Document:

Exhibit 10.13

 

Execution Version

 

AMENDED AND RESTATED LOAN

 

AND

 

SECURITY AGREEMENT

 

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

 

WITH

 

BIO-REFERENCE LABORATORIES, INC.

 

AND

 

One or more Subsidiary Parties

(BORROWERS)

 

As of September 30, 2004

 

1

 

AMENDED AND RESTATED LOAN

AND
SECURITY AGREEMENT

 

This Amended and Restated Loan and Security Agreement (this “Agreement”)
is dated as of September 30`, 2004 and is by and among BIO-REFERENCE
LABORATORIES, INC. (“BRLI”), a New Jersey corporation, having its
principal place of business at 481 Edward H. Ross Drive, Elmwood Park, New
Jersey 07407 and its Subsidiaries which now or hereafter become a party hereto
(the “Subsidiary Parties”) (BRLI and the Subsidiary Parties hereinafter each a “Borrower”
and, collectively, “Borrowers”) the financial institutions which are now or
which hereafter become a party hereto (collectively, the “Lenders” and
individually a “Lender”) and PNC BANK, NATIONAL
ASSOCIATION (“PNC”), as agent for Lenders (PNC, in such capacity,
the “Agent”).

 

WITNESSETH:

 

WHEREAS, PNC and
Borrowers are engaged in a continuing commercial lending relationship governed
and secured by the Existing Loan Agreement (as hereinafter defined); and

 

WHEREAS, PNC and
Borrowers have negotiated certain amendments to the terms of their agreements
to, among other things, extend the term and increase the amount of Borrowers’
revolving line of credit; and

 

WHEREAS, PNC and
Borrowers have determined that it is both necessary and appropriate to amend
and restate the Existing Loan Agreement in its entirety; and

 

WHEREAS, PNC and
Borrowers wish to memorialize such amendment and restatement by this writing,

 

NOW THEREFORE, in
consideration of the mutual covenants and undertakings herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrowers, Lenders and Agent hereby agree as follows:

 

I.                                         DEFINITIONS

 

1.1.                              Accounting
Terms.  As used in this Agreement or
any certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP.

 

1.2.                              General
Terms.  For purposes of this
Agreement the following terms shall have the following meanings:

 

“Accountants” shall have the meaning set forth in Section 9.7
hereof.

 

“Acquisition Subline” shall mean the Revolving Advances utilized
to make Permitted Acquisitions in accordance with Section 2.1(c).

 

“Advances” shall mean and include all Revolving Advances.

 

“Advance Rate” shall have the meaning set forth in Section
2.1(a) hereof.

 

“Affiliate” of any Person shall mean (a) any Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person, or (b) any Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above.  For
purposes of this definition, control of a Person shall mean the power, direct
or indirect, (x) to vote 5% or more of the securities having ordinary voting
power for the election of directors of such Person, or (y) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

 

2

 

“Agent” shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and assigns.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum
equal to the higher of (i) the Base Rate in effect on such day and (ii) the
Federal Funds Open Rate in effect on such day plus 1/2 of 1%.

 

“Anti-Terrorism Laws” shall mean any statute or regulation
relating to terrorism or money laundering, including Executive Order No. 13224,
the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act,
and those administered by the United States Treasury Department’s Office of
Foreign Asset Control (as any of the foregoing may from time to time be
amended, renewed, extended, or replaced).

 

“Applicable Margin” shall mean, with respect to the periodic
adjustment of the interest rate upon the Revolving Loan, the applicable margin
in excess of the Alternate Base Rate or Euro-Rate, as applicable, calculated
periodically based upon the Fixed Charge Coverage Ratio as set forth in the
following table:

 

	
  Fixed Charge Coverage

  	
   

  	
  Alternate Base Rate

  	
   

  	
  Euro-Rate

  	
   

  	
  Level

  	
   

  
	
  < 1.25:1.0

  	
   

  	
  + 1.00

  	
  %

  	
  N/A

  	
   

  	
  A

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.25 £
  1.50:1.0

  	
   

  	
  + 0.75

  	
  %

  	
  + 2.25

  	
  %

  	
  B

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.50 £
  1.75:1.0

  	
   

  	
  + 0.50

  	
  %

  	
  + 2.00

  	
  %

  	
  C

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.75£
  2.00:1.0

  	
   

  	
  + 0.25

  	
  %

  	
  + 1.75

  	
  %

  	
  D

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  >2.00:1.0

  	
   

  	
  + 0

  	
  %

  	
  + 1.50

  	
  %

  	
  E

  	
   

  

 

Such interest rate adjustments shall be available quarterly.  If available, each such adjustment shall
become effective prospectively on and after the first day of the calendar month
following the calendar month of the date of delivery of the applicable
financial statements to Agent.  In the
event Borrowers fail to timely deliver any such financial statement, in
addition to any other remedy provided for in this Agreement, the Applicable
Margin shall be deemed to be equal to the highest level set forth in the
preceding table, until the first day of the first calendar month following the
delivery of such financial statements, at which time the Applicable Margin
shall be determined, prospectively, in accordance with the terms hereof.  If an Event of Default exists at the time any
reduction in the Applicable Margin is to be implemented, such reduction shall
not occur until the first day of the first calendar month following the date on
which such Event of Default is waived or cured, to the satisfaction of Agent
and, if required hereunder, by the Required Lenders.  It is understood and agreed that, as of the
Closing Date, the Applicable Margin in effect is that for Level E.

 

“Authority” shall have the meaning set forth in Section 4.19(d).

 

“Base Rate” shall mean the base commercial lending rate of PNC
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate.  This rate of interest is
determined from time to time by PNC as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor
does it necessarily reflect the lowest rate of interest actually charged by PNC
to any particular class or category of customers of PNC.

 

“Blocked Accounts” shall have the meaning set forth in Section
4.15(h).

 

“Blocked Person” shall have the meaning assigned to such term in
Section 5.23(b).

 

“Borrower” or “Borrowers” shall have the meaning set
forth in the preamble to this Agreement and shall extend to all permitted
successors and assigns of such Persons.

 

3

 

“Borrowing Base Certificate” shall mean a certificate duly
executed by an officer of Borrowing Agent appropriately completed and in
substantially the form of Exhibit A hereto.

 

“Borrowers’ Account” shall have the meaning set forth in Section
2.7.

 

“Borrowing Agent” shall mean BRLI.

 

“BRLI” shall have the meaning set forth in the preamble to this
Agreement.

 

“Business Day” shall mean any day other than Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required by law
to be closed for business in East Brunswick, New Jersey and, if the applicable
Business Day relates to any Euro-Rate Loans, such day must also be a day on
which dealings are carried on in the London interbank market.

 

“CERCLA” shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Charges” shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens, claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority,
domestic or foreign (including, without limitation, the Pension Benefit
Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Borrower or any of its Affiliates.

 

“Closing Date” shall mean September 30, 2004 or such other date
as may be agreed to by the parties hereto.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended
from time to time and the regulations promulgated thereunder.

 

“Collateral” shall mean and include:

 

(a)                                  all
Receivables;

 

(b)                                 all
Equipment;

 

(c)                                  all
General Intangibles;

 

(d)                                 all
Inventory;

 

(e)                                  all
Investment Property;

 

(f)                                    all
of each Borrower’s right, title and interest in and to (i) its respective goods
and other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables;
(ii) all of each Borrower’s rights as a consignor, a consignee, an unpaid
vendor, mechanic, artisan, or other lienor, including stoppage in transit,
setoff, detinue, replevin, reclamation and repurchase; (iii) all
additional amounts due to any Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to
any goods securing this Agreement; (v) all of each Borrower’s contract rights,
rights of payment which have been earned under a contract right, instruments
(including promissory notes), documents, chattel paper (including electronic
chattel paper), warehouse receipts, deposit accounts, letters of credit, and
money; (vi) all commercial tort claims (whether now existing or hereafter
arising); (vii) if and when obtained by any Borrower, all real and personal
property of third parties in which such Borrower has been granted a lien or
security interest as security for the payment or enforcement of Receivables;
and (viii) any other goods, personal property or real property now owned
or hereafter

 

4

 

acquired in which any Borrower has expressly granted a security
interest or may in the future grant a security interest to Agent hereunder, or
in any amendment or supplement hereto or thereto, or under any other agreement
between Agent and any Borrower;

 

(g)                                 all
of each Borrower’s ledger sheets, ledger cards, files, correspondence, records,
books of account, business papers, computers, computer software (owned by any
Borrower or in which it has an interest), computer programs, tapes, disks and
documents relating to (a), (b), (c), (d), (e), or (f) of this Paragraph; and

 

(h)                                 all
proceeds and products of (a), (b), (c), (d), (e), (f) and (g) in whatever form,
including, but not limited to:  cash,
deposit accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.

 

“Commitment Percentage” of any Lender shall mean the percentage
set forth below such Lender’s name on the signature page hereof as same may be
adjusted upon any assignment by a Lender pursuant to Section 16.3(c) hereof.

 

“Commitment Transfer Supplement” shall mean a document properly
completed and otherwise in form and substance satisfactory to Agent by which
the Purchasing Lender purchases and assumes a portion of the obligation of
Lenders to make Advances under this Agreement.

 

“Consents” shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties, domestic or foreign, necessary to carry on
any Borrower’s business, including, without limitation, any Consents required
under all applicable federal, state or other applicable law.

 

“Contract Rate” shall have the meaning set forth in Section 3.1.

 

“Controlled Group” shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with any Borrower, are treated as a single
employer under Section 414 of the Code.

 

“Customer” shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services
or both with respect to any contract or contract right, and/or any party who
enters into or proposes to enter into any contract or other arrangement with
any Borrower, pursuant to which such Borrower is to deliver any personal
property or perform any services.

 

“Default” shall mean an event which, with the giving of notice
or passage of time or both, would constitute an Event of Default.

 

“Default Rate” shall have the meaning set forth in Section 3.1
hereof.

 

“Defaulting Lender” shall have the meaning set forth in Section
2.12(a) hereof.

 

“Depository Accounts” shall have the meaning set forth in
Section 4.15(h) hereof.

 

“Documents” shall have the meaning set forth in Section 8.1(c)
hereof.

 

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

 

“Domestic Rate Loan” shall mean any Advance that bears interest
based upon the Alternate Base Rate.

 

“Early Termination Date” shall have the meaning set forth in
Section 13.1 hereof.

 

5

 

“Eligible Receivables” shall mean and include with respect to
each Borrower, each Receivable of such Borrower arising in the ordinary course
of such Borrower’s business and which Agent, in its sole credit judgment
exercised in a commercially reasonable manner, shall deem to be an Eligible Receivable,
based on such considerations as Agent may from time to time deem
appropriate.  A Receivable shall not be
deemed eligible unless such Receivable is subject to Agent’s first priority
perfected security interest and no other Lien (other than Permitted
Encumbrances), and is evidenced by an invoice or other documentary evidence
satisfactory to Agent.  In addition, no
Receivable shall be an Eligible Receivable if:

 

(a)                                  it
arises out of a sale made by any Borrower to an Affiliate of any Borrower or to
a Person controlled by an Affiliate of any Borrower;

 

(b)                                 it
is due or unpaid more than one hundred fifty (150) days after the original
invoice date;

 

(c)                                  fifty
percent (50%) or more of the Receivables from such Customer are not deemed
Eligible Receivables hereunder.  Such
percentage may, in Agent’s sole discretion exercised in a commercially
reasonable manner, be increased or decreased from time to time;

 

(d)                                 any
covenant, representation or warranty contained in this Agreement with respect
to such Receivable has been breached;

 

(e)                                  the
Customer shall (i) apply for, suffer, or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally unable, to pay
its debts as they become due or cease operations of its present business, (iii)
make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;

 

(f)                                    the
sale is to a Customer outside the continental United States of America, unless
the sale is on letter of credit, guaranty or acceptance terms, in each case
acceptable to Agent in its sole discretion exercised in a commercially
reasonable manner;

 

(g)                                 the
sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return basis or is
evidenced by chattel paper;

 

(h)                                 Agent
believes, in its sole judgment exercised in a commercially reasonable manner,
that collection of such Receivable is insecure or that such Receivable may not
be paid by reason of the Customer’s financial inability to pay;

 

(i)                                     the
Customer, except in the instance of Medicare or Medicaid, is the United States
of America, any state or any department, agency or instrumentality of any of
them, unless the applicable Borrower assigns its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Sub-Section 3727 et  seq. and 41 U.S.C.
Sub-Section 15 et  seq.) or has otherwise complied with other
applicable statutes or ordinances;

 

(j)                                     the
goods giving rise to such Receivable have not been shipped to the Customer or
the services giving rise to such Receivable have not been performed by the
applicable Borrower or the Receivable otherwise does not represent a final
sale;

 

(k)                                  the
aggregate Receivables of the Customer (excluding Payors) included in
calculating the Formula Amount do not exceed twenty percent (20%) of Borrowers’
total Eligible Receivables;

 

6

 

(l)                                     the
Receivable is subject to any offset, deduction, defense, dispute, or
counterclaim, the Customer is also a creditor or supplier of a Borrower or the
Receivable is contingent in any respect or for any reason;

 

(m)                               the
applicable Borrower has made any agreement with any Customer for any deduction
therefrom, except for discounts or allowances made in the ordinary course of
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the face value of each respective invoice related
thereto;

 

(n)                                 any
return, rejection or repossession of the merchandise has occurred or the
rendition of services has been disputed;

 

(o)                                 such
Receivable is not payable to a Borrower; or

 

(p)                                 such
Receivable is not otherwise satisfactory to Agent as determined in good faith
by Agent in the exercise of its discretion in a commercially reasonable manner.

 

“Environmental Complaint” shall have the meaning set forth in
Section 4.19(d) hereof.

 

“Environmental Laws” shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.

 

“Equipment” shall mean and include as to each Borrower all of
such Borrower’s goods (other than Inventory) whether now owned or hereafter
acquired and wherever located including, without limitation, all equipment,
machinery, apparatus, motor vehicles, fittings, furniture, furnishings,
fixtures, parts, accessories and all replacements and substitutions therefor or
accessions thereto.

 

“ERISA” shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the rules and regulations promulgated
thereunder.

 

“Euro-Rate”
shall mean, with respect to Euro-Rate Loans for any Interest Period, the
interest rate per annum determined by Agent by dividing (the resulting quotient
rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the
rate of interest determined by Agent in accordance with its usual procedures
(which determination shall be conclusive absent manifest error) to be the
average of the London interbank offered rates for U.S. Dollars quoted by the
British Bankers’ Association as set forth on Moneyline Telerate (or appropriate
successor or, if the British Bankers’ Association or its successor ceases to
provide such quotes, a comparable replacement determined by Agent) display page
3750 (or such other display page on the Moneyline Telerate service as may
replace display page 3750) two (2) Business Days prior to the first day of such
Interest Period for an amount comparable to such Euro-Rate Loan and having a
borrowing date and a maturity comparable to such Interest Period by (ii) a
number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may
also be expressed by the following formula:

 

	
  Euro Rate=

  	
   

  	
  Average of
  London interbank offered rates quoted by BBA or appropriate successor as
  shown on Moneyline Telerate Service display page 3750

  
	
   

  	
   

  	
  1.00 –
  Euro-Rate Reserve Percentage

  

 

The Euro-Rate shall be adjusted
with respect to any Loan to which the Euro-Rate Option applies that is
outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.

 

“Euro-Rate
Reserve Percentage” shall mean as of any day the maximum percentage in
effect on such

 

7

 

day, as prescribed by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the reserve requirements (including supplemental, marginal and emergency
reserve requirements) with respect to eurocurrency funding (currently referred
to as “Eurocurrency Liabilities”).

 

“Euro-Rate Loan” shall mean an Advance at any time that bears
interest based on the Euro-Rate.

 

“Event of Default” shall mean the occurrence of any of the
events set forth in Article X hereof.

 

“Executive Order No. 13224” shall mean the Executive Order No.
13224 on Terrorist Financing, effective September 24, 2001, as the same has
been, or shall hereafter be, renewed, extended, amended or replaced.

 

“Existing Loan Agreement” shall mean the Loan and Security
Agreement dated March 28, 1995, between BRLI and PNC, as amended by the First
Amendment to Loan Agreement dated June 12, 1995, the Second Amendment to Loan
Agreement dated February 14, 1996, the Third Amendment to Loan Agreement dated
July 2, 1996, the Fourth Amendment to Loan Agreement dated as of December 23,
1996, the Fifth Amendment to Loan Agreement dated as of February 4, 1997, the
Sixth Amendment to Loan Agreement dated March 28, 1997, the Seventh Amendment
to Loan Agreement dated April 9, 1998, the Eighth Amendment to Loan Documents
effective as of January 2, 2001, the Ninth Amendment to Loan Documents
effective as of January 30, 2001, the Tenth Amendment to Loan Documents
effective as of March 2, 2001, the Eleventh Amendment to Loan Documents dated
September 28, 2001, the Twelfth Amendment to Loan and Security Agreement
executed on or about January 29, 2002, the Thirteenth Amendment to Loan Documents
dated November 26, 2002, and the Fourteenth Amendment to Loan Documents dated
September 29, 2003.

 

“Federal
Funds Effective Rate”  shall mean,
for any day, the rate per annum (based on a year of 360 days and actual days
elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal
Reserve Bank of New York (or any successor) on such day as being the weighted
average of the rates on overnight federal funds transactions arranged by
federal funds brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the same manner
as such Federal Reserve Bank computes and announces the weighted average it
refers to as the “Federal Funds Effective Rate” as of the date of this
Agreement; provided, if such Federal Reserve Bank (or its successor)
does not announce such rate on any day, the “Federal Funds Effective Rate’ for
such day shall be the Federal Funds Effective Rate for the last day on which
such rate was announced.

 

“Federal
Funds Open Rate”  shall mean, for any
day, the rate per annum determined by Agent in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to
be the “open” rate for federal funds transactions as of the opening of business
for federal funds transactions among members of the Federal Reserve System
arranged by federal funds brokers on such day, as quoted by Garvin Guybutler,
any successor entity thereto, or any other broker selected by the Bank, as set
forth on the applicable Telerate display page; provided, however; that if such
day is not a Business Day, the Federal Funds Open Rate for such day shall be
the “open” rate on the immediately preceding Business Day, or if no such rate
shall be quoted by a Federal funds broker at such time, such other rate as
determined by Agent in accordance with its usual procedures.

 

“Fixed Charge Coverage” shall mean the following calculation, to
be tested quarterly, as of the end of each fiscal quarter on a rolling
four-quarter basis, in accordance with GAAP on a consolidated basis: (a)
Borrowers’ consolidated earnings before interest, taxes, depreciation and
amortization less the total of unfinanced capital expenditures, cash
taxes paid, shareholder distributions made and dividends paid to shareholders divided
by (b) the sum of interest and principal payments made on all senior and
subordinated indebtedness of Borrowers for borrowed money (but, for the
purposes of this Agreement, excluding principal payments made with respect to
the Revolving Loan) or the deferred purchase price of property.

 

“Formula Amount” shall have the meaning set forth in Section
2.1(a).

 

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

 

“General Intangibles” shall mean and include as to each Borrower
all of such Borrower’s general intangibles, whether now owned or hereafter
acquired including, without limitation, all payment intangibles, choses in

 

8

 

action, causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment formulations,
manufacturing procedures, quality control procedures, trademarks, service
marks, trade secrets, goodwill, copyrights, design rights, software, computer
information, source codes, codes, records and dates, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to such Borrower to secure payment of any of the Receivables by a
Customer (other than to the extent covered by Receivables) all rights of
indemnification and all other intangible property of every kind and nature
(other than Receivables).

 

“Governmental Body” shall mean any nation or government, any
state or other political subdivision thereof or any entity exercising the
legislative, judicial, regulatory or administrative functions of or pertaining
to a government.

 

“Guarantor” shall mean CareEvolve.com, Inc. and any other Person
who may hereafter guarantee payment or performance of the whole or any part of
the Obligations and “Guarantors” means collectively all such Persons.

 

“Guarantor Security Agreement” shall mean any Security Agreement
executed by any Guarantor in favor of Agent securing the Guaranty of such
Guarantor.

 

“Guaranty” shall mean any guaranty of the obligations of
Borrowers executed by a Guarantor in favor of Agent for its benefit and for the
ratable benefit of Lenders.

 

“Hazardous Discharge” shall have the meaning set forth in
Section 4.19(d) hereof.

 

“Hazardous Substance” shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances
or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et  seq.), RCRA, Articles 15 and 27 of the
New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.

 

“Hazardous Wastes” shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.

 

“Indebtedness” of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and  all indebtedness secured by a Lien on assets
owned by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. 
Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.

 

“Ineligible Security” shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.

 

“Interest Period” shall mean the period provided for any
Euro-Rate Loan pursuant to Section 2.2(b).

 

“Inventory” shall mean and include as to each Borrower all of
such Borrower’s now owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any consignment
arrangement, contract of service or held for sale or lease, all raw materials,
work in process, finished goods and materials

 

9

 

and supplies of any kind, nature or description which are or might be
used or consumed in such Borrower’s business or used in selling or furnishing
such goods, merchandise and other personal property, and all documents of title
or other documents representing them.

 

“Investment Property” shall mean and include as to each
Borrower, all of such Borrower’s now owned or hereafter acquired securities
(whether certificated or uncertificated), securities entitlements, securities
accounts, commodities contracts and commodities accounts.

 

“Lender” and “Lenders” shall have the meaning ascribed to
such term in the preamble to this Agreement and shall include each Person which
becomes a transferee, successor or assign of any Lender.

 

“Lien” shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.

 

“Material Adverse Effect” shall mean a material adverse effect
with respect to:  (a) the condition,
operations, assets, business or prospects of the applicable Person or Persons,
(b) any Borrower’s ability to pay the Obligations in accordance with the terms
thereof, (c) the value of the Collateral, or Agent’s Liens on the Collateral or
the priority of any such Lien or (d) the practical realization of the benefits
of Agent’s and each Lender’s rights and remedies under this Agreement and the
Other Documents.

 

“Maximum Revolving Advance Amount” shall mean Thirty Million
Dollars ($30,000,000.00).

 

“Monthly Advances” shall have the meaning set forth in Section
3.1 hereof.

 

“Multiemployer Plan” shall mean a “multiemployer plan” as
defined in Sections 3(37) and 4001(a)(3) of ERISA.

 

“Note” shall mean collectively, the Revolving Credit Note, and
any other promissory note executed and delivered by Borrowers from time to time
in order to evidence all or any of the Obligations.

 

“Obligations” shall mean and include any and all loans,
advances, debts, liabilities, obligations, covenants and duties owing by
Borrowers to Lenders or Agent or to any other direct or indirect subsidiary or
affiliate of Agent or any Lender of any kind or nature, present or future
(including, without limitation, any interest accruing thereon after maturity,
or after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to any Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding), whether or not evidenced by any note, guaranty or other
instrument, whether arising under any agreement, instrument or document,
(including, without limitation, this Agreement and the Other Documents) whether
or not for the payment of money, whether arising by reason of an extension of
credit, opening of a letter of credit, loan, equipment lease or guarantee,
under any interest or currency swap, future, option or other similar agreement,
or in any other manner, whether arising out of overdrafts or deposit or other
accounts or electronic funds transfers (whether through automated clearing
houses or otherwise) or out of Agent’s or any Lenders non-receipt of or
inability to collect funds or otherwise not being made whole in connection with
depository transfer check or other similar arrangements, whether direct or
indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument,
including, but not limited to, any and all of any Borrower’s Indebtedness
and/or liabilities under this Agreement, the Other Documents or under any other
agreement between Agent or Lenders and any Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of Agent and any
Lender incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing,

 

10

 

including but not limited to reasonable attorneys’ fees and expenses
and all obligations of any Borrower to Agent or Lenders to perform acts or
refrain from taking any action.

 

“Other Documents” shall mean the Note, any Guaranty, any
Guarantor Security Agreement and any and all other agreements, instruments and
documents, including, without limitation, guaranties, pledges, powers of attorney,
consents, and all other writings heretofore, now or hereafter executed by any
Borrower or any Guarantor and/or delivered to Agent or any Lender in respect of
the transactions contemplated by this Agreement.

 

“Parent” of any Person shall mean a corporation or other entity
owning, directly or indirectly at least 50% of the shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
directors of the Person, or other Persons performing similar functions for any
such Person.

 

“Participant” shall mean each Person who shall be granted the
right by any Lender to participate in any of the Advances and who shall have
entered into a participation agreement in form and substance satisfactory to
such Lender.

 

“Payment Office” shall mean initially Two Tower Center
Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of
Agent, if any, which it may designate by notice to Borrowing Agent and to each
Lender to be the Payment Office.

 

“Payor” or “Payors” shall mean any Person or Persons who
pays claims on behalf of third parties, including for example, but not limited,
to Medicare, Medicaid and insurance companies.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation.

 

“Permitted Acquisition” shall mean and include:  (a) the acquisition by any Borrower of
customer lists, at a cost not greater than One Million Dollars ($1,000,000.00)
per list and Three Million Dollars ($3,000,000.00) per year, in the aggregate;
(b) any acquisition for which the sole consideration paid by any Borrower
consists of the capital stock of such Borrower; and (c) the acquisition, the
consideration for which is not solely capital stock of a Borrower, of all or
substantially all of the assets or capital stock of a Person engaged in a business,
or having a product line, similar to the business or product line of Borrowers
as of the Closing Date at such time as the following conditions are satisfied:

 

(i)                                     No
Default or Event of Default shall have occurred and be continuing, nor would a
Default or Event of Default occur after giving effect to such acquisition;

 

(ii)                                  a
true and complete copy of the applicable acquisition agreement shall have been
provided to Agent;

 

(iii)                               financial
information regarding the business or product line that the applicable Borrower
proposes to acquire shall be provided to Agent, so as to enable Agent to
determine whether the price to be paid by such Borrower is a fair market price;

 

(iv)                              evidence
that the assets to be acquired are free and clear of all Liens except Permitted
Encumbrances;

 

(v)                                 in
the case of the acquisitions of a business, financial projections and a
certificate to the effect that the representations set forth in Article 5 will
be true after giving effect to the acquisition;

 

(vi)                              after
giving effect to the acquisition, Undrawn Availability shall not be less than
Two Million Dollars ($2,000,000.00).

