan Notes (if any), the Collateral Documents and
the Final Order and all other pledges, powers of attorney, consents,
assignments, contracts, notices, letter of credit agreements and all other
written matter whether heretofore, now or hereafter executed by or on behalf of
Borrower, or any employee of Borrower, and delivered to Lender or any Lender in
connection with the Agreement or the transactions contemplated
thereby.

     

    
      
        
        

      

      
        A-9

        
          

        

      

      
        
        

      

    

    “Margin Stock” shall
have the meaning specified in Regulation T, U or X of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

     

    “Material Adverse
Effect” shall mean a material adverse effect on (a) the business, assets,
operations, or financial condition of Borrower and the Guarantors, (b)
Borrower’s ability to pay or perform its Obligations in accordance with the
terms of the Loan Documents, (c) the Collateral or Lender’s Lien on the
Collateral or the priority or perfection of any such Lien except as such
priority or perfection may be affected in accordance with express terms of this
Agreement or (d) the rights and remedies of Lender under this Agreement and the
other Loan Documents.

     

    “Material Contracts”
shall mean the contracts listed on Schedule 3.20 hereto,
the Leases, and any other Contract of Borrower or any Guarantors which, if
cancelled or terminated, could reasonably be expected to have or result in a
Material Adverse Effect.

     

    “Maturity Date” shall
mean the earliest of (a) the date which is the one year anniversary of this
Agreement, (b) the date of termination of the Term Loan pursuant to Section 8.2, (c) the
close of business on the first Business Day after the entry of the Final Order,
if by that time Borrower has not paid Lender the fees required under this
Agreement, unless Lender agrees otherwise, (d) the date a plan of reorganization
confirmed in the Chapter 11 Cases becomes effective that does not provide for
the payment in full of all amounts owed to Lender under this Agreement and the
other Loan Documents on such effective date, (e) the date of the closing of a
sale of all or substantially all of Borrower’s and/or Guarantors’ assets
pursuant to Section 363 of the Bankruptcy Code, a confirmed plan of
reorganization or a liquidation pursuant to Chapter 7 of the Bankruptcy Code,
and (f) the effective date of a plan of reorganization or arrangement in the
Chapter 11 Cases.

     

    “Maximum Lawful Rate”
shall have the meaning assigned to it in Section
1.4(d).

     

    “Monthly Budget Variance
Report” shall mean a variance report in form and scope reasonably
acceptable to Lender, which report shall compare actual cash receipts and
disbursements of Borrower with amounts provided for in the Budget on a
line-by-line and aggregate basis for the preceding month and the cumulative
period from the Petition Date to the end of the preceding month.

     

    “Multiemployer Plan”
shall mean a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, and
to which Borrower or any ERISA Affiliate is making, is obligated to make, has
made or been obligated to make, contributions on behalf of participants who are
or were employed by any of them.

     

    “Obligations” shall
mean all loans, advances, debts, liabilities and obligations for the performance
of covenants, or duties or for payment of monetary amounts (whether or not such
performance is then required or contingent, or amounts are liquidated or
determinable) owing by Borrower, Guarantor or any other obligor under any of the
Loan Documents to Lender, and all covenants and duties regarding such amounts,
of any kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under any of the Loan
Documents.  This term includes all principal and interest (including
interest which accrues after the commencement of any case or proceeding referred
to in Section
8.1 (including the Chapter 11 Cases)), on the Term Loan, all Fees,
Charges, expenses, attorneys’ and other advisors’ fees and any other sum
chargeable to Borrower, Guarantor or any other obligor under any of the Loan
Documents.

     

    
      
        
        

      

      
        A-10

        
          

        

      

      
        
        

      

    

    “Operating Lease”
shall mean any lease of real or personal property, or mixed property, which is
not a Capital Lease.

     

    “Other Taxes” shall
have the meaning assigned to it in Section
1.11(b).

     

    “Participants” shall
have the meaning assigned to it in Section
9.2(a).

     

    “Patent License” shall
mean, with respect to any Person, rights under any written agreement now owned
or hereafter acquired by such Person granting any right with respect to any
invention on which a Patent is in existence.

