Document:

pei_8k-ex1002.htm

    EXHIBIT
10.2

     

    REAFFIRMATION
OF GUARANTY

     

    Guarantor
hereby acknowledges and agrees that it has read and is familiar with, and hereby
consents to, all of the terms and conditions of the Forbearance Agreement and
Release dated the date hereof (“Forbearance
Agreement”) by and between COMERICA BANK, a Texas banking
association (“Bank”),
Guarantor and KINERGY
MARKETING, LLC, an Oregon limited liability company (“Borrower”)
and all of the agreements and documents referred to therein, and specifically
consents to the forbearance as set forth therein, and in said agreements and
documents.  Guarantor hereby confirms and agrees that all of the terms
and provisions of Guarantor’s Guaranty (as defined in the Forbearance Agreement)
are hereby ratified and confirmed, and the Guaranty shall continue in full force
and effect as the guaranty of all Indebtedness (as the term “Indebtedness” is
defined in the Guaranty), including the obligations of Borrower to Bank under
the Forbearance Agreement.

     

    Guarantor
further acknowledges that: (a) Section 1 of the Guaranty is hereby amended by
deleting the terms “provided that the Guarantor’s
maximum aggregate liability under this Guaranty shall not exceed the Liability
Cap (as defined below)”; and (b) Section 30 of the Guaranty is hereby amended by
deleting it in its entirety.

     

    Bank has
informed Guarantor of the terms of the Forbearance
Agreement.  Guarantor acknowledges having read the same and consented
to all of the terms and conditions thereof.  Guarantor understands and
agrees that Bank has no duty under any agreement with Borrower, the Guaranty or
any other agreement with Guarantor to notify Guarantor or to seek this or any
future acknowledgment, consent or reaffirmation, and nothing contained herein is
intended to, or shall create such a duty as to any advances or transactions
hereafter.

     

     

    
      	Dated: May 12,
      2008	
              PACIFIC
      ETHANOL, INC.,

              a
      Delaware corporation

               

               

              By:
      /s/ NEIL M.
      KOEHLER                    
      

               

              Print Name: Neil M.
      Koehler                  
      

               

              Its: CEOpei_8k-ex1003.htm

    EXHBIIT
10.3

      

       

      

      
         
LOAN
AND SECURITY AGREEMENT

         (ACCOUNTS
AND INVENTORY)

      

       

      
        	
                OBLIGOR
      #

              	
                NOTE
      #

              	
                AGREEMENT
      DATE

                August
      17, 2007

                 

              
	
                CREDIT
      LIMIT

                $25,000,000.00

              	
                INTEREST
      RATE

                Base
      Rate; minus 0.50%

                Or

                LIBOR;
      plus 1.35%

              	
                OFFICER
      NO./INITIALS

                49540/RH

              

      

      

       

      This
LOAN AND SECURITY AGREEMENT
(Accounts and Inventory) is dated as of August 17, 2007 by and between
KINERGY MARKETING, LLC,
an Oregon limited liability company (“Borrower”)
and COMERICA BANK, a
Michigan corporation (“Bank”).

      

      RECITALS

      

      WHEREAS, Borrower has
requested that Bank establish a credit facility the proceeds of which are to be
used to for working capital; and

      

      WHEREAS, Bank is willing to
make such credit facility available to Borrower upon and subject to the terms
and conditions hereinafter set forth.

      

      AGREEMENT

      

      NOW, THEREFORE, for good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as set forth below.

      

      1.    DEFINITIONS. As used in this
Agreement, the following terms shall have the following
definitions:

      

      1.1    “Accounts” means all “accounts” (as defined in the
UCC) together with all instruments, documents, and
chattel paper related thereto; all guaranties, letters of credit, or other
security therefore, now owned or hereafter created or acquired by Borrower
including, without limitation, all of the following now owned or hereafter
created or acquired by Borrower: (a) accounts receivable, contract rights, book
debts, notes, drafts and other obligations or indebtedness owing to Borrower
arising from the sale, lease or exchange of goods or other property and/or the
performance of services; (b) Borrower’s rights in, to and under all purchase
orders for goods, services or other property from Borrower; (c) Borrower’s
rights to any goods, services or other property arising out of Accounts
(including returned or repossessed goods and unpaid sellers’ rights of
rescission, replying, reclamation and rights to stoppage in transit); (d) monies
due to or to become due to Borrower under all contracts for the sale, lease or
exchange of goods or other property and/or the performance of services including
the right to payment of any interest or finance charges with respect thereto
(whether or not yet earned by performance on the part of Borrower); and (e)
proceeds of any of the foregoing and all collateral security and guaranties of
any kind given by any Person with respect to any of the foregoing.

       

      1.2    “Account
Debtor”
means, in addition to the definition of account debtor as contained in the UCC,
the
Person or Persons obligated to Borrower on an Account, or who is represented by
the Borrower to be so obligated.

      

      1.3    “Advance” or “Advances” means a loan or all
loans by Bank to Borrower under the Revolving Facility.

      

      1.4    “Affiliate” of any Person means
any other Person that, directly or indirectly, controls, is controlled
by or is
under common control with such Person. A Person shall be deemed to be “controlled by” any other
Person if such other Person (a) possesses, directly or indirectly, power to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; or (b) owns at least twenty percent (20%) of
the Equity Interests in such Person.

       

      1.5    “Agreement” means this Loan and
Security Agreement (Accounts and Inventory) and all exhibits, riders
and addendums attached hereto as all of the foregoing may be amended,
supplemented, or modified from time to time.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      

      1.6    “Bank
Expenses” shall mean and
includes: all costs or expenses required to be paid by Borrower under
this Agreement which are paid or advanced by Bank; taxes and insurance premiums
of every nature and kind of Borrower paid by Bank; filing, recording,
publication and search fees, appraiser fees, and auditor fees and costs paid or
incurred by Bank in connection with Bank’s transactions with Borrower; costs and
expenses incurred by Bank in collecting the Accounts (with or without suit) to
correct any Event of Default or enforce any provision of this Agreement, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, disposing of, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated in accordance with the terms
hereof; costs and expenses of suit incurred by Bank in enforcing or defending
this Agreement or any portion hereof, including, but not limited to, expenses
incurred by Bank in attempting to obtain relief from any stay, restraining
order, injunction or similar process which prohibits Bank from exercising any of
its rights or remedies; and reasonable attorneys’ fees and expenses incurred by
Bank in advising, structuring, drafting, reviewing, amending, terminating,
enforcing, defending or concerning this Agreement, or any portion hereof or any
agreement related hereto, whether or not suit is brought. Bank Expenses shall
include Bank’s in-house legal charges at reasonable rates.

      

      1.7    “Base
Rate”
shall mean the prime rate reported in the section entitled “Money Rates” in the
western edition
of the Wall Street Journal (or if the Wall Street Journal shall cease to be
publicly available or if the information contained in the Wall Street Journal,
in Bank’s reasonable judgment, shall cease to accurately reflect such Prime
Rate, then the Prime Rate shall be as reported by any publicly available source
of similar market data selected by Bank that, in Bank’s reasonable judgment,
accurately reflects such Prime Rate.) If such rate is shown as a range, then the
Prime Rate shall be the highest value in such range.

      

      1.8    “Base Rate
Advance”
means any portion of the unpaid principal balance of the Advances when and
to the
extent that the interest rate therefor is determined by a reference to the Base
Rate.

      

      1.9    “Borrower’s
Books”
shall mean and includes all of Borrower’s books and records including but not
limited
to minute books; ledgers; records indicating, summarizing or evidencing
Borrower’s assets, (including, without limitation, the Accounts) liabilities,
business operations or financial condition, and all information relating
thereto, computer programs; computer disk or tape files; computer printouts;
computer runs; and other computer prepared information and equipment of any
kind.

      

      1.10    “Borrowing
Base”
means an amount equal to the sum of: (a) eighty percent (80%) of the Net
Amount of
Eligible Accounts; plus (b) seventy percent (70%) of the Value of Eligible In
Storage Inventory; provided that the aggregate
amount of Advances made under this Subsection 1.10(b) shall not exceed Ten
Million and 00/100 Dollars ($10,000,000.00); plus (c) seventy percent (70%) of
the Value of Eligible In Transit Inventory; provided that the aggregate
amount of Advances made under this Subsection 1.10(c) shall not exceed Four
Million and 00/100 Dollars ($4,000,000.00).

      

      1.11    “Business
Day”
means a day other than a Saturday or Sunday or other day on which Bank is
authorized
or required to close under the laws of the State of California or applicable
Federal Law.

      

      1.12    “Collateral” means all of the
following assets of Borrower, wherever located, and now owned or hereafter
acquired or arising: (a) all Accounts; (b) all Inventory; (c) all general
intangibles; (d) all deposit accounts; (e) all supporting obligations of any of
the foregoing; (f) all of Borrower’s Books related to any of the foregoing; and
(g) any and all claims, rights and interests in any of the foregoing and all
substitutions for, additions and accessions and all cash and non cash proceeds
of any of the foregoing, in whatever form (including proceeds in the form of
inventory, equipment or any other form of personal property), including proceeds
of proceeds, insurance proceeds and all claims against third parties for loss or
damage to or destruction of any or all of the foregoing. The Collateral shall
specifically exclude: (i) any lease, license, permit, contract, property right
or agreement to which Borrower is a party or any of Borrower’s rights or
interests thereunder if and only for so long as the grant of a Lien thereon
shall (A) give any other Person party to such lease, license, permit, contract,
property rights or agreement the right to terminate its obligations thereunder,
(B) constitute or result in the abandonment, invalidation or unenforceability of
any right, title or interest of Borrower therein or (C) constitute or result in
a breach or termination pursuant to the terms of, or a default under, any such
lease, license, permit, contract, property rights or agreement (other than to
the extent that any such term would be rendered ineffective pursuant to Sections
9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or
provisions)); and (ii) any equipment (as such term is defined in the UCC) owned
by Borrower that is subject to a Permitted Lien.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      
              

       

              
1.13    “Collateral
Access Agreement” means agreement
entered into by Borrower and a bailee, landlord or
warehouseman for the purposes of perfecting Bank’s security interest in the
Inventory held by such Person.

      

        1.14    “Commodity
Hedging Arrangements” means any
arrangement to hedge the price of ethanol sales or
purchases.

      

      1.15    “Commodity
Risk Management Plan” means risk
management plans prepared by Borrower (or an Affiliate
thereof) setting forth the terms and conditions relating to any Commodity
Hedging Arrangements from time to time proposed to be entered into by Borrower,
including any updates made to such risk management plans.

      

      1.16    “Contingent
Indebtedness” mean, as to any
Person, any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends, or other obligations (“primary obligations”) of any
other Person (the “primary
obligor”) in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefore; (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 of the primary obligor; (c) to purchase property,
securities, or services primarily for the purpose of assuring the beneficiary of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation; (d) for the obligations of a partnership in
which such Person is a general partner; or (e) otherwise to assure or hold
harmless the beneficiary of such primary obligation against loss in respect
thereof; provided,
however, that the term
Contingent Indebtedness shall not include the endorsement of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Indebtedness shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Indebtedness is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by Bank in
good faith.

      

      1.17    “Credit
Limit”
shall mean Twenty Five Million and 00/100 Dollars ($25,000,000.00).

      

      1.18    “Debt” means, as to any Person
at a particular time, without duplication, all of the following, whether or not
included as indebtedness or liabilities in accordance with GAAP: (a) all
obligations of such  Person for or in respect of moneys borrowed or raised,
whether or not for cash by whatever means (including acceptances, deposits,
discounting, letters of credit, factoring, and any other form of financing which
is recognized in accordance with GAAP in such Person’s financial statements as
being in the nature of a borrowing or is treated as “off-balance sheet”
financing); (b) all obligations of such Person evidenced by bonds, debentures,
notes, loan agreements or other similar instruments; (c) all obligations of such
Person for the deferred purchase price of property or services; (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets acquired by such Person (even though
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property or are
otherwise limited in recourse); (e) the maximum amount of all direct or
contingent obligations of such Person arising under letters of credit (including
standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and
similar instruments; (f) all capitalized lease liabilities; (g) net obligations
of such Person under any Swap Contract; (h) all obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in respect of
any Equity Interests in such Person or any other Person or any warrants, rights
or options to acquire such Equity Interests, valued, in the case of redeemable
preferred interests, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends; and (i) all guarantees of such
Person in respect of any of the foregoing. For all purposes hereof, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture (other than a joint venture that is itself a corporation or
limited liability company) in which such Person is a general partner or a joint
venturer, unless such Indebtedness is expressly made non-recourse to such
Person. The amount of any net obligation under any Swap Contract on any date
shall be deemed to be the Swap Termination Value thereof as of such
date.

      

      1.19    “Default” means any condition,
occurrence or event that, after notice or passage of time or both, would be an
Event of Default.

      

      1.20    “Eligible
Accounts” means and includes
those Accounts of Borrower which are due and payable within ninety (90) days, or
less, from the date of invoice, that arise in the ordinary course of Borrower’s
business, and have been collaterally assigned to Bank as contemplated by this
Agreement. Unless otherwise agreed to by Bank, Eligible Accounts shall not
include the following: (a) Accounts which remain uncollected for more than
ninety (90) days from the date of invoice; (b) Accounts due from an Account
Debtor that has suffered a business failure or the termination of its existence,
or as to which a dissolution, insolvency or bankruptcy proceeding has been
commenced, any assignment for the benefit of creditors has been made, or a
trustee, receiver or conservator has been appointed for all or any part of the
assets of such Account Debtor; (c) Accounts due from an Account Debtor who is an
Affiliate of Borrower or affiliated with Borrower in any manner, including,
without limitation, as stockholder, owner, officer, director, agent or employee;
(d) Accounts with respect to which payment is or may be conditional; (e)
Accounts with respect to which the Account Debtor is not a resident or citizen
of, located in, or subject to service of process in, the United States, except
Eligible Foreign Accounts; (f) Accounts due from the United States

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      

      of
America, including, without limitation, any instrumentality, division, agency,
body or department thereof, except Eligible Government Accounts; (g) Accounts
commonly known as “bill and hold” or a similar arrangement; (h) that portion of
Accounts due from an Account Debtor which is in excess of twenty percent (20%)
percent of Borrower’s aggregate dollar amount of all outstanding Eligible
Accounts, provided that
(1) Eligible Accounts as to which Chevron Corporation, a Delaware corporation,
Valero Energy Corporation, a Delaware corporation, ConocoPhillips, a Delaware
corporation, Royal Dutch Shell plc, a corporation formed under the laws of
England and Wales, and Tesoro Corporation, a Delaware corporation or any of
their Affiliates, including Chevron Products Company, a division of Chevron
U.S.A. Inc., Valero Marketing and Supply Company, ConocoPhillips Company, Shell
Oil Products U.S. (SOPUS), Tesoro Refining and Marketing Company, ExxonMobil Oil
Corporation, are the Account Debtors may each constitute up to thirty percent
(30%) of the aggregate amount of Eligible Accounts; and (2) Eligible Accounts as
to which New West Petroleum, a California corporation and Flying J, Inc., a Utah
corporation or any of their Affiliates, including Big West of California, LLC, a
subsidiary of Flying J Inc. are the Account Debtors may each constitute up to
twenty-five percent (25%) of the aggregate amount of Eligible Accounts; (i)
Accounts due from an Account Debtor as to which twenty percent (20%) percent or
more of the aggregate dollar amount of all outstanding Accounts owing from such
Account Debtor remain uncollected for more than ninety (90) days from invoice
date; (j) that portion of Accounts with respect to which Account Debtors dispute
liability or make any claim, or have any defense, crossclaim, counterclaim, or
offset (except any reserve, discount, credit or allowance that has been deducted
in computing the net amount thereof); (k) Accounts which are not free of all
Liens, encumbrances, charges, rights and interest of any kind, except Permitted
Liens; (l) Accounts which are supported or represented by an instrument,
document, promissory note, post dated check or letter of credit unless such
instrument is actually delivered to Bank to the extent required hereunder; and
(m) Accounts that are payable in other than United States Dollars.