 

11

 

(vii)                           Any
new Subsidiary of such Borrower resulting from such acquisition, as Agent in
its discretion shall elect, shall either: (x) expressly join in this Agreement
as a Borrower and become jointly and severally liable for the Obligations of
Borrowers hereunder and under any other Agreement between Borrowers and Lender;
or (y) become a Guarantor and shall execute and deliver a Guaranty and, if
formed under the laws of a United States jurisdiction, a Guarantor’s Security
Agreement, in form and substance acceptable to Agent in its discretion and, in
either case Agent shall have received all documents, including legal opinions,
it may reasonably require to establish compliance with each of the foregoing
conditions;

 

(viii)                        After
giving effect to such acquisition, not more than Ten Million Dollars
($10,000,000.00) of Revolving Advances in the aggregate shall have been
advanced under the Acquisition Subline; and

 

(ix)                                Agent
may exercise its reasonable discretion in determining whether to make a
Revolving Advance under the Acquisition Subline after an examination of the
documents and information required hereunder or under Section 2.1(c)(ii).

 

“Permitted Encumbrances” shall mean (a) Liens in favor of Agent
for the benefit of Agent and Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent or being contested in good faith and by appropriate
proceedings and with respect to which proper reserves have been taken by
Borrowers; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of Agent or the value of the assets in which
Agent has such a Lien and a stay of enforcement of any such Lien shall be in
effect; (c) Liens disclosed in the financial statements referred to in Section
5.5, the existence of which Agent has consented to in writing; (d) deposits or
pledges to secure obligations under worker’s compensation, social security or
similar laws, or under unemployment insurance; (e) deposits or pledges to
secure bids, tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of any Borrower’s
business; (f) judgment Liens that have been stayed or bonded and mechanics’,
workers’, materialmen’s or other like Liens arising in the ordinary course of
any Borrower’s business with respect to obligations which are not due or which
are being contested in good faith by the applicable Borrower; (g) Liens placed
upon fixed assets hereafter acquired to secure a portion of the purchase price
thereof, provided that (x) any such lien shall not encumber any other property
of Borrowers and (y) the aggregate amount of Indebtedness secured by such Liens
incurred as a result of such purchases during any fiscal year shall not exceed
the amount provided for in Section 7.6; and (h) Liens disclosed on Schedule
1.2.

 

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

 

“Plan” shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA, maintained for employees of Borrowers or any member
of the Controlled Group or any such Plan to which any Borrower or any member of
the Controlled Group is required to contribute on behalf of any of its
employees.

 

 “Purchasing Lender” shall
have the meaning set forth in Section 16.3(c) hereof.

 

“RCRA” shall mean the Resource Conservation and Recovery Act, 42
U.S.C. §§ 6901 et seq., as same may be amended from time to time.

 

“Real Property” shall mean all real property owned or leased by
any Borrower.

 

“Receivables” shall mean and include, as to each Borrower, all
of such Borrower’s accounts, contract rights, instruments (including those
evidencing indebtedness owed to Borrowers by their Affiliates), documents,
chattel paper (including electronic chattel paper), general intangibles
relating to accounts, drafts and acceptances, healthcare receivables, credit
card receivables, and all other forms of obligations owing to such Borrower
arising out of or in connection with the sale or lease of Inventory or the rendition
of services, all supporting obligations, guarantees and other

 

12

 

security therefor, whether secured or unsecured, now existing or
hereafter created, and whether or not specifically sold or assigned to Agent
hereunder.

 

“Release” shall have the meaning set forth in Section 5.7(c)(i)
hereof.

 

“Reportable Event” shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder.

 

“Required Lenders” shall mean Lenders holding at least fifty-one
percent (51%) of the Advances and, if no Advances are outstanding, shall mean
Lenders holding fifty-one percent (51%) of the Commitment Percentages.

 

“Reserve Percentage” shall mean the maximum effective percentage
in effect on any day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including, without limitation, supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding.

 

“Revolving Advances” shall mean any Advances made under this
Agreement.

 

“Revolving Credit Note” shall mean that certain Seventh Amended
and Restated Revolving Loan Note to be executed contemporaneously herewith,
made by Borrowers and payable to PNC, in the face amount of Thirty Million
Dollars ($30,000,000.00), a copy of which is attached hereto as Exhibit B,
as such note may be amended, modified, extended, renewed, restated or
substituted from time to time.

 

“Revolving Interest Rate” shall mean an interest rate per annum
equal to (a) the sum of the Alternate Base Rate plus the Applicable Margin with
respect to Domestic Rate Loans, and (b) the sum of the Euro-Rate plus the
Applicable Margin with respect to Euro-Rate Loans.

 

“Section 20 Subsidiary” shall mean the Subsidiary of the bank
holding company controlling PNC, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.

 

“Settlement Date” shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.

 

“Subsidiary” shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.

 

“Term” shall have the meaning set forth in Section 13.1 hereof.

 

“Termination Event” shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower
or any member of the Controlled Group from a Plan or Multiemployer Plan during
a plan year in which such entity was a “substantial employer” as defined in
Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of any Borrower or any member of the
Controlled Group from a Multiemployer Plan.

 

“Toxic Substance” shall mean and include any material present on
the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq.,
applicable state law, or any other applicable

 

13

 

Federal or state laws now in force or hereafter enacted relating to
toxic substances.  “Toxic Substance”
includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and
lead-based paints.

 

“Transferee” shall have the meaning set forth in Section 16.3(b)
hereof.

 

“Undrawn Availability” at a particular date shall mean an amount
equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving
Advance Amount, minus (b) the sum of (i) the outstanding amount of
Advances plus (ii) all amounts due and owing to Borrowers’ trade
creditors which are outstanding beyond normal trade terms.

 

“USA Patriot Act” shall mean the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall
hereafter be, renewed, extended, amended or replaced.

 

“Week” shall mean the time period commencing with the opening of
business on a Wednesday and ending on the end of business the following
Tuesday.

 

1.3.                              Uniform
Commercial Code Terms.  All terms
used herein and defined in the Uniform Commercial Code as adopted in the State
of New Jersey from time to time shall have the meaning given therein unless
otherwise defined herein.  To the extent
the definition of any category or type of Collateral is expanded by any
amendment, modification or revision to the Uniform Commercial Code, such
expanded definition will apply automatically as of the date of such amendment,
modification or revision.

 

1.4.                              Certain
Matters of Construction. The terms “herein”, “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision. 
Any pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice  versa.  All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.  Unless otherwise provided,
all references to any instruments or agreements to which Agent is a party,
including, without limitation, references to any of the Other Documents, shall
include any and all modifications or amendments thereto and any and all
extensions or renewals thereof.

 

II.                                     ADVANCES,
PAYMENTS

 

2.1.                              (a)                                  Revolving
Advances. Subject to the terms and conditions set forth in this Agreement
including, without limitation, Section 2.1(b), each Lender, severally and not
jointly, will make Revolving Advances to Borrowers in aggregate amounts
outstanding at any time equal to such Lender’s Commitment Percentage of the
lesser of (x) the Maximum Revolving Advance Amount minus the principal amount
outstanding under the Acquisition Subline or (y) an amount equal to the sum of:

 

(i)                                                                                     Fifty
(50%) percent, subject to the provisions of Section 2.1(b) hereof (the “Advance
Rate”) of the face amount of the Eligible Receivables; minus

 

(ii)                                                                                  such
reserves as Agent may reasonably deem proper and necessary from time to time.

 

The amount derived from the sum of (x) Sections 2.1(a)(y)(i) minus
(y) Section 2.1(a)(y)(ii) at any time and from time to time shall be referred
to as the “Formula Amount”.  The
Revolving Advances shall be evidenced by the Revolving Credit Note.  In the event that the aggregate principal amount
of outstanding Revolving Advances exceeds the Formula Amount at any time, such
excess shall nevertheless be:  (x)
secured by the Collateral, (y) subject to the terms of this Agreement, and (z)
due and payable immediately upon Agent’s demand, anything contained herein to
the contrary notwithstanding.

 

14

 

(b)                                 Discretionary
Rights.  The Advance Rates may be
increased or decreased by Agent at any time and from time to time in the
exercise of its reasonable discretion. 
Each Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates or increasing the reserves may
limit or restrict Advances requested by Borrowing Agent.

 

(c)                                  Acquisition
Subline.  (i) There is hereby
established a subline within the Advance Limit for Borrowers’ use in making one
or more Permitted Acquisitions (the “Acquisition Subline”).  Upon the terms and conditions of this Section
2.1(c) until the maturity date of this Agreement, Borrowers shall be entitled
to apply for one or more Advances under the Acquisition Subline which shall not
be less than One Hundred Thousand Dollars ($100,000.00) as to each such Advance
and which shall not, when aggregated with all other Advances made, under the
Acquisition Subline at any time exceed an aggregate principal amount of Ten
Million Dollars ($10,000,000.00).  Each
Advance made for Permitted Acquisitions shall permanently reduce the
availability under the Acquisition Subline and shall reduce the Maximum Revolving
Advance Amount by a corresponding amount. 
Any repayment, in full or in part, shall not restore any availability
under the Acquisition Subline; however, the amount of each repayment will
result in a corresponding increase in the Maximum Advance Amount.  Borrowers and Agent hereby acknowledge that,
as of the Closing Date:  (x) an aggregate
of Two Million Five Hundred Forty Six Thousand One Hundred Seventeen and 21/100
Dollars ($2,546,117.21) has been advanced under the Acquisition Subline, (y) up
to the sum of Seven Million Four Hundred fifty Three Thousand Eight Hundred
Eighty Two and 79/100 Dollars ($7,453,882.79), in the aggregate, may be
advanced under the Acquisition Subline in the future, and (z) as of the close
of business on October 4, 2004 the outstanding principal balance of the
Acquisition Subline equals Two Million Three Hundred Thirty Three Thousand Nine
Hundred Forty and 71/100 Dollars ($2,333,940.71).  For the purposes of interest calculations and
determining availability under the Maximum Revolving Advance Amount, each
Advance under the Acquisition Subline shall be treated as a Revolving Advance.

 

(ii)                                  Each
request for a Advance under the Acquisition Subline shall be made in writing as
early as practicable, but in no event less than ten (10) Business Days in
advance of the anticipated closing date of the Permitted Acquisition and shall
constitute a representation by Borrowers that the conditions set forth in the
definition of Permitted Acquisitions have been satisfied on the date of such
request, and shall be accompanied by the information and documents required
under the definition of Permitted Acquisitions.

 

(iii)                               Borrowers
shall provide Agent such additional information in respect of the proposed
acquisition as Agent shall reasonably request in order to perform due diligence
regarding the proposed acquisition, including without limitation, the
opportunity for Agent or its agents or representatives, to perform a field
examination with respect to the business or assets acquired prior to approving
the inclusion of such assets as Collateral which is eligible to be the basis
for Advances.

 

(iv)                              Agent
may exercise its reasonable discretion in determining whether to make Advances
for the purpose of a Permitted Acquisition.

 

(v)                                 Each
Advance made under the Acquisition Subline shall convert into a term loan on
the first day of the month following the month in which such Advance was made
and shall be payable in monthly installments of principal equal to one
thirty-sixth (1/36th) of the original amount of each such Advance,
plus accrued interest.  Principal
payments with respect to each such Advance shall commence on the first day of
the second month following the month in which such Advance was made and shall
continue on the first day of each successive month thereafter until the earlier
of thirty-six (36) months from and including the date of the first payment, or
end of the Term, when the remaining principal balance and accrued and unpaid
interest shall be due and payable, in full. 
Borrowers shall have the right to prepay the principal balance
outstanding under the Acquisition Subline in whole or in part at any time or
from time to time in increments of $50,000, provided, that there shall be added
to any prepayment of a Euro-Rate Loan a breakage fee calculated by Agent using
the same method utilized for calculating the breakage fee for Euro-Rate
transactions generally.  Any prepayments
shall be applied to the remaining installments due on any Advance under
Acquisition Subline in the inverse order of their maturities.

 

15

 

2.2.                              Procedure
for Borrowing Advances.

 

(a)                                  Borrowing
Agent on behalf of any Borrower may notify Agent prior to 11:00 a.m. on a
Business Day of a Borrower’s request to incur, on that day, a Revolving Advance
hereunder.  Should any amount required to
be paid as interest hereunder, or as fees or other charges under this Agreement
or any other agreement with Agent or Lenders, or with respect to any other Obligation,
become due, same shall be deemed a request for a Revolving Advance as of the
date such payment is due, in the amount required to pay in full such interest,
fee, charge or Obligation under this Agreement or any other agreement with
Agent or Lenders, and such request shall be irrevocable.

 

(b)                                 Notwithstanding
the provisions of (a) above, in the event any Borrower desires to obtain a
Euro-Rate Loan, Borrowing Agent shall give Agent at least three (3) Business
Days’ prior written notice, specifying (i) the date of the proposed borrowing
(which shall be a Business Day), (ii) the type of borrowing and the amount on
the date of such Advance to be borrowed, which amount shall be in a minimum
amount of $100,000.00 and in integral multiples of $100,000.00 thereafter, and
(iii) the duration of the first Interest Period therefor.  Interest Periods for Euro-Rate Loans shall be
for one, two, three or six months; provided, if an Interest Period would
end on a day that is not a Business Day, it shall end on the next succeeding
Business Day unless such day falls in the next succeeding calendar month in
which case the Interest Period shall end on the next preceding Business
Day.  No Euro-Rate Loan shall be made
available to Borrower during the continuance of a Default or an Event of
Default.

 

(c)                                  Each
Interest Period of a Euro-Rate Loan shall commence on the date such Euro-Rate
Loan is made and shall end on such date as Borrowing Agent may elect as set
forth in subsection (b)(iii) above provided that the exact length of each
Interest Period shall be determined in accordance with the practice of the
interbank market for offshore Dollar deposits and no Interest Period shall end
after the last day of the Term.

 

Borrowing Agent shall elect the initial Interest Period applicable to a
Euro-Rate Loan by its notice of borrowing given to Agent pursuant to Section
2.2(b) or by its notice of conversion given to Agent pursuant to Section
2.2(d), as the case may be.  Borrowing
Agent shall elect the duration of each succeeding Interest Period by giving
irrevocable written notice to Agent of such duration not less than three (3)
Business Days prior to the last day of the then current Interest Period
applicable to such Euro-Rate Loan.  If
Agent  does not receive timely notice of
the Interest Period elected by Borrowing Agent, Borrowers shall be deemed to
have elected to convert to a Domestic Rate Loan subject to Section 2.2(d)
hereinbelow.

 

(d)                                 Provided
that no Event of Default shall have occurred and be continuing, any Borrower
may, on the last Business Day of the then current Interest Period applicable to
any outstanding Euro-Rate Loan, or on any Business Day with respect to Domestic
Rate Loans, convert any such loan into a loan of another type in the same
aggregate principal amount provided that any conversion of a Euro-Rate Loan
shall be made only on the last Business Day of the then current Interest Period
applicable to such Euro-Rate Loan.  If a
Borrower desires to convert a loan, Borrowing Agent shall give Agent not less
than three (3) Business Days’ prior written notice to convert from a Domestic
Rate Loan to a Euro-Rate Loan or one (1) Business Day’s prior written notice to
convert from a Euro-Rate Loan to a Domestic Rate Loan, specifying the date of
such conversion, the loans to be converted and if the conversion is from a
Domestic Rate Loan to any other type of loan, the duration of the first
Interest Period therefor.  After giving
effect to each such conversion, there shall not be outstanding more than five
(5) Euro-Rate Loans, in the aggregate.

 

(e)                                  At
its option and upon three (3) Business Days’ prior written notice, any Borrower
may prepay the Euro-Rate Loans in whole at any time or in part from time to
time, without premium or penalty, but with accrued interest on the principal
being prepaid to the date of such repayment. 
Such Borrower shall specify the date of prepayment of Advances which are
Euro-Rate Loans and the amount of such prepayment.  In the event that any prepayment of a Euro-Rate
Loan is required or permitted on a date other than the last Business Day of the
then current Interest Period with respect thereto, such Borrower shall
indemnify Agent and Lenders therefor in accordance with Section 2.2(f) hereof.

 

(f)                                    Each
Borrower shall indemnify Agent and Lenders and hold Agent and Lenders harmless
from and against any and all losses or expenses that Agent and Lenders may
sustain or incur as a consequence of any prepayment, conversion of or any
default by any Borrower in the payment of the principal of or interest on any

 

16

 

Euro-Rate Loan or failure by any Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Euro-Rate Loan after notice thereof has
been given, including, but not limited to, any interest payable by Agent or
Lenders to lenders of funds obtained by it in order to make or maintain its
Euro-Rate Loans hereunder.  A certificate
as to any additional amounts payable pursuant to the foregoing sentence
submitted by Agent or any Lender to Borrowing Agent shall be conclusive absent
manifest error.

 

(g)                                 Notwithstanding
any other provision hereof, if any applicable law, treaty, regulation or
directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for any Lender (for purposes of this subsection
(g), the term “Lender” shall include any Lender and the office or branch where
any Lender or any corporation or bank controlling such Lender makes or
maintains any Euro-Rate Loans ) to make or maintain its Euro-Rate Loans, the
obligation of Lenders to make Euro-Rate Loans hereunder shall forthwith be
cancelled and Borrowers shall, if any affected Euro-Rate Loans are then
outstanding, promptly upon request from Agent, either pay all such affected
Euro-Rate Loans or convert such affected Euro-Rate Loans into loans of another
type.  If any such payment or conversion
of any Euro-Rate Loan is made on a day that is not the last day of the Interest
Period applicable to such Euro-Rate Loan, Borrowers shall pay Agent, upon Agent’s
request, such amount or amounts as may be necessary to compensate Lenders for
any loss or expense sustained or incurred by Lenders in respect of such
Euro-Rate Loan as a result of such payment or conversion, including (but not
limited to) any interest or other amounts payable by Lenders to lenders of
funds obtained by Lenders in order to make or maintain such Euro-Rate
Loan.  A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Lenders to
Borrowing Agent shall be conclusive absent manifest error.

 

2.3.                              Disbursement
of Advance Proceeds.  All Advances
shall be disbursed from whichever office or other place Agent may designate
from time to time and, together with any and all other Obligations of Borrowers
to Agent or Lenders, shall be charged to Borrowers’ Account on Agent’s
books.  During the Term, Borrowers may
use the Revolving Advances by borrowing, prepaying and reborrowing, all in
accordance with the terms and conditions hereof.  The proceeds of each Revolving Advance
requested by Borrowers or deemed to have been requested by Borrowers under
Section 2.2(a) hereof shall, with respect to requested Revolving Advances to
the extent Lenders make such Revolving Advances, be made available to the
applicable Borrower on the day so requested by way of credit to such Borrower’s
operating account at PNC, or such other bank as Borrowing Agent may designate
following notification to Agent, in immediately available federal funds or
other immediately available funds or, with respect to Revolving Advances deemed
to have been requested by any Borrower, be disbursed to Agent to be applied to
the outstanding Obligations giving rise to such deemed request.

 

2.4.                              Maximum
Advances.  The aggregate balance of
Revolving Advances outstanding at any time shall not exceed the lesser of (a)
Maximum Revolving Advance Amount or (b) the Formula Amount.

 

2.5.                              Repayment
of Advances.

 

(a)                                  The
Revolving Advances shall be due and payable in full on the last day of the Term
subject to earlier prepayment as herein provided.

 

(b)                                 Each
Borrower recognizes that the amounts evidenced by checks, notes, drafts or any
other items of payment relating to and/or proceeds of Collateral may not be
collectible by Agent on the date received. 
In consideration of Agent’s agreement to conditionally credit Borrowers’
Account as of the Business Day on which Agent receives those items of payment,
each Borrower agrees that, in computing the charges under this Agreement, all
items of payment shall be deemed applied by Agent on account of the Obligations
one (1) Business Day after the Business Day Agent receives such payments via
wire transfer or electronic depository check. 
Agent is not, however, required to credit Borrowers’ Account for the
amount of any item of payment which is unsatisfactory to Agent and Agent may
charge Borrowers’ Account for the amount of any item of payment which is
returned to Agent unpaid.

 

(c)                                  All
payments of principal, interest and other amounts payable hereunder, or under
any of the Other Documents shall be made to Agent at the Payment Office not
later than 1:00 P.M. (eastern time) on the due date therefor in lawful money of
the United States of America in federal funds or other funds immediately
available to Agent.

 

17

 

Agent shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers’ Account or by making
Advances as provided in Section 2.2 hereof.

 

(d)                                 Borrowers
shall pay principal, interest, and all other amounts payable hereunder, or
under any related agreement, without any deduction whatsoever, including, but
not limited to, any deduction for any setoff or counterclaim.

 

2.6.                              Repayment
of Excess Advances.  The aggregate
balance of Advances outstanding at any time in excess of the maximum amount of
Advances permitted hereunder shall be immediately due and payable without the
necessity of any demand, at the Payment Office, whether or not a Default or
Event of Default has occurred.

 

2.7.                              Statement
of Account.  Agent shall maintain, in
accordance with its customary procedures, a loan account (“Borrowers’ Account”)
in the name of Borrowers in which shall be recorded the date and amount of each
Advance made by Agent and the date and amount of each payment in respect
thereof; provided, however, the failure by Agent to record the
date and amount of any Advance shall not adversely affect Agent or any
Lender.  Each month, Agent shall send to
Borrowing Agent a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Agent and Borrowers, during such month. 
The monthly statements shall be deemed correct and binding upon
Borrowers in the absence of manifest error and shall constitute an account
stated between Lenders and Borrowers unless Agent receives a written statement
of Borrowers’ specific exceptions thereto within thirty (30) days after such
statement is received by Borrowing Agent. 
The records of Agent with respect to the loan account shall be
conclusive evidence absent manifest error of the amounts of Advances and other
charges thereto and of payments applicable thereto.

 

2.8.                              Additional
Payments.  Any sums expended by Agent
or any Lender due to any Borrower’s failure to perform or comply with its
obligations under this Agreement or any Other Document including, without
limitation, any Borrower’s obligations under Sections 4.2, 4.4, 4.12, 4.13,
4.14 and 6.1 hereof, may be charged to Borrowers’ Account as a Revolving
Advance and added to the Obligations.

 

2.9.                              Manner
of Borrowing and Payment.

 

(a)                                  Each
borrowing of Revolving Advances shall be advanced according to the applicable
Commitment Percentages of Lenders.

 

(b)                                 Each
payment (including each prepayment) by Borrowers on account of the principal of
and interest on the Revolving Advances, shall be applied to the Revolving
Advances pro rata according to the applicable Commitment Percentages of
Lenders.  Except as expressly provided
herein, all payments (including prepayments) to be made by any Borrower on
account of principal, interest and fees shall be made without set off or
counterclaim and shall be made to Agent on behalf of Lenders to the Payment
Office, in each case on or prior to 1:00 P.M., eastern time, in Dollars and in
immediately available funds.

 

(c)                                  (i)                                     Notwithstanding
anything to the contrary contained in Sections 2.12(a) and (b) hereof,
commencing with the first Business Day following the Closing Date, each
borrowing of Revolving Advances shall be advanced by Agent and each payment by
any Borrower on account of Revolving Advances shall be applied first to those
Revolving Advances advanced by Agent.  On
or before 1:00 P.M., eastern time, on each Settlement Date commencing with the
first Settlement Date following the Closing Date, Agent and Lenders shall make
certain payments as follows: (I) if the aggregate amount of new Revolving
Advances made by Agent during the preceding Week (if any) exceeds the aggregate
amount of repayments applied to outstanding Revolving Advances during such
preceding Week, then each Lender shall provide Agent with funds in an amount
equal to its applicable Commitment Percentage of the difference between (w)
such Revolving Advances and (x) such repayments and (II) if the aggregate
amount of repayments applied to outstanding Revolving Advances during such Week
exceeds the aggregate amount of new Revolving Advances made during such Week,
then Agent shall provide each Lender with funds in an amount equal to its
applicable Commitment Percentage of the difference between (y) such repayments
and (z) such Revolving Advances.

 

18

 

(ii)                                  Each
Lender shall be entitled to earn interest at the applicable Contract Rate on
outstanding Advances which it has funded.

 

(iii)                               Promptly
following each Settlement Date, Agent shall submit to each Lender a certificate
with respect to payments received and Advances made during the Week immediately
preceding such Settlement Date.  Such
certificate of Agent shall be conclusive in the absence of manifest error.

 

(d)                                 If
any Lender or Participant (a “benefited Lender”) shall at any time receive any
payment of all or part of its Advances, or interest thereon, or receive any
Collateral in respect thereof (whether voluntarily or involuntarily or by
set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or
receipt of Collateral is not expressly permitted hereunder, such benefited
Lender shall purchase for cash from the other Lenders a participation in such
portion of each such other Lender’s Advances, or shall provide such other
Lender with the benefits of any such Collateral, or the proceeds thereof, as
shall be necessary to cause such benefited Lender to share the excess payment
or benefits of such Collateral or proceeds ratably with each of the other
Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.  Each Lender so purchasing a portion of
another Lender’s Advances may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as fully as
if such Lender were the direct holder of such portion.