     

    “Patents” shall mean,
with respect to any Person, all of the following in which such Person now holds
or hereafter acquires any right, title or interest:  (a) all letters
patent of the United States of America or any other country, all registrations
and recordings thereof, and all applications for letters patent of the United
States of America or any other country, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States of America, any State or Territory
thereof, or any other country, and (b) all reissues, divisions, continuations,
continuations-in-part or extensions thereof.

     

    “PBGC” shall mean the
Pension Benefit Guaranty Corporation or any successor thereto.

     

    “Pension Plan” shall
mean an employee pension benefit plan, as defined in Section 3(2) of ERISA,
which is not an individual account plan, as defined in Section 3(34) of ERISA,
and which Borrower or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.

     

    “Permitted
Encumbrances” shall mean:  (a) Liens for Charges provided
payment thereof shall not at the time be required under Section 5.2 or to the
extent that nonpayment thereof is permitted under the Bankruptcy Code; (b)
deposits, Liens or pledges of cash collateral to secure obligations under
workmen’s compensation, unemployment insurance, social security or public
liability laws or similar legislation or other public or statutory obligations
arising in the ordinary course of business; (c) deposits, Liens or pledges of
cash collateral to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), obligations of a tenant under an
Operating Lease, or surety, stay or appeal bonds or similar obligations arising
in the ordinary course of business; (d) workers’, mechanics’, suppliers’,
carriers’, warehousemen’s Liens or other similar Liens arising by operation of
law in the ordinary course of business and securing sums which are not past due
or are being contested by Borrower reasonably and in good faith; (e) any
attachment or judgment Lien which does not constitute an Event of Default under
Section 8.1(f),
unless the judgment it secures shall not, within 15 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 15 days after the expiration of any such
stay; (f) zoning restrictions, easements, licenses, or other restrictions on the
use of real property or other minor irregularities in title (including leasehold
title) thereto, including without limitation those shown on the title policies
delivered to Lender on the Closing Date, so long as such restrictions or
irregularities do not materially impair the use, value, or marketability of such
real property, leases or leasehold estates as currently used by Borrower; (g)
Liens created by statute or common law in favor of landlords for unpaid rent and
related amounts that are not more than fifteen days past due or are being
contested by Borrower reasonably and in good faith; (h) Liens of a banking
institution encumbering deposits (including setoff rights) held by such banking
institution incurred in the ordinary course of business and which are within the
general parameters customary in the banking industry; (i) purchase money Liens
or purchase money security interests upon or in Equipment acquired by Borrower
in the ordinary course of business to secure the purchase price of such
Equipment or to secure Capital Lease Obligations, in each case, permitted under
clause (c) of Section
6.3 and incurred solely for the purpose of financing the acquisition of
such Equipment; (j) cash deposits with utility companies as ordered by the
Bankruptcy Court or as otherwise agreed to by Borrower and a utility company
with the consent of the Lender; and (k) Liens listed in Schedule 6.7 existing
on the Closing Date.

     

    
      
        
        

      

      
        A-11

        
          

        

      

      
        
        

      

    

    “Person” shall mean
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, limited liability partnership, institution, public benefit corporation,
entity or government (whether Federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).

     

    “Petition Date” shall
have the meaning assigned to it in the recitals to this Agreement.

     

    “Plan” shall mean,
with respect to Borrower or any ERISA Affiliate, at any time, an employee
benefit plan, as defined in Section 3(3) of ERISA, which Borrower maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.

     

    “Post-Petition” shall
mean the time period beginning immediately after the filing of the Chapter 11
Cases.

     

    “Pre-Petition” shall
mean the time period ending immediately prior to the filing of the Chapter 11
Cases.

     

    “Pre-Petition
Indebtedness” shall mean all Indebtedness of Borrower outstanding on the
Petition Date immediately prior to the filing of the Chapter 11
Cases.

     

    “Pre-Petition Liens”
shall mean all Liens against the assets of Borrower on the Petition Date
immediately prior to the filing of the Chapter 11 Cases.