      

      1.21    “Eligible
Foreign Accounts” means otherwise
Eligible Accounts which are either (a) covered by credit insurance in form and
amount, and by an insurer, satisfactory to Bank, (b) supported by one or more
letters of credit or acceptances that are assignable by their terms and have
been delivered to Bank in an amount, of a tenor, and issued by a financial
institution, acceptable to Bank; or (c) that Bank approves on a case by case
basis.

      

      1.22    “Eligible
Government Accounts” means otherwise
Eligible Accounts with respect to which: (a) the Account Debtor is the United
States of America or any political subdivision, department, agency or
instrumentality thereof; and (b) Borrower complies with the Federal Assignment
of Claims Act of 1940, 31 U.S.C. §3727 and the regulations
thereunder.

      

      1.23    “Eligible
Inventory” means that portion
of Borrower’s Inventory consisting of ethanol and denaturant which is: (a) owned
by Borrower, free and clear of all Liens or encumbrances, except Permitted
Liens; (b) held for sale by Borrower in the ordinary course of the Borrower’s
business; (c) of good and merchantable quality, free from defects for the
purposes for which it is intended; (d) as to which Bank has been able to perfect
and maintain a perfected first priority security interest; and (e) Bank, in its
reasonable judgment and in good faith, has not determined that it is
unacceptable or should be price-adjusted in any material respect.

      

      1.24    “Eligible
In Transit Inventory” means all Eligible
Inventory in-transit for which title has passed to Borrower, which is insured to
the full value thereof.

      

      1.25    “Eligible
In Storage Inventory” means Eligible
Inventory stored with a bailee, warehouse, or similar party for which a
Collateral Access Agreement is in effect.

      

      1.26    “Equity
Interests” means, with respect
to any Person, all of the shares of capital stock of (or other ownership or
profit interests in) such Person, all of the warrants, options or other rights
for the purchase or acquisition from such Person of shares of capital stock of
(or other ownership or profit interests in) such Person, all of the securities
convertible into or exchangeable for shares of capital stock of (or other
ownership or profit interests in) such Person or warrants, rights or options for
the purchase or acquisition from such Person of such shares (or such other
interests), and all of the other ownership or profit interests in such Person
(including partnership, member or trust interests therein), whether voting or
nonvoting, and whether or not such shares, warrants, options, rights or other
interests are outstanding on any date of determination, in each such case
including all voting rights and economic rights related thereto.

      

      1.27    “Event of
Default”
shall mean one or more of those events described in Section 10 contained herein
below.

      

      1.28    “Funding
Date”
means the date that amounts are advanced by Bank under this Agreement, whether
such Advances are made directly to Borrower or are made to any escrow holder or
other third party pending the recordation or exchange of any documents or the
occurrence or waiver of any conditions precedent by Bank under this Agreement or
otherwise.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      

      1.29    “GAAP” shall mean, as of any
applicable period, generally accepted accounting principles in effect during
such period.

      

      1.30    “Governmental
Authority” means any foreign,
federal, state, regional, local, municipal or other government, or any
department, commission, board, bureau, agency, public authority or
instrumentality thereof, or any court or arbitrator.

      

      1.31    “Guarantor” means Pacific
Ethanol, Inc., a Delaware corporation.

      

      1.32    “Indebtedness” means (a) the
performance of all obligations of Borrower under this Agreement and all of the
other Loan Documents; (b) all extensions, renewals, modifications, amendments,
and refinancings of any of the foregoing; and (c) all Bank
Expenses.

      

      1.33    “Initial
Funding Date” means the date that
amounts are first advanced by Bank under the Revolving Facility.

      

      1.34    “Insolvency
Proceeding” shall mean and
includes any proceeding or case commenced by or against a Person under any
provisions of the United States Bankruptcy Code, as amended, or any other
ankruptcy or insolvency law, including, but not limited to assignments for the
benefit of creditors, formal or informal moratoriums, composition or extensions
with some or all creditors, any proceeding seeking a reorganization, arrangement
or any other relief under the United States Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law.

      

      1.35    “Interest
Rate Protection Agreement” means each interest
rate swap, collar, put, or cap, or other interest rate protection arrangement,
with a Qualified Counterparty, in each such case that is reasonably satisfactory
to Bank.

      

      1.36    “Inventory” means all “inventory” (as defined in the
UCC), now owned or hereafter acquired by Borrower, wherever located including,
without limitation, ethanol, denaturant, finished goods, raw materials, work in
process and other materials and supplies (including packaging and shipping
materials) used or consumed in the manufacture or production thereof and goods
which are returned to or repossessed by Borrower.

      

      1.37    “Investment” means any
beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any
Person.

      

      1.38    “Judicial
Officer or Assignee” shall mean and
includes any trustee, receiver, controller, custodian, assignee for the benefit
of creditors or any other person or entity having powers or duties like or
similar to the powers and duties of trustee, receiver, controller, custodian or
assignee for the benefit of creditors.

      

      1.39    “Letter of
Credit”
means any commercial or standby letter of credit issued by Bank at the request
of or for the account of Borrower.

      

      1.40    “Letter of
Credit Application” has the meaning set
forth in Section 2.2.1.

      

      1.41    “Letter of
Credit Disbursement” means any payment
or disbursement made by Bank pursuant to or arising out of any Letter of
Credit.

      

      1.42    “Letter of
Credit Obligations” shall mean at any
date of determination, the sum of (without duplication) (a) the aggregate
undrawn amount of all Letters of Credit then outstanding; (b) the aggregate face
amount of all Letters of Credit requested but not yet issued as of such date;
and (c) the aggregate unpaid amount of all Letter of Credit Reimbursement
Obligations.

      

      1.43    “Letter of
Credit Reimbursement Obligations” means, at any time,
all obligations of Borrower to reimburse Bank for amounts paid by Bank in
respect of drawings under Letters of Credit.

      
        
           

        

        
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      1.44    “LIBOR” means the rate per
annum (rounded upward, if necessary, to the nearest whole one-eighth ('/8) of
one percent (1%)) and determined pursuant to the following formula:

      

      LIBOR
= Base LIBOR

        
          

        

      

      100% -
LIBOR Reserve Percentage

      

      1.44.1                       “Base
LIBOR”
means the rate per annum equal to the rate determined by Bank to be the offered
rate that appears on the page of the Telerate screen (or any successor thereto)
that displays an average British Bankers Association Interest Settlement Rate
for deposits in Dollars (for delivery on the first day of such LIBOR Period)
with a term equivalent to such LIBOR Period, determined as of approximately
11:00 a.m. (London time) two (2) Business Days prior to the first day of such
LIBOR Period; or (b) if the rate referenced in the preceding clause (a) does not
appear on such page or service or such page or service is not available, the
rate per annum equal to the rate determined by Bank to be the offered rate on
such other page or other service that displays an average British Bankers
Association Interest Settlement Rate for deposits in Dollars (for delivery on
the first day of such LIBOR Period) with a term equivalent to such LIBOR Period,
determined as of approximately 11:00 a.m. (London time) two (2) Business Days
prior to the first day of such LIBOR Period; or (c) if the rates referenced in
the preceding clauses (a) and (b) are not available, the rate per annum
determined by Bank at which deposits for the relevant LIBOR Period would be
offered to Bank in the approximate amount of the relevant LIBOR Advance in the
inter­bank LIBOR market selected by Bank, upon request of Bank at 10:00 a.m.
California time, on the day that is the first (1st) day of
such LIBOR Period.

      

      1.44.2                       “LIBOR
Business Day” means a Business
Day on which dealings in Dollar deposits may be carried out in the interbank
LIBOR market.

      

      1.44.3                       “LIBOR
Reserve Percentage” means the reserve
percentage prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of
the Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable LIBOR Period.

      

      1.44.4                       “LIBOR
Period”
means: (a) initially, the period from the date of borrowing specified in the
applicable notice of borrowing, or on the date specified in an applicable notice
of interest rate election and ending thirty (30), sixty (60), ninety (90) or one
hundred eighty (180) days thereafter (but not exceeding the Revolving Facility
Maturity Date), so long as LIBOR is quoted for such period in the applicable
interbank LIBOR market; and (b) thereafter, each period commencing on the last
day of the next preceding LIBOR Period and continuing for thirty (30), sixty
(60), ninety (90) or one hundred eighty (180) days thereafter (but not exceeding
the Revolving Facility Maturity Date) so long as LIBOR is quoted for such period
in the applicable interbank LIBOR market, provided that: (i) if any
LIBOR Period would end on a day that is not a LIBOR Business Day, then such
LIBOR Period shall be extended to the next succeeding LIBOR Business Day; and
(ii) no LIBOR Period shall extend beyond the Revolving Facility Maturity
Date.

      

      1.45    “LIBOR
Advance”
means any portion of the unpaid principal balance of the Revolving Facility when
and to the extent that the interest rate therefor is determined by a reference
to LIBOR.

      

      1.46    “Lien” means any mortgage, deed
of trust, pledge, security interest, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority, or
other security agreement or preferential arrangement, charge, or encumbrance of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the UCC or comparable law of any jurisdiction
to evidence any of the foregoing).

      

      1.47    “Loan
Documents” means,
collectively, this Agreement and any other agreement or instrument entered into
between Borrower and Bank or executed by Borrower or the Guarantor and delivered
to Bank in connection with this Agreement, all as amended from time to time
including, without limitation, any note or notes executed by
Borrower.

      

      1.48    “Material
Adverse Effect” means a material
adverse effect on (a) the business operations or condition (financial or
otherwise) of Borrower; or (b) the ability of Borrower to repay the Indebtedness
or otherwise perform its obligations under the Loan Documents.

      

      1.49    “Net
Amount of Eligible Accounts” shall mean the
gross amount of Eligible Accounts; less the sum of (a) sales, excise or similar
taxes included in the amount thereof; and (b) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed with respect thereto.

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      

        1.50     “Net
Income”
shall mean the net income (or loss) of a person for any period of determination,
determined in accordance with GAAP but excluding in any event: (a) any gains or
losses on the sale or other disposition, not in the ordinary course of business,
of investments or fixed or capital assets, and any taxes on the excluded gains
and any tax deductions or credits on account on any excluded losses; and (b) in
the case of Borrower, net earnings of any Person in which Borrower has an
ownership interest, unless such net earnings shall have actually been received
by Borrower in the form of cash distributions.

      

        1.51    “Negotiable
Collateral” shall mean and
include all of Borrower’s present and future letters of credit, advises of
credit, letter-of-credit rights, certificates of deposit, notes, drafts, money,
documents (including without limitation all negotiable documents), instruments
(including without limitation all promissory notes), tangible chattel paper or
any other similar property.

      

       1.52    “Permitted
Debt”
means: (a) Indebtedness of Borrower; (b) Debt existing on the date hereof
and listed and described on Schedule 8.3 hereto, but no
voluntary prepayments, renewals, extensions, or refinancing thereof; (c)
Subordinated Debt; (d) accounts payable to trade creditors for goods or services
incurred in the ordinary course of business, as presently conducted, and not
more than ninety (90) days past due or being contested in good faith and by
appropriate proceedings; (e) contingent liabilities incurred in the ordinary
course of business (including customary indemnification agreements); (f)
Interest Rate Protection Agreements; (g) Swap Contracts entered into in
accordance with the Commodity Risk Management Plan; and (h) Debt of Borrower
secured by purchase-money Liens permitted under clause (c) of Section
1.54.

      

       1.53     “Permitted
Distributions” means: (a)
distributions payable solely in Borrower’s membership units; (b) repurchases of
Borrower’s membership units from the proceeds of the issuance of additional such
units, provided that
such repurchases are effectuated immediately upon the consummation of such
transactions; (c) so long as no Event of Default has occurred and is continuing
hereunder, to the extent that and so long as Borrower is an entity that is not
directly subject to Federal income taxation and with respect to which any
earnings are attributable ratably to each Person with an ownership interest in
Borrower, Borrower may make distributions to each such Person in an amount
necessary to pay each such Person’s income tax resulting from such ownership
interest in Borrower, provided, further, that, promptly upon
request of Bank, Borrower shall cause each such Person to provide Bank with
copies of its tax return to substantiate any such distribution; and (d) cash
distributions made in accordance with Borrower’s operating agreement, so long as
no Event of Default has occurred and is continuing and no Event of Default would
exist after giving effect to such distributions.

      

       1.54     “Permitted
Liens”
means the following: (a) any Liens existing on date of this Agreement and listed
on Schedule 8.4 hereto or arising under this Agreement or the other Loan
Documents; (b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings and for which appropriate reserves have been made in accordance with
GAAP; (c) Liens (i) upon or in any equipment acquired or held by Borrower to
secure the purchase price of such equipment or indebtedness incurred solely for
the purpose of financing the acquisition of such equipment, or (ii) existing on
such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment; (d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; (e) materialmen’s, mechanics’,
workers’, repairmen’s, employees’ or other like Liens, arising in the ordinary
course of business, which do not in the aggregate materially detract from the
value of the property or assets to which they are attached or materially impair
the use thereof or for amounts not yet due or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
made in accordance with GAAP; (f) to the extent not otherwise prohibited
hereunder, Liens arising out of judgments or awards so long as an appeal or
proceeding for review is being prosecuted in good faith and for the payment of
which adequate reserves, bonds or other security reasonably acceptable to the
Bank have been provided or are fully covered by insurance; (g) Liens, deposits
or pledges to secure statutory obligations or performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, or for
purposes of like general nature in the ordinary course of its business, not to
exceed Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) in
the aggregate at any time, and with any such Lien to be released within two
hundred seventy (270) days of its attachment; (h) customary set-off, netting,
counterclaims and banker’s Liens; and (i) other Liens incidental to the ordinary
course of business that are not incurred in connection with the obtaining of any
Debt, that do not in the aggregate materially impair the use of the property or
assets of the Borrower or the value of such property or assets for the purposes
of such business and that do not attach to the Collateral.