 

(e)                                  Unless
Agent shall have been notified by telephone, confirmed in writing, by any
Lender that such Lender will not make the amount which would constitute its
applicable Commitment Percentage of the Advances available to Agent, Agent may
(but shall not be obligated to) assume that such Lender shall make such amount
available to Agent on the next Settlement Date and, in reliance upon such
assumption, make available to Borrowers a corresponding amount.  Agent will promptly notify Borrowers of its
receipt of any such notice from a Lender. 
If such amount is made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to the product
of (i) the daily average Federal Funds Effective Rate (computed on the basis of
a year of 360 days) during such period as quoted by Agent, times (ii) such
amount, times (iii) the number of days from and including such Settlement Date
to the date on which such amount becomes immediately available to Agent.  A certificate of Agent submitted to any
Lender with respect to any amounts owing under this paragraph (e) shall be conclusive,
in the absence of manifest error.  If
such amount is not in fact made available to Agent by such Lender within three
(3) Business Days after such Settlement Date, Agent shall be entitled to
recover such an amount, with interest thereon at the rate per annum then
applicable to such Revolving Advances hereunder, on demand from Borrowers; provided,
however, that Agent’s right to such recovery shall not prejudice or
otherwise adversely affect Borrowers’ rights (if any) against such Lender.

 

2.10.                        Mandatory
Prepayments.  Subject to Section 4.3
hereof, when any Borrower sells or otherwise disposes of any Collateral other
than Inventory in the ordinary course of business, Borrowers shall repay the
Advances in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Agent. 
The foregoing shall not be deemed to be implied consent to any such sale
otherwise prohibited by the terms and conditions hereof.  Such repayments shall be applied to the
outstanding Advances in such order as Agent may determine, subject to Borrower’s
ability to reborrow Revolving Advances in accordance with the terms hereof

 

2.11.                        Use of
Proceeds.  Borrowers shall apply the
proceeds of Advances to provide for their working capital needs.

 

2.12.                        Defaulting
Lender.

 

(a)                                  Notwithstanding
anything to the contrary contained herein, in the event any Lender (x) has
refused (which refusal constitutes a breach by such Lender of its obligations
under this Agreement) to make available its portion of any Advance or (y)
notifies either Agent or Borrowing Agent that it does not intend to make
available its portion of any Advance (if the actual refusal would constitute a
breach by such Lender of its obligations under this

 

19

 

Agreement) (each, a “Lender Default”), all rights and obligations
hereunder of such Lender (a “Defaulting Lender”) as to which a Lender Default
is in effect and of the other parties hereto shall be modified to the extent of
the express provisions of this Section 2.12 while such Lender Default remains
in effect.

 

(b)                                 Advances
shall be incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which
are not Defaulting Lenders based on their respective Commitment Percentages,
and no Commitment Percentage of any Lender or any pro rata share of any
Advances required to be advanced by any Lender shall be increased as a result
of such Lender Default.  Amounts received
in respect of principal of any type of Advances shall be applied to reduce the
applicable Advances of each Lender pro rata based on the aggregate of the
outstanding Advances of that type of all Lenders at the time of such
application; provided, that, such amount shall not be applied to any Advances
of a Defaulting Lender at any time when, and to the extent that, the aggregate
amount of Advances of any Non-Defaulting Lender exceeds such Non-Defaulting
Lender’s Commitment Percentage of all Advances then outstanding.

 

(c)                                  A
Defaulting Lender shall not be entitled to give instructions to Agent or to
approve, disapprove, consent to or vote on any matters relating to this
Agreement and the Other Documents.  All
amendments, waivers and other modifications of this Agreement and the Other
Documents may be made without regard to a Defaulting Lender and, for purposes
of the definition of “Required Lenders”, a Defaulting Lender shall be deemed
not to be a Lender and not to have Advances outstanding.

 

(d)                                 Other
than as expressly set forth in this Section 2.12, the rights and obligations of
a Defaulting Lender (including the obligation to indemnify Agent) and the other
parties hereto shall remain unchanged. 
Nothing in this Section 2.12 shall be deemed to release any Defaulting
Lender from its obligations under this Agreement and the Other Documents, shall
alter such obligations, shall operate as a waiver of any default by such
Defaulting Lender hereunder, or shall prejudice any rights which any Borrower,
Agent or any Lender may have against any Defaulting Lender as a result of any
default by such Defaulting Lender hereunder.

 

(e)                                  In
the event a Defaulting Lender retroactively cures to the satisfaction of Agent
the breach which caused a Lender to become a Defaulting Lender, such Defaulting
Lender shall no longer be a Defaulting Lender and shall be treated as a Lender
under this Agreement.

 

III.                                 INTEREST
AND FEES.

 

3.1.                              Interest.  Interest on Advances shall be payable in
arrears on the first day of each month with respect to Domestic Rate Loans and,
with respect to Euro-Rate Loans, at the end of each Interest Period or, for
Euro-Rate Loans  with an Interest Period
in excess of three months, at the earlier of (a) each three months on the
anniversary date of the commencement of such Euro-Rate Loan or (b) the end of
the Interest Period.  Interest charges
shall be computed on the actual principal amount of Advances outstanding during
the month (the “Monthly Advances”) at a rate per annum equal to, with respect
to Revolving Advances, the Revolving Interest Rate (from time to time herein,
the “Contract Rate”).  Whenever,
subsequent to the date of this Agreement, the Alternate Base Rate is increased
or decreased, the applicable Contract Rate for Domestic Rate Loans shall be
similarly changed without notice or demand of any kind by an amount equal to
the amount of such change in the Alternate Base Rate during the time such
change or changes remain in effect.  The
Euro-Rate shall be adjusted with respect to Euro-Rate Loans without notice or
demand of any kind on the effective date of any change in the Reserve
Percentage as of such effective date.  Upon
and after the occurrence of an Event of Default, and during the continuation
thereof, the Obligations shall bear interest at the applicable Contract Rate
plus two percent (2%) per annum (the “Default Rate”).

 

3.2.                              Facility
Fee.  If, for any month during the
Term, the average daily unpaid balance of the Revolving Advances for each day
of such month does not equal the Maximum Revolving Advance Amount, then
Borrowers shall pay to Agent for the ratable benefit of Lenders a fee at a rate
equal to one-quarter of one percent (0.25%) per annum on the amount by which
the Maximum Revolving Advance Amount exceeds such average daily unpaid
balance.  Such fee shall be payable to
Agent in arrears on the last day of each quarter.

 

20

 

3.3.                              Computation
of Interest and Fees.  Interest and
fees hereunder shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed.  If any
payment to be made hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the applicable Contract
Rate during such extension.

 

3.4.                              Maximum
Charges.  In no event whatsoever
shall interest and other charges charged hereunder exceed the highest rate
permissible under law. In the event interest and other charges as computed
hereunder would otherwise exceed the highest rate permitted under law, such
excess amount shall be first applied to any unpaid principal balance owed by
Borrowers, and if the then remaining excess amount is greater than the
previously unpaid principal balance, Lenders shall promptly refund such excess
amount to Borrowers and the provisions hereof shall be deemed amended to provide
for such permissible rate.

 

3.5.                              Increased
Costs.  In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by any Lender (for
purposes of this Section 3.5, the term “Lender” shall include Agent or any
Lender and any corporation or bank controlling Agent or any Lender) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any Euro-Rate Loans with any request or directive (whether or not having the
force of law) from any central bank or other financial, monetary or other
authority, shall:

 

(a)                                  subject
Agent or any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Other Document or change the basis of taxation of payments to
Agent or any Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax
on the overall net income of Agent or any Lender by the jurisdiction in which
it maintains its principal office);

 

(b)                                 impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of Agent or any
Lender, including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

 

(c)                                  impose
on Agent or any Lender or the London interbank Eurodollar market any other
condition with respect to this Agreement or any Other Document;

 

and the result of any of the foregoing is to increase the cost to Agent
or any Lender of making, renewing or maintaining its Advances hereunder by an
amount that Agent or such Lender deems to be material or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of any
of the Advances by an amount that Agent or such Lender deems to be material,
then, in any case Borrowers shall promptly pay Agent or such Lender, upon its
demand, such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Euro-Rate.  Agent or such Lender shall
certify the amount of such additional cost or reduced amount to Borrowers, and
such certification shall be conclusive absent manifest error.

 

3.6.                              Basis
For Determining Interest Rate Inadequate or Unfair.  In the event that Agent or any Lender shall
have determined that:

 

(a)                                  reasonable
means do not exist for ascertaining the Euro-Rate applicable pursuant to
Section 2.2 hereof for any Interest Period; or

 

(b)                                 Dollar
deposits in the relevant amount and for the relevant maturity are not available
in the London interbank Eurodollar market, with respect to an outstanding
Euro-Rate Loan, a proposed Euro-Rate Loan, or a proposed conversion of a
Domestic Rate Loan into a Euro-Rate Loan,

 

then Agent shall give Borrowing Agent prompt written, telephonic or
telegraphic notice of such determination. 
If such notice is given, (i) any such requested Euro-Rate Loan shall be
made as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no
later than 10:00 a.m. (eastern time) two (2) Business Days prior to the date of
such proposed borrowing, that its request for such borrowing shall be cancelled
or made as an unaffected type of Euro-Rate Loan,

 

21

 

(ii) any Domestic Rate Loan or Euro-Rate Loan which was to have been
converted to an affected type of Euro-Rate Loan shall be continued as or
converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent,
no later than 10:00 a.m. (eastern time) two (2) Business Days prior to the
proposed conversion, shall be maintained as an unaffected type of Euro-Rate
Loan, and (iii) any outstanding affected Euro-Rate Loans shall be converted
into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later
than 10:00 a.m. (eastern time) two (2) Business Days prior to the last Business
Day of the then current Interest Period applicable to such affected Euro-Rate
Loan, shall be converted into an unaffected type of Euro-Rate Loan on the last
Business Day of the then current Interest Period for such affected Euro-Rate
Loans.  Until such notice has been
withdrawn, Lenders shall have no obligation to make an affected type of
Euro-Rate Loan or maintain outstanding affected Euro-Rate Loans and no Borrower
shall have the right to convert a Domestic Rate Loan or an unaffected type of
Euro-Rate Loan into an affected type of Euro-Rate Loan.

 

3.7.                              Capital
Adequacy.

 

(a)                                  In
the event that Agent or any Lender shall have determined that any applicable
law, rule, regulation or guideline regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Agent or any Lender
(for purposes of this Section 3.7, the term “Lender” shall include Agent or any
Lender and any corporation or bank controlling Agent or any Lender) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any Euro-Rate Loans with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on Agent or any Lender’s capital as a consequence of its obligations hereunder
to a level below that which Agent or such Lender could have achieved but for
such adoption, change or compliance (taking into consideration Agent’s and each
Lender’s policies with respect to capital adequacy) by an amount deemed by
Agent or any Lender to be material, then, from time to time, Borrowers shall
pay upon demand to Agent or such Lender such additional amount or amounts as
will compensate Agent or such Lender for such reduction.  In determining such amount or amounts, Agent
or such Lender may use any reasonable averaging or attribution methods.  The protection of this Section 3.7 shall be
available to Agent and each Lender regardless of any possible contention of
invalidity or inapplicability with respect to the applicable law, regulation or
condition.

 

(b)                                 A
certificate of Agent or such Lender setting forth such amount or amounts as
shall be necessary to compensate Agent or such Lender with respect to Section
3.7(a) hereof when delivered to Borrowers shall be conclusive absent manifest
error.

 

3.8.                              Mitigation
Obligations; Replacement of Lenders. 
(a) If any Lender requests compensation under either of Sections 3.5 or
3.7, or if Borrowers are required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section
3.8, then such Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Advances hereunder or to assign its
rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 3.5 or 3.7,
as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender.  Borrowers hereby agree to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.

 

(b)                                 If
any Lender requests compensation under either Sections 3.5 or 3.7, or if
Borrowers are required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 3.8,
or if any Lender defaults in its obligation to fund Advances hereunder, then
Borrowers may, at their sole expense and effort, upon notice to such Lender and
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in Section 16.3), all
its interests, rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided that (i) Borrowers shall have
received the prior written consent of Agent, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its
Advances, accrued interest thereon, accrued fees and all other amounts payable
to it hereunder, from the assignee (to the extent of such outstanding principal
and accrued interest and fees) or Borrowers (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 3.5 or 3.7, such assignment will result

 

22

 

in a material reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling Borrowers to require such
assignment and delegation cease to apply.

 

IV.                                 COLLATERAL;
GENERAL TERMS

 

4.1.                              Security
Interest in the Collateral.  To
secure the prompt payment and performance to Agent and each Lender of the
Obligations, each Borrower hereby reaffirms, reiterates and restates the
existing, continuing and uninterrupted assignment, pledge and grant of a
security interest in and to the Collateral to PNC as is set forth in the
Existing Loan Agreement and hereby assigns, pledges and grants to PNC in its
capacity Agent for its benefit and for the ratable benefit of each Lender a
continuing security interest in and to all of the Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located.  Each Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect
Agent’s security interest and shall cause its financial statements to reflect
such security interest.  Each Borrower
shall promptly provide Agent with written notice of all commercial tort claims,
such notice to contain the case title together with the applicable court and a
brief description of the claim(s).  Upon
delivery of each such notice, such Borrower shall be deemed to hereby grant to
Agent a security interest and lien in and to such commercial tort claims and
all proceeds thereof.  Borrower hereby
notifies Agent of the pending commercial tort claims disclosed on Schedule  4.1.

 

4.2.                              Perfection
of Security Interest.  Each Borrower
shall take all action that may be necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent’s security interest in the Collateral or
to enable Agent to protect, exercise or enforce its rights hereunder and in the
Collateral, including, but not limited to, (i) immediately discharging all
Liens other than Permitted Encumbrances, (ii) obtaining landlords’ or
mortgagees’ lien waivers, (iii) delivering to Agent, endorsed or accompanied by
such instruments of assignment as Agent may specify, and stamping or marking,
in such manner as Agent may specify, any and all chattel paper, instruments,
letters of credits and advices thereof and documents evidencing or forming a
part of the Collateral, (iv) entering into warehousing, lockbox and other
custodial arrangements satisfactory to Agent, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,
notices and assignments, in each case in form and substance satisfactory to
Agent, relating to the creation, validity, perfection, maintenance or
continuation of Agent’s security interest under the Uniform Commercial Code or
other applicable law.  Agent is hereby
authorized to file financing statements signed by Agent instead of Borrower in
accordance with the Uniform Commercial Code as adopted in the State of New York
from time to time. By its signature hereto, each Borrower hereby authorizes
Agent to file against such Borrower, one or more financing, continuation, or amendment
statements pursuant to the Uniform Commercial Code in form and substance
satisfactory to Agent (which statements may have a description of collateral
which is broader than that set forth herein). 
All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrowers’
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations, or, at Agent’s option, shall be paid to Agent for the ratable
benefit of Lenders immediately upon demand.

 

4.3.                              Disposition
of Collateral.  Each Borrower will
safeguard and protect all Collateral for Agent’s general account and make no
disposition thereof whether by sale, lease or otherwise except (a) the sale of
Inventory in the ordinary course of business and (b) the disposition or
transfer of obsolete and worn-out Equipment in the ordinary course of business
during any fiscal year having an aggregate fair market value of not more than
$100,000.00 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to Agent’s
first priority security interest or (ii) the proceeds of which are remitted to
Agent to be applied to the Obligations.

 

4.4.                              Preservation
of Collateral.  Following the
occurrence of a Default or Event of Default in addition to the rights and
remedies set forth in Section 11.1 hereof, Agent: (a) may at any time take such
steps as Agent deems necessary to protect Agent’s interest in and to preserve
the Collateral, including the hiring of such security guards or the placing of
other security protection measures as Agent may deem appropriate; (b) may
employ and maintain at any of any Borrower’s premises a custodian who shall
have full authority to do all acts necessary to protect Agent’s interests in
the Collateral; (c) may lease warehouse facilities to which Agent may move all
or part of the Collateral; (d) may use any Borrower’s owned or leased lifts,
hoists, trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and

 

23

 

may
proceed over and through any of Borrower’s owned or leased property.  Each Borrower shall cooperate fully with all
of Agent’s efforts to preserve the Collateral and will take such actions to
preserve the Collateral as Agent may direct. 
All of Agent’s expenses of preserving the Collateral, including any
expenses relating to the bonding of a custodian, shall be charged to Borrowers’
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations.

 

4.5.                              Ownership of Collateral.  With
respect to the Collateral, at the time the Collateral becomes subject to
Agent’s security interest:  (a) each
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first priority security interest in each and
every item of the its respective Collateral to Agent; and, except for Permitted
Encumbrances the Collateral shall be free and clear of all Liens and
encumbrances whatsoever; (b) each document and agreement executed by each
Borrower or delivered to Agent or any Lender in connection with this Agreement
shall be true and correct in all respects; (c) all signatures and
endorsements of each Borrower that appear on such documents and agreements
shall be genuine and each Borrower shall have full capacity to execute same;
and (d) each Borrower’s Equipment and Inventory shall be located as set
forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent except with respect to
the sale of Inventory in the ordinary course of business and Equipment to the
extent permitted in Section 4.3 hereof.

 

4.6.                              Defense of Agent’s and Lenders’ Interests. 
Until (a) payment and performance in full of all of the Obligations and
(b) termination of this Agreement, Agent’s interests in the Collateral shall
continue in full force and effect. 
During such period no Borrower shall, without Agent’s prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral.  Each Borrower shall defend
Agent’s interests in the Collateral against any and all Persons
whatsoever.  At any time following demand
by Agent for payment of all Obligations, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation:  labels, stationery, documents, instruments
and advertising materials.  If Agent
exercises this right to take possession of the Collateral, Borrowers shall,
upon demand, assemble it in the best manner possible and make it available to
Agent at a place reasonably convenient to Agent.  In addition, with respect to all Collateral,
Agent and Lenders shall be entitled to all of the rights and remedies set forth
herein and further provided by the Uniform Commercial Code or other applicable
law.  Each Borrower shall, and Agent may,
at its option, instruct all suppliers, carriers, forwarders, warehousers or
others receiving or holding cash, checks, Inventory, documents or instruments
in which Agent holds a security interest to deliver same to Agent and/or
subject to Agent’s order and if they shall come into any Borrower’s possession,
they, and each of them, shall be held by such Borrower in trust as Agent’s
trustee, and such Borrower will immediately deliver them to Agent in their
original form together with any necessary endorsement.

 

4.7.                              Books and Records.  Each
Borrower shall (a) keep proper books of record and account in which full, true
and correct entries will be made of all dealings or transactions of or in
relation to its business and affairs; (b) set up on its books accruals with
respect to all taxes, assessments, charges, levies and claims; and (c) on a
reasonably current basis set up on its books, from its earnings, allowances
against doubtful Receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. 
All determinations pursuant to this subsection shall be made in
accordance with, or as required by, GAAP consistently applied in the opinion of
such independent public accountant as shall then be regularly engaged by Borrowers.

 

4.8.                              Financial Disclosure.  Each
Borrower hereby irrevocably authorizes and directs all accountants and auditors
employed by such Borrower at any time during the Term to exhibit and deliver to
Agent and each Lender copies of any of any Borrower’s financial statements,
trial balances or other accounting records of any sort in the accountant’s or
auditor’s possession, and to disclose to Agent and each Lender any information
such accountants may have concerning such Borrower’s financial status and business
operations.  Each Borrower hereby
authorizes all federal, state and municipal authorities to furnish to Agent and
each Lender copies of reports or examinations relating to such Borrower,
whether made by such Borrower or otherwise; however, Agent and each Lender will
attempt to obtain such information or materials directly from such Borrower
prior to obtaining such information or materials from such accountants or such
authorities.

 

24

 

4.9.                              Compliance with Laws.  Each
Borrower shall comply in all material respects with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to its respective Collateral or any part thereof or to the
operation of such Borrower’s business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect on such Borrower.  Each Borrower may, however, contest or
dispute any acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related Lien is inchoate
or stayed and sufficient reserves are established to the reasonable
satisfaction of Agent to protect Agent’s Lien on or security interest in the
Collateral.  The assets of Borrowers at
all times shall be maintained in accordance with the requirements of all
insurance carriers which provide insurance with respect to the assets of
Borrowers so that such insurance shall remain in full force and effect.

 

4.10.                        Inspection of Premises.  At
all reasonable times Agent and each Lender shall have full access to and the
right to audit, check, inspect and make abstracts and copies from each
Borrower’s books, records, audits, correspondence and all other papers relating
to the Collateral and the operation of each Borrower’s business.  Agent, any Lender and their agents may enter
upon any of each Borrower’s premises at any time during business hours and at
any other reasonable time, and from time to time, for the purpose of inspecting
the Collateral and any and all records pertaining thereto and the operation of
such Borrower’s business.

 

4.11.                        Insurance.  Each Borrower shall bear the
full risk of any loss of any nature whatsoever with respect to the
Collateral.  At each Borrower’s own cost
and expense in amounts and with carriers acceptable to Agent, each Borrower
shall (a) keep all its insurable properties and properties in which each
Borrower has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged
in businesses similar to such Borrower’s including, without limitation,
business interruption insurance; (b) maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to such
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) [Intentionally omitted.];
(d) maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (e) maintain all such
worker’s compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which such Borrower is engaged in business; and
(f) furnish Agent with (i) evidence of the maintenance of such policies by the
renewal thereof at least thirty (30) days before any expiration date and, if
required by Agent at any time, copies of any one or more of such policies, and
(ii) appropriate loss payable endorsements in form and substance satisfactory
to Agent, naming Agent as a co-insured and loss payee as its interests may
appear with respect to all insurance coverage referred to in clauses (a) and
(d) above, and providing (A) that all proceeds thereunder shall be payable to
Agent, (B) no such insurance shall be affected by any act or neglect of the
insured or owner of the property described in such policy, and (C) that such
policy and loss payable clauses may not be cancelled, amended or terminated
unless at least thirty (30) days’ prior written notice is given to Agent.  In the event of any loss thereunder, the
carriers named therein hereby are directed by Agent and the applicable Borrower
to make payment for such loss to Agent and not to such Borrower and Agent
jointly.  If any insurance losses are
paid by check, draft or other instrument payable to any Borrower and Agent
jointly, Agent may endorse such Borrower’s name thereon and do such other
things as Agent may deem advisable to reduce the same to cash.  Agent is hereby authorized to adjust and
compromise claims under insurance coverage referred to in clauses (a) and (b)
above.  All loss recoveries received by
Agent upon any such insurance may be applied to the Obligations, in such order
as Agent in its sole discretion shall determine.  Any surplus shall be paid by Agent to
Borrowers or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by
Borrowers to Agent, on demand.

 

4.12.                        Failure to Pay Insurance.  If
any Borrower fails to obtain insurance as hereinabove provided, or to keep the
same in force, Agent, if Agent so elects, may obtain such insurance and pay the
premium therefor on behalf of such Borrower, and charge Borrowers’ Account
therefor as a Revolving Advance of a Domestic Rate Loan and such expenses so
paid shall be part of the Obligations.

 

4.13.                        Payment of Taxes.  Each
Borrower will pay, when due, all taxes, assessments and other Charges lawfully
levied or assessed upon such Borrower or any of the Collateral including,
without limitation, real and personal property taxes, assessments and charges
and all franchise, income, employment, social security benefits, withholding,
and sales taxes.  If any tax by any governmental
authority is or may be imposed on or as a result of any transaction between

 

25

 

any
Borrower and Agent or any Lender which Agent or any Lender may be required to
withhold or pay or if any taxes, assessments, or other Charges remain unpaid
after the date fixed for their payment, or if any claim shall be made which, in
Agent’s or any Lender’s opinion, may possibly create a valid Lien on the
Collateral, Agent may without notice to Borrowers pay the taxes, assessments or
other Charges and each Borrower hereby indemnifies and holds Agent and each
Lender harmless in respect thereof. 
Agent will not pay any taxes, assessments or Charges to the extent that
any Borrower has contested or disputed those taxes, assessments or Charges in
good faith, by expeditious protest, administrative or judicial appeal or
similar proceeding provided that any related tax lien is stayed and sufficient
reserves are established to the reasonable satisfaction of Agent to protect
Agent’s security interest in or Lien on the Collateral.  The amount of any payment by Agent under this
Section 4.13 shall be charged to Borrowers’ Account as a Revolving Advance of a
Domestic Rate Loan and added to the Obligations and, until Borrowers shall furnish
Agent with an indemnity therefor (or supply Agent with evidence satisfactory to
Agent that due provision for the payment thereof has been made), Agent may hold
without interest any balance standing to Borrowers’ credit and Agent shall
retain its security interest in any and all Collateral held by Agent.

 

4.14                           Payment of Leasehold Obligations.  Each
Borrower shall at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep them in full
force and effect and, at Agent’s request will provide evidence of having done
so.

 

4.15.                        Receivables

 

(a)                                  Nature of Receivables.  Each
of the Receivables shall be a bona fide and valid account representing a bona
fide indebtedness incurred by the Customer therein named, for a fixed sum as
set forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof) with respect to an
absolute sale or lease and delivery of goods upon stated terms of a Borrower,
or work, labor or services theretofore rendered by a Borrower as of the date
each Receivable is created.  Same shall
be due and owing in accordance with the applicable Borrower’s standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Borrowers to Agent.

 

(b)                                 Solvency of Customers.  Each
Customer, to the best of each Borrower’s knowledge, as of the date each
Receivable is created, is and will be solvent and able to pay all Receivables
on which the Customer is obligated in full when due or with respect to such
Customers of any Borrower who are not solvent such Borrower has set up on its
books and in its financial records bad debt reserves adequate to cover such
Receivables.

 

(c)                                  Locations of Borrower.  Each
Borrower’s chief executive office is located at the addresses set forth on Schedule
4.15(c) hereto.  Until written notice
is given to Agent by Borrowing Agent of any other office at which any Borrower
keeps its records pertaining to Receivables, all such records shall be kept at
such executive office.