     

    “Proceeds” shall mean
all “proceeds” as such term is defined in the Code and, in any event, shall
include, with respect to any Person: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to such Person from time to time with
respect to any of its property or assets; (b) any and all payments (in any form
whatsoever) made or due and payable to such Person from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of such Person’s  property or assets by
any governmental body, authority, bureau or agency (or any person acting under
color of governmental authority), (c) any claim of such Person against third
parties (i) for past, present or future infringement of any Patent or Patent
License, or (ii) for past, present or future infringement or dilution of any
Trademark or Trademark License or for injury to the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark
License; (d) any recoveries by such Person against third parties with respect to
any litigation or dispute concerning any of such Person’s  property or
assets, including claims arising out of the loss or nonconformity of,
interference with the use of, defects in, or infringement of rights in, or
damage to, such property or assets; and (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock, and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of the Collateral.

     

    
      
        
        

      

      
        A-12

        
          

        

      

      
        
        

      

    

    “Qualified Plan” shall
mean, for Borrower an employee pension benefit plan, as defined in Section 3(2)
of ERISA, which is intended to be tax-qualified under IRC Section 401(a), and
which Borrower or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.

     

    “Release” shall mean,
as to any Person, any release or any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration of a Hazardous Material into the indoor or outdoor
environment by such Person (or by a person under such Person’s direction or
Control), including the movement of a Hazardous Material through or in the air,
soil, surface water, ground water or property; but shall exclude any release,
discharge, emission or disposal in material compliance with a then effective
permit, order, rule regulation or law of a Governmental Authority.

     

    “Reorganization Plan”
shall mean the Joint Reorganization Plan of Torrent Energy Corporation, Methane
Energy Corp. and Cascadia Energy Corp.

     

    “Reportable Event”
shall mean any of the events described in Section 4043 of ERISA except those
events for which the 30-day notice period has been waived.

     

    “Restricted Payment”
shall mean, with respect to any Person, either directly or indirectly, (a) the
declaration or payment of any dividend or the incurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of such Person’s Stock, (b) any payment on account of the purchase,
redemption, defeasance or other retirement, or to obtain the surrender of, such
Person’s Stock or any other payment or distribution made in respect thereof, (c)
any payment, loan, contribution, or other transfer of funds or other property to
any Stockholder or Affiliate of such Person, other than relating to salaries,
bonuses and other compensation to such Person’s officers, directors and
employees in the ordinary course of business consistent with past practice, (d)
any payment, purchase, redemption, retirement, or other acquisition for value or
setting apart of any money for a sinking, or other analogous reserve fund for
the purchase, redemption, retirement or other acquisition of, or to obtain the
surrender of, or any payment (scheduled, voluntary or other) of principal of or
interest on, or any other amount owing in respect of, any Subordinated Debt, or
(e) any payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of any Stock of such Person,
or of a claim for indemnification or contribution arising out of or relating to
any such claim for damages or rescission.

     

    
      
        
        

      

      
        A-13

        
          

        

      

      
        
        

      

    

    “Retiree Welfare Plan”
shall refer to any Welfare Plan providing for continuing coverage or benefits
for any participant or any beneficiary of a participant after such participant’s
termination of employment, other than continuation coverage provided pursuant to
IRC Section 4980B and at the sole expense of the participant or the beneficiary
of the participant.

     

    “Security Agreement”
shall mean the Security Agreement dated of even date herewith by the Borrower
and Guarantors in favor of Lender, as it may be amended, restated, modified or
supplemented from time to time.

     

    “Software” means all
“software” as such term is defined in the Code, now owned or hereafter acquired
by Borrower, other than software embedded in any category of goods, including
all computer programs and all supporting information provided in connection with
a transaction related to any program.

     

    “Stock” shall mean all
shares, options, warrants, general or limited partnership interests, membership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
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 Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).

     

    “Stockholder” shall
mean each holder of Stock of Borrower.

     

    “Subject Property”
shall mean all real property owned, leased or operated by Borrower or any
Guarantor.

     

    “Subordinated Debt”
shall mean any Indebtedness of Borrower which is expressly and contractually
subordinated in right of payment, to the satisfaction of Lender and to the
Obligations.