      

      
        
           

        

        
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      1.55    “Permitted
Investment” means

      

      1.55.1  direct
obligations of the United States of America or any agency thereof or obligations
guaranteed by the United States of America or any agency thereof, in each case
with maturities not exceeding one (1) year;

      

      1.55.2  time deposit
accounts, certificates of deposit and money market deposits maturing within one
hundred eighty (180) days of the date of acquisition thereof issued by a bank or
trust company that is organized under the laws of the United States of America,
or any state thereof having capital, surplus and undivided profits in excess of
Two Hundred Fifty Million and 00/100 Dollars ($250,000,000.00) and whose
long-term debt, or whose parent holding company’s long-term debt, is rated A (or
such similar equivalent rating or higher) by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act);

      

      1.55.3  repurchase
obligations with a term of not more than one hundred eighty (180) days for
underlying securities of the types described in Section 1.55.1 above entered
into with a bank meeting the qualifications described in Section
1.55.2;

      

      1.55.4  commercial paper,
maturing not more than one (1) year after the date of acquisition, issued by a
corporation (other than an Affiliate of the Borrower) organized and in existence
under the laws of the United States of America or any foreign country recognized
by the United States of America with a rating at the time as of which any
investment therein is made of P-2 (or higher) according to Moody’s or A-2 (or
higher) according to S&P;

      

      1.55.5  securities with
maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least A by S&P or A-2 by Moody’s;

      

      1.55.6   shares of
mutual funds whose investment guidelines restrict ninety five percent (95%) of
such funds’ investments to those satisfying the provisions of Section 1.55.1
through Section 1.55.5;

      

      1.55.7  money market
funds that (a) comply with the criteria set forth in Rule 2a-7 under the
Investment Company Act of 1940; (b) are rated AAA by S&P and Aaa by Moody’s;
and (c) have portfolio assets of at least Five Hundred Million and 00/100
Dollars ($500,000,000.00); and

      

      1.55.8  time deposit
accounts, certificates of deposit and money market deposits in an aggregate face
amount not in excess of Ten Million and 00/100 Dollars
($10,000,000.00).

       

      1.56    “Person” or “person” shall mean and
includes any individual, corporation, partnership, joint venture,
firm, association, trust, unincorporated association, joint stock company,
government, municipality, political subdivision or agency or other
entity.

       

      1.57     “Qualified
Counterparty” means any of the
following: (a) Bank; or (b) any Affiliate of Bank.

      

      1.58    “Regulation
D” means
Regulation D of the Board of Governors of the Federal Reserve System as amended
or supplemented from time to time.

      

      1.59    “Regulatory
Development” means any or all of
the following: (a) any change in any law, regulation or interpretation thereof
by any public authority (whether or not having the force of law); (b) the
application of any existing law, regulation or the interpretation thereof by any
public authority (whether or not having the force of law); and (c) compliance by
Bank with any request or directive (whether or not having the force of law) of
any public authority.

      

      1.60    “Reinvestment
Rates”
mean the per annum rates of interest equal to one-half percent (1/2%) above the
rates of interest reasonably determined by Bank to be in effect not more than
seven (7) days prior to the Prepayment Date in the secondary market for United
States Treasury Indebtedness in amount(s) and with maturity(ies) which
correspond (as closely as possible) to the LIBOR Rate Advance being
prepaid.

      

      1.61    “Revolving
Facility” means the facility
under which Borrower may request Bank to issue cash advances, as specified in
Section 2.1 hereof.

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      

      1.62    “Revolving
Facility Commitment Limit” means the lesser
of: (a) the Credit Limit; less the Letter of Credit Obligations; or (b) the
Borrowing Base; less the Letter of Credit Obligations; provided, however, that Bank may from
time to time agree to increase the Revolving Commitment Limit at its sole
discretion.

      

      1.63    “Revolving
Facility Maturity Date” means July 1,
2009.

      

      1.64    “Subordinated
Debt”
shall mean Debt of Borrower to any Person which has been subordinated to the
Indebtedness pursuant to a Subordination Agreement in form and content
satisfactory to Bank.

      

      1.65    “Subordination
Agreement” shall mean any
subordination agreement, which is in form and substance satisfactory to Bank,
and which makes any or all present and future indebtedness of Borrower to any
Person subordinate to the Indebtedness.

      

      1.66    “Swap
Contract” means (a) any and
all rate swap transactions, basis swaps, credit derivative transactions, forward
rate transactions, commodity swaps, commodity options, forward commodity
contracts, equity or equity index swaps or options, bond or bond price or bond
index swaps or options or forward bond or forward bond price or forward bond
index transactions, interest rate options, forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options, spot contracts, or any other similar transactions or any combination of
any of the foregoing (including any options to enter into any of the foregoing),
whether or not any such transaction is governed by or subject to any master
agreement; (b) any and all transactions of any kind, and the related
confirmations, which are subject to the terms and conditions of, or governed by,
any form of master agreement published by the International Swaps and
Derivatives Association, Inc., any International Foreign Exchange Master
Agreement, or any other master agreement, including any such obligations or
liabilities under any such master agreement; and (c) for the avoidance of doubt,
includes the Permitted Commodity Hedging Arrangements and any Interest Rate
Protection Agreements and excludes any contract for the physical sale or
purchase of any commodity.

      

      1.67    “Swap
Termination Value” means, in respect
of any one or more Swap Contracts (including any Permitted Commodity Hedging
Arrangements or any Interest Rate Protection Agreements), after taking into
account the effect of any legally enforceable netting agreement relating to such
Swap Contracts, (a) for any date on or after the date such Swap Contracts have
been closed out and termination value(s) determined in accordance therewith,
such termination value(s); and (b) for any date prior to the date referenced in
clause (a), the amount(s) determined as the mark-to-market value(s) for such
Swap Contracts, in accordance with the terms of the applicable Swap Contract,
or, if no provision is made therein, as determined based upon one or more
mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include Bank or any Affiliate of
Bank).

      

      1.68    “Tangible
Effective Net Worth” shall mean, with
respect to any Person and as of any applicable date of determination, Tangible
Net Worth; plus Subordinated Debt.

      

      1.69    “Tangible
Net Worth” shall mean, with
respect to any Person and as of any applicable date of determination, the excess
of: (a) the net book value of all assets of such Person (excluding affiliate
receivables, patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and all other intangible assets of such Person)
after all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization); less all Debt of such Person at such time.

      

      1.70    “Trademarks” means all state
(including common law), federal and foreign trademarks, service marks, and trade
names, and applications for registration of such trademarks, service marks and
trade names, all licenses relating to any of the foregoing and all income and
royalties with respect to any licenses, whether registered or unregistered and
wherever registered, all rights to sue for past, present, or future infringement
or unconsented use thereof, all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof.

      

      1.71    “Value” means, as determined by
Bank in good faith, with respect to Inventory, the lower of (a) cost computed on
a first in first out basis in accordance with GAAP; or (b) market
value.

      

      1.72    “Working
Capital”
shall mean, as of any applicable date of determination, current assets; less current
liabilities.

      

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      Other
Definitional Provisions. Any and all terms used in the foregoing
definitions and elsewhere in this Agreement shall be construed and defined in
accordance with the meaning and definition of such terms under and pursuant to
the California Uniform Commercial Code (hereinafter referred to as the “UCC”) as amended, revised or
replaced from time to time. Notwithstanding the foregoing, the parties intend
that the terms used herein which are defined in the UCC have, at all times, the
broadest and most inclusive meanings possible. Accordingly, if the UCC shall in
the future be amended or held by a court to define any term used herein more
broadly or inclusively than the UCC in effect on the date of this Agreement,
then such term, as used herein, shall be given such broadened meaning. If the
UCC shall in the future be amended or held by a court to define any term used
herein more narrowly, or less inclusively, than the UCC in effect on the date of
this Agreement, such amendment or holding shall be disregarded in defining terms
used in this Agreement.

      

      Accounting
Matters. Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP.

      

      2.    REVOLVING
FACILITY.

      

      2.1           Revolving
Facility. Subject to and
upon the terms and conditions of this Agreement, Bank agrees to make
Advances to Borrower (pursuant to Section 2.1 hereof) and issue Letters of
Credit (pursuant to Section 2.2 hereof) under a revolving line of credit (the
“Revolving
Facility”) from time to time during the period of this Agreement up to
but not including the Revolving Facility Maturity Date in amounts requested by
Borrower up to an aggregate outstanding principal amount equal to the Revolving
Facility Commitment Limit. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement, provided that each LIBOR
Advance shall be in an amount not less than Five Hundred Thousand and 00/100
Dollars ($500,000.00) and increments thereof.

      

      2.1.1 Manner of
Borrowing. A Responsible Officer shall give Bank written or telephonic
notice (effective upon receipt) of Borrower’s desire for an Advance under the
Revolving Facility, at least two (2) Business Days before each LIBOR Advance,
and at least one (1) Business Day before each Base Rate Advance, specifying: (a)
the date of such Advance; (b) the amount of such Advance; (c) the type of
Advance (LIBOR or Base); and (d) in the case of a LIBOR Advance, the duration of
the LIBOR Period applicable thereto. Contemporaneous with such notice, Borrower
shall deliver to Bank a current Borrowing Base Certificate. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank reasonably
believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under the Revolving Facility to
Borrower’s deposit account.

      

      2.2    Letters of
Credit.

      

      2.2.1  Issuance.
Subject to the terms and conditions contained herein and the execution and
delivery by Borrower of a letter of credit application on Bank’s customary form
(a “Letter of
Credit Application”), Bank agrees to issue, extend and renew for the
account of Borrower one or more Letters of Credit in such form as may be
requested from time to time by Borrower and reasonably agreed to Bank. Each
Letter of Credit Application shall be completed to the reasonable satisfaction
of Bank. In the event that any provision of any Letter of Credit Application
shall be inconsistent with any provision of this Agreement, then the provisions
of this Agreement shall, to the extent of any such inconsistency,
govern.

      

      2.2.2 Letter of Credit
Fees. Borrower shall, on the date of issuance, extension, or renewal of
any Letter of Credit, pay a fee to Bank in respect of such Letter of Credit in
an amount equal to one and thirty-five one hundredths percent (1.35%) per annum
of the face amount of such Letter of Credit. In addition, Borrower shall pay to
Bank fees determined in accordance with Bank’s standard fees and charges in
effect at the time any Letter of Credit is issued, extended, renewed or amended
or any Letter of Credit Disbursement is made.

      

      2.2.3 Letter of Credit
Sublimit. No Letters of Credit shall be issued unless, on the date of the
proposed issuance of any Letter of Credit, (a) the Advances available to
Borrower under the Revolving Facility are equal to or greater than one hundred
percent (100%) of the face amount of such Letters of Credit; and (b) the
aggregate amount of all Letter of Credit Obligations under the Revolving
Facility shall not at any time exceed Two Million and 00/100 Dollars
($2,000,000.00).

      

      2.2.4 Conditions 
to Issuance. Bank shall not issue any Letter of Credit unless (a) such
Letter ofCredit shall be reasonably satisfactory in form and substance to Bank;
and (b) Bank shall have confirmed on the date of such issuance that the
limitations specified in Sections 2.2.3 and 2.2.5 will not be exceeded
immediately after such Letter of Credit is issued.

      

      2.2.5 Expiry
Dates. Each Letter of Credit issued, extended or renewed hereunder shall,
among other things, (a) provide for the payment of sight drafts for honor
thereunder when presented in accordance with the terms thereof and when
accompanied by the documents described therein; and (b) have an expiry date no
later than the Revolving Facility Maturity Date; provided, that no standby
Letter of Credit shall have an expiration date beyond one hundred and eighty
(180) days and further
provided no standby Letter of Credit shall have an expiration date beyond
one hundred and eighty (180) days from the Revolving Facility Maturity
Date.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      

      2.2.6 Drawings.
If Bank receives, in Bank’s reasonable judgment, a valid demand for payment
under any Letter of Credit issued by it, Bank shall (a) promptly notify Borrower
as to the amount to be paid by Bank as a result of such demand and the date of
such payment; and (b) make such payment in accordance with the terms of such
Letter of Credit. Each Letter of Credit Disbursement by Bank under a Letter of
Credit shall be deemed an Advance under the Revolving Facility and shall be
repaid by Borrower in accordance with the terms and conditions of this Agreement
applicable to such Advances; provided however, that if the
Revolving Facility is not available, for any reason whatsoever, at the time of
any Letter of Credit Disbursement, or if Advances are not available under the
Revolving Facility at such time due to any limitation on borrowings set forth
herein, then the full amount of such Letter of Credit Disbursement shall be
immediately due and payable, together with interest thereon, from the date such
amount is paid by Bank to the date such amount is fully repaid by Borrower, at
the rate of interest applicable to Advances. In such event, Borrower agrees that
Bank, at Bank’s sole discretion, may debit Borrower’s deposit account with Bank
for the amount of any such draft.

      

      2.2.7 Reimbursement by
Borrower. If any amount is drawn under any Letter of Credit, Borrower
irrevocably and unconditionally agrees to reimburse Bank for such amount,
together with any and all reasonable charges and expenses that Bank may pay or
incur relative to such drawing, as provided for in Section 2.2.6.

      

      2.2.8 Indemnification
by Borrower. Borrower agrees to indemnify and hold harmless Bank from and
against any and all claims and damages, losses, liabilities, costs or expenses
(including, without limitation, the reasonable fees and disbursements of
counsel) which Bank may reasonably incur (or which may be claimed against Bank
by any Person whatsoever) by reason of or in connection with any execution and
delivery or transfer of or payment or failure to pay under any Letter of Credit
or any actual or proposed use of any Letter of Credit; provided that Borrower shall
not be required to indemnify Bank for any such claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
(a) Bank’s own willful misconduct or gross negligence; or (ii) Bank’s failure to
pay under any Letter of Credit issued by it after the presentation to it of a
request strictly complying with the terms and conditions of such Letter of
Credit. Nothing in this subsection is intended to limit the obligations of
Borrower under any other provision of this Section.

      

       2.3    Statements.
With respect to each Advance, Bank is hereby authorized to note the date,
principal amount, interest rate and LIBOR Period applicable thereto, and any
payments made thereon, on its books and records (either manually or by
electronic entry), which notations shall be conclusive evidence of the
information noted in the absence of manifest error. A failure by Bank to record
any such information shall not impair the Borrower’s liability to make payment
when due. Bank shall render to Borrower each month a statement setting forth the
balance in Borrower’s loan account maintained by Bank for Borrower pursuant to
the provisions of this Agreement, including principal, interest, fees, costs and
expenses. Each such statement shall be subject to subsequent adjustment by Bank
but shall, absent manifest errors or omissions, be considered correct and deemed
accepted by Borrower and conclusively binding upon Borrower as an account stated
except to the extent that Bank receives a written notice from Borrower of any
specific exceptions of Borrower thereto within thirty (30) days after the date
such statement has been mailed by Bank. Until such time as Bank shall have
rendered to Borrower a written statement as provided above, the balance in
Borrower’s loan account shall be presumptive evidence of the amounts due and
owing to Bank by Borrower.

      

       2.4    Interest.
Borrower shall pay interest to Bank on the outstanding and unpaid principal
amount of the Revolving
Facility at a rate per annum as follows: (a) for a Base Rate Advance, at a
floating rate per annum equal to the Base Rate; minus one-half of one
percent (0.50%); and (b) for a LIBOR Advance, at a fixed rate per annum equal to
LIBOR; plus one and thirty-five one hundredths percent (1.35%).

      

      2.4.1 Adjusted
Rate. Any change in the interest rate resulting from a change in the Base
Rate shall be effective as of the opening of business on the day on which such
change in the Base Rate becomes effective.