 

(d)                                 Collection of Receivables Until any Borrower’s authority to do so is
terminated by Agent (which notice Agent may give at any time following the
occurrence of an Event of Default or a Default or when Agent in its sole
discretion exercised in a commercially reasonable manner deems it to be in
Lenders’ best interest to do so), each Borrower will, at such Borrower’s sole
cost and expense, but on Agent’s behalf and for Agent’s account, collect as
Agent’s property and in trust for Agent all amounts received on Receivables,
and shall not commingle such collections with any Borrower’s funds or use the
same except to pay Obligations.  Each
Borrower shall, upon request, deliver to Agent, or deposit in the Blocked
Account, in original form and on the date of receipt thereof, all checks,
drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.

 

(e)                                  Notification of Assignment of Receivables.  At
any time following the occurrence of an Event of Default or a Default, Agent
shall have the right to send notice of the assignment of, and Agent’s security
interest in, the Receivables to any and all Customers or any third party
holding or otherwise concerned with any of the Collateral.  Thereafter, Agent shall have the sole right
to collect the Receivables, take possession of the Collateral, or both.  Agent’s actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrowers’ Account and added to the
Obligations.

 

26

 

(f)                                    Power of Agent to Act on Borrowers’ Behalf. 
Agent shall have the right to receive, endorse, assign  and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed.  Each Borrower hereby constitutes Agent or
Agent’s designee as such Borrower’s attorney with power (i) to endorse such
Borrower’s name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment or Collateral; (ii) to sign such Borrower’s name on
any invoice or bill of lading relating to any of the Receivables, drafts
against Customers, assignments and verifications of Receivables; (iii) to send
verifications of Receivables to any Customer; (iv) to sign such Borrower’s name
on all financing statements or any other documents or instruments deemed
necessary or appropriate by Agent to preserve, protect, or perfect Agent’s
interest in the Collateral and to file same; (v) to demand payment of the
Receivables; (vi) to enforce payment of the Receivables by legal proceedings or
otherwise; (vii) to exercise all of Borrowers’ rights and remedies with respect
to the collection of the Receivables and any other Collateral; (viii) to
settle, adjust, compromise, extend or renew the Receivables; (ix) to settle,
adjust or compromise any legal proceedings brought to collect Receivables; (x)
to prepare, file and sign such Borrower’s name on a proof of claim in
bankruptcy or similar document against any Customer; (xi) to prepare, file and
sign such Borrower’s name on any notice of Lien, assignment or satisfaction of
Lien or similar document in connection with the Receivables; and (xii) to do
all other acts and things necessary to carry out this Agreement.  Provided also however, and anything contained
herein to the contrary notwithstanding, although fully vested hereby as
Borrowers’ attorney-in-fact, Agent shall refrain from exercising the power
granted under clauses (ii), (v), (vi), (vii), (viii), (ix), (x) and (xi) unless
and until Default or Event of Default shall have occurred.  All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross (not mere) negligence;
this power being coupled with an interest is irrevocable while any of the
Obligations remain unpaid.  Agent shall
have the right at any time following the occurrence of an Event of Default or
Default, to change the address for delivery of mail addressed to any Borrower
to such address as Agent may designate and to receive, open and dispose of all
mail addressed to any Borrower.

 

(g)                                 No Liability. 
Neither Agent nor any Lender shall, under any circumstances or in any
event whatsoever, have any liability for any error or omission or delay of any
kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom.  Following the
occurrence of an Event of Default or Default Agent may, without notice or consent
from any Borrower, sue upon or otherwise collect, extend the time of payment
of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable
thereto and/or release any obligor thereof. 
Agent is authorized and empowered to accept, following the occurrence of
an Event of Default or Default, the return of the goods represented by any of
the Receivables, without notice to or consent by any Borrower, all without
discharging or in any way affecting any Borrower’s liability hereunder.

 

(h)                                 Establishment of a Lockbox Account, Dominion
Account.  All proceeds of Collateral shall, at the
direction of Agent, be deposited by Borrowers into a lockbox account, dominion
account or such other “blocked account” (“Blocked Accounts”) as Agent may
require pursuant to an arrangement with such bank as may be selected by
Borrowers and be acceptable to Agent. 
Borrowers shall issue to any such bank, an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to Agent,
either to any account maintained by Agent at said bank or by wire transfer to
appropriate account(s) of Agent.  All
funds deposited in such Blocked Account shall immediately become the property
of Agent and Borrowers shall obtain the agreement by such bank to waive any
offset rights against the funds so deposited. 
Neither Agent nor any Lender assumes any responsibility for such blocked
account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder.  Alternatively, Agent may
establish depository accounts (“Depository Accounts”) in the name of Agent at a
bank or banks for the deposit of such funds and Borrowers shall deposit all
proceeds of Collateral or cause same to be deposited, in kind, in such
Depository Accounts of Agent in lieu of depositing same to the Blocked
Accounts.

 

(i)                                     Adjustments.  No Borrower will, without
Agent’s consent, compromise or adjust any material amount of the Receivables
other than adjustments to Receivables due from Payors which are made in the
ordinary course of Borrowers’ business and which are in accordance with the
customs and standards of Borrowers’ industry, or extend the time for payment
thereof, or accept any material returns of merchandise or grant any additional
discounts, allowances or

 

27

 

credits
thereon except for those compromises, adjustments, returns, discounts, credits
and allowances as have been heretofore customary in the business of such
Borrower.

 

4.16.                        Inventory.  To the extent Inventory held
for sale or lease has been produced by any Borrower, it has been and will be
produced by such Borrower in accordance with the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations and orders thereunder.

 

4.17.                        Maintenance of Equipment.  The
Equipment shall be maintained in good operating condition and repair
(reasonable wear and tear excepted) and all necessary replacements of and
repairs thereto shall be made so that the value and operating efficiency of the
Equipment shall be maintained and preserved. 
No Borrower shall use or operate the Equipment in violation of any law,
statute, ordinance, code, rule or regulation. 
Each Borrower shall have the right to sell Equipment to the extent set
forth in Section 4.3 hereof.

 

4.18.                        Exculpation of Liability. 
Nothing herein contained shall be construed to constitute Agent or any
Lender as any Borrower’s agent for any purpose whatsoever, nor shall Agent or
any Lender be responsible or liable for any shortage, discrepancy, damage, loss
or destruction of any part of the Collateral wherever the same may be located
and regardless of the cause thereof. 
Neither Agent nor any Lender, whether by anything herein or in any
assignment or otherwise, assume any of any Borrower’s obligations under any
contract or agreement assigned to Agent or such Lender, and neither Agent nor
any Lender shall be responsible in any way for the performance by any Borrower
of any of the terms and conditions thereof.

 

4.19.                        Environmental Matters.  (a) Borrowers shall ensure that the Real
Property remains in compliance with all Environmental Laws and they shall not
place or permit to be placed any Hazardous Substances on any Real Property
except as permitted by applicable law or appropriate governmental authorities.

 

(b)                                 Borrowers shall establish and maintain a
system to assure and monitor continued compliance with all applicable
Environmental Laws which system shall include periodic reviews of such
compliance.

 

(c)                                  Borrowers shall (i) employ in connection with
the use of the Real Property appropriate technology necessary to maintain
compliance with any applicable Environmental Laws and (ii) dispose of any and
all Hazardous Waste generated at the Real Property only at facilities and with
carriers that maintain valid permits under RCRA and any other applicable
Environmental Laws.  Borrowers shall use
their best efforts to obtain certificates of disposal, such as hazardous waste
manifest receipts, from all treatment, transport, storage or disposal
facilities or operators employed by Borrowers in connection with the transport
or disposal of any Hazardous Waste generated at the Real Property.

 

(d)                                 In the event any Borrower obtains, gives or
receives notice of any Release or threat of Release of a reportable quantity of
any Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a “Hazardous Discharge”) or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with
regard to any Hazardous Discharge or violation of Environmental Laws affecting
the Real Property or any Borrower’s interest therein (any of the foregoing is
referred to herein as an “Environmental Complaint”) from any Person, including
any state agency responsible in whole or in part for environmental matters in the
state in which the Real Property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the “Authority”), then
Borrowing Agent shall, within five (5) Business Days, give written notice of
same to Agent detailing facts and circumstances of which any Borrower is aware
giving rise to the Hazardous Discharge or Environmental Complaint.  Such information is to be provided to allow
Agent to protect its security interest in the Real Property and the Collateral
and is not intended to create nor shall it create any obligation upon Agent or
any Lender with respect thereto.

 

(e)                                  Borrowers shall promptly forward to Agent
copies of any request for information, notification of potential liability,
demand letter relating to potential responsibility with respect to the
investigation or cleanup of Hazardous Substances at any other site owned,
operated or used by any Borrower to dispose of Hazardous Substances and shall
continue to forward copies of correspondence between any Borrower and the
Authority regarding such claims to

 

28

 

Agent
until the claim is settled.  Borrowers
shall promptly forward to Agent copies of all documents and reports concerning
a Hazardous Discharge at the Real Property that any Borrower is required to
file under any Environmental Laws.  Such
information is to be provided solely to allow Agent to protect Agent’s security
interest in the Real Property and the Collateral.

 

(f)                                    Borrowers shall respond promptly to any
Hazardous Discharge or Environmental Complaint and take all necessary action in
order to safeguard the health of any Person and to avoid subjecting the
Collateral or Real Property to any Lien. 
If any Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or any Borrower shall fail to comply with
any of the requirements of any Environmental Laws, Agent on behalf of Lenders
may, but without the obligation to do so, for the sole purpose of protecting
Agent’s interest in Collateral:  (A) give
such notices or (B) enter onto the Real Property (or authorize third parties to
enter onto the Real Property) and take such actions as Agent (or such third
parties as directed by Agent) deem reasonably necessary or advisable, to clean
up, remove, mitigate or otherwise deal with any such Hazardous Discharge or
Environmental Complaint.  All reasonable
costs and expenses incurred by Agent and Lenders (or such third parties) in the
exercise of any such rights, including any sums paid in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Domestic Rate Loans constituting Revolving Advances shall be paid upon demand
by Borrowers, and until paid shall be added to and become a part of the
Obligations secured by the Liens created by the terms of this Agreement or any
other agreement between Agent, any Lender and any Borrower.

 

(g)                                 Promptly upon the written request of Agent
from time to time, Borrowers shall provide Agent, at Borrowers’ expense, with
an environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent,
to assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or within the Real
Property.  Any report or investigation of
such Hazardous Discharge proposed and acceptable to an appropriate Authority
that is charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to Agent.  If such estimates,
individually or in the aggregate, exceed $100,000, Agent shall have the right
to require Borrowers to post a bond, letter of credit or other security
reasonably satisfactory to Agent to secure payment of these costs and expenses.

 

(h)                                 Borrowers shall defend and indemnify Agent
and Lenders and hold Agent, Lenders and their respective employees, agents,
directors and officers harmless from and against all loss, liability, damage
and expense, claims, costs, fines and penalties, including attorney’s fees,
suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws, including, without limitation, the assertion of any Lien
thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expense is attributable
to any Hazardous Discharge resulting from actions on the part of Agent or any
Lender.  Borrowers’ obligations under
this Section 4.19 shall arise upon the discovery of the presence of any
Hazardous Substances at the Real Property, whether or not any federal, state,
or local environmental agency has taken or threatened any action in connection
with the presence of any Hazardous Substances. 
Borrowers’ obligation and the indemnifications hereunder shall survive
the termination of this Agreement.

 

(i)                                     For purposes of Sections 4.19 and 5.7, all
references to Real Property shall be deemed to include all of Borrowers’ right,
title and interest in and to its owned and leased premises.

 

4.20.                        Financing Statements. 
Except as respects the financing statements filed by Agent and the
financing statements described on Schedule 1.2, no financing statement
covering any of the Collateral or any proceeds thereof is on file in any public
office.

 

V.                                     REPRESENTATIONS AND WARRANTIES.

 

Each
Borrower represents and warrants as follows:

 

29

 

5.1.                              Authority.  Each Borrower has full power,
authority and legal right to enter into this Agreement and the Other Documents
and to perform all its respective Obligations hereunder and thereunder.  This Agreement and the Other Documents
constitute the legal, valid and binding obligation of such Borrower enforceable
in accordance with their terms, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors’ rights generally.  The
execution, delivery and performance of this Agreement and of the Other
Documents (a) are within such Borrower’s corporate powers, have been duly
authorized, are not in contravention of law or the terms of such Borrower’s
by-laws, certificate of incorporation or other applicable documents relating to
such Borrower’s formation or to the conduct of such Borrower’s business or of
any material agreement or undertaking to which such Borrower is a party or by
which such Borrower is bound, and (b) will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result in
the creation of any Lien except Permitted Encumbrances upon any asset of such
Borrower under the provisions of any agreement, charter document, instrument,
by-law, or other instrument to which such Borrower is a party or by which it or
its property may be bound.

 

5.2.                              Formation and Qualification.  (a) Each Borrower is duly incorporated and in
good standing under the laws of the state listed on Schedule 5.2(a), has
the organizational number set forth on Schedule 5.2(a) and is qualified
to do business and is in good standing in the states listed on Schedule 5.2(a)
which constitute all states in which qualification and good standing are
necessary for such Borrower to conduct its business and own its property and
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect on such Borrower.  Each
Borrower has delivered to Agent true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.

 

(b)                                 The only Subsidiaries of each Borrower are
listed on Schedule 5.2(b).

 

5.3.                              Survival of Representations and Warranties.  All
representations and warranties of such Borrower contained in this Agreement and
the Other Documents shall be true at the time of such Borrower’s execution of
this Agreement and the Other Documents, and shall survive the execution,
delivery and acceptance thereof by the parties thereto and the closing of the
transactions described therein or related thereto.

 

5.4.                              Tax Returns.  Each Borrower’s federal tax
identification number is set forth on Schedule 5.4.  Each Borrower has filed all federal, state
and local tax returns and other reports each is required by law to file and has
paid all taxes, assessments, fees and other governmental charges that are due
and payable.  The provision for taxes on
the books of each Borrower are adequate for all years not closed by applicable
statutes, and for its current fiscal year, and no Borrower has any knowledge of
any deficiency or additional assessment in connection therewith not provided
for on its books.

 

5.5.                              Financial Statements. 
Since September 30, 2003 there has been no change in the condition,
financial or otherwise, of Borrowers as shown on the consolidated balance sheet
as of such date and no change in the aggregate value of machinery, equipment
and Real Property owned by Borrowers, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse.

 

5.6.                              Corporate Name. 
Except as set forth on Schedule 5.6:  no Borrower has been known by any other
corporate name in the past five (5) years, nor has any Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the past five (5) years.

 

5.7.                              O.S.H.A. and Environmental Compliance. 
Except as disclosed on Schedule 5.7,

 

(a)                                  Each Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders of non-compliance issued to any Borrower or relating to its business,
assets, property, leaseholds or Equipment under any such laws, rules or
regulations.

 

30

 

(b)                                 To the best of Borrowers’ knowledge, each
Borrower has been issued all required federal, state and local licenses,
certificates or permits relating to all applicable Environmental Laws.

 

(c)                                  (i) There are no visible signs of releases,
spills, discharges, leaks or disposal (collectively referred to as “Releases”)
of Hazardous Substances at, upon, under or within any Real Property; (ii) to
the best of Borrowers’ knowledge, there are no underground storage tanks or
polychlorinated biphenyls on the Real Property; (iii) to the best of Borrowers’
knowledge, the Real Property has not been used as a treatment, storage or
disposal facility of Hazardous Waste; and (iv) to the best of Borrowers’
knowledge, no Hazardous Substances are present on the Real Property, excepting
such quantities as are handled in accordance with all applicable manufacturer’s
instructions and governmental regulations and in proper storage containers and
as are necessary for the operation of the commercial business of any Borrower.

 

5.8.                              Solvency; No Litigation, Violation,
Indebtedness or Default.

 

(a)                                  Borrowers are solvent, able to pay their
debts as they mature, have capital sufficient to carry on their business and
all businesses in which they are about to engage, and the fair present saleable
value of their assets, calculated on a going concern basis, are now and will
continue to be in excess of the amount of their liabilities.

 

(b)                                 Except as disclosed in Schedule 5.8(b),
no Borrower has (i) any litigation, arbitration, actions or proceedings,
either pending or, to the best of Borrowers’ knowledge, threatened which
involve the possibility of having a Material Adverse Effect on such Borrower,
and (ii) any liabilities nor indebtedness for borrowed money other than
the Obligations.

 

(c)                                  No Borrower is in violation of any applicable
statute, regulation or ordinance in any respect which could reasonably be
expected to have a Material Adverse Effect on such Borrower, nor is any
Borrower in violation of any order of any court, governmental authority or
arbitration board or tribunal.

 

(d)                                 No Borrower nor any member of the Controlled
Group maintains or contributes to any Plan other than those listed on Schedule
5.8(d) hereto.  Except as set forth
in Schedule 5.8(d), (i) no Plan has incurred any “accumulated funding
deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a) of the
Code, whether or not waived, and each Borrower and each member of the
Controlled Group has met all applicable minimum funding requirements under Section
302 of ERISA in respect of each Plan, (ii) each Plan which is intended to be a
qualified plan under Section 401(a) of the Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under Section 401(a)
of the Code and the trust related thereto is exempt from federal income tax
under Section 501(a) of the Code, (iii) no Borrower nor any member of the
Controlled Group has incurred any liability to the PBGC other than for the
payment of premiums, and there are no premium payments which have become due
which are unpaid, (iv) no Plan has been terminated by the plan administrator
thereof nor by the PBGC, and there is no occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any Plan, (v) at
this time, the current value of the assets of each Plan exceeds the present
value of the accrued benefits and other liabilities of such Plan and no
Borrower nor any member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such assets and
accrued benefits and other liabilities, (vi) no Borrower nor any member of the
Controlled Group has breached any of the responsibilities, obligations or
duties imposed on it by ERISA with respect to any Plan, (vii) no Borrower nor
any member of a Controlled Group has incurred any liability for any excise tax
arising under Section 4972 or 4980B of the Code, and no fact exists which could
give rise to any such liability, (viii) no Borrower nor any member of the
Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a “prohibited transaction” described in Section 406 of the ERISA or
Section 4975 of the Code nor taken any action which would constitute or result
in a Termination Event with respect to any such Plan which is subject to ERISA,
(ix) each Borrower and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan, (x) there exists no
event described in Section 4043(b) of ERISA, for which the thirty (30) day
notice period contained in 29 CFR §2615.3 has not been waived, (xi) no Borrower
nor any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of any Borrower and any member of the
Controlled Group, and (xii) no Borrower nor any member of the Controlled Group
has withdrawn, completely or partially, from any Multiemployer Plan so as to
incur liability under the Multiemployer Pension Plan Amendments Act of 1980.

 

31

 

5.9.                              Patents, Trademarks, Copyrights and Licenses.  All
patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, copyrights, copyright applications, design
rights, tradenames, assumed names, trade secrets and  licenses owned or utilized by any Borrower
are set forth on Schedule 5.9, are valid and have been duly registered
or filed with all appropriate governmental authorities and constitute all of
the intellectual property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such patent, trademark, copyright, design right, trade name, trade secret or
license and no Borrower is aware of any grounds for any challenge, except as
set forth in Schedule 5.9 hereto. 
Each patent, patent application, patent license, trademark, trademark
application, trademark license, service mark, service mark application, service
mark license, design right, copyright, copyright application and copyright
license owned or held by any Borrower and all trade secrets used by any
Borrower consist of original material or property developed by such Borrower or
was lawfully acquired by such Borrower from the proper and lawful owner
thereof.  Each of such items has been
maintained so as to preserve the value thereof from the date of creation or
acquisition thereof.  With respect to all
software used by any Borrower, such Borrower is in possession of all source and
object codes related to each piece of software or is the beneficiary of a
source code escrow agreement, each such source code escrow agreement being
listed on Schedule 5.9 hereto.

 

5.10.                        Licenses and Permits. 
Except as set forth in Schedule 5.10, each Borrower (a) is in
compliance with and (b) has procured and is now in possession of, all material
licenses or permits required by any applicable federal, state, or local law or
regulation for the operation of its business in each jurisdiction wherein it is
now conducting or proposes to conduct business and where the failure to procure
such licenses or permits could have a Material Adverse Effect on such Borrower.

 

5.11.                        Default of Indebtedness.  No
Borrower is in default in the payment of the principal of or interest on any
Indebtedness or under any instrument or agreement under or subject to which any
Indebtedness has been issued and, to the best of Borrowers’ knowledge, no event
has occurred under the provisions of any such instrument or agreement which
with or without the lapse of time or the giving of notice, or both, constitutes
or would constitute an event of default thereunder.

 

5.12.                        No Default.  No Borrower is in default in
the payment or, to the best of Borrowers’ knowledge, in the performance of any
of its contractual obligations and no Default has occurred.

 

5.13.                        No Burdensome Restrictions.  No
Borrower is party to any contract or agreement the performance of which could
have a Material Adverse Effect on such Borrower.  No Borrower has agreed or consented to cause
or permit in the future (upon the happening of a contingency or otherwise) any
of its property, whether now owned or hereafter acquired, to be subject to a
Lien which is not a Permitted Encumbrance.

 

5.14.                        No Labor Disputes.  No
Borrower is involved in any labor dispute; there are no strikes or walkouts or
union organization of any Borrower’s employees threatened or in existence and
no labor contract is scheduled to expire during the Term other than as set
forth on Schedule 5.14 hereto.

 

5.15.                        Margin Regulations.  No
Borrower is engaged, nor will it engage, principally or as one of its important
activities, in the business of extending credit for the purpose of “purchasing”
or “carrying” any “margin stock” within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.  No part of the proceeds of any Advance will
be used for “purchasing” or “carrying” “margin stock” as defined in Regulation
U of such Board of Governors.

 

5.16.                        Investment Company Act.  No
Borrower is an “investment company” registered or required to be registered
under the Investment Company Act of 1940, as amended, nor is it controlled by
such a company.

 

5.17.                        Disclosure.  No representation or warranty
made by any Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection herewith contains, to
the best of Borrowers’ knowledge, any untrue statement of a material fact or
omits to state any material fact necessary to make the statements herein or
therein not misleading.  There is no fact
known to Borrowers or which reasonably should be known to

 

32

 

Borrowers
which Borrowers have not disclosed to Agent in writing with respect to the
transactions contemplated by this Agreement which could reasonably be expected
to have a Material Adverse Effect on any Borrower.

 

5.18.                        Swaps.  No Borrower is a party to, nor
will it be a party to, any swap agreement whereby such Borrower has agreed or
will agree to swap interest rates or currencies unless same provides that
damages upon termination following an event of default thereunder are payable
on an unlimited “two-way basis” without regard to fault on the part of either
party.

 

5.19.                        Conflicting Agreements.  To
the best of Borrowers’ knowledge, no provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery
or performance of, the terms of this Agreement or the Other Documents.

 

5.20                           Business of Borrowers.  Upon
and after the Closing Date, Borrowers do not propose to engage in any business
other than operating a clinical testing laboratory and activities necessary to
conduct the foregoing.  On the Closing
Date, each Borrower will own all the property and possess all of the rights and
Consents necessary for the conduct of the business of such Borrower.

 

5.21.                        Application of Certain Laws and Regulations.  No
Borrower nor any Affiliate of any Borrower is subject to any statute, rule or
regulation which regulates the incurrence of any Indebtedness, including
without limitation, statutes or regulations relative to common or interstate
carriers or to the sale of electricity, gas, steam, water, telephone, telegraph
or other public utility services.

 

5.22.                        Section 20 Subsidiaries. 
Borrowers do not intend to use and shall not use any portion of the
proceeds of the Advances, directly or indirectly, to purchase during the
underwriting period, or for 30 days thereafter, Ineligible Securities being
underwritten by a Section 20 Subsidiary.

 

5.23                           Anti-Terrorism Laws.

 

(a)                                  General.  Neither Borrowers nor or any
Affiliate of a Borrower, is are in violation of any Anti-Terrorism Law or
engaging in or conspiring to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempting to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.

 

(b)                                 Executive Order No. 13224. 
Neither Borrowers, nor any Affiliate of Borrowers, nor their respective
agents acting or benefiting in any capacity in connection with the Revolving
Loans or other accommodations hereunder, is any of the following (each a
“Blocked Person”):

 

(i)                                     a Person that is listed in the annex to, or
is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(ii)                                  a Person owned or controlled by, or acting
for or on behalf of, any Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;

 

(iii)                               a Person or entity with which any bank or
other financial institution is prohibited from dealing or otherwise engaging in
any transaction by any Anti-Terrorism Law;

 

(iv)                              a Person or entity that commits, threatens or
conspires to commit or supports “terrorism” as defined in the Executive Order
No. 13224;

 

(v)                                 a Person or entity that is named as a
“specially designated national” on the most current list published by the U.S.
Treasury Department Office of Foreign Asset Control at its official website or
any replacement website or other replacement official publication of such list,
or

 

(vi)                              a person or entity who is affiliated or
associated with a person or entity listed above.

 

(b)                                 No Borrower or to the knowledge of Borrowers,
any of their agents acting in any

 

33

 

capacity in connection with the Revolving
Loans or other accommodations hereunder thereunder (i) conducts any business or
engages in making or receiving any contribution of funds, goods or services to
or for the benefit of any Blocked Person, or (ii) deals in, or otherwise
engages in any transaction relating to, any property or interests in property
blocked pursuant to the Executive Order No. 13224.

 

VI.                                 AFFIRMATIVE COVENANTS

 

Each
Borrower shall, until payment in full of the Obligations and termination of
this Agreement:

 

6.1.                              Payment of Fees.  Pay
to Agent on demand all usual and customary fees and expenses which Agent incurs
in connection with (a) the forwarding of Advance proceeds and (b) the
establishment and maintenance of any Blocked Accounts or Depository Accounts as
provided for in Section 4.15(h).  Agent
may, without making demand, charge Borrowers’ Account for all such fees and
expenses.