     

    “Subsidiary” shall
mean, with respect to any Person, (a) any corporation of which an aggregate of
50% or more of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, Stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by such Person,
or by one or more Subsidiaries of such Person, or by both, with respect to which
any such Person has the right to vote or designate the vote of 50% or more of
such Stock whether by proxy, agreement, operation of law or otherwise, and (b)
any partnership or limited liability company in which such Person, or one or
more Subsidiaries of such Person, or both, shall have an interest (whether in
the form of voting or participation in profits or capital contribution) of 50%
or more or of which any such Person is a general partner or managing member, as
the case may be, or may exercise the powers of a general partner or managing
member, as the case may be.

     

    
      
        
        

      

      
        A-14

        
          

        

      

      
        
        

      

    

    “Taxes” shall mean
taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities
with respect thereto, excluding taxes, levies, imposts, deductions, charges or
withholdings and liabilities with respect thereto that are imposed on or
measured by the net income of any Lender.

     

    “Termination Date”
shall mean the date on all Obligations have been irrevocably paid in
full.

     

    “Term Sheet” shall
mean that certain Summary of Terms for Debtor-in-Possession Credit Facility for
Torrent Energy dated May 5, 2008.

     

    “Title IV Plan” shall
mean a Pension Plan, other than a Multiemployer Plan, which is covered by Title
IV of ERISA.

     

    “Trademark License”
shall mean, with respect to any Person, rights under any written agreement now
owned or hereafter acquired by such Person granting any right to use any
Trademark or Trademark registration.

     

    “Trademarks” shall
mean, with respect to any Person, all of the following in which such Person now
holds or hereafter acquires any interest:  (a) all common law and
statutory trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States of America, any State or Territory thereof, or any other
country or any political subdivision thereof; (b) all reissues, extensions or
renewals thereof; and (c) all licenses thereunder and together with the goodwill
associated with and symbolized by such trademark.

     

    “Uniform Commercial Code
jurisdiction” means any jurisdiction that had adopted all or
substantially all of Article 9 as contained in the 2000 Official Text of the
Uniform Commercial Code, as recommended by the National Conference of
Commissioners on Uniform State Laws and the American Law Institute, together
with any subsequent amendments or modifications to the Official
Text.

     

    “U.S. Trustee” means
the United States Trustee appointed to the Chapter 11 Cases.

     

    “Welfare Plans” shall
mean any welfare plan, as defined in Section 3(1) of ERISA, which is maintained
or contributed to by Borrower or any ERISA Affiliate.

     

    Certain Matters of
Construction.  Any accounting term used in the Agreement or the
other Loan Documents shall have, unless otherwise specifically provided therein,
the meaning customarily given such term in accordance with GAAP, and all
financial computations thereunder shall be computed, unless otherwise
specifically provided therein, in accordance with GAAP consistently
applied.  That certain items or computations are explicitly modified
by the phrase “in accordance with GAAP” shall in no way be construed to limit
the foregoing.

     

    
      
        
        

      

      
        A-15

        
          

        

      

      
        
        

      

    

    All other
undefined terms contained in the Agreement or the other Loan Documents shall,
unless the context indicates otherwise, have the meanings provided for by the
Code to the extent the same are used or defined therein.  The words
“herein,” “hereof” and “hereunder” or other words of similar import refer to the
Agreement as a whole, including the exhibits and schedules thereto, as the same
may from time to time be amended, modified or supplemented, and not to any
particular section, subsection or clause contained in this
Agreement.

     

    Whenever
any provision in any Loan Document refers to the “knowledge” of any Person, such
provision is intended to mean that such Person has actual knowledge or awareness
of a particular fact or circumstance, or that such Person, if it had exercised
reasonable diligence, should have known or been aware of such fact or
circumstance.

     

    For
purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply:  (a) wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter; (b) the term “including” shall not be limiting or exclusive,
unless specifically indicated to the contrary; (c) all references to statutes
and related regulations shall include any amendments thereto and any successor
statutes and regulations; and (d) all references to any instruments or
agreements, including references to any of the Loan Documents, shall include any
and all modifications or amendments thereto and any and all extensions or
renewals thereof, in each case, made in accordance with the terms of the Loan
Documents.