      

      2.4.2 Default
Rate. From and after an Event of Default, Advances under the Revolving
Facility shall bear interest at a rate equal to three percentage points (3%)
more than the interest rate that would have been applicable hereunder. Anything
herein to the contrary notwithstanding, interest at the default rate shall be
due and payable on demand but shall accrue from the Event of Default until all
Indebtedness is paid in full.

      

      
        
           

        

        
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      2.4.3 Conversions and
Renewals. Borrower may elect from time to time to convert all or a part
of an Advance, or to renew all or part of an Advance, by giving Bank at least
two (2) Business Days prior written notice before conversion into a Base Rate
Advance, and at least three (3) LIBOR Business Days prior written notice before
the conversion into or renewal of a LIBOR Advance, specifying: (a) the renewal
or conversion date; (b) the amount of the Advance to be converted or renewed;
(c) in the case of conversions, the type of Advance to be converted into (Base
Rate or LIBOR); and (d) in the case of renewals of or a conversion into a LIBOR
Advance, the duration of the LIBOR Period applicable thereto; provided that (i) the minimum
amount of LIBOR Advances renewed or converted shall be Five Hundred Thousand and
00/100 Dollars ($500,000.00), and any greater amount shall be in increments of
Five Hundred Thousand and 00/100 Dollars ($500,000.00); (ii) the minimum
principal amount of LIBOR Advances outstanding after a renewal or conversion
shall be Five Hundred Thousand and 00/100 Dollars ($500,000.00) and any greater
amount shall be in increments of Five Hundred Thousand and 00/100 Dollars
($500,000.00); (iv) no Base Rate Advance may be converted into a LIBOR Advance
when any Event of Default has occurred and is continuing; and (v) LIBOR Advances
can be converted only on the last day of the LIBOR Period for such LIBOR
Advance. If Borrower shall fail to give Bank the written notice as specified
above for the renewal or conversion of a LIBOR Advance prior to the end of the
LIBOR Period with respect thereto, such LIBOR Advance shall automatically be
converted into a Base Rate Advance on the last day of the LIBOR Period for such
LIBOR Advance.

      

      2.4.4 Calculation of
Interest. All interest calculations shall be on a basis of a three
hundred and sixty
(360)-day year for the actual days elapsed. Interest paid for any partial month
shall be prorated based on a thirty (30)-day month and the actual number of day
elapsed.

      

      2.5    Repayment
Terms.

      

      2.5.1  Interest
Only. Interest only shall be due and payable on the unpaid principal
balance of the Advances,
without claim, notice, presentment or demand, in consecutive monthly
installments on the first (1st) day of
each month commencing on the first (1st) day of
the first (1st) full
calendar month following the Initial Funding Date and continuing thereafter
until the Revolving Facility is paid in full.

      

      2.5.2 Overadvances.
If, at any time of determination of the Borrowing Base, the outstanding
principal
balance of the Revolving Facility is greater than the Revolving Facility
Commitment Limit at such time, then Borrower shall immediately pay to Bank, in
cash, the amount of such excess.

      

      2.5.3 Maturity of
Revolving Facility. The Revolving Facility shall mature on the Revolving
Facility Maturity Date, at which time all unpaid principal, all unpaid and
accrued interest, and all other amounts due under the Revolving Facility shall
be immediately due and payable.

      

      2.6    Use of
Proceeds. The proceeds of the Advances hereunder shall be used by
Borrower for working capital
purposes and/or to make distributions to the Guarantor. Borrower will not,
directly or indirectly, use any part of such proceeds for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock, or for
any purpose which violates, or in inconsistent with, Regulation X of such Board
of Governors.

      

      3.    LIBOR
PROVISIONS.

      

      3.1    Prepayment.
In the event that LIBOR is the applicable interest rate for all or any part of
the outstanding principal balance of the Revolving Facility, and any payment or
prepayment of any such outstanding principal balance of the Revolving Facility
shall occur on any day other than the last day of the applicable LIBOR Period
(whether voluntarily, by acceleration, required payment, or otherwise), or if
Borrower elects LIBOR as the applicable interest rate for all or any part of the
outstanding principal balance of the Revolving Facility in accordance with the
terms and conditions hereof, and, subsequent to such election, but prior to the
commencement of the applicable LIBOR Period, Borrower revokes such election for
any reason whatsoever, or if the applicable interest rate in respect of any
outstanding principal balance of the Revolving Facility hereunder shall be
changed, for any reason whatsoever, from LIBOR to the Base Rate prior to the
last day of the applicable LIBOR Period, or if Borrower shall fail to make any
payment of principal or interest hereunder at any time that the LIBOR is the
applicable interest rate hereunder in respect of such outstanding principal
balance of the Revolving Facility, Borrower shall reimburse Bank, on demand, for
any resulting out-of-pocket loss, cost or expense actually incurred by Bank as a
result thereof, including, without limitation, any such loss, cost or expense
incurred in obtaining, liquidating, employing or redeploying deposits from third
parties. Such amount payable by Borrower to Bank may include, without
limitation, an amount equal to the excess, if any, of (a) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, refunded
or converted, for the period from the date of such prepayment or of such failure
to borrow, refund or convert, through the last day of the relevant LIBOR Period,
at the applicable rate of interest for such outstanding principal balance of the
Revolving Facility, as provided under the Revolving Facility; over (b) the
amount of interest (as reasonably determined by Bank) which would have accrued
to Bank on such amount by placing such amount on deposit for a comparable period
with leading banks in the interbank LIBOR market. Calculation of any amounts
payable to Bank under this Section 3.1 shall be made as though Bank shall have
actually funded or committed to fund the relevant outstanding principal balance
of the Revolving Facility hereunder through the purchase of an underlying
deposit in an amount equal to the amount of such outstanding principal balance
of the Revolving Facility and having a maturity comparable to the relevant LIBOR
Period; provided, however, that Bank may fund
the outstanding principal balance of the Revolving Facility hereunder in any
manner it deems fit and the foregoing assumptions shall be utilized only for the
purpose of the calculation of amounts payable under this paragraph. Upon the
written request of Borrower, Bank shall deliver to Borrower a certificate
setting forth the basis for determining such actual out-of-pocket losses, costs
and expenses, which certificate shall be conclusively presumed correct, absent
manifest error. Any prepayment hereunder shall also be accompanied by the
payment of all accrued and unpaid interest on the amount so prepaid. Any
outstanding principal balance of the Revolving Facility which is bearing
interest at such time at the Base Rate may be prepaid without penalty or
premium. Partial prepayments hereunder shall be applied to the installments
hereunder in the inverse order of their maturities.

      
        
           

        

        
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      BY
INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE IS NO
RIGHT TO PREPAY ANY LIBOR ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING THE
PREPAYMENT AMOUNT SET FORTH HEREIN (“PREPAYMENT  AMOUNT”), EXCEPT AS
OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) BORROWER SHALL BE LIABLE FOR
PAYMENT OF THE PREPAYMENT AMOUNT IF BANK EXERCISES ITS RIGHT TO ACCELERATE
PAYMENT OF ANY LIBOR ADVANCE AS PART OR ALL OF THE OBLIGATIONS OWING UNDER THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, ACCELERATION UNDER A DUE-ON-SALE
PROVISION; (C) BORROWER WAIVES ANY RIGHTS UNDER SECTION 2954.10 OF THE
CALIFORNIA CIVIL CODE OR ANY SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH LIBOR
ADVANCE PURSUANT TO THIS AGREEMENT IN RELIANCE ON THESE AGREEMENTS.

      

                
NK                

      Borrower’s
Initials

      

       3.2    Hold Harmless and
Indemnification. Borrower agrees to indemnify Bank and to hold Bank
harmless from, and to reimburse Bank on demand for, all actual out-of-pocket
losses and expenses which Bank sustains or incurs as a result of (a) any payment
of a LIBOR Advance prior to the last day of the applicable LIBOR Period for any
reason, including, without limitation, termination of the Revolving Facility,
whether pursuant to the Revolving Facility or the occurrence of an Event of
Default; (b) any termination of a LIBOR Period prior to the date it would
otherwise end in accordance with the Revolving Facility; or (c) any failure by
Borrower, for any reason, to borrow any portion of a LIBOR Advance.

       

      3.3    Funding
Losses. The indemnification and hold harmless provisions set forth in the
Revolving Facility shall include, without limitation, all losses and expenses
arising from interest and fees that Bank pays to lenders of funds it obtains in
order to fund the loan to Borrower on the basis of LIBOR and all losses incurred
in liquidating or re­deploying deposits from which such funds were obtained
and loss of profit for the period after termination. A written statement by Bank
to Borrower of such losses and expenses shall be conclusive and binding, absent
manifest error, for all purposes. This obligation shall survive the termination
of this Addendum and the payment of the Revolving Facility.

       

      3.4    Regulatory
Developments or Other Circumstances Relating to Illegality or Impracticality of
LIBOR. If
any Regulatory Development or other circumstances relating to the interbank
Euro-dollar markets shall, at any time, in Bank’s reasonable determination, make
it unlawful or impractical for Bank to fund or maintain, during any LIBOR
Period, to determine or charge interest rates based upon LIBOR, Bank shall give
notice of such circumstances to Borrower and:

      (a)           In
the case of LIBOR Period in progress, Borrower shall, if requested by Bank,
promptly pay any interest which had accrued prior to such request and the date
of such request shall be deemed to be the last day of the term of the LIBOR
Period;

      (b)           No
LIBOR Period may be designated thereafter until Bank determines that such would
be practical; and (c) the unpaid principal balance of the Revolving Facility
shall bear interest at a floating rate per annum equal to the Base Rate; minus
one half of one percent (1/2%).

      

       3.5    Additional
Costs. Borrower shall pay to Bank from time to time, upon Bank’s request,
such amounts as Bank determines are needed to compensate Bank for any costs
incurred which are attributable to Bank having made or maintained a LIBOR
Advance or to Bank’s obligation to make a LIBOR Advance, or any reduction in any
amount receivable by Bank hereunder with respect to any LIBOR Advance or such
obligation (such increases in costs and reductions in amounts received being
herein called “Additional Costs”), resulting from any Regulatory Developments,
which (a) change the basis of taxation of any amounts payable to Bank hereunder
with respect to any LIBOR Advance (other than taxes imposed on the overall net
income of Bank for any LIBOR Advance by the jurisdiction where Bank is
headquartered or the jurisdiction where Bank extends the LIBOR Advance; (b)
impose or modify any reserve, special deposit, or similar requirements relating
to any extensions of credit or other assets of, or any deposits with or other
liabilities of, Bank (including any LIBOR Advance or any deposits referred to in
the definition of LIBOR); or (c) impose any other condition affecting the
Revolving Facility (or any of such extension of credit or liabilities). Bank
shall notify Borrower of any event occurring after the date hereof which
entitles Bank to compensation pursuant to this paragraph as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Determinations by Bank for purposes of this paragraph, shall be
conclusive, provided that such determinations are made on a reasonable
basis.

      
        
           

        

        
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      4.    CREATION
OF SECURITY INTEREST.

      

      4.1    Grant.
Borrower hereby grants to Bank a continuing security interest in all presently
existing and hereafter
arising Collateral in order to secure prompt repayment of any and all
Indebtedness owed by Borrower to Bank and in order to secure prompt performance
by Borrower of each and all of its covenants and obligations under this
Agreement and otherwise created. Bank’s security interest in the Collateral
shall attach to all Collateral without further act on the part of Bank or
Borrower. Upon the occurrence and continuance of an Event of Default, and upon
the request of Bank, Borrower shall (a) endorse or assign Negotiable Collateral
to Bank; (b) deliver actual physical possession of Negotiable Collateral to
Bank; and (c) mark conspicuously all of its records pertaining to Negotiable
Collateral with a legend, in form and substance satisfactory to Bank (and in the
case of Negotiable Collateral consisting of tangible chattel paper, immediately
mark all such tangible chattel paper with a conspicuous legend in form and
substance satisfactory to Bank), indicating that the Negotiable Collateral is
subject to the security interest granted to Bank hereunder.

      

      4.2    Accounts.
Bank’s security interest in the Accounts shall attach to all Accounts without
further acton the part of Bank or Borrower. Upon the occurrence and continuance
of an Event of Default, Bank or Bank’s designee may notify customers or Account
Debtors of Bank’s security interest in the Collateral and direct such customers
or Account Debtors to make payments directly to Bank, but unless and until Bank
does so or gives Borrower other written instructions, Borrower shall collect all
Accounts for Bank, receive in trust all payments thereon as Bank’s trustee, and,
if so requested to do so from Bank, Borrower shall immediately deliver said
payments to Bank in their original form as received from the Account Debtor and
all letters of credit, advices of credit, instruments, documents, chattel paper
or any similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of Inventory are made for
cash, upon the occurrence and continuance of an Event of Default, Borrower shall
immediately deliver to Bank, in identical form, all such cash, checks, or other
forms of payment which Borrower receives. The receipt of any check or other item
of payment by Bank shall not be considered a payment on account until such check
or other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank
two (2) calendar days after the date Bank actually receives such check or other
item of payment.

      

      4.3    Inventory.
Bank’s security interest in Inventory shall attach to all Inventory without
further act on the part
of Bank or Borrower. Upon the occurrence and continuance of an Event of Default,
Borrower will at Borrower’s expense pledge, assemble and deliver such Inventory
to Bank or to a third party as Bank’s bailee; or hold the same in trust for
Bank’s account or store the same in a warehouse in Bank’s name; or deliver to
Bank documents of title representing said Inventory; or evidence of Bank’s
security interest in some other manner acceptable to Bank. Until the occurrence
and continuance of an Event of Default, Borrower may, subject to the provisions
hereof and consistent herewith, sell the Inventory, but only in the ordinary
course of Borrower’s business. A sale of Inventory in Borrower’s ordinary course
of business does not include an exchange or a transfer in partial or total
satisfaction of a debt owing by Borrower. Nothing in this Section limits
Borrower’s obligation to have Inventory be subject to a Collateral Access
Agreement in order to be deemed to be Eligible In Storage
Inventory.

      

      4.4    Further
Assurances. Concurrently with Borrower’s execution of this Agreement, and
at any time or times hereafter at the request of Bank, Borrower shall (a)
execute and deliver to Bank security agreements, mortgages, assignments,
certificates of title, affidavits, reports, notices, schedules of Accounts,
letters of authority and all other documents that Bank may reasonably request,
in form satisfactory to Bank, to perfect and maintain perfected Bank’s security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement; and (b) cooperate with Bank in
obtaining a control agreement in form and substance satisfactory to Bank with
respect to all deposit Accounts, electronic chattel paper, investment property,
and letter-of-credit rights. By authenticating or becoming bound by this
Agreement, Borrower authorizes the filing of initial financing statement(s), and
any amendment(s) covering the Collateral to perfect and maintain perfected
Bank’s security interest in the Collateral. Upon the occurrence and continuance
of an Event of Default, Borrower hereby irrevocably makes, constitutes and
appoints Bank (and any of Bank’s officers, employees or agents designated by
Bank) as Borrower’s true and lawful attorney-in-fact with power to sign the name
of Borrower on any security agreement, mortgage, assignment, certificate of
title, affidavit, letter of authority, notice of other similar documents which
must be executed and/or filed in order to perfect or continue perfected Bank’s
security interest in the Collateral, and to take such actions in its own name or
in Borrower’s name as Bank, in its sole discretion, deems necessary or
appropriate to establish exclusive possession or control (as defined in the UCC)
over any Collateral of such nature that perfection of Bank’s security interest
may be accomplished by possession or control.