 

6.2.                              Conduct of Business and Maintenance of
Existence and Assets.  (a) Conduct continuously and operate actively
its business according to good business practices and maintain all of its
properties useful or necessary in its business in good working order and
condition (reasonable wear and tear excepted and except as may be disposed of
in accordance with the terms of this Agreement), including, without limitation,
all licenses, patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect the validity
of any intellectual property right or other right included in the Collateral;
(b) keep in full force and effect its existence and comply in all material
respects with the laws and regulations governing the conduct of its business
where the failure to do so could reasonably be expected to have a Material
Adverse Effect on such Borrower; and (c) make all such reports and pay all such
franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof where the failure to do so could reasonably be expected to
have a Material Adverse Effect on such Borrower.

 

6.3.                              Violations.  Promptly notify Agent in
writing of any violation of any law, statute, regulation or ordinance of any
Governmental Body, or of any agency thereof, applicable to any Borrower which
could reasonably be expected to have a Material Adverse Effect on any Borrower.

 

6.4.                              Government Receivables.  Take
all steps necessary to protect Agent’s interest in the Collateral under the
Federal Assignment of Claims Act or other applicable state or local statutes or
ordinances and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between
any Borrower and the United States, any state or any department, agency or
instrumentality of any of them.

 

6.5.                              Execution of Supplemental Instruments. 
Execute and deliver to Agent from time to time, upon demand, such
supplemental agreements, statements, assignments and transfers, or instructions
or documents relating to the Collateral, and such other instruments as Agent
may request, in order that the full intent of this Agreement may be carried
into effect.

 

6.6.                              Payment of Indebtedness.  Pay,
discharge or otherwise satisfy at or before maturity (subject, where
applicable, to specified grace periods and, in the case of the trade payables,
to normal payment practices) all its obligations and liabilities of whatever
nature, except when the failure to do so could not reasonably be expected to
have a Material Adverse Effect or when the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and each Borrower
shall have provided for such reserves as Agent may reasonably deem proper and
necessary, subject at all times to any applicable subordination arrangement in
favor of Lenders.

 

6.7.                              Standards of Financial Statements. 
Cause all financial statements referred to in Sections 9.7, 9.8, 9.9,
9.10, 9.11, 9.12, 9.13 and 9.14 as to which GAAP is applicable to be complete
and correct in all material respects (subject, in the case of interim financial
statements, to normal year-end audit adjustments) and to be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).

 

34

 

VII.                             NEGATIVE COVENANTS.

 

No
Borrower shall, until satisfaction in full of the Obligations and termination
of this Agreement:

 

7.1.                              Merger, Consolidation, Acquisition and Sale
of Assets

 

(a)                                  Consolidate with, merge with, or acquire the
stock or assets of any Person, firm, joint venture, partnership, corporation,
or other entity, whether by merger, consolidation, purchase of stock or
otherwise, except for Permitted Acquisitions.

 

(b)                                 Sell, lease, transfer or otherwise dispose of
any of its properties or assets, except in the ordinary course of its business
and except as provided in Section 4.3.

 

7.2.                              Creation of Liens. 
Create or suffer to exist any Lien or transfer upon or against any of
its property or assets now owned or hereafter acquired, except Permitted
Encumbrances.

 

7.3.                              Guarantees.  Become liable upon the
obligations of any Person by assumption, endorsement or guaranty thereof or
otherwise (other than to Lenders) except the endorsement of checks in the
ordinary course of business.

 

7.4.                              Investments.  Purchase or acquire
obligations or stock of, or any other interest in, any Person, except (a)
obligations issued or guaranteed by the United States of America or any agency
thereof, (b) commercial paper with maturities of not more than 180 days and a
published rating of not less than A-1 or P-1 (or the equivalent rating), (c)
certificates of time deposit and bankers’ acceptances having maturities of not
more than 180 days and repurchase agreements backed by United States government
securities of a commercial bank if (i) such bank has a combined capital and
surplus of at least $500,000,000, or (ii) its debt obligations, or those of a
holding company of which it is a Subsidiary, are rated not less than A (or the
equivalent rating) by a nationally recognized investment rating agency, and (d)
U.S. money market funds that invest solely in obligations issued or guaranteed
by the United States of America or an agency thereof.

 

7.5.                              Loans.  Make loans to any Person
except loans to officers, employees and Subsidiaries which shall not exceed Two
Million Dollars ($2,000,000.00) in the aggregate, outstanding at any time.

 

7.6.                              Capital Expenditures. 
Enter into any agreements to purchase or pay for or become obligated to
pay for capital expenditures, long term leases, capital leases and/or sale
lease-backs, during any fiscal year in an amount aggregating in excess of Five
Million Dollars ($5,000,000.00) during any fiscal year.

 

7.7.                              Dividends.  Declare, pay or make any
dividend or distribution on any shares of the common stock or preferred stock
of any Borrower (other than dividends or distributions payable in its stock, or
split-ups or reclassifications of its stock) or apply any of its funds,
property or assets to the purchase, redemption or other retirement of any
common or preferred stock, or of any options to purchase or acquire any such
shares of common or preferred stock of any Borrower, provided however that,
anything contained herein to the contrary notwithstanding, so long as, after giving
effect to such purchase no Default or Event of Default shall have occurred and
be continuing, from the Closing Date through October 31, 2005, Bio-Reference
may repurchase up to four hundred seventy thousand (470,000) shares of its
issued and outstanding common stock..

 

7.8.                              Indebtedness. 
Create, incur, assume or suffer to exist any Indebtedness (exclusive of
trade debt) except in respect of (i)
Indebtedness to Lenders; and (ii)
Indebtedness incurred for capital expenditures permitted under Section 7.6
hereof.

 

7.9.                              Nature of Business. 
Substantially change the nature of the business in which it is presently
engaged, nor except as specifically permitted hereby purchase or invest,
directly or indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in, necessary for
and are to be used in its business as presently conducted.

 

35

 

7.10.                        Transactions with Affiliates. 
Directly or indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or otherwise deal with, any Affiliate,
except transactions in the ordinary course of business, on an arm’s-length
basis on terms no less favorable than terms which would have been obtainable
from a Person other than an Affiliate.

 

7.11.                        Subsidiaries

 

(a)                                  Form any Subsidiary except: (i) as a result
of a Permitted Acquisition, or (ii) the formation of a limited liability
company for the purpose of providing employment services to Borrowers, provided
that such limited liability company Subsidiary shall otherwise comply with all
the requirements of a Permitted Acquisition enumerated in the definition of
such term.

 

(b)                                 Enter into any partnership, joint venture or
similar arrangement, except those presently existing which were entered into in
the ordinary course of Borrowers’ business.

 

7.12.                        Fiscal Year and Accounting Changes. 
Change its fiscal year end from October 31 or make any change
(i) in accounting treatment and reporting practices except as required by
GAAP or (ii) in tax reporting treatment except as required by law.

 

7.13.                        Pledge of Credit.  Now
or hereafter pledge Agent’s or any Lender’s credit on any purchases or for any
purpose whatsoever or use any portion of any Advance in or for any business
other than such Borrower’s business as conducted on the date of this Agreement.

 

7.14.                        Amendment of Articles of Incorporation,
By-Laws.  Amend, modify or waive any term or material
provision of its Articles of Incorporation or By-Laws without Agent’s prior
written consent, unless required by law.

 

7.15.                        Compliance with ERISA.  (i)
(x) Maintain, or permit any member of the Controlled Group to maintain, or (y)
become obligated to contribute, or permit any member of the Controlled Group to
become obligated to contribute, to any Plan, other than those Plans disclosed
on Schedule 5.8(d), (ii) engage, or permit any member of the Controlled
Group to engage, in any non-exempt “prohibited transaction”, as that term is
defined in section 406 of ERISA and Section 4975 of the Code, (iii) incur, or
permit any member of the Controlled Group to incur, any “accumulated funding
deficiency”, as that term is defined in Section 302 of ERISA or Section 412 of
the Code, (iv) terminate, or permit any member of the Controlled Group to
terminate, any Plan where such event could result in any liability of any
Borrower or any member of the Controlled Group or the imposition of a lien on
the property of any Borrower or any member of the Controlled Group pursuant to
Section 4068 of ERISA, (v) assume, or permit any member of the Controlled Group
to assume, any obligation to contribute to any Multiemployer Plan not disclosed
on Schedule 5.8(d), (vi) incur, or permit any member of the Controlled
Group to incur, any withdrawal liability to any Multiemployer Plan; (vii) fail
promptly to notify Agent of the occurrence of any Termination Event, (viii)
fail to comply, or permit a member of the Controlled Group to fail to comply,
with the requirements of ERISA or the Code or other applicable laws in respect
of any Plan, (ix) fail to meet, or permit any member of the Controlled Group to
fail to meet, all minimum funding requirements under ERISA or the Code or
postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect of any Plan.

 

7.16.                        Prepayment of Indebtedness.  At
any time, directly or indirectly, prepay any Indebtedness (other than to
Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness
of any Borrower.

 

7.17.                        Fixed Charge Coverage. 
Cause, suffer or permit Fixed Charge Coverage to be less than 1.2 to 1.0
at any time of the determination thereof.

 

7.18                           Anti-Terrorism  Laws. 
(a) conduct any business or engage in any transaction or dealing with
any Blocked Person, including the making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person, (b) deal
in, or otherwise engage in any transaction relating to, any property or
interests in property blocked pursuant to the Executive Order No. 13224; (c)
engage in or conspire to engage in any transaction that evades or

 

36

 

avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in the Executive Order No. 13224, the USA Patriot Act or
any other Anti-Terrorism Law, or (d) cause, suffer or permit any Affiliate of
Borrowers to do any of the foregoing. 
Borrowers shall deliver to Agent any certification or other evidence
requested from time to time by any Lender, confirming Borrowers’ compliance
with this Section 7.18.

 

VIII.                         CONDITIONS PRECEDENT.

 

8.1.                              Conditions to the Effectiveness of this
Agreement.  The effectiveness of this Agreement is
subject to the satisfaction of the following conditions precedent:

 

(a)                            Note  Agent shall have received the
Note duly executed and delivered by an authorized officer of each Borrower;

 

(b)                                 Filings, Registrations and Recordings.  Each
document (including, without limitation, any Uniform Commercial Code financing
statement) required by this Agreement, any related agreement or under law or
reasonably requested by the Agent to be filed, registered or recorded in order
to create, in favor of Agent, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;

 

(c)                                  Corporate Proceedings of Borrowers. 
Agent shall have received a copy of the resolutions in form and
substance reasonably satisfactory to Agent, of the Board of Directors of each
Borrower authorizing (i) the execution, delivery and performance of this
Agreement, and any related agreements (collectively the “Documents”) and (ii) the
granting by each Borrower of the security interests in and liens upon the
Collateral in each case certified by the Secretary or an Assistant Secretary of
each Borrower as of the Closing Date; and, such certificate shall state that
the resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;

 

(b)                                 Incumbency Certificates of Borrowers. 
Agent shall have received a certificate of the Secretary or an Assistant
Secretary of each Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of each Borrower executing this Agreement, any
certificate or other documents to be delivered by it pursuant hereto, together
with evidence of the incumbency of such Secretary or Assistant Secretary and
having attached a copy of the Certificate of Incorporation of each Borrower,
and all amendments thereto, certified by the Secretary of State or other
appropriate official of its jurisdiction of incorporation together with copies
of the By-Laws of each Borrower and all agreements of each Borrower’s  shareholders certified as accurate and
complete by the Secretary of each Borrower;

 

(c)                                  Good Standing Certificates. 
Agent shall have received good standing certificates for each Borrower
dated not more than thirty (30) days prior to the Closing Date, issued by the
Secretary of State or other appropriate official of each Borrower’s
jurisdiction of incorporation and each jurisdiction where the conduct of each
Borrower’s business activities or the ownership of its properties necessitates
qualification;

 

(d)                                 Legal Opinion. 
Agent shall have received the executed legal opinion of Tolins &
Lowenfels in form and substance satisfactory to Agent which shall cover such
matters incident to the transactions contemplated by this Agreement, and
related agreements as Agent may reasonably require and each Borrower hereby
authorizes and directs such counsel to deliver such opinions to Agent and
Lenders;

 

(e)                                  No Litigation.  (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against any Borrower or against the officers or directors of any
Borrower (A) in connection with the Other Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of Agent, is deemed
material or (B) which could, in the reasonable opinion of Agent, have a
Material Adverse Effect; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to any Borrower or the conduct of its business or inconsistent with the
due consummation of the Transactions shall have been issued by any Governmental
Body;

 

37

 

(f)                                    Insurance.  Agent shall have received in
form and substance satisfactory to Agent, certified copies of Borrowers’
casualty insurance policies, together with loss payable endorsements on Agent’s
standard form of loss payee endorsement naming Agent as loss payee, and
certified copies of Borrowers’ liability insurance policies, together with
endorsements naming Agent as a co-insured;

 

(g)                                 No Adverse Material Change.  (i)
since September 30, 2003, there shall not have occurred any event, condition or
state of facts which could reasonably be expected to have a Material Adverse
Effect and (ii) no representations made or information supplied to Agent shall
have been proven to be inaccurate or misleading in any material respect;

 

(h)                                 Other.  All corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the Transactions shall be satisfactory in form and substance to
Agent and its counsel.

 

8.2.                              Conditions to Each Advance.  The
agreement of Lenders to make any Advance requested to be made on any date is
subject to the satisfaction of the following conditions precedent as of the
date such Advance is made:

 

(a)                                  Representations and Warranties.  Each
of the representations and warranties made by any Borrower in or pursuant to
this Agreement and any related agreements to which it is a party, and each of
the representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all material
respects on and as of such date as if made on and as of such date;

 

(b)                                 No Default.  No Event of Default or Default
shall have occurred and be continuing on such date, or would exist after giving
effect to the Advances requested to be made, on such date; provided, however
that Agent, in its sole discretion, may continue to make Advances
notwithstanding the existence of an Event of Default or Default and that any
Advances so made shall not be deemed a waiver of any such Event of Default or
Default; and

 

(c)                                  Maximum Advances.  In
the case of any Advances requested to be made, after giving effect thereto, the
aggregate Advances shall not exceed the maximum amount of Advances permitted
under Section 2.1 hereof.

 

Each
request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance
that the conditions contained in this subsection shall have been satisfied.

 

IX.                                INFORMATION AS TO BORROWERS.

 

Each
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:

 

9.1.                              Disclosure of Material Matters. 
Immediately upon learning thereof, report to Agent all matters
materially affecting the value, enforceability or collectibility of any portion
of the Collateral including, without limitation, any Borrower’s reclamation or
repossession of, or the return to any Borrower of, a material amount of goods
or claims or disputes asserted by any Customer or other obligor.

 

9.2.                              Schedules.  Deliver to Agent on or before
the fifteenth (15th) day of each month as and for the prior month (a) accounts
receivable ageings, (b) a report of sales and collections since the prior such
report (which, if Agent shall require at any time when Undrawn Availability is
less than Five Million Dollars ($5,000,000.00) or an Event of Default has
occurred and is continuing, shall be delivered weekly or daily as Agent shall
elect), and (c) a Borrowing Base Certificate (which shall be calculated as of
the last day of the prior month and which shall not be binding upon Agent or
restrictive of Agent’s rights under this Agreement).  In addition, each Borrower will deliver to
Agent at such intervals as Agent may require: 
(i) confirmatory assignment schedules, (ii) copies of
Customer’s invoices, (iii) evidence of shipment or delivery, and
(iv) such further schedules, documents and/or information regarding the
Collateral as Agent may require including, without limitation, trial balances
and test verifications.  Agent shall have
the right to confirm and verify all Receivables by any manner and through any
medium it considers advisable and do whatever it may deem reasonably necessary
to protect its interests hereunder.  The
items to be provided under this Section are to be in form satisfactory to Agent
and executed by each Borrower and delivered to Agent from time to time solely
for Agent’s convenience in

 

38

 

maintaining
records of the Collateral, and any Borrower’s failure to deliver any of such
items to Agent shall not affect, terminate, modify or otherwise limit Agent’s
Lien with respect to the Collateral.

 

9.3.                              Environmental Reports. 
Furnish Agent, concurrently with the delivery of the financial
statements referred to in Sections 9.7 and 9.8, with a certificate signed by
the Chief Financial Officer of each Borrower stating, to the best of his
knowledge, that each Borrower is in compliance in all material respects with
all federal, state and local laws relating to environmental protection and
control and occupational safety and health. 
To the extent any Borrower is not in compliance with the foregoing laws,
the certificate shall set forth with specificity all areas of non-compliance
and the proposed action such Borrower will implement in order to achieve full
compliance.

 

9.4.                              Litigation.  Promptly notify Agent in
writing of any litigation, suit or administrative proceeding affecting any
Borrower, whether or not the claim is covered by insurance, and of any suit or
administrative proceeding, which in any such case could reasonably be expected
to have a Material Adverse Effect on any Borrower.

 

9.5.                              Material Occurrences. 
Promptly notify Agent in writing upon the occurrence of (a) any Event of
Default or Default; (b) any event, development or circumstance whereby any
financial statements or other reports furnished to Agent fail in any material
respect to present fairly, in accordance with GAAP consistently applied, the
financial condition or operating results of any Borrower as of the date of such
statements; (c) any accumulated retirement plan funding deficiency which, if
such deficiency continued for two plan years and was not corrected as provided
in Section 4971 of the Code, could subject any Borrower to a tax imposed by
Section 4971 of the Code; (d) each and every default by any Borrower which
might result in the acceleration of the maturity of any Indebtedness, including
the names and addresses of the holders of such Indebtedness with respect to
which there is a default existing or with respect to which the maturity has
been or could be accelerated, and the amount of such Indebtedness; and (e) any
other development in the business or affairs of any Borrower which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action Borrowers propose to take with
respect thereto.

 

9.6.                              Government Receivables. 
Notify Agent immediately if any of its Receivables arise out of
contracts between any Borrower and the United States, any state, or any
department, agency or instrumentality of any of them, excepting only Medicare
and Medicaid.

 

9.7.                              Annual Financial Statements. 
Furnish Agent for distribution to the Lender within ninety (90) days
after the end of each fiscal year of Borrowers, which delivery date may be
extended for up to fifteen (15) additional days, in accordance with the
regulations promulgated by the Securities and Exchange Commission or the
regulations of the stock exchange on which the applicable Borrower is listed,
so long as copies of any writing applying for or evidencing such extension has
been supplied to Agent, financial statements of Borrowers on a consolidated
and, if requested by Agent, consolidating basis including, but not limited to,
statements of income and stockholders’ equity and cash flow from the beginning
of the current fiscal year to the end of such fiscal year and the balance sheet
as at the end of such fiscal year, all prepared in accordance with GAAP applied
on a basis consistent with prior practices, and in reasonable detail and
reported upon without qualification by an independent certified public
accounting firm selected by Borrowers and satisfactory to Agent (the
“Accountants”).  The report of the
Accountants shall be accompanied by a statement of the Accountants certifying
that (i) they have caused the Loan Agreement to be reviewed, (ii) in making the
examination upon which such report was based either no information came to
their attention which to their knowledge constituted an Event of Default or a
Default under this Agreement or any related agreement or, if such information
came to their attention, specifying any such Default or Event of Default, its
nature, when it occurred and whether it is continuing, and such report shall
contain or have appended thereto calculations which set forth Borrowers’
compliance with the requirements or restrictions imposed by Sections 7.5, 7.6
and 7.17 hereof.  In addition, the
reports shall be accompanied by a certificate of each Borrower’s Chief
Financial Officer which shall state that, based on an examination sufficient to
permit him to make an informed statement, no Default or Event of Default
exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by such Borrower with respect to such event, and such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 7.5, 7.6 and 7.17
hereof.

 

9.8.                              Quarterly Financial Statements. 
Furnish Agent for distribution to the Lender within forty-five (45) days
after the end of each fiscal quarter or such additional time, up to fifteen
(15) days, in accordance with the regulations

 

39

 

promulgated
by the Securities and Exchange Commission or the regulations of the stock
exchange on which the applicable Borrower is listed, so long as copies of any
writing applying for or evidencing such extension has been supplied to Agent,
an unaudited balance sheet of Borrowers on a consolidated and, if requested by
Agent, consolidating basis and unaudited statements of income and stockholders’
equity and cash flow of Borrowers on a consolidated and consolidating basis
reflecting results of operations from the beginning of the fiscal year to the
end of such quarter and for such quarter, prepared on a basis consistent with
prior practices and complete and correct in all material respects, subject to
normal and recurring year end adjustments that individually and in the
aggregate are not material to the business of Borrowers.  The reports shall be accompanied by a
certificate signed by the Chief Financial Officer of each Borrower, which shall
state that, to the best of his knowledge, based on an examination sufficient to
permit him to make an informed statement, no Default or Event of Default
exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 7.5, 7.6 and 7.17
hereof.

 

9.9.                              Monthly Financial Statements. 
Furnish Agent for distribution to the Lender within thirty (30) days
after the end of each month, an unaudited income statement of Borrowers on a
consolidated and, if requested by Agent, consolidating basis reflecting results
of operations from the beginning of the fiscal year to the end of such month
and for such month, prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal and recurring
year end adjustments that individually and in the aggregate are not material to
the business of Borrowers.  The reports
shall be accompanied by a certificate of each Borrower’s Chief Financial
Officer, which shall state that, to the best of his knowledge, based on an
examination sufficient to permit him to make an informed statement, no Default
or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrowers with respect to such event
and, such certificate shall have appended thereto calculations which set forth
Borrowers’ compliance with the requirements or restrictions imposed by Sections
7.5, 7.6 and 7.17 hereof.

 

9.10.                        Other Reports. 
Furnish Agent as soon as available, but in any event within ten (10)
days after the issuance thereof, with copies of such financial statements,
reports and returns as each Borrower shall send to its stockholders.

 

9.11.                        Additional Information. 
Furnish Agent with such additional information as Agent shall reasonably
request in order to enable Agent to determine whether the terms, covenants,
provisions and conditions of this Agreement have been complied with by
Borrowers including, without limitation and without the necessity of any
request by Agent, (a) copies of all environmental audits and reviews, (b) at
least thirty (30) days prior thereto, notice of any Borrower’s opening of any
new office or place of business or any Borrower’s closing of any existing
office or place of business, and (c) promptly upon any Borrower’s learning
thereof, notice of any labor dispute to which any Borrower may become a party,
any strikes or walkouts relating to any of its plants or other facilities, and
the expiration of any labor contract to which any Borrower is a party or by
which any Borrower is bound.

 

9.12.                        Projected Operating Budget. 
Furnish Agent for distribution to the Lender, no later than thirty (30)
days prior to the beginning of each Borrower’s fiscal year commencing with the
fiscal year beginning November 1, 2004, a month by month projected operating
budget of Borrowers on a consolidated and, if requested by Agent, consolidating
basis for such fiscal year (including an income statement and balance sheet  for each month), such projections to be accompanied by a
certificate signed by the President or Chief Financial Officer of each Borrower
to the effect that such projections have been prepared on the basis of sound
financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness
of any material assumptions on which such projections were prepared.

 

9.13.                        Variances From Operating Budget. 
Furnish Agent for distribution to the Lender, concurrently with the
delivery of the financial statements referred to in Section 9.7 and each
monthly report, a written report summarizing all material variances from
budgets submitted by Borrowers pursuant to Section 9.12 and a discussion and
analysis by management with respect to such variances.

 

40

 

9.14.                        Notice of Suits, Adverse Events. 
Furnish Agent with prompt notice of (i) any lapse or other termination
of any Consent issued to any Borrower by any Governmental Body or any other
Person that is material to the operation of any Borrower’s business, (ii) any
refusal by any Governmental Body or any other Person to renew or extend any
such Consent; and (iii) copies of any periodic or special reports filed by any
Borrower with any Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or condition of any
Borrower, or if copies thereof are requested by Lender, and (iv) copies of any
material notices and other communications from any Governmental Body or Person
which specifically relate to any Borrower; including, without limitation, those
Consents, reports and notices which are related to air emissions, water
discharge, noise emissions, solid or liquid waste disposal, hazardous waste or
materials, or any other environmental, health or safety matter.

 

9.15.                        ERISA Notices and Requests. 
Furnish Agent with immediate written notice in the event that (i) any
Borrower or any member of the Controlled Group knows or has reason to know that
a Termination Event has occurred, together with a written statement describing
such Termination Event and the action, if any, which such Borrower or any
member of the Controlled Group has taken, is taking, or proposes to take with
respect thereto and, when known, any action taken or threatened by the Internal
Revenue Service, Department of Labor or PBGC with respect thereto, (ii) any
Borrower or any member of the Controlled Group knows or has reason to know that
a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the
Code) has occurred together with a written statement describing such
transaction and the action which such Borrower or any member of the Controlled
Group has taken, is taking or proposes to take with respect thereto, (iii) a
funding waiver request has been filed with respect to any Plan together with
all communications received by any Borrower or any member of the Controlled
Group with respect to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of
intention to terminate a Plan or to have a trustee appointed to administer a
Plan, together with copies of each such notice, (vi) any Borrower or any member
of the Controlled Group shall receive any favorable or unfavorable determination
letter from the Internal Revenue Service regarding the qualification of a Plan
under Section 401(a) of the Code, together with copies of each such letter;
(vii) any Borrower or any member of the Controlled Group shall receive a notice
regarding the imposition of withdrawal liability, together with copies of each
such notice; (viii) any Borrower or any member of the Controlled Group shall
fail to make a required installment or any other required payment under Section
412 of the Code on or before the due date for such installment or payment; (ix)
any Borrower or any member of the Controlled Group knows that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan sponsor
of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the
PBGC has instituted or will institute proceedings under Section 4042 of ERISA
to terminate a Multiemployer Plan.