     

     

     

     

     

     

    
      
        
        

      

      
        A-16

        
          

        

      

      
        
        

      

    

    ANNEX B to

    CREDIT
AGREEMENT

     

    FINANCIAL
STATEMENTS AND NOTICES

     

    1.    Financials.

     

    (a)    By no
later the 20th day after the end of each fiscal month, internally prepared
balance sheet and income statement as of the close of such fiscal month and that
portion of the current Fiscal Year ending as of the close of such fiscal month,
in each case which financial and other information shall provide comparisons to
the prior year’s equivalent period, on a year-to-date basis, and to
Budget;

     

    (b)    By no later than the
90th day after each Fiscal Year, audited annual financial statements, including
a balance sheet, the related statement of profit and loss and stockholders’
equity and a statement of cash flow for the Borrower and its subsidiaries;
and

     

    (c)    together with each of
the financial statements delivered pursuant to (a) and (b) above, a
certification of Borrower that all such financial statements are complete and
correct and present fairly the financial position, the results of operations of
Borrower as at the end of such fiscal month or Fiscal Year, and for the period
then ended, that all rent and other obligations of Borrower with respect to
their Leases were paid in accordance with the terms thereof (without giving
effect to any grace periods) as at the end of such fiscal month or Fiscal Year
and setting forth the aggregate amount so paid or specifying those instances
when rent or such other obligations were not so paid together with a detailed
explanation of the reasons for the failure of Borrower to make such payments and
the aggregate amount of such payments not made, and that there was no Default in
existence as of such time or specifying those Defaults of which he or she was
aware.

     

    2.    Management
Letters.  Within five (5) Business Days after receipt thereof
by Borrower, copies of all management letters, exception reports or similar
letters or reports received by Borrower from its independent certified public
accountants.

     

    3.    Budget
Analysis.  Not later than twenty (20) days after the end of
each fiscal month, a Monthly Budget Variance Report.

     

    4.    Bankruptcy
Matters.  Copies of all monthly reports, projections or other
information respecting Borrower’s business or financial condition or prospects
as well as all pleadings, motions, applications and judicial information filed
by or on behalf of Borrower with the Bankruptcy Court or provided by or to the
U.S. Trustee (or any monitor or interim receiver, if any, appointed in the
Chapter 11 Cases) or the Committee, at the time such document is filed with the
Bankruptcy Court, or provided by or, to the U. S. Trustee (or any monitor or
interim receiver, if any, appointed in any Chapter 11 Cases) or the
Committee.

     

    5.    Notice of
Default.  As soon as practicable, but in any event within five
(5) Business Days after Borrower becomes aware of the existence of any Default,
or any development or other information that, individually or in the aggregate,
could reasonably be expected to have or result in a Material Adverse Effect,
including without limitation any notice received from any holder of Subordinated
Debt concerning a default thereunder, telephonic or facsimile notice specifying
the nature of such Default or development or information, including the
anticipated effect thereof, which notice shall be promptly confirmed in writing
within four (4) Business Days.

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

    6.    Tax
Returns.  Upon Lender’s request, copies of all federal, state,
local and foreign tax returns, information returns and reports in respect of
income, franchise or other taxes on or measured by income (excluding sales, use
or like taxes) filed by Borrower.

     

    7.    SEC
Documents.  Promptly upon their becoming available, copies of
any final registration statements and the regular, periodic and special reports,
if any, which Borrower shall have filed with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any national
securities exchange.

     

    8.    Documents to
Shareholders.  Promptly upon the mailing thereof to the
shareholders of Borrower generally, copies of all financial statements, reports
and proxy statements so mailed.

     

    9.    Lease
Documents.  Promptly upon entering into, renewing, amending or
modifying any Lease, a copy of such Lease, amendment or other related
documentation.