      
        
           

        

        
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      4.5    Borrower’s
Books. Borrower shall make appropriate entries in Borrower’s Books
disclosing Bank’s security interest in the Accounts. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter, provided that reasonable notice is provided, during Borrower’s usual
business hours, or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower’s Books in
order to verify the amount or condition of, or any other matter, relating to,
said Collateral and Borrower’s financial condition.

      

      4.6    Attorney in
Fact. Effective only upon the occurrence and continuance of an Event of
Default, Borrower appoints Bank or any other person whom Bank may designate as
Borrower’s attorney-in-fact, with power: to endorse Borrower’s name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank’s possession; to sign Borrower’s name on any
invoice or bill of lading relating to any Accounts, on drafts against Account
Debtors, on schedules and assignments of Accounts, on verifications of Accounts
and on notices to Account Debtors; to establish a lock box arrangement and/or to
notify the post office authorities to change the address for delivery of
Borrower’s mail addressed to Borrower to an address designated by Bank, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower; to send, whether in
writing or by telephone, requests for verification of Accounts; and to do all
things necessary to carry out this Agreement. Borrower ratifies and approves all
acts of the attorney-in-fact. Neither Bank nor its attorney-in-fact will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. This power being coupled with an interest, is irrevocable so long as any
Accounts in which Bank has a security interest remain unpaid and until the
Indebtedness has been fully satisfied.

      

      4.7    Discharge
Liens. In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any Lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Indebtedness and
shall be payable on demand.

      

      4.8    Release of Bank’s
Lien. Upon the indefeasible payment in full of all Indebtedness, and the
termination of all Bank commitments hereunder, Bank, at Borrower’s sole cost,
shall promptly release all of its Liens on the Collateral.

      

      4.9    Loan
Information. Borrower agrees that Bank may provide information relating
to this Agreement or relating to Borrower to Bank’s parent, affiliates,
subsidiaries and service providers.

      

      5.    CONDITIONS
PRECEDENT.

      

      5.1    As conditions
precedent to the making of the initial Advance, Borrower shall execute, or cause
to be executed, and deliver to Bank, in form and substance reasonably
satisfactory to Bank and its counsel, the following:

       

      5.1.1  this Agreement and
the Guaranty by the Guarantor, each duly executed by the appropriate
parties;

      

      5.1.2  Borrower shall
have paid to Bank a documentation fee in the amount of Twenty Five Thousand and
00/100 Dollars ($25,000.00);

      

      5.1.3  Bank shall have
received certified resolutions of the member of Borrower, together with a
certificate identifying Borrower’s incumbent officers who are authorized to
execute and deliver Loan Documents on behalf of Borrower;

      

      5.1.4  Borrower shall
have paid Bank Expenses;

      

      5.1.5  Bank shall have
received a copy of Borrower’s articles of organization certified by an
authorized officer of Borrower;

      

      5.1.6 Borrower shall have
taken or caused to be taken such actions to create a valid and perfected
security interest in the Collateral to the extent required by this Agreement.
Such actions shall include the delivery to Bank of (a) the results of a recent
search of all effective UCC financing statements which may have been made with
respect to any personal
or mixed property of Borrower; and (b) UCC financing statements the recordation
of which has been authorized by Borrower as to all such Collateral for all
jurisdictions as may be necessary or desirable to perfect Bank’s security
interest in such Collateral;

      
        
           

        

        
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      5.1.7 Evidence that Borrower
has obtained insurance and acceptable endorsements;

      

      5.1.8 Collateral Access
Agreements in the form of Exhibit A hereto from
each lessor, warehouseman, bailee and other Person (to the extent Borrower
desires that the Inventory held by such Persons constitute Eligible Inventory
hereunder), duly executed by each such Person; and

      

      5.1.9The representations and
warranties contained herein shall be true and correct in all material
respects
on and as of the date hereof to the same extent as though made on and as of that
date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case such representations and warranties
shall have been true and correct in all material respects on and as of such
earlier date.

      

      5.2    The making of
any Advance after the initial Advance (other than an Advance pursuant to Section
2.2.6)
and the issuance of any Letter of Credit shall be subject to the satisfaction of
the following conditions precedent:

      

      5.2.1The representations and
warranties contained herein shall be true and correct in all material
respects
on and as of the date of such Advance or Letter of Credit to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date;

      

      5.2.2 No Default or Event of
Default shall have occurred and be continuing; and

      

      5.2.3  Borrower shall
have complied with the administrative procedures set forth in Section 2.1.1 or
Section 2.2.1 (as applicable).

      

      6.    REPRESENTATIONS
AND WARRANTIES. In order to induce Bank to enter into this Agreement and
to make the Advances hereunder, Borrower represents and warrants to Bank as set
forth in this Section 6 on the date hereof, on the date of each request of an
Advance, and on each Funding Date in each case, except to the extent such
representations and warranties expressly relate to a future date.

      

      6.1    Organization,
Good Standing, and Due Qualification. Borrower (a) is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Oregon; (b) is duly qualified to do business as is now being conducted
and as is proposed to be conducted by Borrower and is in good standing as a
foreign limited liability company in each jurisdiction where the nature of its
business requires such qualification (except where the failure to so qualify
could reasonably be expected to have a Material Adverse Effect); and (c) has all
requisite limited liability company power and authority required as of the date
this representation is made or deemed repeated to enter into and perform its
obligations under each Loan Document to which it is a party and to conduct its
business as currently conducted by it.

      

      6.2    Power and
Authority. The execution, delivery, and performance by Borrower of the
Loan Documents to which it is a party have been duly authorized by all necessary
limited liability company action and do not (a) require any consent or approval
of the members of Borrower (other than any consents or approvals which have been
obtained); (b) contravene Borrower’s articles of organization or operating
agreement; (c) violate in any material respect any provision of any law, rule,
regulation (including, without limitation, Regulations U and X of the Board of
Governors of the federal Reserve System), order, writ, judgment, injunction,
decree, determination, or award presently in effect having applicability to
Borrower; (d) result in a material breach of or constitute a default under any
indenture or loan or credit agreement or any other material agreement, material
lease, or material instrument to which Borrower is a party or by which it or its
properties may be bound or affected; and (e) result in, or require, the creation
or imposition of any Lien, upon or with respect to any of the properties now
owned or hereafter acquired by Borrower (other than Permitted
Liens).

      

      6.3    Legally
Enforceable Agreement. This Agreement is, and each of the other Loan
Documents when  delivered under this Agreement will be, legal, valid,
and binding obligations of Borrower, in accordance with their respective terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws affecting creditors’ rights
generally.

      

      6.4    Ownership and
Liens. Borrower has title to, or valid leasehold interests in, all of its
properties and  assets, real and personal, which are included (as of
the date this representation and warranty is being made) in the
Borrowing  Base. Borrower has title to, or valid leasehold interests
in, all of its other properties and assets, real and personal, except the
failure of which to so maintain title could not reasonably be expected to have a
Material Adverse Effect. None of Borrower’s assets and properties are subject to
any Lien, except Permitted Liens. Nothing in this Section shall restrict
Borrower’s ability to sell, lease or otherwise dispose of assets and properties
to the extent permitted under the Loan Documents.

      
        
           

        

        
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      6.5    Other
Agreements. Borrower is not a party to any indenture, loan, or credit
agreement, or to any lease or other agreement or instrument or subject to any
charter or corporate restriction which could reasonably be expected to have a
Material Adverse Effect on the business, properties, assets, operations, or
conditions, financial or otherwise, of Borrower, or the ability of Borrower to
carry out its obligations under the Loan Documents to which it is a party.
Borrower is not in default in any respect in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument material to its business to which it is a party, other
than any such defaults which could not reasonably be expected to have a Material
Adverse Effect.

      

      6.6    Labor Disputes
and Acts of God. Neither the business nor the properties of Borrower are
affected by any fire, explosion, accident, strike, lockout, or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or of the public
enemy, or other casualty (whether or not covered by insurance), which could
reasonably be expected to have a Material Adverse Effect.

      

      6.7    Provisions
Concerning Accounts.

      

      6.7.1  Representations.
Borrower represents and warrants that each Eligible Account at the time of its
assignment to Bank (a) will be owned solely by Borrower; (b) will be for a
liquidated amount maturing as stated in Borrower’s Books; (c) will be a bona
fide existing obligation created by the final sale and delivery of goods or the
rendition of services to Account Debtors by Borrower in the ordinary course of
business; and (d) will not be subject to any known deduction, offset,
counterclaim, return privilege, or other condition, except as reflected on
Borrower’s Books. Borrower shall not redate any invoices or reissue new invoices
in full or partial satisfaction of old invoices. Borrower shall have received no
notice of actual or imminent bankruptcy or insolvency of any Account Debtor at
the time the Eligible Account from such Account Debtor is created; and, in
accordance with prudent credit policies, the Account Debtor will be able timely
to discharge all of its indebtedness to Borrower. Allowances, if any, as between
Borrower and its customers will be on the same basis and in accordance with the
usual customary practices of Borrower as they exist on the date of this
Agreement.

      

      6.8    Provisions
Concerning Inventory.

      

      6.8.1  Locations.
Schedule 6.8.1 is a true and correct listing showing all places where Eligible
Inventory is located (except for Eligible Inventory in transit), including,
without limitation, facilities leased and operated by Borrower and locations
neither owned nor leased by Borrower. Such list indicates whether the premises
are those of warehouseman or other party. Borrower shall provide Bank at least
ten (10) days’ prior written notice of any change in the locations set forth in
Schedule 6.8.1 (and Borrower shall have the right to update such Schedule in
connection with the provision of such notice).

      

      6.8.2   Books and
Records. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type, quality,
and quantity of the Eligible Inventory, and its cost therefor; all such records
shall be available upon demand to Bank for inspection and copying.

      

      6.8.3  Warehouses and
Landlords. Eligible Inventory is not now and shall not at any time
hereafter be stored with a bailee, warehouse, or similar party unless a
Collateral Access Agreement is in effect with such Person.

      

      6.9    Litigation.
Except as set forth in Schedule 6.9, there are no actions or proceedings pending
by or against Borrower before any court or administrative agency which could
reasonably be expected to have a Material Adverse Effect. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.

      

      6.10    No Material
Adverse Change in Financial Statements. Except as otherwise disclosed to
Bank, all financial statements related to Borrower that have been delivered by
Borrower to Bank fairly present in all material respects Borrower’s financial
condition as of the date thereof and Borrower’s results of operations for the
period then ended. Since the date of the most recent of such financial
statements submitted to Bank, no Material Adverse Effect has occurred and is
continuing.

      
        
           

        

        
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      6.11    Solvency.
Borrower is solvent (within the meaning given that term and similar terms under
applicable laws relating to fraudulent transfers and conveyances).

      

      6.12    ERISA.
Borrower is in compliance in all material respects with all applicable
provisions of ERISA; Borrower has not violated in any material respect any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event as
defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under GAAP.

      

      6.13    Investment
Company Act. Borrower is not an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940. Borrower is not engaged principally, or as one of the
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T and
U of the Board of Governors of the Federal Reserve System). Borrower has
complied in all material respects with all the provisions of the Federal Fair
Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or
rules applicable to it, violation of which could reasonably be expected to have
a Material Adverse Effect.

      

      6.14    Environmental
Compliance. Borrower has taken all necessary steps to investigate the
past and present condition and usage of all real property at any time owned by
Borrower (“Real
Estate”) and the operations conducted thereon and, based upon such
diligent investigation, has determined that:

      

      6.14.1 Borrower or any
operator of the Real Estate or any operations thereon is in violation, or
alleged violation, of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act (“RCRA”),
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended (“CERCLA”),
the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any
state, local or foreign law, statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter “Environmental
Laws”), which violation would have a material adverse effect on the
environment or a Material Adverse Effect;

      

      6.14.2 Borrower has not
received notice from any Governmental Authority (a) that it has been identified
by the United States Environmental Protection Agency (“EPA”) as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous waste, as
defined by 42 U.S.C. §6903(5), any hazardous substances as defined by 42 U.S.C.
§9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) and
any toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws (“Hazardous
Substances”) which Borrower has generated, transported or disposed of has
been found at any site at which a Governmental Authority has conducted or has
ordered that Borrower conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (c) that it is or shall be
a named party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising out of
any third party’s incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances;
and

      

      6.14.3 except as set forth on
Schedule 6.14.3 attached hereto: (a) no portion of the Real Estate has been used
for the handling, processing, storage or disposal of Hazardous Substances except
in accordance with applicable Environmental Laws; and no underground tank or
other underground storage receptacle for Hazardous Substances is located on any
portion of the Real Estate; (b) in the course of any activities conducted by
Borrower or operators of its properties, no Hazardous Substances have been
generated or are being used on the Real Estate except in accordance with
applicable Environmental Laws; (c) there have been no releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
of Hazardous Substances on, upon, into or from the properties of Borrower, which
releases would have a Material Adverse Effect; (d) to the best of the Borrower’s
knowledge, there have been no releases on, upon, from or into any real property
in the vicinity of any of the Real Estate which, through soil or groundwater
contamination, may have come to be located on, and which would have a material
adverse effect on the value of, the Real Estate; and (e) in addition, any
Hazardous Substances that have been generated on any of the Real Estate have
been transported offsite only by carriers having an identification number issued
by the EPA (or the equivalent thereof in any foreign jurisdiction), treated or
disposed of only by treatment or disposal facilities maintaining valid permits
as required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Borrower’s knowledge, operating
in compliance with such permits and applicable Environmental Laws (other than,
in each case, any such violations which could not reasonably be expected to have
a Material Adverse Effect).

      
        
           

        

        
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      6.15    Taxes.
Borrower has filed all tax returns (federal, state, and local) required to be
filed and has paid all material taxes, material assessments, and material
governmental charges and material levies thereon to be due, including interest
and penalties.

      

      6.16    Subsidiaries.
Borrower does not own any Equity Interest of any Person, except for Permitted
Investments.

      

      6.17    Government
Consents. Borrower has obtained all consents, approvals and
authorizations of, made  all declarations or filings with, and given
all notices to, all governmental authorities that are necessary for the
continued operation of Borrower’s business as currently conducted.

      

      6.18    Certain
Transactions. Except for arm’s length transactions pursuant to which
Borrower makes payments in the ordinary course of business upon customary terms,
none of the officers, directors, or employees of the Borrower or any of its
Subsidiaries is presently a party to any transaction with the Borrower or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

      

      6.19    Full
Disclosure. As of the date made, no representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank, when taken together, contains any untrue statement of a material fact or
omits to state a material fact known to Borrower necessary in order to make the
statements contained in such certificates or statements (taken as a whole) not
misleading. Each warranty, representation and agreement contained in this
Agreement shall automatically be deemed repeated with each Advance (other than
an Advance under Section 2.2.6) and shall conclusively be presumed to have been
relied on by Bank regardless of any investigation made or information possessed
by Bank. The warranties, representations and agreements set forth herein shall
be cumulative and in addition to any and all other warranties, representations
and agreements which Borrower shall give, or cause to be given, to Bank, either
now or hereafter

      

      7.    AFFIRMATIVE
COVNENATS.

      

      Borrower
covenants and agrees that, until payment in full of all outstanding Indebtedness
hereunder, and for so long as Bank may have any commitment to make an Advance
hereunder, Borrower shall do all of the following:

      

      7.1    Good
Standing. Borrower shall maintain its limited liability company existence
and good standing in its jurisdiction of organization and maintain qualification
in each jurisdiction in which the failure to so qualify could reasonably be
expected to have a Material Adverse Effect. Borrower shall maintain to the
extent consistent with prudent management of Borrower’s business, in force all
licenses, approvals and agreements, the loss of which could reasonably be
expected to have a Material Adverse Effect.