 

9.16.                        Additional Documents. 
Execute and deliver to Agent, upon request, such documents and
agreements as Agent may, from time to time, reasonably request to carry out the
purposes, terms or conditions of this Agreement.

 

X.                                    EVENTS OF DEFAULT

 

The
occurrence of any one or more of the following events shall constitute an
“Event of Default”:

 

10.1.                        Failure to Pay.  Any
Borrower’s failure to pay, when due, any payment of principal, interest or
other charges due and owing to Lender pursuant to any Obligations of Borrowers
to Lenders, including, without limitation, those Obligations arising pursuant
to this Agreement or any Other Document whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by reason of Agent’s
demand made pursuant to Section 2.1(a) or by notice of intention to prepay, or
by required prepayment and such default continues for more than ten (10)
Business Days after written notice of such default by Agent;

 

10.2.                        Failure to Perform.  Any
Borrower’s failure to perform or observe any covenant, term or condition of
this Agreement to be performed or observed by Borrowers (excepting those which
result in a payment default, a lien on Borrowers’ assets or a violation of an
insurance covenant, which shall constitute an immediate Event of Default), and
such default continues for more than thirty (30) Business Days after written
notice of such default by Agent;

 

41

 

10.3.                        Cross Default; Default on Other Debt.  The
occurrence of any default on any other obligation or indebtedness of any
Borrower to any third parties so that the holder of such obligation or
indebtedness declares such obligation or indebtedness due prior to its date of
maturity because of such Borrower’s default thereunder and such default
continues for more than thirty (30) Business Days after written notice of such
default by Agent;

 

10.4.                        False Representation or Warranty.  Any
Borrower shall have made any statement, representation or warranty in this
Agreement or in any document or certificate executed by such Borrower incident
to this Agreement, which is at any time found to have been false in any
material respect at the time such representation or warranty was made;

 

10.5.                        Petition by or Against Borrowers.  Any
Borrower ceases to do business as a going concern, or there is filed by or
against any Borrower, any petition with respect to its own financial condition
under any bankruptcy law or any amendment thereto (including without limitation
a petition for reorganization, arrangement or extension) or under any other
insolvency laws providing for the relief of debtors, provided, however, if such
action is involuntary, Agent may not declare same to be an Event of Default
unless Borrower shall have failed to have same dismissed or appealed and stayed
in an appropriate forum and for which appeal Borrowers shall have posted a
bond, in an amount satisfactory to the court and Agent, all within thirty (30)
Business Days from the date of filing;

 

10.6.                        Appointment of Receiver.  A
receiver, custodian, trustee, conservator or liquidator is appointed for any
Borrower, or all or a substantial part of its assets, unless same is stayed or
dismissed within thirty (30) Business Days; or any Borrower shall be
adjudicated bankrupt, insolvent or in need of any relief provided to debtors by
any court;

 

10.7.                        Judgments; Levies.  If
any final judgment or judgments (except those covered by insurance), or any
levy, sequestration, or attachment against any Borrower or its property,
remains unpaid, undischarged, unsatisfied, unbonded or undismissed for a period
of thirty (30) Business Days after such Borrower has received notification of
the entry thereof;

 

10.8.                        Change in Management.  At
any time Marc D. Grodman (“Grodman”) shall not be employed by Borrowers in
substantially the same role as he holds on the Closing Date and no successor,
who is acceptable to Agent in its sole discretion, has been retained to act in
such role within the thirty (30) days after Grodman’s ceasing to be employed or
within such shorter period as is required to avoid the occurrence of a Material
Adverse Effect;

 

10.9.                        Liquidation or Dissolution.  The
liquidation and/or dissolution of any Borrower;

 

10.10.                  Environmental Complaint.  At
any time Agent determines that an Environmental Complaint will have a
potentially material adverse effect on the financial condition of any Borrower;

 

10.11.                  Failure to Notify.  If
at any time any Borrower fails to provide Agent immediately with the notices
required by Section 9.14;

 

10.12                     Financial Reports, Access to Records.  If
at any time any Borrower fails to (a) furnish financial information when due or
when requested which is unremedied for a period of fifteen (15) days, or (b)
permit the inspection of its books and records by Agent or its employees or
representatives;

 

10.13                     Agent’s Liens.  If
at any time any Lien in favor of Agent created hereunder or provided for hereby
or under any Other Document for any reason ceases to be or is not a valid and
perfected Lien having a firs priority position;

 

10.14                     Licenses.  If any Governmental Body shall
(a) revoke, terminate, suspend or adversely modify any license or permit of any
Borrower, the continuation of which is material to the continuation of such
Borrower’s business, or (b) commence proceedings to suspend, revoke, terminate
or adversely modify any such license or permit and such proceeding shall not be
dismissed or discharged within sixty (60) days; or

 

10.15                     ERISA.  If an event or condition
specified in Sections 7.15 or 9.15 shall occur or exist with respect to any
Plan and, as a result of such event or condition, together with all other such
events or conditions, any Borrower or

 

42

 

any
member of the Controlled Group shall occur, or in the opinion of Agent be
reasonable likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, would have a Material Adverse Effect on
such Borrower.

 

XI.                                LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

 

11.1.                        Rights and Remedies.  Upon
the occurrence of (i) an Event of Default pursuant to Sections 10.5 or 10.6 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed terminated; and, (ii)
any of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Required Lenders all
Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to
make Advances.  Upon the occurrence of
any Event of Default, Agent shall have the right to exercise any and all other
rights and remedies provided for herein, under the Uniform Commercial Code and
at law or equity generally, including, without limitation, the right to
foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process.  Agent may enter any of any Borrower’s
premises or other premises without legal process and without incurring
liability to any Borrower therefor, and Agent may thereupon, or at any time
thereafter, in its discretion without notice or demand, take the Collateral and
remove the same to such place as Agent may deem advisable and Agent may require
Borrowers to make the Collateral available to Agent at a convenient place.  With or without having the Collateral at the
time or place of sale, Agent may sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more sales, at such
price or prices, and upon such terms, either for cash, credit or future
delivery, as Agent may elect.  Except as
to that part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Agent shall give Borrowers reasonable notification of such sale or sales, it
being agreed that in all events written notice mailed to Borrowers at least
five (5) days prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender may
bid for and become the purchaser, and Agent, any Lender or any other purchaser
at any such sale thereafter shall hold the Collateral sold absolutely free from
any claim or right of whatsoever kind, including any equity of redemption and
such right and equity are hereby expressly waived and released by each
Borrower.  In connection with the
exercise of the foregoing remedies, Agent is granted permission to use all of
each Borrower’s trademarks, trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection
with (a) Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods.  The proceeds realized from the sale of any
Collateral shall be applied as follows: first, to the reasonable costs,
expenses and attorneys’ fees and expenses incurred by Agent for collection and
for acquisition, completion, protection, removal, storage, sale and delivery of
the Collateral; second, to interest due upon any of the Obligations and any
fees payable under this Agreement; and, third, to the principal of the
Obligations.  If any deficiency shall
arise, Borrowers shall remain liable to Agent and Lenders therefor.

 

11.2.                        Agent’s Discretion. 
Agent shall have the right in its sole discretion to determine which
rights, Liens, security interests or remedies Agent may at any time pursue,
relinquish, subordinate, or modify or to take any other action with respect thereto
and such determination will not in any way modify or affect any of Agent’s or
Lenders’ rights hereunder.

 

11.3.                        Setoff.  In addition to any other
rights which Agent or any Lender may have under applicable law, upon the
occurrence of an Event of Default hereunder, Agent and such Lender shall have a
right to apply any Borrower’s property held by Agent and such Lender to reduce
the Obligations.

 

11.4.                        Rights and Remedies not Exclusive.  The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies provided for herein or otherwise
provided by law, all of which shall be cumulative and not alternative.

 

11.5.                        Allocation of Payments After Event of Default. 
Notwithstanding any other provisions of this Agreement to the contrary,
after the occurrence and during the continuance of an Event of Default, all
amounts collected or received by Agent on account of the Obligations or any
other amounts outstanding under any of the Other Documents or in respect of the
Collateral may, at Agent’s discretion, be paid over or delivered as follows:

 

43

 

FIRST, to the payment of all
reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees) of Agent in connection with enforcing the rights of
Lenders under this Agreement and the Other Documents and any protective
advances made by Agent with respect to the Collateral under or pursuant to the
terms of this Document;

 

SECOND, to payment of any
fees owed to Agent;

 

THIRD, to the payment of all
reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees) of each of Lenders in connection with enforcing its
rights under this Agreement and the Other Documents or otherwise with respect
to the Obligations owing to such Lender;

 

FOURTH, to the payment of
all of the Obligations consisting of accrued fees and interest;

 

FIFTH, to the payment of the
outstanding principal amount of the Obligations (including the payment or cash
collateralization of the outstanding Letters of Credit);

 

SIXTH, to all other
Obligations and other obligations which shall have become due and payable under
the Other Documents or otherwise and not repaid pursuant to clauses “FIRST”
through “FIFTH” above;

 

SEVENTH, to the payment of
the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the foregoing, (i) amounts
received shall be applied in the numerical order provided until exhausted prior
to application to the next succeeding category; (ii) each of Lenders shall
receive (so long as it is not a Defaulting Lender) an amount equal to its pro
rata share (based on the proportion that the then outstanding Advances held by
such Lender bears to the aggregate then outstanding Advances) of amounts
available to be applied pursuant to clauses “THIRD”, “FOURTH”, “FIFTH” and
“SIXTH” above; and (iii) to the extent that any amounts available for
distribution pursuant to clause “FIFTH” above are attributable to the issued
but undrawn amount of outstanding Letters of Credit, such amounts shall be held
by Agent in a cash collateral account and applied (A) first, to reimburse the
Issuer from time to time for any drawings under such Letters of Credit and (B)
then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses “FIFTH” and “SIXTH” above in the
manner provided in this Section 11.5.

 

XII.                            WAIVERS AND JUDICIAL PROCEEDINGS

 

12.1.                        Waiver of Notice.  Each
Borrower hereby waives notice of non-payment of any of the Receivables, demand,
presentment, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made,
credit extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.

 

12.2.                        Delay.  No delay or omission on
Agent’s or any Lender’s part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
default.

 

12.3.                        Jury Waiver.  EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

44

 

XIII.                        EFFECTIVE DATE AND TERMINATION

 

13.1.                        Term.  This Agreement, which shall
inure to the benefit of and shall be binding upon the respective successors and
permitted assigns of each Borrower, Agent and each Lender, shall become
effective on the date hereof and shall continue in full force and effect until
October 31, 2007 (the “Term”) unless sooner terminated as herein provided.

 

13.2                           Termination by Borrowers. 
Borrowers may terminate the Line of Credit at any time upon not less
than sixty (60) days’ prior written notice and the date of termination must
fall upon (i) October 31, 2007 or any annual anniversary of such date
thereafter or (ii) at any time after Agent or Required Lenders elect to
decrease the amount of the Advance Limit or percentage or amounts of Advance
pursuant to Section 2.1(b).  Upon giving
such notice, the Line of Credit shall thereafter terminate upon the said date.

 

13.2.                        Termination.  The termination of the
Agreement shall not affect any Borrower’s, Agent’s or any Lender’s rights, or
any of the Obligations having their inception prior to the effective date of
such termination, and the provisions hereof shall continue to be fully
operative until all transactions entered into, rights or interests created or
Obligations have been fully disposed of, concluded or liquidated.  The security interests, Liens and rights
granted to Agent and Lenders hereunder and the financing statements filed
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrowers’ Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of each Borrower have been paid or performed in full after the
termination of this Agreement or each Borrower has furnished Agent and Lenders
with an indemnification satisfactory to Agent and Lenders with respect
thereto.  Accordingly, each Borrower
waives any rights which it may have under the Uniform Commercial Code to demand
the filing of termination statements with respect to the Collateral, and Agent
shall not be required to send such termination statements to each Borrower, or
to file them with any filing office, unless and until this Agreement shall have
been terminated in accordance with its terms and all Obligations paid in full
in immediately available funds.  All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are paid or performed in
full.

 

XIV.                        REGARDING AGENT

 

14.1.                        Appointment.  Each Lender hereby designates
PNC to act as Agent for such Lender under this Agreement and the Other
Documents.  Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto and Agent shall hold all
Collateral, payments of principal and interest, fees, charges and collections
(without giving effect to any collection days) received pursuant to this
Agreement, for the ratable benefit of Lenders. 
Agent may perform any of its duties hereunder by or through its agents
or employees.  As to any matters not
expressly provided for by this Agreement (including without limitation,
collection of the Note) Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding; provided,
however, that Agent shall not be required to take any action which
exposes Agent to liability or which is contrary to this Agreement or the Other
Documents or applicable law unless Agent is furnished with an indemnification
reasonably satisfactory to Agent with respect thereto.

 

14.2.                        Nature of Duties. 
Agent shall have no duties or responsibilities except those expressly
set forth in this Agreement and the Other Documents.  Neither Agent nor any of its officers,
directors, employees or agents shall be (i) liable for any action taken or
omitted by them as such hereunder or in connection herewith, unless caused by their
gross (not mere) negligence or willful misconduct, or (ii) responsible in any
manner for any recitals, statements, representations or warranties made by any
Borrower or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, due execution, enforceability or sufficiency of
this Agreement, or any of the Other Documents or for any failure of any
Borrower to perform its obligations hereunder. 
Agent shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any of the Other Documents, or to
inspect the properties, books or records of any Borrower.  The duties of

 

45

 

Agent
as respects the Advances to Borrowers shall be mechanical and administrative in
nature; Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Agreement, expressed
or implied, is intended to or shall be so construed as to impose upon Agent any
obligations in respect of this Agreement except as expressly set forth herein.

 

14.3.                        Lack of Reliance on Agent and Resignation. 
Independently and without reliance upon Agent or any other Lender, each
Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Borrower in
connection with the making and the continuance of the Advances hereunder and
the taking or not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of each Borrower.  Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Lender with any credit
or other information with respect thereto, whether coming into its possession
before making of the Advances or at any time or times thereafter except as
shall be provided by any Borrower pursuant to the terms hereof.  Agent shall not be responsible to any Lender
for any recitals, statements, information, representations or warranties herein
or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Other
Document, or of the financial condition of any Borrower, or be required to make
any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement, the Note, the Other
Documents or the financial condition of any Borrower, or the existence of any
Event of Default or any Default.

 

Agent
may resign on sixty (60) days’ written notice to each of Lenders and Borrowing
Agent and upon such resignation, the Required Lenders will promptly designate a
successor Agent reasonably satisfactory to Borrowers.

 

Any
such successor Agent shall succeed to the rights, powers and duties of Agent,
and the term “Agent” shall mean such successor agent effective upon its
appointment, and the former Agent’s rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent.  After any Agent’s resignation as
Agent, the provisions of this Article XIV shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.

 

14.4.                        Certain Rights of Agent.  If
Agent shall request instructions from Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any Other
Document, Agent shall be entitled to refrain from such act or taking such
action unless and until Agent shall have received instructions from the
Required Lenders; and Agent shall not incur liability to any Person by reason
of so refraining.  Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance
with the instructions of the Required Lenders.

 

14.5.                        Reliance.  Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, order or other document or telephone message believed by it
to be genuine and correct and to have been signed, sent or made by the proper
person or entity, and, with respect to all legal matters pertaining to this
Agreement and the Other Documents and its duties hereunder, upon advice of
counsel selected by it.  Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.

 

14.6.                        Notice of Default. 
Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default hereunder or under the Other Documents,
unless Agent has received notice from a Lender or a Borrower referring to this
Agreement or the Other Documents, describing such Default or Event of Default
and stating that such notice is a “notice of default”.  In the event that Agent receives such a
notice, Agent shall give notice thereof to Lenders.  Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the
Required Lenders; provided, that, unless and until Agent shall
have received such directions, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
or Event of Default as it shall deem advisable in the best interests of
Lenders.

 

14.7.                        Indemnification.  To
the extent Agent is not reimbursed and indemnified by Borrowers, each Lender
will reimburse and indemnify Agent in proportion to its respective portion of
the Advances (or, if no Advances are outstanding, according to its Commitment
Percentage), from and against any and all liabilities, obligations, losses,

 

46

 

damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Agent in performing its duties hereunder, or in any way relating to or
arising out of this Agreement or any Other Document; provided  that,
Lenders shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent’s gross (not mere) negligence or willful
misconduct.

 

14.8.                        Agent in its Individual Capacity.  With
respect to the obligation of Agent to lend under this Agreement, the Advances
made by it shall have the same rights and powers hereunder as any other Lender
and as if it were not performing the duties as Agent specified herein; and the
term “Lender” or any similar term shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Lender.  Agent may engage in business with any
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from any Borrower for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.

 

14.9.                        Delivery of Documents.  To
the extent Agent receives financial statements required under Sections 9.7,
9.8, and 9.9 from any Borrower pursuant to the terms of this Agreement, Agent
will promptly furnish copies of such documents and information to Lenders.

 

14.10.                  Borrowers’ Undertaking to Agent. 
Without prejudice to their respective obligations to Lenders under the
other provisions of this Agreement, each Borrower hereby undertakes with Agent
to pay to Agent from time to time on demand all amounts from time to time due
and payable by it for the account of Agent or Lenders or any of them pursuant
to this Agreement to the extent not already paid.  Any payment made pursuant to any such demand
shall pro  tanto satisfy the relevant Borrower’s obligations to
make payments for the account of Lenders or the relevant one or more of them
pursuant to this Agreement.

 

14.11                     USA Patriot Act Certifications From Lenders
and Transferees.  Each Lender, Purchasing Lender or Transferee
that is not incorporated under the laws of the United States of America or a
state thereof (and is not excepted from the certification requirement contained
in Section 313 of the USA Patriot Act and the applicable regulations because it
is both (i) an affiliate of a depository institution or foreign bank that
maintains a physical presence in the United states or foreign county, and (ii)
subject to supervision by a banking authority regulating such affiliated
depository institution or foreign bank) shall deliver to Agent the
certification, or, if applicable, recertification, certifying that such Lender
is not a “shell” and certifying to other matters as required by Section 313 of
the USA Patriot Act and the applicable regulations: (1) within 10 days after
the execution and delivery of its Commitment Transfer Supplement, and (2) as
such other times as are required under the USA Patriot Act.

 

14.12                     No Reliance on Agent’s Customer
Identification Program.  Each Lender acknowledges and agrees that
neither such Lender, nor any of its Affiliates, nor any Purchasing Lender or
Transferee, may rely on Agent to carry out such Lender’s, Affiliate’s,
participant’s or assignee’s customer identification program, or other
obligations required or imposed under or pursuant to the USA Patriot Act or the
regulations thereunder, including the regulations contained in 31 CFR 103.121
(as hereafter amended or replaced, the “CIP Regulations”), or any other
Anti-Terrorism Law, including any programs involving any of the following items
relating to or in connection with any of Borrowers, their Affiliates or their
agents, the Loan Documents or the transactions hereunder or contemplated
hereby: (1) any identity verification procedures, (2) any recordkeeping, (3)
comparisons with government lists, applicable (4) customer notices or (5) other
procedures required under the CIP Regulations or other laws.

 

14.13                     Tax Withholding Clause.  Each
Lender, Purchasing Lender or Transferee that is not incorporated under the Laws
of the United States of America or a state thereof (and, upon the written
request of the Agent, each other Lender or assignee or participant of a Lender)
agrees that it will deliver to Borrowers and to Agent two (2) duly completed
appropriate valid Withholding Certificates (as defined under § 1.1441-1 (c)(
16) of the Income Tax Regulations (the “Regulations”)) certifying its status
(i.e. U.S. or foreign person) and, if appropriate, making a claim of reduced,
or exemption from, U.S. withholding tax on the basis of an income tax treaty or
an exemption provided by the Internal Revenue Code. The term “Withholding
Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W8IMY and
the related statements and certifications as required under § 1.l441-l(e)(2)
and/or (3) of the Regulations; a statement described in § 1.871-l4(c)(2)(v) of
the Regulations; or any other certificates under the Internal Revenue Code or
Regulations that certify or establish the status of a payee or beneficial owner
as a U.S. or foreign person. Each Lender,

 

47

 

Purchasing
Lender or Transferee required to deliver a Withholding Certificate to Borrowers
and Agent pursuant to the preceding sentence shall deliver such Withholding
Certificate at least five (5)  Business
Days before the effective date of any assignment or participation.  Each Lender, Purchasing Lender or Transferee
which so delivers a Withholding Certificate shall deliver to Borrowers and
Agent two (2) additional counterpart Withholding Certificates (or a successor
form) on or before the date that the existing Withholding Certificate expires
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent Withholding Certificate, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by Borrowers or
Agent.  Notwithstanding the submission of
a Withholding Certificate claiming a reduced rate of or exemption from U.S.
withholding tax, the Agent shall be entitled to withhold United States federal
income taxes at the full thirty percent (30%) withholding rate if it
determines, in its reasonable judgment, that it is required to do so under the
due diligence requirements imposed upon a withholding agent under § 1.1441-7(b)
of the Regulations. Further, Agent is indemnified under § 1.1461 - 1(e) of the
Regulations against any claims and demands of any Lender, Purchasing Lender or
Transferee for the amount of any tax it deducts and withholds in accordance
with regulations under § 1441 of the Internal Revenue Code.

 

XV.                            BORROWING AGENCY

 

15.1.                        Borrowing Agency Provisions.

 

(a)                                  Each Borrower hereby irrevocably designates
Borrowing Agent to be its attorney and agent and in such capacity to borrow,
sign and endorse notes, and execute and deliver all instruments, documents,
writings and further assurances now or hereafter required hereunder, on behalf
of such Borrower or Borrowers, and hereby authorizes Agent to pay over or
credit all loan proceeds hereunder in accordance with the request of Borrowing
Agent.

 

(b)                                 The handling of this credit facility as a
co-borrowing facility with a borrowing agent in the manner set forth in this
Agreement is solely as an accommodation to Borrowers and at their request.  Neither Agent nor any Lender shall incur
liability to Borrowers as a result thereof. 
To induce Agent and Lenders to do so and in consideration thereof, each
Borrower hereby indemnifies Agent and each Lender and holds Agent and each
Lender harmless from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Agent or any Lender by
any Person arising from or incurred by reason of the handling of the financing
arrangements of Borrowers as provided herein, reliance by Agent or any Lender
on any request or instruction from Borrowing Agent or any other action taken by
Agent or any Lender with respect to this Section 15.1 except due to willful
misconduct or gross (not mere) negligence by the indemnified party.

 

(c)                                  All Obligations shall be joint and several,
and each Borrower shall make payment upon the maturity of the Obligations by
acceleration or otherwise, and such obligation and liability on the part of
each Borrower shall in no way be affected by any extensions, renewals and
forbearance granted to Agent or any Lender to any Borrower, failure of Agent or
any Lender to give any Borrower notice of borrowing or any other notice, any
failure of Agent or any Lender to pursue or preserve its rights against any
Borrower, the release by Agent or any Lender of any Collateral now or
thereafter acquired from any Borrower, and such agreement by each Borrower to
pay upon any notice issued pursuant thereto is unconditional and unaffected by
prior recourse by Agent or any Lender to the other Borrowers or any Collateral
for such Borrower’s Obligations or the lack thereof.  Each Borrower waives all suretyship defenses.

 

15.2.                        Waiver of Subrogation.  Each
Borrower expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution of any other claim which such Borrower may
now or hereafter have against the other Borrowers or other Person directly or
contingently liable for the Obligations hereunder, or against or with respect
to the other Borrowers’ property (including, without limitation, any property
which is Collateral for the Obligations), arising from the existence or
performance of this Agreement, until termination of this Agreement and
repayment in full of the Obligations.

 

XVI.                        MISCELLANEOUS

 

16.1.                        Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey applied to contracts to be performed wholly within the
State of New Jersey.  Any judicial
proceeding brought by or against any Borrower with respect to any of the
Obligations, this Agreement or any related

 

48

 

agreement
may be brought in any court of competent jurisdiction in the State of New
Jersey, United States of America, and, by execution and delivery of this
Agreement, each Borrower accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement.  Each Borrower hereby waives personal service
of any and all process upon it and consents that all such service of process
may be made by registered mail (return receipt requested) directed to Borrowing
Agent at its address set forth in Section 16.6 and service so made shall be
deemed completed five (5) days after the same shall have been so deposited in
the mails of the United States of America, or, at Agent’s and/or any Lender’s
option, by service upon Borrowing Agent which each Borrower irrevocably
appoints as such Borrower’s Agent for the purpose of accepting service within
the State of New Jersey.  Nothing herein
shall affect the right to serve process in any manner permitted by law or shall
limit the right of Agent or any Lender to bring proceedings against any
Borrower in the courts of any other jurisdiction.  Each Borrower waives any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens.  Any judicial proceeding
by any Borrower against Agent or any Lender involving, directly or indirectly,
any matter or claim in any way arising out of, related to or connected with
this Agreement or any related agreement, shall be brought only in a federal or
state court located in the County of Middlesex, State of New Jersey.

 

16.2.                        Entire Understanding.  (a)       This Agreement and the documents executed concurrently
herewith contain the entire understanding between each Borrower, Agent and each
Lender and supersedes all prior agreements and understandings, if any, relating
to the subject matter hereof.  Any
promises, representations, warranties or guarantees not herein contained and
hereinafter made shall have no force and effect unless in writing, signed by
each Borrower’s, Agent’s and each Lender’s respective officers.  Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.  Each Borrower acknowledges that
it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.