     

    10.    ERISA
Documents.  As soon as possible, and in any event within 10
days after Borrower knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by the Chief Financial Officer of
Borrower setting forth details respecting such event or condition and the
action, it any, that Borrower or any ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by Borrower or any ERISA Affiliate with respect to such event or
condition):

     

    (a)    any
Reportable Event with respect to a Plan occurs (provided that a
failure to meet the minimum funding standard of Section 412 of the IRC or
Section 302 of ERISA shall be a reportable event regardless of the issuance of
any waivers in accordance with Section 412(d) of the IRC);

     

    (b)    the
filing under Section 4041 of ERISA of a notice of intent to terminate any Plan
or the termination of any Plan;

     

    (c)    the
institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan
that such action has been taken by PBGC with respect to such Multiemployer
Plan;

     

    (d)    the
complete or partial withdrawal by Borrower or any ERISA Affiliate under Section
4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by Borrower or
any ERISA Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that
it intends to terminate or has terminated under Section 4041A of ERISA;
and

     

    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

      

    

    (e)    the
institution of a proceeding by a fiduciary of any Multiemployer Plan against
Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within 30 days.

     

    11.    Other
Reports.  Such other reports and information respecting the
business, financial condition or prospects of Borrower, as Lender may, from time
to time, reasonably request.  Simultaneously with the transmission
thereof, each daily and weekly report reviewed by management relating to the
performance and operations of the Borrower’s business, including with respect to
activations, deactivations and shipments.

     

    12.    Subordinated
Debt.  Simultaneously with the transmission of originals
thereof, copies of any financial reports or other information respecting the
business, financial condition or prospects of Borrower are required to provide
or do provide such information to any holders of Subordinated Debt.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        D-3

        
          

        

      

      
        
        

      

    

    EXHIBIT
A: FORM OF TERM LOAN NOTE

     

    
      	$___________________	
              ___________________

            

    

    
 

    FOR VALUE
RECEIVED, the undersigned, TORRENT
ENERGY CORPORATION, a Colorado corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of YA
GLOBAL INVESTMENTS, L.P. (the "Lender"), in lawful
money of the United States of America and in immediately available funds, the
principal amount of (a) __________ DOLLARS ($          )
..

     

    This note
is one of the Term Loan Notes referred to in the Senior Secured, Super Priority
Credit and Guaranty Agreement, dated as of June 6, 2008 (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among the Borrower, Cascadia Energy Corp. and Methane Energy Corp., as
guarantors thereunder (each, a "Guarantor" and
together, the "Guarantors") and the
Lender.

     

    Capitalized
terms used in this Term Loan Note shall have the meanings assigned to them in
the Credit Agreement.

     

    SECTION  1    Term.  The
term of this Term Loan Note shall commence on __________ and shall terminate on
the Maturity Date.  Repayment of this Term Loan Note shall be made in
accordance with the terms of the Credit Agreement.

    

    SECTION  2    Interest.  Interest
shall accrue on the outstanding principal balance of this Term Loan Note at a
rate equal to twelve percent (12.0%) per annum in arrears for the preceding
calendar month and interest shall be payable (i) on the Maturity Date, and (ii)
if any interest accrues or remains payable after the Maturity Date, upon
demand.  If any interest or other payment under this Term Loan Note
becomes due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension.  All computations of interest shall be
made on the basis of a three hundred and sixty (360) day year, in each case for
the actual number of days occurring in the period for which such interest is
payable.  Upon the occurrence and during the continuance of any Event
of Default, the interest rate applicable to this Term Loan Note shall be the
Default Rate, except as otherwise provided for in the Credit
Agreement.

    

    SECTION  3    Time.  Time
is of the essence with respect to this Term Loan Note.

    

    SECTION  4    Prepayments.  This
Term Loan Note is subject to mandatory prepayment (in whole or in part) in
accordance with the terms of the Credit Agreement.  Upon any
prepayment of this Term Loan Note (in whole or in part) prior to the date that
is the one year anniversary of the Credit Agreement, Borrower shall pay Lender
the fee specified in Section 1.5(c) of the Credit Agreement.

    

    
      
        
        

      

      
        D-4

        
          

        

      

      
        
        

      

    

    SECTION  5    Guaranty and Security
Agreement.  This Term Loan Note is guaranteed by the Guarantors
pursuant to the Credit Agreement.  The Borrower and Guarantors have
granted Lender a security interest in substantially all of their assets pursuant
to a Security Agreement and Deeds of Trust.  Reference is hereby made
to the Security Agreement for a description of the properties and assets in
which a lien or security interest has been granted, the nature and extent of the
security, the terms and conditions upon which the liens and security interests
were granted and the rights of the holder of this Term Loan Note in respect
thereof.