      

      7.2    Government
Compliance. Borrower shall meet the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. Borrower shall
comply, with all statutes, laws, ordinances and government rules and regulations
to which it is subject, noncompliance with which could reasonably be expected to
have a Material Adverse Effect.

      

      7.3    GAAP.
Borrower at all times hereafter shall maintain a standard and modern system of
accounting in accordance with GAAP consistently applied with ledger and account
cards and/or computer tapes and computer disks, computer printouts and computer
records pertaining to the Collateral which contain information as may from time
to time be requested by Bank.

      

      7.4    Financial
Statements. Borrower shall deliver, or cause to be delivered, to
Bank:

      

      7.4.1 Borrower’s
Quarterly Financial Statements. As soon as practicable, but in any event
not later than sixty (60) days after the end of each of the fiscal quarters of
Borrower, copies of the unaudited balance sheet of Borrower, as at the end of
such quarter, and the related statement of income for the portion of Borrower’s
fiscal year then elapsed, all in reasonable detail and prepared in accordance
with GAAP, together with a certification by the principal financial or
accounting officer of Borrower that the information contained in such financial
statements fairly presents, in all material respects, the financial position of
Borrower for the period then ending, subject to changes resulting from audit and
normal year-end adjustments;

      

      
        
           

        

        
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      7.4.2 Guarantor’s
Quarterly Financial Statements. As soon as practicable, but in any event
not later than sixty (60) days after the end of each of the fiscal quarters of
Guarantor, copies of the unaudited consolidated balance sheet of Guarantor, as
at the end of such quarter, and the related statement of income for the portion
of Guarantor’s fiscal year then elapsed, all in reasonable detail and prepared
in accordance with GAAP, together with a certification by the principal
financial or accounting officer of Guarantor that the information contained in
such financial statements fairly presents, in all material respects, the
financial position of Guarantor for the period then ending, subject to changes
resulting from audit and normal year-end adjustments;

      

      7.4.3 Borrower’s
Annual Financial Statements. As soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of Borrower, a
balance sheet of Borrower as of the end of such fiscal year, and the related
statement of income and statement of cash flows, all in reasonable detail and
all prepared in accordance with GAAP consistently applied, together with a
report thereon of independent certified public accountants of recognized
national standing selected by Borrower, which report shall be unqualified as to
going concern and scope of audit;

      

      7.4.4 Guarantor’s
Annual Financial Statements. As soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of Guarantor, a
consolidated balance sheet of Guarantor as of the end of such fiscal year, and
the related statement of income and statement of cash flows, all in reasonable
detail and all prepared in accordance with GAAP consistently applied, together
with a report thereon of independent certified public accountants of recognized
national standing selected by Guarantor, which report shall be unqualified as to
going concern and scope of audit; and

      

      7.4.5 Guarantor’s SEC
Filings. Within three (3) Business Days after the filing or mailing
thereof, copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders of the
Guarantor.

      

      7.4.6 Compliance
Certificate. Simultaneously with the delivery of the financial statements
referred to in Sections 7.4.1 and 7.4.3, Borrower shall deliver to Bank a
certificate, executed by the principal financial or accounting officer of the
Borrower in form reasonably acceptable to Bank (a “Compliance
Certificate”), stating that no Default or Event of Default shall have
occurred and be continuing (or, if a Default or Event of Default exists,
explaining such Default or Event of Default) and setting forth in reasonable
detail computations evidencing compliance with the covenants contained in
Section 9.

      

      7.5    Monthly A/R and
A/P Agings. Borrower shall execute and deliver to Bank no later than
twenty (20) days after the last day of each month, (a) a detailed aging of
Accounts by total, a summary of aging of Accounts by customer, and a
reconciliation statement; and (b) a detailed aging of accounts
payable.

      

      7.6    Inventory
Reports. Borrower shall execute and deliver to Bank, no later than twenty
(20) days after the last day of each month, Bank’s form of inventory report
specifying Borrower’s cost and the resale price of Borrower’s Inventory and such
other information as Bank may reasonably request.

      

      7.7    Borrowing Base
Certificate. Until otherwise notified by Bank, Borrower shall deliver to
Bank, on a weekly basis, a Borrowing Base Certificate signed by the principal
financial or accounting officer of Borrower in form reasonably acceptable to
Bank; and Borrower shall deliver to Bank, on a monthly basis, a reconciled
Borrowing Base Certificate signed by the principal financial or accounting
officer of Borrower in form reasonably acceptable to Bank.

      

      7.8    Weekly Hedge
Reports. Borrower shall deliver to Bank, on a weekly basis, a weekly
hedge report setting forth outstanding Swap Contracts with regards to Borrower’s
hedged positions with its ethanol Inventory.

      

      7.9    Notice of
Default. As soon as possible and in any event within five (5) days after
the occurrence of any Default or Event of Default, a statement of an officer of
Borrower setting forth details of such Default or Event of Default and the
action that Borrower has taken and proposes to take with respect
thereto.

      

      7.10    Notice of
Litigation. Within five (5) days after Borrower obtains knowledge thereof
a statement of an officer of Borrower setting forth details of: (a) any
litigation or governmental proceeding pending or threatened in writing against
Borrower that has or could reasonably be expected to have a Material Adverse
Effect; or (b) any other event, act or condition that has or could reasonably be
expected to have a Material Adverse Effect.

      

      
        
           

        

        
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      7.11    Notice of
Reportable Event. Borrower shall furnish to Bank: (a) as soon as
possible, but in no event later than thirty (30) days after Borrower knows or
has reason to know that any reportable event with respect to any deferred
compensation plan has occurred, a statement of the chief financial officer of
Borrower setting forth the details concerning such reportable event and the
action which Borrower proposes to take with respect thereto, together with a
copy of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation, if a copy of such notice is available to Borrower; (b)
promptly after the filing thereof with the United States Secretary of Labor or
the Pension Benefit Guaranty Corporation, copies of each annual report with
respect to each deferred compensation plan; (c) promptly after receipt thereof,
a copy of any notice Borrower may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any deferred
compensation plan; provided, however, this subparagraph shall not apply to
notice of general application issued by the Pension Benefit Guaranty Corporation
or the Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other forms of
information from time to time disseminated to the participants by the
administrator of the deferred compensation plan.

       

      7.12    Audit of Accounts
and Inventory. Bank shall have the right to conduct audits of Borrower’s
accounts and inventory on an annual basis during the term of this Agreement, and
upon the occurrence and continuance of an Event of Default, as frequent as Bank
may determine in its reasonable discretion. Borrower hereby acknowledges and
agrees that upon completion of any such audit, subsequent to the date of this
Agreement, Bank shall have the right to adjust the Borrowing Base percentage or
the definition of Eligible Accounts and Eligible Inventory, in its sole and
reasonable discretion, based on its review of the results of such
audit.

      

      7.13    Taxes.
Borrower shall make due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make timely payment or
deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof reasonably satisfactory to Bank
indicating that Borrower has made such payments or deposits; provided that Borrower need
not make any payment if the amount or validity of such payment is contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.

      

      7.14    Insurance.

      

      7.14.1 Borrower, at its
expense, shall keep the Collateral insured against loss or damage by fire,
theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses
conducted in the locations where Borrower’s business is conducted on the date
hereof. Borrower shall also maintain insurance relating to Borrower’s ownership
and use of the Collateral in amounts and of a type that are customary to
businesses similar to Borrower’s.

      

      7.14.2 All such policies of
insurance shall be in such form, with such companies, and in such amounts as
reasonably satisfactory to Bank (it being acknowledged that as of the date
hereof all such policies, companies and amounts are satisfactory to Bank). All
such policies of property insurance shall contain a lender’s loss payable
endorsement, in a form reasonably satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor.

      

      7.14.3 The proceeds of any
casualty insurance in respect of any casualty loss of any of the Collateral
shall, subject to the rights, if any, of other parties with an interest having
priority in the property covered thereby, (a) so long as no Event of Default has
occurred and is continuing and to the extent that the amount of such proceeds is
less than Five Hundred Thousand and 00/100 Dollars ($500,000.00), be disbursed
to Borrower for direct application by borrower solely to the repair or
replacement of Borrower’s property so damaged or destroyed; and (b) in all other
circumstances, be held by Bank as cash collateral for the Indebtedness. Bank
may, at its sole option, disburse from time to time all or any part of such
proceeds so held as cash collateral, upon such terms and conditions as Bank may
reasonably prescribe, for direct application by Borrower solely to the repair or
replacement of Borrower’s property so damaged or destroyed, or Bank may apply
all or any part of such proceeds to the Indebtedness.

      

      7.15    Principal
Depository. Borrower shall maintain its principal depository and
operating accounts with Bank.

      

      7.16    Further
Assurances. At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.

      

      
        
           

        

        
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      8.    NEGATIVE
COVENANTS.

      

      Borrower
covenants and agrees that, so long as any credit hereunder shall be available
and until payment in full of the outstanding Indebtedness hereunder or for so
long as Bank may have any commitment to make any Advances, Borrower will not do
any of the following without the prior written consent of Bank:

      

      8.1    Sale of
Assets. Sell, lease, assign, transfer, or otherwise dispose of, any of
its now owned or hereafter acquired assets (including, without limitation,
shares of stock and indebtedness of subsidiaries, accounts, and leasehold
interests), except: (a) inventory, including ethanol, bio-diesel or other
products, disposed of in the ordinary course of business; (b) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
(c) that any subsidiary may sell, lease, assign, or otherwise transfer its
assets to Borrower; or (d) any other asset sales, leases, assignments, transfers
or other dispositions not exceeding One Million and 00/100 Dollars
($1,000,000.00) in the aggregate in any fiscal year.

      

      8.2    Mergers or
Acquisitions. Wind up, liquidate or dissolve itself, reorganize, merge or
consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to any
Person, or acquire all of substantially all of the assets or the business of any
Person, or permit any subsidiary to do so, except that (a) any subsidiary may
merge into or transfer assets to the Borrower; and (b) any subsidiary may merge
into or consolidate with or transfer assets to any other
subsidiary.

      

      8.3    Debt.
Create, incur, assume or be or remain liable with respect to any Debt, or permit
any Subsidiary so to do, other than Permitted Debt.

      

      8.4    Encumbrances.
Create, incur, assume or suffer to exist any Lien with respect to any of its
property, or assign or otherwise convey any right to receive income, including
the sale of any accounts, or permit any of its Subsidiaries so to do, except for
Permitted Liens.

      

      8.5    Distributions.
Make any distributions of any kind whatsoever to its members; purchase, redeem,
retire, defease or otherwise acquire for value any of its membership interests
(or any other equity securities of it, if any) held by any Person; return any
capital to any of its members; or set apart any sum for any such purpose; except
that Borrower may make Permitted Distributions so long as no Default or Event of
Default then exists or would result from such payment, to each such
Person.

      

      8.6    Investments.
Make any loan or advance to any Person, or purchase or otherwise acquire, any
capital stock, assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any Person,
or participate as a partner or joint venture with any other Person, except
Permitted Investments.

      

      8.7    Transactions with
Affiliates. Enter into any transaction, including, without limitation,
the purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate, including, without limitation, the purchase, sale, or
exchange of property or the rendering of any service, with any Affiliate, except
(a) in the ordinary course of and pursuant to the reasonable requirements of the
Borrower’s business and upon fair and reasonable terms no less favorable to the
Borrower than would obtain in a comparable arm’s-length transaction with a
Person not an Affiliate; (b) marketing agreements; or (c) as contemplated by
Sections 6.18, 8.5, 8.6, and 8.9.

      

      8.8    Guaranties,
Etc. Assume, guarantee, endorse, or otherwise be or become directly or
contingently responsible or liable, (including, but not limited to, an agreement
to purchase any obligation, stock, assets, goods, or services, or to supply or
advance any funds, assets, goods, or services, or an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth or
otherwise to assure the creditors of any Person against loss), for obligations
of any Person, except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of business
and any other Permitted Debt.

      

      8.9    Subordinated
Debt. Make any payment in respect of any Subordinated Debt, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank’s
prior written consent.

      

      8.10    Compliance.
Become an “investment company” controlled by an “investment company,” within the
meaning of the Investment Company Act of 1940, or become principally engaged in,
or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any Advance for such purpose.

      
        
           

        

        
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      8.11    Labor
Standards. Fail to comply with the Federal Fair Labor Standards Act or
violate any law or regulation, in each case which violation could reasonably be
expected to have a Material Adverse Effect, or permit any of its Subsidiaries to
do any of the foregoing.

      

      8.12    Levy. Permit
any Judicial Officer or Assignee to be appointed or to take possession of any or
all of Borrower’s assets.

      

      9.            FINANCIAL
COVENANTS. As of the last
business day of each fiscal quarter (commencing on December 31, 2007), Borrower
shall maintain the following financial ratios and covenants on a consolidated
and non-consolidated basis:

      

      9.1    Current
Ratio. Borrower shall not permit the ratio of current assets to current
liabilities to be less than 1.25 to 1.00.

      

      9.2    Working
Capital. Borrower shall not permit Working Capital to be less than the
sum of Twelve Million and 00/100 Dollars ($12,000,000.00).

      

      9.3    Tangible
Effective Net Worth. Borrower shall not permit Tangible Effective Net
Worth to be less than the sum of Twelve Million and 00/100 Dollars
($12,000,000.00).

      

      9.4    Leverage
Ratio. Borrower shall not permit the ratio of Debt to Tangible Effective
Net Worth to be greater
than 3.50:1.00.

      

      All
financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower’s assets for all purposes hereunder.