 

(b)                                 The Required Lenders, Agent with the consent
in writing of the Required Lenders, and Borrowers may, subject to the
provisions of this Section 16.2(b), from time to time enter into written
supplemental agreements to this Agreement or the Other Documents executed by
Borrowers, for the purpose of adding or deleting any provisions or otherwise
changing, varying or waiving in any manner the rights of Lenders, Agent or
Borrowers thereunder or the conditions, provisions or terms thereof of waiving
any Event of Default thereunder, but only to the extent specified in such written
agreements; provided, however, that no such supplemental
agreement shall, without the consent of all Lenders:

 

(i)                                     increase the Commitment Percentage or maximum
dollar commitment of any Lender;

 

(ii)                                  extend the maturity of any Note or the due
date for any amount payable hereunder, or decrease the rate of interest or
reduce any fee payable by Borrowers to Lenders pursuant to this Agreement;

 

(iii)                               alter the definition of the term Required
Lenders or alter, amend or modify this Section 16.2(b); and

 

(iv)                              release any Collateral during any calendar
year (other than in accordance with the provisions of this Agreement) having an
aggregate value in excess of $1,000,000.00;

 

(v)                                 change the rights and duties of Agent;

 

(vi)                              permit any Revolving Advance to be made if
after giving effect thereto the total of Revolving Advances outstanding
hereunder would exceed the Formula Amount for more than sixty (60) consecutive
Business Days or exceed one hundred and ten percent (110%) of the Formula
Amount;

 

(vii)                           increase the Advance Rates above the Advance
Rates in effect on the Closing Date.

 

49

 

Any
such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations.  In the case of any waiver,
Borrowers, Agent and Lenders shall be restored to their former positions and
rights, and any Event of Default waived shall be deemed to be cured and not continuing,
but no waiver of a specific Event of Default shall extend to any subsequent
Event of Default (whether or not the subsequent Event of Default is the same as
the Event of Default which was waived), or impair any right consequent thereon.

 

In
the event that Agent requests the consent of a Lender pursuant to this Section
16.2 and such Lender shall not respond or reply to Agent in writing within ten
(10) days of delivery of such request, such Lender shall be deemed to have
consented to matter that was the subject of the request.  In the event that Agent requests the consent
of a Lender pursuant to this Section 16.2 and such consent is denied, then PNC
may, at its option, require such Lender to assign its interest in the Advances
to PNC or to another Lender or to any other Person designated by Agent (the
“Designated Lender”), for a price equal to the then outstanding principal
amount thereof plus accrued and unpaid interest and fees due such Lender, which
interest and fees shall be paid when collected from Borrowers.  In the event PNC elects to require any Lender
to assign its interest to PNC or to the Designated Lender, PNC will so notify
such Lender in writing within forty five (45) days following such Lender’s
denial, and such Lender will assign its interest to PNC or the Designated Lender
no later than five (5) days following receipt of such notice pursuant to a
Commitment Transfer Supplement executed by such Lender, PNC or the Designated
Lender, as appropriate, and Agent.

 

Notwithstanding
(a) the existence of a Default or an Event of Default, (b) that any of the
other applicable conditions precedent set forth in Section 8.2 hereof have not
been satisfied or (c) any other provision of this Loan Agreement, Agent may at
its discretion and without the consent of the Required Lenders, voluntarily
permit the outstanding Revolving Advances at any time to exceed the Formula
Amount by up to one hundred and ten percent (110%) of the Formula Amount for up
to thirty (30) consecutive Business Days. 
For purposes of the preceding sentence, the discretion granted to Agent
hereunder shall not preclude involuntary overadvances that may result from time
to time due to the fact that the Formula Amount was unintentionally exceeded
for any reason, including, but not limited to, Collateral previously deemed to
be either “Eligible Receivables” or “Eligible Inventory”, as applicable,
becomes ineligible, collections of Receivables applied to reduce outstanding
Revolving Advances are thereafter returned for insufficient funds or
overadvances are made to protect or preserve the Collateral.  In the event Agent involuntarily permits the
outstanding Revolving Advances to exceed the Formula Amount by more than ten
percent (10%), Agent shall use its efforts to have Borrowers decrease such
excess in as expeditious a manner as is practicable under the circumstances and
not inconsistent with the reason for such excess.  Revolving Advances made after Agent has
determined the existence of involuntary overadvances shall be deemed to be
involuntary overadvances and shall be decreased in accordance with the
preceding sentence.

 

In
addition to (and not in substitution of) the discretionary Revolving Advances
permitted above in this Section 16.2, Agent is hereby authorized by Borrowers
and Lenders, from time to time in Agent’s sole discretion, (a) after the
occurrence and during the continuation of a Default or an Event of Default, or
(b) at any time that any of the other applicable conditions precedent set forth
in Section 8.2 hereof have not been satisfied, to make Revolving Advances to
Borrowers on behalf of Lenders which Agent, in its reasonable business
judgment, deems necessary or desirable (a) to preserve or protect the
Collateral, or any portion thereof, (b) to enhance the likelihood of, or
maximize the amount of, repayment of the Advances and other Obligations, or
(iii) to pay any other amount chargeable to Borrowers pursuant to the terms of
this Agreement; provided, that at any time after giving effect to
any such Revolving Advances the outstanding Revolving Advances do not exceed
one hundred and ten percent (110%) of the Formula Amount.

 

16.3.                        Successors and Assigns; Participations; New
Lenders.

 

(a)                                  This Agreement shall be binding upon and
inure to the benefit of Borrowers, Agent, each Lender, all future holders of
the Obligations and their respective successors and assigns, except that no
Borrower may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of Agent and each Lender.

 

(b)                                 Each Borrower acknowledges that in the regular
course of commercial banking business one or more Lenders may at any time and
from time to time sell participating interests in the Advances to other
financial

 

50

 

institutions
(each such transferee or purchaser of a participating interest, a
“Transferee”).  Each Transferee may
exercise all rights of payment (including without limitation rights of set-off)
with respect to the portion of such Advances held by it or other Obligations
payable hereunder as fully as if such Transferee were the direct holder thereof
provided that Borrowers shall not be required to pay to any Transferee more
than the amount which it would have been required to pay to Lender which
granted an interest in its Advances or other Obligations payable hereunder to
such Transferee had such Lender retained such interest in the Advances
hereunder or other Obligations payable hereunder and in no event shall
Borrowers be required to pay any such amount arising from the same
circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Transferee.  Each Borrower hereby grants to any Transferee
a continuing security interest in any deposits, moneys or other property
actually or constructively held by such Transferee as security for the
Transferee’s interest in the Advances.

 

(c)                                  Any Lender may with the consent of Agent
which shall not be unreasonably withheld or delayed sell, assign or transfer
all or any part of its rights under this Agreement and the Other Documents to
one or more additional banks or financial institutions and one or more
additional banks or financial institutions may commit to make Advances
hereunder (each a “Purchasing Lender”), in minimum amounts of not less than
Five Million Dollars ($5,000,000.00), pursuant to a Commitment Transfer
Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent
and delivered to Agent for recording. 
Upon such execution, delivery, acceptance and recording, from and after
the transfer effective date determined pursuant to such Commitment Transfer
Supplement, (i) Purchasing Lender thereunder shall be a party hereto and, to
the extent provided in such Commitment Transfer Supplement, have the rights and
obligations of a Lender thereunder with a Commitment Percentage as set forth
therein, and (ii) the transferor Lender thereunder shall, to the extent
provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose.  Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents.  Borrowers hereby
consent to the addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Other Documents.  Borrowers shall execute and deliver such
further documents and do such further acts and things in order to effectuate
the foregoing.

 

(d)                                 Agent shall maintain at its address a copy of
each Commitment Transfer Supplement delivered to it and a register (the
“Register”) for the recordation of the names and addresses of the Advances
owing to each Lender from time to time. 
The entries in the Register shall be conclusive, in the absence of
manifest error, and Borrowers, Agent and Lenders may treat each Person whose
name is recorded in the Register as the owner of the Advance recorded therein
for the purposes of this Agreement.  The
Register shall be available for inspection by Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.  Agent shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender upon the effective date of
each transfer or assignment to such Purchasing Lender.  Agent shall provide Borrower notice of any
such transfer or assignment, identify the Purchasing Lender and the amount and
percentage of the Commitment transferred or assigned not later than ten (10)
days after the effective date of the applicable Commitment Transfer Supplement.

 

(e)                                  Each Borrower authorizes each Lender to
disclose to any Transferee or Purchasing Lender and any prospective Transferee
or Purchasing Lender any and all financial information in such Lender’s
possession concerning such Borrower which has been delivered to such Lender by
or on behalf of such Borrower pursuant to this Agreement or in connection with
such Lender’s credit evaluation of such Borrower.

 

16.4.                        Application of Payments. 
Agent shall have the continuing and exclusive right to apply or reverse
and re-apply any payment and any and all proceeds of Collateral to any portion
of the Obligations.  To the extent that
any Borrower makes a payment or Agent or any Lender receives any payment or
proceeds of the Collateral for any Borrower’s benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver, custodian or any other party
under any bankruptcy law, common law or equitable cause, then, to such extent,
the Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.

 

51

 

16.5.                        Indemnity.  Each Borrower shall indemnify
Agent, each Lender and each of their respective officers, directors,
Affiliates, employees and agents from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including, without
limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against Agent or any Lender in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the Other Documents, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises out of the
willful misconduct or gross negligence of the party being indemnified.

 

16.6.                        Notice.  Any notice or request
hereunder may be given to Borrowing Agent or any Borrower or to Agent or any
Lender at their respective addresses set forth below or at such other address
as may hereafter be specified in a notice designated as a notice of change of
address under this Section.  Any notice,
request, demand, direction or other communication (for purposes of this Section
16.6 only, a “Notice”) to be given to or made upon any party hereto under any
provision of this Loan Agreement shall be given or made by telephone or in
writing (which includes by means of electronic transmission (i.e., “e-mail”) or
facsimile transmission or by setting forth such Notice on a site on the World
Wide Web (a “Website Posting”) if Notice of such Website Posting (including the
information necessary to access such site) has previously been delivered to the
applicable parties hereto by another means set forth in this Section 16.6) in
accordance with this Section 16.6.  Any
such Notice must be delivered to the applicable parties hereto at the addresses
and numbers set forth under their respective names on Section 16.6 hereof or in
accordance with any subsequent unrevoked Notice from any such party that is
given in accordance with this Section 16.6. 
Any Notice shall be effective:

 

(a)                                  In the case of hand-delivery, when delivered;

 

(b)                                 If given by mail, five (5) days after such
Notice is deposited with the United States Postal Service, with first-class
postage prepaid, return receipt requested;

 

(c)                                  In the case of a telephonic Notice, when a
party is contacted by telephone, if delivery of such telephonic Notice is
confirmed no later than the next Business Day by hand delivery, a facsimile or
electronic transmission, a Website Posting or an overnight courier delivery of
a confirmatory Notice (received at or before noon on such next Business Day);

 

(d)                                 In the case of a facsimile transmission, when
sent to the applicable party’s facsimile machine’s telephone number, if the
party sending such Notice receives confirmation of the delivery thereof from
its own facsimile machine;

 

(e)                                  In the case of electronic transmission, when
actually received;

 

(f)                                    In the case of a Website Posting, upon
delivery of a Notice of such posting (including the information necessary to
access such site) by another means set forth in this Section 16.6; and

 

(g)                                 If given by any other means (including by
overnight courier), when actually received.

 

Any
Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently
send a copy thereof to Agent, and Agent shall promptly notify the other Lenders
of its receipt of such Notice.

 

	
  (A)

  	
  If
  to Agent or PNC at:

  	
  PNC
  Bank, National Association

  
	
   

  	
   

  	
  PNC
  Business Credit, Inc.

  
	
   

  	
   

  	
  70
  East 55th street, 14th Floor

  
	
   

  	
   

  	
  New
  York, New York 10022

  
	
   

  	
   

  	
  Attention:

  	
  Michelle
  Stanley-Nurse, V.P.

  
	
   

  	
   

  	
  Telephone:

  	
  (646)
  497-0145

  
	
   

  	
   

  	
  Telecopier:

  	
  (646)
  497-0324

  

 

52

 

	
   

  	
  and
  a copy to:

  	
  Pitney,
  Hardin, Kipp & Szuch LLP

  
	
   

  	
   

  	
  Postal Service Address:

  
	
   

  	
   

  	
  P.O.
  Box 1945

  
	
   

  	
   

  	
  Morristown,
  New Jersey 07962-1945

  
	
   

  	
   

  	
  Courier Address:

  
	
   

  	
   

  	
  200
  Campus Drive

  
	
   

  	
   

  	
  Florham
  Park New Jersey 07932

  
	
   

  	
   

  	
  Attention:

  	
  Linda
  K. Smith, Esq.

  
	
   

  	
   

  	
  Telephone:

  	
  (973)
  966-8420

  
	
   

  	
   

  	
  Telecopier:

  	
  (973)
  966-1550

  
	
   

  	
   

  	
   

  
	
   

  	
  and,
  from and after any

  syndication, with a copy to:

  	
  PNC
  Bank, National Association

  
	
   

  	
   

  	
  PNC
  Agency Services

  
	
   

  	
   

  	
  One
  PNC Plaza

  
	
   

  	
   

  	
  249
  Fifth Avenue

  
	
   

  	
   

  	
  Pittsburgh,
  Pennsylvania 15222

  
	
   

  	
   

  	
  Telephone:

  	
  (412)
  762-3627

  
	
   

  	
   

  	
  Telecopier:

  	
  (412)
  762-8672

  
	
   

  	
   

  	
   

  
	
  (B)

  	
  If
  to a Lender other than Agent, as specified on the signature pages hereof.

  
	
   

  	
   

  
	
  (C)

  	
  If
  to Borrowing Agent

  or any Borrower, at:

  	
  Bio-Reference
  Laboratories, Inc.

  
	
   

  	
   

  	
  481
  Edward H. Ross Drive

  
	
   

  	
   

  	
  Elmwood
  Park, New Jersey 07407

  
	
   

  	
   

  	
  Attention:

  	
  Sam
  Singer, Chief Financial Officer

  
	
   

  	
   

  	
  Telephone:

  	
  (201)
  791-2600

  
	
   

  	
   

  	
  Telecopier:

  	
  (201)
  475-8730

  
	
   

  	
   

  	
   

  
	
   

  	
  with
  a copy to:

  	
  Tolins
  & Lowenfels

  
	
   

  	
   

  	
  747
  Third Avenue, 19th Floor

  
	
   

  	
   

  	
  New
  York, New York 10017

  
	
   

  	
   

  	
  Attention:

  	
  Roger
  Tolins, Esq.

  
	
   

  	
   

  	
  Telephone:

  	
  (212)
  421-1965

  
	
   

  	
   

  	
  Telecopier:

  	
  (212)
  888-7706

  
					

 

16.7.                        Survival.  The obligations of Borrowers
under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), 14.7 and 16.5 shall survive
termination of this Agreement and the Other Documents and payment in full of
the Obligations.

 

16.8.                        Severability.  If
any part of this Agreement is contrary to, prohibited by, or deemed invalid
under applicable laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.

 

16.9.                        Expenses.  All costs and expenses
including, without limitation, reasonable attorneys’ fees (including the
allocated costs of in house counsel) and disbursements incurred by Agent on its
behalf or on behalf of Lenders (a) in all efforts made to enforce payment of
any Obligation or effect collection of any Collateral, or (b) in connection
with the entering into, modification, amendment, administration and enforcement
of this Agreement or any consents or waivers hereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent’s security interest in or Lien
on any of the Collateral, whether through judicial proceedings or otherwise, or
(d) in defending or prosecuting any actions or proceedings arising out of or
relating to Agent’s or any Lender’s transactions with any Borrower, or (e) in
connection with any advice given to Agent or any Lender with respect

 

53

 

to
its rights and obligations under this Agreement and all related agreements, may
be charged to Borrowers’ Account and shall be part of the Obligations.

 

16.10.                  Injunctive Relief.  Each
Borrower recognizes that, in the event any Borrower fails to perform, observe
or discharge any of its obligations or liabilities under this Agreement, any
remedy at law may prove to be inadequate relief to Lenders; therefore, Agent,
if Agent so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving that actual damages
are not an adequate remedy.

 

16.11.                  Consequential Damages. 
Neither Agent nor any Lender, nor any agent or attorney for any of them,
shall be liable to any Borrower for consequential damages arising from any
breach of contract, tort or other wrong relating to the establishment,
administration or collection of the Obligations.

 

16.12.                  Captions.  The captions at various places
in this Agreement are intended for convenience only and do not constitute and
shall not be interpreted as part of this Agreement.

 

16.13.                  Counterparts; Telecopied Signatures.  This
Agreement may be executed in any number of and by different parties hereto on
separate counterparts, all of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
agreement.  Any signature delivered by a
party by facsimile transmission shall be deemed to be an original signature hereto.

 

16.14.                  Construction.  The
parties acknowledge that each party and its counsel have reviewed this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.

 

16.15.                  Confidentiality; Sharing Information.  (a)                         Agent, each Lender and each Transferee shall
hold all non-public information obtained by Agent, such Lender or such
Transferee pursuant to the requirements of this Agreement in accordance with
Agent’s, such Lender’s and such Transferee’s customary procedures for handling
confidential information of this nature; provided, however,
Agent, each Lender and each Transferee may disclose such confidential
information (i) to its examiners, affiliates, outside auditors, counsel and
other professional advisors, (ii) to Agent, any Lender or to any prospective
Transferees and Purchasing Lenders, and (iii) as required or requested by any
Governmental Body or representative thereof or pursuant to legal process; provided,
further that (A) unless specifically prohibited by applicable law or
court order, Agent, each Lender and each Transferee shall use its best efforts
prior to disclosure thereof, to notify the applicable Borrower of the
applicable request for disclosure of such non-public information (1) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Transferee by such Governmental Body) or (2) pursuant to legal process and (B)
in no event shall Agent, any Lender or any Transferee be obligated to return
any materials furnished by any Borrower other than those documents and instruments
in possession of Agent or any Lender in order to perfect its Lien on the
Collateral once the Obligations have been paid in full and this Agreement has
been terminated.

 

(b)                                 Each Borrower acknowledges that from time to
time financial advisory, investment banking and other services may be offered
or provided to such Borrower or one or more of its Affiliates (in connection
with this Agreement or otherwise) by any Lender or by one or more Subsidiaries
or Affiliates of such Lender and each Borrower hereby authorizes each Lender to
share any information delivered to such Lender by such Borrower and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of
such Lender to enter into this Agreement, to any such Subsidiary or Affiliate of
such Lender, it being understood that any such Subsidiary or Affiliate of any
Lender receiving such information shall be bound by the provision of Section
16.15 as if it were a Lender hereunder. 
Such authorization shall survive the repayment of the other Obligations
and the termination of the Loan Agreement.

 

(c)                                  Notwithstanding anything herein to the
contrary, the information subject to this Section 16.15 shall not include, and
Agent and each Lender and Transferee may disclose without limitation of any
kind, any information with respect to the “tax treatment” and “tax structure”
(in each case, within the meaning of Treasury Regulation Section 1.6011-4) of
the transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to Agent or such Lender
relating to such tax treatment and tax structure; provided that with
respect to any document or similar item that in either case contains
information concerning the tax treatment or tax structure of the

 

54

 

transaction
as well as other information, this sentence shall only apply to such portions
of the document or similar item that relate to the tax treatment or tax
structure of the Revolving Loans and other accommodations contemplated hereby.

 

(d)                                 Notwithstanding anything herein to the
contrary, Borrowers are authorized to publicly disclose such information
concerning this Agreement and the transactions contemplated hereby as they
reasonably believe is required pursuant to the federal securities laws and any
other applicable laws and the regulations promulgated thereunder.

 

16.16.                  Publicity.  Each Borrower and each Lender
hereby authorizes Agent to make appropriate announcements of the financial
arrangement entered into among Borrowers, Agent and Lenders, including, without
limitation, announcements which are commonly known as tombstones, in such
publications and to such selected parties as Agent shall in its sole and
absolute discretion deem appropriate.

 

XVII.                    CONTINUING NATURE OF OBLIGATIONS AND SECURITY
INTEREST

 

17.1.                        Amendment and Restatement.  This
Agreement is an amendment and restatement of the Existing Loan Agreement in its
entirety.

 

17.2.                        Continuing Obligations.

 

(a)                                  This Agreement is not intended and shall not
be deemed to constitute a novation of indebtedness.

 

(b)                                 All of the Obligations are continuing in
nature and, as of the Closing Date, are due in accordance with the terms of
this Agreement without any defense, offset, counterclaim or recoupment.

 

(c)                                  As of the close of business on October 4,
2004, the aggregate outstanding principal balance of the Revolving Advances
equals Ten Million Three Hundred Thirty Nine Thousand One and 90/100 Dollars
($10,339,001.90).

 

17.3.                        Continuing Security Interests.  The
liens and security interests in and to the Collateral in favor of PNC which
were created under the Existing Loan Agreement, and which are reaffirmed
hereunder, are continuing and uninterrupted liens and security interests.

 

Signature page follows.

 

55

 

Each
of the parties has signed this Amended and Restated Loan and Security Agreement
as of the day and year first above written.

 

 

	
  ATTEST:

  	
   

  	
  BIO-REFERENCE
  LABORATORIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /S/ SAM
  SINGER

  	
   

  	
  By:

  	
  /S/ MARC D. GRODMAN

  	
   

  
	
   

  	
  SAM SINGER, Secretary

  	
   

  	
  MARC D. GRODMAN, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
  MEDILABS, INC.,

  
	
   

  	
   

  	
  a Subsidiary Party

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
    /S/ SAM
  SINGER

  	
   

  	
  By: :

  	
  /S/ MARC D. GRODMAN

  
	
   

  	
  SAM SINGER, Secretary

  	
   

  	
  MARC D. GRODMAN, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PNC BANK, NATIONAL
  ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ MICHELLE
  STANLEY-NURSE

  
	
   

  	
   

  	
   

  	
  MICHELLE STANLEY-NURSE

  
	
   

  	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Commitment percentage:
  100%

  
													

 

56Exhibit 4.1

 

HORSESHOE GAMING HOLDING CORP. 401(k) PLAN

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I—DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  “Account”

  	
   

  
	
  1.2

  	
  “Administrator”

  	
   

  
	
  1.3

  	
  “Beneficiary”

  	
   

  
	
  1.4

  	
  “Break In Service”

  	
   

  
	
  1.5

  	
  “Code”

  	
   

  
	
  1.6

  	
  “Company”

  	
   

  
	
  1.7

  	
  “Compensation”

  	
   

  
	
  1.8

  	
  “Disability”

  	
   

  
	
  1.9

  	
  “Effective Date”

  	
   

  
	
  1.10

  	
  “Employee”

  	
   

  
	
  1.11

  	
  “Employer”

  	
   

  
	
  1.12

  	
  “Employment Date”

  	
   

  
	
  1.13

  	
  “Empress
  Plan”

  	
   

  
	
  1.14

  	
  “Highly Compensated
  Employee”

  	
   

  
	
  1.15

  	
  “Hour Of Service”

  	
   

  
	
  1.16

  	
  “Leased Employee”

  	
   

  
	
  1.17

  	
  “Nonhighly-Compensated
  Employee”

  	
   

  
	
  1.18

  	
  “Normal Retirement Date”

  	
   

  
	
  1.19

  	
  “Participant”

  	
   

  
	
  1.20

  	
  “Plan”

  	
   

  
	
  1.21

  	
  “Plan
  Year”

  	
   

  
	
  1.22

  	
  “Trust”

  	
   

  
	
  1.23

  	
  “Trustee”

  	
   

  
	
  1.24

  	
  “Valuation Date”

  	
   

  
	
  1.25

  	
  “Year Of Service”

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II—SERVICE
  DEFINITIONS AND RULES

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Year
  Of Service

  	
   

  
	
  2.2

  	
  Break In Service

  	
   

  
	
  2.3

  	
  Maternity/Paternity
  Leave Of Absence

  	
   

  
	
  2.4

  	
  Rule Of Parity On
  Return To Employment

  	
   

  
	
  2.5

  	
  Service
  In Excluded Job Classifications Or With Related Companies

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III—PLAN
  PARTICIPATION

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Participation

  	
   

  
	
  3.2

  	
  Re-Employment Of
  Former Participant

  	
   

  
	
  3.3

  	
  Termination Of Eligibility

  	
   

  
	
  3.4

  	
  Compliance With USERRA

  	
   

  

 

 

	
  ARTICLE IV—ELECTIVE
  DEFERRALS, EMPLOYER CONTRIBUTIONS, AND ROLLOVERS AND TRANSFERS FROM OTHER
  PLANS

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Elective Deferrals

  	
   

  
	
  4.2

  	
  Employer Contributions

  	
   

  
	
  4.3

  	
  Rollovers
  And Transfers Of Funds From Other Plans

  	
   

  
	
  4.4

  	
  Timing Of Contributions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V—ACCOUNTING RULES

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Investment
  Of Accounts And Accounting Rules

  	
   

  
	
  5.2

  	
  Participants Omitted In
  Error

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI—VESTING,
  RETIREMENT AND DISABILITY BENEFITS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Vesting

  	
   

  
	
  6.2

  	
  Forfeiture Of Nonvested
  Balance

  	
   

  
	
  6.3

  	
  Distribution
  Of Less Than Entire Vested Account Balance

  	
   

  
	
  6.4

  	
  Normal Retirement

  	
   

  
	
  6.5

  	
  Disability

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII—MANNER
  AND TIME OF DISTRIBUTING BENEFITS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Manner Of Payment

  	
   

  
	
  7.2

  	
  Time Of
  Commencement Of Benefit Payments

  	
   

  
	
  7.3

  	
  Furnishing Information

  	
   

  
	
  7.4

  	
  Minimum
  Distribution Rules For Installment Payments

  	
   

  
	
  7.5

  	
  Amount Of Death Benefit

  	
   

  
	
  7.6

  	
  Designation Of Beneficiary

  	
   

  
	
  7.7

  	
  Distribution Of Death
  Benefits

  	
   

  
	
  7.8

  	
  Eligible Rollover
  Distributions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII—LOANS
  AND IN-SERVICE WITHDRAWALS

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Loans

  	
   

  
	
  8.2

  	
  Hardship Distributions

  	
   

  
	
  8.3

  	
  Withdrawals After Age 591⁄2

  	
   

  
	
  8.4

  	
  Withdrawals Of
  Rollover Contributions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX—ADMINISTRATION
  OF THE PLAN

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Plan Administration

  	
   

  
	
  9.2

  	
  Claims Procedure

  	
   

  
	
  9.3

  	
  Trust Agreement

  	
   

  

 

ii

 

	
  ARTICLE X—SPECIAL
  COMPLIANCE PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Distribution
  Of Excess Deferral Amounts

  	
   

  
	
  10.2

  	
  Limitations
  On 401(K) Contributions.