    

    SECTION  6    Events of
Default.  Upon the occurrence of any one or more Events of
Default, all amounts then remaining unpaid on this Term Loan Note may be
declared to be, in which case such amounts shall become, immediately due and
payable, and the Lender may, in its discretion, exercise any and all other
rights and remedies as provided for in Section 8.2 of the Credit
Agreement.

    

    SECTION  7    Waivers.  All
parties now and hereafter liable with respect to this Term Loan Note, whether as
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest, notice of acceleration and intent to accelerate,
and all other notices of any kind.

    

    SECTION  8    Governing Law, Wavier of
Jury Trial.  This Term Loan Note shall be governed by and
construed in accordance with the laws of the state of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
state of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the state of New
York.  Borrower consents to jurisdiction in the courts located in New
York, New York.

     

    BORROWER
AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY CLAIMS OF ANY KIND ARISING
UNDER OR RELATING TO THIS TERM LOAN NOTE.  BORROWER AND LENDER
ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT AND REPRESENT TO EACH OTHER
THAT THESE WAIVERS ARE MADE KNOWINGLY AND VOLUNTARILY AFTER CONSULTATION WITH
COUNSEL OF THEIR CHOICE.  BORROWER AND LENDER AGREE THAT ALL SUCH
CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT OF COMPETENT JURISDICTION
WITHOUT A JURY.

    

    SECTION  9    Preservation of Lender
Rights.  No failure on the part of Lender to exercise any right
or remedy hereunder, whether before or after the happening of a default shall
constitute a waiver thereof, and no waiver of any past default shall constitute
waiver of any future default or of any other default.  No failure to
accelerate the debt evidenced hereby by reason of default hereunder, or
acceptance of a past due installment, or indulgence granted from time to time
shall be construed to be a waiver of the right to insist upon prompt payment
thereafter or to impose late charges retroactively or prospectively, or shall be
deemed to be a novation of this Term Loan Note or as a reinstatement of the debt
evidenced hereby or as a waiver of such right or acceleration or any other
right, or be construed so as to preclude the exercise of any right that Lender
may have, whether by the laws of the State of New York, by agreement, or
otherwise; and Borrower and each endorser or guarantor hereby expressly waives
the benefit of any statute or rule of law or equity that would produce a result
contrary to or in conflict with the foregoing.  This Term Loan Note
may not be changed orally, but only by an agreement in writing signed by the
party against whom such agreement is sought to be enforced.

    

    
      
        
        

      

      
        D-5

        
          

        

      

      
        
        

      

    

    SECTION  10    Notices.  Any
notice or demand required by this Term Loan Note shall be deemed to have been
given and received on the earlier of (i) when the notice or demand is actually
received by the recipient or (ii) 72 hours after the notice is deposited in the
United States mail, certified or registered, with postage prepaid, and addressed
to the recipient.  The address for giving notice or demand under this
Term Loan Note (i) to the Lender shall be as the Lender may specify in writing
to the Borrower and (ii) to the Borrower shall be the address below the
Borrower’s signature or such other place as the Borrower may specify in writing
to the Lender.

    

    SECTION  11    Successors and
Assigns.  All of the obligations, promises and agreements
contained in this Term Loan Note made by Borrower shall be binding upon its
successors and assigns.

    

    SECTION  12    Severability.  In
case any provision (or any part of any provision) contained in this Term Loan
Note shall for any reason be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision (or remaining part of the affected provision) of this Term
Loan Note, but this Term Loan Note shall be construed as if such invalid,
illegal, or unenforceable provision (or part thereof) had never been contained
herein but only to the extent such provision (or part thereof) is invalid,
illegal, or unenforceable.

    

     

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        D-6

        
          

        

      

      
        
        

      

    

    EXECUTED as of
__________.

     

    

    
      
        	 	BORROWER:	 
	 	 	 
	 	TORRENT
      ENERGY CORPORATION	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:  John
      Carlson	 
	 	 	Title:  Chief
      Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	 	Address:	 
	 	 	1
      SW Columbia Street	 
	 	 	Suite
      640	 
	 	 	

                Portland,
      Oregon  97258

              	 

      

    

     

     

     

    

    D-7

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