      

      10.            EVENTS OF
DEFAULT.
Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

      

      10.1    Payment.
(a) Borrower shall fail to pay any principal of the Advances or any Letter of
Credit Reimbursement Obligations when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity or at
any other date fixed for payment; (b) Borrower shall fail to pay any interest on
the Advances, any fees, including but not limited to letter of credit fees, when
the same shall become due and payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for payment, and
such failure shall continue unremedied for a period of three (3) Business Days;
or (c) Borrower shall fail to pay other sums due hereunder or under any of the
other Loan Documents, and such failure shall continue unremedied for a period of
five (5) Business Days; or

      

      10.2    Default of
Certain Provisions. Borrower shall fail to observe or perform any
covenant, obligation, condition or agreement set forth in Section 8 or Section 9
of this Agreement; or

      

      10.3    Representations.
Any representation, warranty, certificate, or other statement (financial or
otherwise) made or furnished by or on behalf of Borrower or Guarantor to Bank in
connection with this Agreement or any of the other Loan Documents, or as an
inducement to Bank to enter into this Agreement, shall be false, incorrect,
incomplete or misleading in any material respect when made or furnished unless
if such misstatement (and the effect thereof) is capable of being cured,
Borrower or Guarantor cures such misstatement (and any effect thereof) within
thirty (30) days of becoming aware thereof; or

      

      10.4    Covenant
Default. Any default in the performance of or compliance with any
agreement or other provision contained in this Agreement (other than those
described in sections 10.1, 10.2, and 10.3) and such default is not cured within
thirty (30) days after Borrower receives notice thereof or any officer of
Borrower becomes aware thereof; provided, however, that if the default
cannot by its nature be cured within such thirty (30) day period or cannot after
diligent attempts by Borrower be cured within such thirty (30) day period, and
such default is likely to be cured within a reasonable time, then Borrower shall
have an additional reasonable period (which shall not in any case exceed thirty
(30) additional days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period); or

      

      
        
           

        

        
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      10.5    Attachment.
If any material portion of Borrower’s assets is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within ten (10) Business Days, or if Borrower is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of Borrower’s assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any of
Borrower’s assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within ten (10) Business Days after Borrower
receives notice thereof, provided that none of the
foregoing shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Advances will be required to be made during such cure
period); or

      

      10.6    Insolvency.
If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within ten (10) Business Days (provided that no Advances
will be made prior to the dismissal of such Insolvency Proceeding);
or

      

      10.7    Other
Agreements. Borrower shall fail to make any payment when due under the
terms of any bond, debenture, note or other evidence of Debt to be paid by such
Person (excluding this Agreement and the other Loan Documents but including any
other evidence of Debt of Borrower to Bank) and such failure shall continue
beyond any period of grace provided with respect thereto, or shall default in
the observance or performance of any other agreement, term or condition
contained in any such bond, debenture, note or other evidence of Debt, and the
effect of such failure or default is to cause, or permit the holder or holders
thereof to cause Debt in an aggregate amount of One Million and 00/100 Dollars
($1,000,000.00) or more to become due prior to its stated date of maturity;
or

      

      10.8    Subordinated
Debt. If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is allowed under any subordination agreement
entered into with Bank; or

      

      10.9    Judgments.
The filing of a notice of judgment lien against Borrower; or the recording of
any abstract of judgment against Borrower in any county in which Borrower has an
interest in real property; or the service of a notice of levy and/or of a writ
of attachment or execution, or other like process, against the assets of
Borrower; or the entry of a judgment against Borrower; and with respect to any
of the foregoing, the amount in dispute is in excess of One Million and 00/100
Dollars ($1,000,000.00); or

      

      10.10    Guaranty.
The guaranty by the Guarantor ceases for any reason to be in full force and
effect, or the Guarantor fails to perform any obligation under such guaranty and
such failure is not cured within ten (10) Business Days after Guarantor receives
notice thereof or any officer of Guarantor becomes aware thereof;
or

      

      10.11    Change of
Control. Should there occur a sale, conveyance, transfer, disposition or
encumbrance, either voluntary or involuntary, or should an agreement be entered
into to accomplish any thereof, with respect to more than ten percent (10%) of
the issued and outstanding Equity Interests of Borrower; or

      

      10.12    Reportable
Event. If any reportable event, which Bank reasonably determines
constitutes grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan, shall
have occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such Plan shall
be terminated within the meaning of Title IV of the Employment Retirement Income
Security Act (“ERISA”),
or a trustee shall be appointed by the appropriate United States District Court
to administer any such plan, or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any plan and in case of any event described
in this Section 10.12, the aggregate amount of Borrower’s liability to the
Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of ERISA
shall exceed One Million and 00/100 Dollars ($1,000,000.00).

      

      11.    BANK’S
RIGHTS AND REMEDIES.

      

      11.1    Upon the
occurrence and during the continuation of an Event of Default by Borrower under
this Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:

      

      11.1.1 Declare Borrower’s
Indebtedness, whether evidenced by this Agreement, installment notes, demand
notes or otherwise, immediately due and payable to Bank;

      

      
        
           

        

        
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      11.1.2 Cease advancing money
or extending credit to or for the benefit of Borrower under this Agreement, or
any other agreement between Borrower and Bank;

      

      11.1.3 Terminate this
Agreement as to any future liability or obligation of Bank, but without
affecting Bank’s rights and security interests in the Collateral, and the
Indebtedness of Borrower to Bank;

      

      11.1.4 Without notice to or
demand upon Borrower or any guarantor, make such payments and do such acts as
Bank considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, take and
maintain possession of the Collateral and the premises (at no charge to Bank),
or any part thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or Lien which in the opinion of Bank appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith;

      

      11.1.5 Without limiting Bank’s
rights under any security interest, Bank is hereby granted a license or other
right to use, without charge, Borrower’s labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and advertising matter,
or any property or a similar nature as it pertains to the Collateral, in
completing production of, advertising for sale and selling any Collateral and
Borrower’s rights under all licenses and all franchise agreements shall inure to
Bank’s benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;

      

      11.1.6 Ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sales and sell
(in the manner provided for herein) the Inventory;

      

      11.1.7 Sell or dispose the
Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Borrower’s premises) as is commercially reasonable in the
opinion of Bank. It is not necessary that the Collateral be present at any such
sale. At any sale or other disposition of the Collateral pursuant to this
Section, Bank disclaims all warranties which would otherwise be given under the
UCC, including without limitation a disclaimer of any warranty relating to
title, possession, quiet enjoyment or the like, and Bank may communicate these
disclaimers to a purchaser at such disposition. This disclaimer of warranties
will not render the sale commercially unreasonable;

      

      11.1.8 Bank shall give notice
of the disposition of the Collateral as follows: (a) Bank shall give Borrower
and each holder of a security interest in the Collateral who has filed with Bank
a written request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some disposition other than a
public sale is to be made of the Collateral, the time on or after which the
private sale or other disposition is to be made; (b) the notice shall be
personally delivered or mailed, postage prepaid, to Borrower’s address appearing
in this Agreement, at least ten (10) calendar days before the date fixed for the
sale, or at least ten (10) calendar days before the date on or after which the
private sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to persons other
than Borrower claiming an interest in the Collateral shall be sent to such
addresses as have been furnished to Bank or as otherwise determined in
accordance with Section 9611 of the UCC; and (c) if the sale is to be a public
sale, Bank shall also give notice of the time and place by publishing a notice
one time at least ten (10) calendar days before the date of the sale in a
newspaper of general circulation in the county in which the sale is to be held;
and (d) Bank may credit bid and purchase at any public sale.

      

      11.1.9  Borrower shall
pay all Bank Expenses incurred in connection with Bank’s enforcement and
exercise of any of its rights and remedies as herein provided, whether or not
suit is commenced by Bank;

      

      11.1.10 Any deficiency which
exists after disposition of the Collateral as provided above will be paid
immediately by Borrower. Any excess will be returned, without interest and
subject to the rights of third parties, to Borrower by Bank, or, in Bank’s
discretion, to any party who Bank believes, in good faith, is entitled to the
excess;

      

      11.1.11 Without constituting a
retention of Collateral in satisfaction of an obligation within the meaning of
9620 of the UCC or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit Accounts (as that term is
defined under 9102 of the UCC) or other Accounts that Borrower maintains with
Bank against the Indebtedness;

      

      

      
        
           

        

        
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        11.1.12 The proceeds of any
sale or other disposition of Collateral authorized by this Agreement shall be
applied by Bank first upon all expenses authorized by the UCC and all reasonable
attorney fees and legal expenses incurred
by Bank, whether in-house or outside counsel is used, the balance of the
proceeds of the sale or other disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to remaining
Indebtedness and the surplus, if any, shall be paid over to Borrower or to such
other person(s) as may be entitled to it under applicable law. Borrower shall
remain liable for any deficiency, which it shall pay to Bank immediately upon
demand. Borrower agrees that Bank shall be under no obligation to accept any
noncash proceeds in connection with any sale or disposition of Collateral unless
failure to do so would be commercially unreasonable. If Bank agrees in its sole
discretion to accept noncash proceeds (unless the failure to do so would be
commercially unreasonable), Bank may ascribe any commercially reasonable value
to such proceeds. Without limiting the foregoing, Bank may apply any discount
factor in determining the present value of proceeds to be received in the future
or may elect to apply proceeds to be received in the future only as and when
such proceeds are actually received in cash by Bank; and

      

      

      11.1.13 The following shall be
the basis for any finder of fact’s determination of the value of any Collateral
which is the subject matter of a disposition giving rise to a calculation of any
surplus or deficiency under Section 9615(f) of the UCC: (a) the Collateral which
is the subject matter of the disposition shall be valued in an “as is” condition
as of the date of the disposition, without any assumption or expectation that
such Collateral will be repaired or improved in any manner; (b) the valuation
shall be based upon an assumption that the transferee of such Collateral desires
a resale of the Collateral for cash promptly (but no later than 30 days)
following the disposition; (c) all reasonable closing costs customarily borne by
the seller in commercial sales transactions relating to property similar to such
Collateral shall be deducted including, without limitation, brokerage
commissions, tax prorations, attorney’s fees, whether in-house or outside
counsel is used, and marketing costs; (d) the value of the Collateral which is
the subject matter of the disposition shall be further discounted to account for
any estimated holding costs associated with maintaining such Collateral pending
sale (to the extent not accounted for in (iii) above), and other maintenance,
operational and ownership expenses; and (e) any expert opinion testimony given
or considered in connection with a determination of the value of such Collateral
must be given by persons having at least five (5) years experience in appraising
property similar to the Collateral and who have conducted and prepared a
complete written appraisal of such Collateral taking into consideration the
factors set forth above. The “value” of any such Collateral shall be a factor in
determining the amount of proceeds which would have been realized in a
disposition to a transferee other than a secured party, a person related to a
secured party or a secondary obligor under Section 9615(f) of the
UCC.

      

      11.1.14 In addition to any and
all other rights and remedies available to Bank under or pursuant to this
Agreement or any other documents, instrument or agreement contemplated hereby,
Borrower acknowledges and agrees that (a) at any time following the occurrence
and during the continuance of any Event of Default; and/or (b) termination of
Bank’s commitment or obligation to make loans or advances or otherwise extent
credit to or in favor of Borrower hereunder, in the event that and to the extent
that there are any Letter of Credit Obligations outstanding at such time, upon
demand of Bank, Borrower shall deliver to Bank, or cause to be delivered to
Bank, cash collateral in an amount not less than such Letter of Credit
Obligations, which cash collateral shall be held and retained by Bank as cash
collateral for the repayment of such Letter of Credit Obligations, together with
any and all other Indebtedness of Borrower to Bank remaining unpaid, and
Borrower pledges to Bank and grants to Bank a continuing first priority security
interest in such cash collateral so delivered to Bank. Alternatively, Borrower
shall cause to be delivered to Bank an irrevocable standby letter of credit
issued in favor of Bank by a bank acceptable to Bank, in its sole discretion, in
an amount not less than such Letter of Credit Obligations, and upon terms
acceptable to Bank, in its sole discretion.

      

      11.1.15 Bank’s rights and
remedies under this Agreement and all other agreements shall be cumulative. Bank
shall have all other rights and remedies not inconsistent herewith as provided
by law or in equity. No exercise by Bank of one right or remedy shall be deemed
an election, and no waiver by Bank of any default on Borrower’s part shall be
deemed a continuing waiver. No delay by Bank shall constitute a waiver, election
or acquiescence by Bank.

      

      11.2    All of Bank’s
rights hereunder and Borrower’s waivers hereunder are each made to the
maximum

      

      extent
permitted law.

      

      12.     TAXES
AND EXPENSES REGARDING BORROWER’S PROPERTY. If Borrower fails
to pay promptly
when due to another Person, monies which Borrower is required to pay by reason
of any provision in this Agreement, Bank may, but need not, after prior notice
to Borrower and a reasonable opportunity for Borrower to cure, pay the same and
charge Borrower’s loan account therefor, and Borrower shall promptly reimburse
Bank. All such sums shall become additional Indebtedness owing to Bank, shall
bear interest at the rate hereinabove provided, and shall be secured by all
Collateral. Any payments made by Bank shall not constitute (a) an agreement by
it to make similar payments in the future; or (b) a waiver by Bank of any
default under this Agreement. Bank need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance or Lien and
the receipt of the usual official notice of the payment thereof shall be
conclusive evidence that the same was validly due and owing. Such payments shall
constitute Bank Expenses and additional advances to Borrower.

      

      
        
           

        

        
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      13.    WAIVERS.

      

      To the
maximum extent permitted by law:

      

      13.1    Borrower
agrees that checks and other instruments received by Bank in payment or on
account of Borrower’s Indebtedness constitute only conditional payment until
such items are actually paid to Bank and Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Bank on account of Borrower’s Indebtedness and Borrower agrees that Bank shall
have the continuing exclusive right to apply and reapply such payments in any
manner as Bank may deem advisable, notwithstanding any entry by Bank upon its
books.

      

      13.2    Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, Accounts, documents, instruments, chattel paper, and guarantees at any
time held by Bank on which Borrower may in any way be liable.

      

      13.3    Bank shall not
in any way or manner be liable or responsible for (a) the safekeeping of the
Inventory; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency or other
person whomsoever. All risk of loss, damage or destruction of Inventory shall be
borne by Borrower.

      

      13.4    THE UNDERSIGNED AND
THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT
THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT
PERMITTED BY LAW, EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO
CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR
THE INDEBTEDNESS.

      

      13.5    REFERENCE
PROVISION. In the event the
Jury Trial Waiver set forth above is not enforceable, the parties elect to
proceed under this Judicial Reference Provision.

      

      13.5.1    
Mechanics.

      

      13.5.1.1 With the exception of
the items specified in Section 13.5.1.2, below, any controversy, dispute or
claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement or any other
document, instrument or agreement between the undersigned parties (collectively
in this Section, the “Comerica  Documents”),
will be resolved by a reference proceeding in California in accordance with the
provisions of Sections 638 et.
seq. of the
California Code of Civil Procedure (“CCP”), or their successor
sections, which shall constitute the exclusive remedy for the resolution of any
Claim, including whether the Claim is subject to the reference proceeding.
Except as otherwise provided in the Comerica Documents, venue for the reference
proceeding will be in the state or federal court in the county or district where
the real property involved in the action, if any, is located or in the state or
federal court in the county or district where venue is otherwise appropriate
under applicable law (the “Court”).

      

      13.5.1.2 The matters that
shall not be subject to a reference are the following: (a) foreclosure of any
security interests in real or personal property; (b) exercise of self-help
remedies (including, without limitation, set-off); (c) appointment of a
receiver; and (d) temporary, provisional or ancillary remedies (including,
without limitation, writs of attachment, writs of possession, temporary
restraining orders or preliminary injunctions). This reference provision does
not limit the right of any party to exercise or oppose any of the rights and
remedies described in clauses (a) and (b) or to seek or oppose from a court of
competent jurisdiction any of the items described in clauses (c) and (d). The
exercise of, or opposition to, any of those items does not waive the right of
any party to a reference pursuant to this reference provision as provided
herein.

      

      13.5.1.3 The referee shall be
a retired judge or justice selected by mutual written agreement of the parties.
If the parties do not agree within ten (10) days of a written request to do so
by any party, then, upon request of any party, the referee shall be selected by
the Presiding Judge of the Court (or his or her representative). A request for
appointment of a referee may be heard on an ex parte or expedited basis, and the
parties agree that irreparable harm would result if ex parte relief is not
granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge
to the referee selected by the Presiding Judge of the Court (or his or her
representative).

      

      
        
           

        

        
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      13.5.1.4 The parties agree
that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested, subject to change in the time
periods specified herein for good cause shown, to (i) set the matter for a
status and trial-setting conference within fifteen (15) days after the date of
selection of the referee; (ii) if practicable, try all issues of law or fact
within one hundred twenty (120) days after the date of the conference; and (iii)
report a statement of decision within twenty (20) days after the matter has been
submitted for decision.

      

      13.5.1.5 The referee will have
power to expand or limit the amount and duration of discovery. The referee may
set or extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless
otherwise ordered based upon good cause shown, no party shall be entitled to
“priority” in conducting discovery, depositions may be taken by either party
upon seven (7) days written notice, and all other discovery shall be responded
to within fifteen (15) days after service. All disputes relating to discovery
which cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding.

      

      13.5.2
Procedures. Except as expressly set forth herein, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of hearings, the order of presentation of evidence, and all
other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee, and the referee will be provided a courtesy copy of the transcript.
The party making such a request shall have the obligation to arrange for and pay
the court reporter. Subject to the referee’s power to award costs to the
prevailing party, the parties will equally share the cost of the referee and the
court reporter at trial.

      

      13.5.3 Application of
Law. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, enter equitable orders that will be
binding on the parties and rule on any motion which would be authorized in a
court proceeding, including without limitation motions for summary judgment or
summary adjudication. The referee shall issue a decision at the close of the
reference proceeding which disposes of all claims of the parties that are the
subject of the reference. Pursuant to CCP § 644, such decision shall be entered
by the Court as a judgment or an order in the same manner as if the action had
been tried by the Court and any such decision will be final, binding and
conclusive. The parties reserve the right to appeal from the final judgment or
order or from any appealable decision or order entered by the referee. The
parties reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.

      

      13.5.4 Repeal.
If the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted), any dispute between the parties
that would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or justice, in accordance with the California Arbitration Act § 1280 through §
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration
proceeding.

      

      13.5.5
THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS
RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY
A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE
MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY
TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.

      

      13.6    In the event
that Bank elects to waive any rights or remedies hereunder, or compliance with
any of the terms
hereof, or delays or fails to pursue or enforce any term, such waiver, delay or
failure to pursue or enforce shall only be effective with respect to that single
act and shall not be construed to affect any subsequent transactions or Bank’s
right to later pursue such rights and remedies.

      

      14.     ONE
CONTINUING LOAN TRANSACTION. All loans and
advances heretofore, now or at any time or times hereafter made by Bank to
Borrower under this Agreement, shall constitute one loan secured by Bank’s
security interests in the Collateral and by all other security interests, Liens,
encumbrances heretofore, now or from time to time hereafter granted by Borrower
to Bank. Notwithstanding the foregoing, (a) to the extent that any portion of
the Indebtedness is a consumer loan, that portion shall not be secured by any
deed of trust or mortgage on or other security interest in Borrower’s principal
dwelling

      

      
        
           

        

        
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      which is
not a purchase money security interest as to that portion, unless expressly
provided to the contrary in another place; or (b) if Borrower (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure the loan and any other
Indebtedness of Borrower (or any of them), unless expressly provided to the
contrary in another place.

      

      15.            NOTICES. Unless otherwise
provided in this Agreement, all notices or demands by either party on the other
relating to this Agreement shall be in writing and sent by regular United States
mail, postage prepaid, properly addressed to Borrower or to Bank at the
addresses stated in this Agreement, or to such other addresses as Borrower or
Bank may from time to time specify to the other in writing. Requests for
information made to Borrower by Bank from time to time hereunder may be made
orally or in writing, at Bank’s discretion.

      

      16.            AUTHORIZATION
TO DISBURSE. Bank is hereby
authorized to make loans and advances hereunder upon telephonic or other
instructions received from anyone purporting to be an officer, employee, or
representative of Borrower,
or at the discretion of Bank if said loans and advances are necessary to meet
any Indebtedness of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank’s honor of, or failure to
honor, any such instructions.

      

      17.            PAYMENTS. Borrower hereby
authorizes Bank to deduct the full amount of any interest, fees, costs, or Bank
Expenses due under this Agreement and not paid or collected when due in
accordance with the terms and conditions hereof from any account maintained by
Borrower with Bank. Should there be insufficient funds in any such account to
pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower; provided, however, that Bank shall not
be obligated to advance funds to cover any such payment.

      

      18.            DESTRUCTION
OF BORROWER’S DOCUMENTS. Any documents,
schedules, invoices or other papers delivered to Bank, may be destroyed or
otherwise disposed of by Bank six (6) months after they are delivered to or
received by Bank, unless Borrower requests, in writing, the return of the said
documents, schedules, invoices or other papers and makes arrangements, at
Borrower’s expense, for their return.

      

      19.            CHOICE OF
LAW. The
validity of this Agreement, its construction, interpretation and enforcement,
and the rights of the parties hereunder and concerning the Collateral, shall be
determined according to the laws of the State of California. The parties agree
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated only in the state and federal courts in
California.

      

      20.            GENERAL
PROVISIONS.

      

      20.1    Effectiveness.
This Agreement shall be binding and deemed effective when executed by Borrower
and accepted and executed by Bank at its headquarters office.

      

      20.2    Assignment.
This Agreement shall bind and inure to the benefit of the respective successors
and assigns of each of the parties; provided, however, that Borrower may
not assign this Agreement or any rights hereunder without Bank’s prior written
consent and any prohibited assignment shall be absolutely void. No consent to an
assignment by Bank shall release Borrower or any guarantor from their
obligations to Bank. Bank may assign this Agreement and its rights and duties
hereunder. Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all of Bank’s rights and benefits hereunder. In connection
therewith, Bank may disclose all documents and information which Bank now or
hereafter may have relating to Borrower or Borrower’s business.

      

      20.3    Headings.
Paragraph headings and paragraph numbers have been set forth herein for
convenience only; unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement. Unless the
context of this Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, and the
term “including” is not limiting. The words “hereof”, “herein”, “hereby”,
“hereunder”, and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement.

      

      20.4    Indemnification.
Borrower shall defend, indemnify and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Bank Expenses
in any way suffered, incurred, or paid by Bank as a result of or in any way
arising out of, following, or consequential to transactions between Bank and
Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct.

      
        
           

        

        
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       20.5    Severability of
Provisions. In the event any one or more of the provisions contained in
this Agreement is held to be invalid, illegal or unenforceable in any respect,
then such provision shall be ineffective only to the extent of such prohibition
or invalidity, and the validity, legality, and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.

      

       20.6    Amendments.
Neither this Agreement nor any provisions hereof may be changed, waived,
discharged or terminated, nor may any consent to the departure from the terms
hereof be given, orally (even if supported by new consideration), but only by an
instrument in writing signed by all parties to this Agreement. Any waiver or
consent so given shall be effective only in the specific instance and for the
specific purpose for which given.

      

       20.7    Entire
Agreement. This Agreement, together with the Loan Documents embodies the
entire agreement and understanding among and between the parties hereto, and
supersedes all prior or contemporaneous agreements and understandings between
said parties, verbal or written, express or implied, relating to the subject
matter hereof. No promises of any kind have been made by Bank or any third party
to induce Borrower to execute this Agreement. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature, shall be used
to supplement or modify any terms of this Agreement.

      

       20.8    Waiver. No
failure to exercise and no delay in exercising any right, power, or remedy
hereunder shall impair any right, power, or remedy which Bank may have, nor
shall any such delay be construed to be a waiver of any of such rights, powers,
or remedies, or any acquiescence in any breach or default hereunder; nor shall
any waiver by Bank of any breach or default by Borrower hereunder be deemed a
waiver of any default or breach subsequently occurring. All rights and remedies
granted to Bank hereunder shall remain in full force and effect notwithstanding
any single or partial exercise of, or any discontinuance of action begun to
enforce, any such right or remedy. The rights and remedies specified herein are
cumulative and not exclusive of each other or of any rights or remedies which
Bank would otherwise have. Any waiver, permit, consent or approval by Bank of
any breach or default hereunder must be in writing and shall be effective only
to the extent set forth in such writing and only as to that specific
instance.

      

       20.9    Interpretation.
This Agreement and all agreements relating to the subject matter hereof are the
product of negotiation and preparation by and among each party and its
respective attorneys, and shall be construed accordingly. The parties waive the
provisions of California Civil Code § 1654.

      

      20.10    Survival.
All covenants, representations and warranties made in this Agreement shall
continue in full force and effect so long as any Indebtedness remains
outstanding. The obligations of Borrower to indemnify Bank with respect to the
expenses, damages, losses, costs and liabilities shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run, provided that so long as the
obligations set forth in the first sentence of this Section 20.10 have been
satisfied, and Bank has no commitment to make any Advances or to make any other
loans to Borrower, Bank shall release all security interests granted hereunder
and redeliver all Collateral held by it in accordance with applicable
law.

      

      20.11    Confidentiality.
In handling any confidential information, Bank and all employees and agents of
Bank, including but not limited to accountants, shall exercise the same degree
of care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such
information may be made (a) to the subsidiaries or affiliates of Bank in
connection with their present or prospective business relations with Borrower;
(b) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower; (c) as required by law,
regulations, rule or order, subpoena, judicial order or similar order; (d) as
may be required in connection with the examination, audit or similar
investigation of Bank; and (e) as Bank may determine in connection with the
enforcement of any remedies hereunder. Confidential information hereunder shall
not include information that either: (i) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (ii) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such
information.

      

      20.12    Costs and
Expenses. Borrower agrees to pay on demand all costs and expenses
incurred by Bank in connection with the preparation, execution, delivery,
filing, and administration of the Loan Documents, and of any amendment,
modification, or supplement to the Loan Documents, including, without
limitation, the fees and out-of-pocket expenses of counsel for the Bank,
incurred in connection with advising the Bank as to its rights and
responsibilities hereunder. Borrower also agrees to pay all such costs and
expenses, including court costs, incurred in connection with enforcement of the
Loan Documents, or any amendment, modification, or supplement thereto, whether
by negotiation, legal proceedings, or otherwise. This provision shall survive
termination of this Agreement.

      

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

      

      20.13
Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if all signatures
were upon the same instrument. Delivery of an executed counterpart of the
signature page to this Agreement by telefacsimile shall be effective as delivery
of a manually executed counterpart of this Agreement, and any party delivering
such an executed counterpart of the signature page to this Agreement by
telefacsimile to any other party shall thereafter also promptly deliver a
manually executed counterpart of this Agreement to such other party, provided
that the failure to deliver such manually executed counterpart shall not affect
the validity, enforceability, or binding effect of this Agreement.

       

       

       

       

      
 

      
        
           

        

        
          31

          
            

          

        

        
           

        

      

      

      

      IN
WITNESS WHEREOF, the parties hereto have caused this Loan and Security Agreement
(Accounts and Inventory) to be executed as of the date first hereinabove
written.

      

      BORROWER

      

      KINERGY
MARKETING, LLC

       

       

      /s/
Neil
Koehler                                      

      By:Neil
Koehler

      Its:President
and Chief Executive Officer

      

      Address
for Notices:

      

      5711 N.
West Avenue

      Fresno,
California 93711

      Fax
number: (559) 435-1478

      

      BANK

      

      COMERICA
BANK

       

      /s/ Robert
Harlan
By:Robert
Harlan
Its:Vice
President — Western Market

      

      Address
for Notices:

      

      75 East
Trimble Road

      San Jose,
California 95131

      Attn:
Revolving Facility Manager

      Fax
number: (408) 556-5097

      

      [Signature
Page to Loan Agreement]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      SCHEDULE
6.8.1

      INVENTORY
LOCATIONS

      
        	 
      	 
      	 
      	
                ExxonMobil
      Oil

              	 
      
	
                TERMINAL
      OWNER

              	
                TIDEWATER

              	
                KNIGHT,
      INC.

              	
                Corporation

              	
                NUSTAR
      ENERGY LP

              
	
                NAME

              	
                BOARDMAN

              	
                WILLBRIDGE

              	
                VERNON

              	
                STOCKTON

              
	
                ADDRESS

              	
                79827
      Ullman Blvd

              	
                5880
      N.W. St. Helens Road

              	
                2709
      East 37th Street

              	
                2941
      Navy Drive

              
	 
      	
                Boardman,
      OR 97818

              	
                Portland,
      OR 97210

              	
                Vernon,
      CA 90058

              	
                Stockton,
      CA 95206-1149

              
	
                PHONE

              	
                541.481.3625

              	
                503.220.1260

              	
                323.586.5370

              	
                209.943.5662

              
	
                FAX

              	 
      	
                503.220.1270

              	
                323.586.5387

              	
                209.943.0653

              
	 
      	 
      	
                PACIFIC
      ENERGY

              	 
      	
                ARIZONA

              
	
                TERMINAL
      OWNER

              	
                NUSTAR
      ENERGY LP

              	
                PARTNERS,
      LP

              	
                ROCKY
      MOUNTAIN PIPELINE

              	
                PETROLEUM

              
	
                NAME

              	
                LINNTON

              	
                RICHMOND

              	
                DuPONT

              	
                TUCSON

              
	
                ADDRESS

              	
                9420
      NW St. Helens Road

              	
                488
      Wright Avenue

              	
                8160
      Krameria Street

              	
                1015
      s. Cherry Avenue

              
	 
      	
                Portland,
      OR 97231

              	
                Richmond,
      CA 94804

              	
                DuPont,
      CO 80024

              	
                Tucson,
      AZ 85719

              
	
                PHONE

              	
                503.286.6744

              	
                510.232.7447

              	
                303.286.6400

              	
                520.623.4721

              
	
                FAX

              	
                503.285.1909

              	
                510.237.0689

              	 
      	 
      
	 
      	
                ROCKY
      MOUNTAIN

              	 
      	 
      	 
      
	
                TERMINAL
      OWNER

              	
                PIPELINE

              	 
      	 
      	 
      
	
                NAME

              	
                FOUNTAIN

              	 
      	 
      	 
      
	
                ADDRESS

              	
                1004
      S. Santa Fe Avenue

              	 
      	 
      	 
      
	 
      	
                Fountain,
      CO 80817

              	 
      	 
      	 
      
	
                PHONE

              	
                719.382.5242

              	 
      	 
      	 
      
	
                FAX

              	 
      	 
      	 
      	 
      

      

      

      

      
        
           

        

        
          32

          
            

          

        

        
           

        

      

      

      

      SCHEDULE
6.14.3

      HAZARDOUS
MATERIALS

      None

      
        
           

        

        
          33

          
            

          

        

        
           

        

      

      

      SCHEDULE
6.9

      LITIGATION

      None

      

      
        
           

        

        
          34

          
            

          

        

        
           

        

      

      

      

      SCHEDULE
8.3

      PERMITTED
DEBT

      None

      

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

      

      SCHEDULE
8.4

      PERMITTED
LIENS

      None

      

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

      

      SCHEDULE
8.6

      PERMITTED
INVESTMENTS

      None

       

       

      37

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