  	
   

  
	
  10.3

  	
  Nondiscrimination
  Test For Employer Matching Contributions

  	
   

  
	
  10.4

  	
  Limitation
  On The Multiple Use Alternative

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI—LIMITATION
  ON ANNUAL ADDITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Rules And Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII—AMENDMENT
  AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  Amendment

  	
   

  
	
  12.2

  	
  Termination Of The Plan

  	
   

  
	
  12.3

  	
  Distribution
  Upon Sale Or Disposition Of Stock Or Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII—TOP-HEAVY
  PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Applicability

  	
   

  
	
  13.2

  	
  Definitions

  	
   

  
	
  13.3

  	
  Allocation
  Of Employer Contributions And Forfeitures For A Top-Heavy Plan Year.

  	
   

  
	
  13.4

  	
  Vesting

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV—MISCELLANEOUS
  PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  14.1

  	
  Plan Does Not
  Affect Employment

  	
   

  
	
  14.2

  	
  Successor To The
  Employer

  	
   

  
	
  14.3

  	
  Repayments To The
  Employer

  	
   

  
	
  14.4

  	
  Benefits Not Assignable

  	
   

  
	
  14.5

  	
  Merger Of Plans

  	
   

  
	
  14.6

  	
  Investment
  Experience Not A Forfeiture

  	
   

  
	
  14.7

  	
  Construction

  	
   

  
	
  14.8

  	
  Governing Documents

  	
   

  
	
  14.9

  	
  Governing Law

  	
   

  
	
  14.10

  	
  Headings

  	
   

  
	
  14.11

  	
  Counterparts

  	
   

  
	
  14.12

  	
  Location
  Of Participant Or Beneficiary Unknown

  	
   

  

 

iii

 

HORSESHOE GAMING HOLDING CORP.

401(k) PLAN

 

WHEREAS, Horseshoe Gaming Holding Corp. (the “Company”)
heretofore adopted the Horseshoe Casino & Hotel 401(k) Plan (the “Plan”);
and

 

WHEREAS, Empress Entertainment, Inc. (“Empress”)
heretofore adopted the Empress Entertainment, Inc. 401(k) Plan (the “Empress
Plan”); and

 

WHEREAS, Empress Casino Joliet Corporation (“Empress
Joliet”) and Empress Casino Hammond Corporation (“Empress Hammond”),
subsidiaries of Empress, heretofore adopted the Empress Plan for the benefit of
their employees; and

 

WHEREAS, Empress Joliet assumed the
obligations as sponsor of the Empress Plan, and changed the name of the Empress
Plan to the “Empress Casino 401(k) Plan”, effective as of December 1, 1999
(with Empress ceasing its participation in the Plan); and

 

WHEREAS, the Company acquired Empress Joliet
and Empress Hammond as of December 1, 1999; and

 

WHEREAS, the Company and Empress Joliet desire
to merge the Empress Plan with the Plan;

 

NOW, THEREFORE, effective as of April 1,
2000, the Empress Plan is merged into the Plan, with the Plan being renamed the
“Horseshoe Gaming Holding Corp. 401(k) Plan” and being amended and restated to
read in its entirety as follows:

 

 

ARTICLE I—DEFINITIONS

 

For purposes of the Plan, unless the context
or an alternative definition specified within another Article provides
otherwise, the following words and phrases shall have the definitions provided:

 

1.1                                 “ACCOUNT” shall mean the individual bookkeeping accounts
maintained for a Participant under the Plan which shall record (a) the
Participant’s allocations of Employer contributions and forfeitures, (b)
amounts of Compensation deferred to the Plan pursuant to the Participant’s
election, (c) any amounts transferred to this Plan under Section 4.3 from
another qualified retirement plan, (d) any amounts transferred from the Empress
Plan in connection with the merger of such plan and (e) the allocation of Trust
investment experience.

 

1.2                                 “ADMINISTRATOR” shall mean the Company, or such person or
committee appointed from time to time in accordance with the provisions of Article Nine
hereof.

 

1.3                                 “BENEFICIARY”
shall mean any person, trust, organization, or estate entitled to receive
payment under the terms of the Plan upon the death of a Participant.

 

1.4                                 “BREAK IN SERVICE” shall have the meaning set forth in Article Two.

 

1.5                                 “CODE”
shall mean the Internal Revenue Code of 1986, as amended from time to time.

 

1.6                                 “COMPANY”
shall mean Horseshoe Gaming Holding Corp.

 

1.7                                 “COMPENSATION”
shall mean the compensation paid to a Participant by the Employer for the Plan
Year, but exclusive of any severance benefits, any program of deferred
compensation or additional benefits payable
other than in cash and any compensation received prior to his becoming a
Participant in the Plan.  Compensation shall include any amounts
deferred under a salary reduction agreement in accordance with Section 4.1
or under a Code Section 125 plan maintained by the Employer.

 

In addition to
other applicable limitations set forth in the Plan, and notwithstanding any
other provision of the Plan to the contrary, the annual Compensation of each
Participant taken into account under the Plan shall not exceed the OBRA ‘93
annual compensation limit.  Effective as
of January 1, 2000, the OBRA ‘93 annual compensation limit is $170,000, as
adjusted by the Secretary of the Treasury or his delegate for increases in the
cost of living in accordance with Section 401(a)(17)(B) of the Code.  The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding twelve (12) months, over
which Compensation is determined (determination period) beginning in such calendar
year.  If a determination period consists
of fewer than twelve (12) months, the OBRA ‘93 annual compensation limit shall
be multiplied by a fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is twelve (12).

 

Any reference
in the Plan to the limitation under Section 401(a)(17) of the Code shall
mean the OBRA ‘93 annual compensation limit set forth in this provision.

 

1

 

If
Compensation for any prior determination period is taken into account in
determining a Participant’s benefits accruing in the current Plan Year, the
Compensation for that prior determination period shall be subject to the OBRA
`93 annual compensation limit in effect for that prior determination period.

 

For purposes
of determining who is a Highly-Compensated Employee, Compensation shall mean
compensation as defined in Code Section 414(q)(4).

 

1.8                                 “DISABILITY”
shall mean a “permanent and total” disability incurred by a Participant while
in the employ of the Employer.  For this
purpose, a permanent and total disability shall mean suffering from a physical
or mental condition which, in the opinion of the Administrator and based upon
appropriate medical advice and examination, can be expected to result in death
or can be expected to last for a continuous period of no less than twelve (12)
months.  The condition must have existed
for a period of at least three (3) months and, in accordance with uniform and
consistent rules, must be determined by the Administrator to prevent the
Participant from engaging in substantial gainful activity.  Receipt of a Social Security disability award
shall be deemed proof of disability.

 

1.9                                 “EFFECTIVE DATE”. The Effective Date of this restated
Plan, on and after which it supersedes the terms of the existing Plan document,
is April 1, 2000, except where the provisions of the Plan shall otherwise
specifically provide.  The rights of any
Participant who separated from the Employer’s Service prior to the applicable
date shall be established under the terms of the Plan or the Horseshoe Plan, as
the case may be, as in effect at the time of the Participant’s separation from
Service, unless the Participant subsequently returns to Service with the
Employer.  Rights of spouses and
Beneficiaries of such Participants shall also be governed by those documents.

 

1.10                           “EMPLOYEE”
shall mean a common law employee of the Employer.

 

1.11                           “EMPLOYER”
shall mean the Company and any subsidiary or affiliate which is a member of its
“related group” (as defined in Section 2.5) which has adopted the Plan (a “Participating
Affiliate”), and shall include any successor(s) thereto which adopt this
Plan.  Any such subsidiary or affiliate
of the Company may adopt the Plan with the approval of its board of directors
(or noncorporate counterpart) subject to the approval of the Company.  The provisions of this Plan shall apply
equally to each Participating Affiliate and its Employees except as
specifically set forth in the Plan; provided, however, notwithstanding any
other provision of this Plan, the amount and timing of contributions under Article 4
to be made by any Employer which is a Participating Affiliate shall be made
subject to the approval of the Company. 
For purposes hereof, each Participating Affiliate shall be deemed to
have appointed the Company as its agent to act on its behalf in all matters
relating to the administration, amendment, termination of the Plan and the
investment of the assets of the Plan. 
For purposes of the Code and ERISA, the Plan as maintained by the
Company and the Participating Affiliates shall constitute a single plan rather
than a separate plan of each Participating Affiliate.  All assets in the Trust shall be available to
pay benefits to all Participants and their Beneficiaries.

 

2

 

1.12                           “EMPLOYMENT
DATE” shall mean the first date as of which an Employee is credited with an
Hour of Service, provided that, in the case of a Break in Service, the
Employment Date shall be the first date thereafter as of which an Employee is
credited with an Hour of Service.

 

1.13                           “EMPRESS
PLAN” shall mean the Empress Casino 401(k) Plan as in effect on March 21,
2000.

 

1.14                           “HIGHLY COMPENSATED EMPLOYEE” shall mean,
effective for years beginning after December 31, 1996, any Employee of the
Employer who:

 

(a)                                  was
a five percent (5%) owner of the
Employer (as defined in Code Section 416(i)(1)) during the “determination
year” or “look-back year”; or

 

(b)                                 earned
more than $80,000 (as increased by cost-of-living adjustments) of Compensation
from the Employer during the “look-back year” and, if the Employer elects, was
in the top twenty percent (20%) of Employees by Compensation for such year.

 

An Employee
who separated from Service prior to the “determination year” shall be treated
as a Highly-Compensated Employee for the “determination year” if such Employee
was a Highly-Compensated Employee when such Employee separated from Service, or
was a Highly-Compensated Employee at any time after attaining age fifty-five
(55).

 

For purposes
of this Section, the “determination year” shall be the Plan Year for which a
determination is being made as to whether an Employee is a Highly-Compensated
Employee.  The “look-back year” shall be
the twelve (12) month period immediately preceding the “determination year

 

In determining
whether an Employee is a Highly-Compensated Employee’ for the Plan Year
beginning in 1997, the amendments to Section 414(q) stated above shall be
treated as having been in effect for the Plan Year beginning in 1996.

 

1.15                           “HOUR
OF SERVICE” shall have the meaning set forth below:

 

(a)                                  An
Hour of Service is each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer, during the applicable
computation period.

 

(b)                                 An
Hour of Service is each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence.  Notwithstanding the preceding sentence,

 

(i)                                     No
more than five hundred and one (501) Hours of Service shall be credited under
this paragraph (b) to any Employee on account of any

 

3

 

single continuous period during which the
Employee performs no duties (whether or not such period occurs in a single
computation period);

 

(ii)                                  An
hour for which an Employee is directly or indirectly paid, or entitled to
payment, on account of a period during which no duties are performed shall not
be credited to the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable workmen’s
compensation, or unemployment compensation or disability insurance laws; and

 

(iii)                               Hours
of Service shall not be credited for a payment which solely reimburses an
Employee for medical or medically related expenses incurred by the Employee.

 

For purposes of this paragraph (b), a payment
shall be deemed to be made by or due from the Employer regardless of whether
such payment is made by or due from the Employer directly, or indirectly
through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer or other entity
are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.  In addition, Hours of Service shall be
credited for a leave which qualified as family or medical leave under the
Family and Medical Leave Act of 1993 (“FMLA”); provided, however, that such
Hours of Service shall be credited only to the extent required by the FMLA and
the regulations thereunder.

 

(c)                                  An
Hour of Service is each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.  The same Hours of Service shall not be
credited both under paragraph (a) or paragraph (b), as the case may be, and
under this paragraph (c).  Thus, for
example, an Employee who receives a back pay award following a determination
that he was paid at an unlawful rate for Hours of Service previously credited
shall not be entitled to additional credit for the same Hours of Service.  Crediting of Hours of Service for back pay
awarded or agreed to with respect to periods described in paragraph (b) shall
be subject to the limitations set forth in that paragraph.

 

1.16                           “LEASED
EMPLOYEE” shall mean, any person who, pursuant to an agreement between the
Employer and any other person or organization, has performed services  for
the Employer (determined in accordance with Code Section 414(n)(6)) on a
substantially full-time basis for a period of at least one (1) year and where
such services are performed under the primary direction and control of the
Employer.  A person shall not be
considered a Leased Employee if the total number of Leased Employees does not
exceed twenty percent (20%) of the Nonhighly-Compensated Employees employed by
the Employer, and if any such person is covered by a money purchase pension
plan providing (a) a nonintegrated employer contribution rate of at least ten
percent (10%) of compensation, as defined in Section 11.1(b)(2) of the
Plan but including amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee’s gross income under Code Sections 125,
402(g) or 403(b), (b) immediate participation, and (c) full and immediate
vesting.

 

4

 

1.17                           “NONHIGHLY-COMPENSATED EMPLOYEE” shall
mean an Employee of the Employer who is not a Highly-Compensated Employee.

 

1.18                           “NORMAL RETIREMENT DATE” shall mean the date the
Participant attains age fifty-nine and one-half (591⁄2).

 

1.19                           “PARTICIPANT”
shall mean any Employee who has satisfied the eligibility requirements of Article Three
and who is participating in the Plan.

 

1.20                           “PLAN” shall
mean the Horseshoe Gaming Holding Corp. 401(k) Plan, as set forth herein and as
may be amended from time to time.

 

1.21                           “PLAN YEAR” shall mean the twelve (12)-consecutive month
period beginning January 1 and ending December 31.

 

1.22                           “TRUST” shall
mean the Trust Agreement entered into between the Company and the Trustee
forming part of this Plan, together with any amendments thereto.  “Trust Fund” shall mean any and all property
held by the Trustee pursuant to the Trust Agreement, together with income
therefrom.

 

1.23                           “TRUSTEE” shall mean the Trustee or Trustees appointed by the
Company, and any successors thereto.

 

1.24                           “VALUATION
DATE” shall mean the date or dates established by the Administrator for the
valuation of the assets of the Plan.  In
no event shall the assets of the Plan be valued less frequently than once each
Plan Year.

 

1.25                           “YEAR OF SERVICE” or “SERVICE” and the special rules with
respect to crediting Service are in Article Two of the Plan.

 

5

 

ARTICLE II—SERVICE
DEFINITIONS AND RULES

 

Service is the
period of employment credited under the Plan. 
Definitions and special rules related to Service are as follows:

 

2.1                                 YEAR
OF SERVICE. An Employee shall be credited with a Year of Service for each
twelve (12)-consecutive month period commencing on his Employment Date (or
re-employment date) and the twelve (12)-month anniversaries of that date and
ending on the date a Break in Service begins. 
An Employee shall also receive credit for any Break in Service of less
than twelve (12)-consecutive months. 
Fractional periods of a year shall
be expressed in terms of days, with three hundred and sixty-five (365) days being equal to one (1)
year.

 

Provided,
however, that, in determining the Years of Service for any Employee who was a
participant in the Plan as of March 31, 2000, such Employee shall be
credited with any “Years of Service” completed under the Plan through March 31,
2000 in accordance with the provisions of the Plan then in effect, subject to
the provisions of Section 1.410(a)-7(f)(1)(i) of the Income Tax
Regulations.

 

Finally, any
Participant who has a portion of his Account derived from amounts transferred
from the Empress Plan in connection with the merger of the Empress Plan shall
be credited with any “Years of Service” completed under the Empress Plan.

 

2.2                                 BREAK
IN SERVICE. A Break in Service is a period of severance of at least twelve
(12) consecutive months.  For this
purpose, a period of severance shall be a continuous period in which an
Employee is not employed by the Employer. 
Such period shall begin on the date the Employee retires, quits, is
discharged or dies or, if earlier, the twelve (12)-month anniversary of the date on which the
Employee is absent from Service for any other reason.

 

2.3                                 MATERNITY/PATERNITY
LEAVE OF ABSENCE. For any individual who is absent from work for any period by
reason of the individual’s pregnancy, birth of the individual’s child,
placement of a child with the individual in connection with the individual’s
adoption of the child, or by reason of the individual’s caring for the child
for a period beginning immediately following such birth or adoption, the twelve
(12)-consecutive month period beginning on the first anniversary of the first
date of such absence shall constitute neither a Break in Service nor a Year of
Service.

 

2.4                                 RULE OF PARITY ON RETURN TO EMPLOYMENT.
An Employee who returns to employment after a Break in Service shall retain
credit for his pre-Break Years of Service, subject to the following rules:

 

(a)                                  If
a Participant incurs five (5) or more consecutive one (1)-year Breaks in Service,
any Years of Service performed thereafter shall not be used to increase the
nonforfeitable interest in his Account accrued prior to such five (5) or more
consecutive one (1)-year Breaks in Service.

 

(b)                                 If
when a Participant incurred a Break in Service, he was not vested in any
portion of his Account (other than in any rollover contributions pursuant to Section 4.3),

 

6

 

his pre-Break Years of Service shall be
disregarded if his consecutive one (1)-year Breaks in Service equal or exceed
five (5).

 

2.5                                 SERVICE IN EXCLUDED JOB
CLASSIFICATIONS OR WITH RELATED COMPANIES

 

(a)                                  Service while a Member of an Ineligible
Classification of Employees.  An
Employee who is a member of an ineligible classification of Employees shall not
be eligible to participate in the Plan while a member of such ineligible
classification.  However, if any such
Employee is transferred to an eligible classification, such Employee shall be
credited with any prior periods of Service completed while a member of such an
ineligible classification both for purposes of determining his Years of Service
and his “Months of Service” under Section 3.1.  For this purpose, an Employee shall be
considered a member of an ineligible classification of Employees for any period
during which he is employed in a job classification which is excluded from
participating in the Plan under Section 3.1 below.

 

(b)                                 Service with Related Group Members.  Subject
to Section 2.1, for each Plan Year in which the Employer is a member of a “related group”, as hereinafter
defined, all Service of an Employee or Leased Employee (hereinafter
collectively referred to as “Employee” solely for purposes of this Section 2.5(b))
with any one or more members of such related group shall be treated as
employment by the Employer for purposes of determining the Employee’s Years of
Service and his Months of Service under Section 3.1.  The transfer of employment by any such Employee to another
member of the related group shall not be deemed to constitute a retirement or
other termination of employment by the Employee for purposes of this Section,
but the Employee shall be deemed to have continued in employment with the
Employer for purposes of determining the Employee’s Years of Service and his
Months of Service.  For purposes of this
subsection (b), “related group” shall mean the Employer and all
corporations, trades or businesses (whether or not incorporated) which
constitute a controlled group of corporations with the Employer, a group of
trades or businesses under common control with the Employer, or an affiliated
service group which includes the Employer, within the meaning of Section 414(b),
Section 414(c), or Section 414(m), respectively, of the Code or any
other entity required to be aggregated under Code Section 414(o).

 

(c)                                  Construction.  This Section is included in the Plan
to comply with the Code provisions regarding the crediting of Service, and not
to extend any additional rights to Employees in ineligible classifications
other than as required by the Code and regulations thereunder.

 

7

 

ARTICLE III—PLAN
PARTICIPATION

 

3.1                                 PARTICIPATION.
All Employees participating in the Plan or the Empress Plan as of March 31,
2000 shall automatically become Participants as of April 1, 2000.

 

Each other
Employee shall become a Participant under the Plan effective as of the April 1,
July 1, October 1 or January 1 coincident with or next following
the Employee’s completion of six (6) Months of Service.

 

For purposes
of this Section 3.1, an Employee shall be credited with six (6) Months of
Service for each six (6)-month period commencing on his Employment Date and the
six (6)-month anniversaries of that date and ending on the date he separates
from Service for any reason.  Fractional
periods shall be aggregated and expressed in terms of days, with thirty (30)
days being equal to one (1) month.  In
the event an Employee fails to complete the requisite Months of Service during
the twelve (12)-month period commencing on his Employment Date (or reemployment
date), but is employed by the Employer on the twelve (12)-month anniversary of
that date, such Employee shall be deemed to have satisfied the service
requirement for purposes of participating under the Plan.

 

In no event,
however, shall any Employee (or other individual) participate under the Plan
while he is: (i) included in a unit of Employees covered by a collective
bargaining agreement between the Employer and the Employee representatives
under which retirement benefits were the subject of good faith bargaining,
unless the terms of such bargaining agreement expressly provides for the
inclusion in the Plan; (ii) employed as an independent contractor on the
payroll records of the Employer (regardless of any subsequent reclassification by the Employer, any
governmental agency or court); (iii) employed as a Leased Employee; (iv)
employed as a nonresident alien who receives no earned income (within the
meaning of Section 911(d)(2) of the Code) from the Employer which constitutes
income from sources within the United States (within the meaning of Section 861(a)(3)
of the Code); or (v) employed as a “special project” Employee.  The following collective bargaining units
have collective bargaining agreements that make this Plan applicable to its
members: Hotel Employees and Restaurant Employees Union, Local 1; and
International Union of Operating Engineers, Local 150.

 

3.2                                 RE-EMPLOYMENT OF FORMER PARTICIPANT. A
vested Participant (or a nonvested Participant whose prior Service cannot be
disregarded) whose participation ceased because of termination of employment
with the Employer shall resume participating upon his reemployment; provided,
however, that such an individual shall be entitled to commence elective
deferrals as soon as administratively possible following his return to
participation in the Plan.

 

3.3                                 TERMINATION OF ELIGIBILITY. In the event a
Participant is no longer a member of an eligible class of Employees and he
becomes ineligible to participate, such Employee shall resume participating
upon his return to an eligible class of Employees; provided, however, that such
an individual shall be entitled to commence elective deferrals as soon as
administratively possible following his return to participation in the Plan.

 

8

 

In the event
an Employee who is not a member of an eligible class of Employees becomes a
member of an eligible class, such Employee shall participate upon becoming a
member of an eligible class of Employees, if such Employee has otherwise
satisfied the eligibility requirements of Section 3.1 and would have
otherwise previously become a Participant; provided, however, that such an
individual shall be entitled to commence elective deferrals as soon as administratively
possible following his becoming a Participant.

 

3.4                                 COMPLIANCE WITH USERRA. Notwithstanding any
provision of this Plan to the contrary, for reemployments on or after December 12,
1994, Participants shall receive service credit and be eligible to make
deferrals and receive Employer contributions with respect to periods of
qualified military service (within the meaning of Section 414(u)(5) of the
Code) in accordance with Section 414(u) of the Code.

 

9

 

ARTICLE IV—ELECTIVE
DEFERRALS, EMPLOYER CONTRIBUTIONS, 

AND ROLLOVERS AND TRANSFERS FROM OTHER PLANS

 

4.1                                 ELECTIVE DEFERRALS

 

(a)                                  Elections. 
A Participant may elect to defer a portion of his Compensation for a
Plan Year.  The amount of a Participant’s
Compensation that is deferred in accordance with the Participant’s election
shall be withheld by the Employer from the Participant’s Compensation on a
ratable basis throughout the Plan Year; provided, however, that a Participant
shall be permitted to make a separate election not to have any deferrals made
with respect to any bonus to be paid on his behalf.  The amount deferred on behalf of each
Participant shall be contributed by the Employer to the Plan and allocated to
the Participant’s Account.

 

Notwithstanding the foregoing, any Employee,
upon first becoming eligible to participate in the Plan pursuant to Section 3.1,
who fails to affirmatively make any deferral election (including an election to
contribute zero percent (0%) of his Compensation to the Plan) within the time
prescribed by the Administrator, shall be deemed to have elected to contribute
two percent (2%) (“deemed elective deferral”) of his Compensation on a pre-tax
basis.  The Administrator shall provide
to each Employee a notice of his right to receive the amount of the deemed
elective deferral in cash, and the Administrator shall also provide each such
Employee a reasonable period to exercise such right before the date on which
the cash is currently available.

 

(b)                                 Changes in Election.  A Participant may prospectively elect to
change or revoke the amount (or percentage) of his elective deferrals during
the Plan Year by filing a written election with the Employer, or via such other
method as permitted by applicable law.

 

(c)                                  Limitations on Deferrals.  No Participant shall defer on a pre-tax
basis an amount which exceeds $10,500 (or such amount as adjusted for
cost-of-living increases under Section 402(g) of the Code) for any
calendar year ending with or within the Plan Year.

 

(d)                                 Administrative Rules.  All
elections made under this Section 4.1, including the amount and
frequency of deferrals, shall be subject to the rules of the Administrator
which shall be consistently applied and which may be changed from time to time.

 

4.2                                 EMPLOYER CONTRIBUTIONS

 

(a)                                  Employer Matching Contributions.  For
each Plan Year, the Employer may contribute to the Plan, on behalf of each
Participant a discretionary matching contribution equal to a percentage (as
determined by the Employer’s board of directors) of the elective deferrals made
by each such Participant.  The Employer’s
board of directors may also determine to suspend or reduce its contributions
under this Section for any Plan Year or any portion thereof.

 

10

 

Allocations under this Section shall be
subject to the special rules of Section 13.3 in any Plan Year in which the
Plan is a Top-Heavy Plan (as defined in Section 13.2(c)).

 

(b)                                 Additional Employer
Contributions.  Additional Employer contributions
may be made at the discretion of the Employer’s board of directors for any Plan
Year, subject to limits for tax deductions under the Code and provided that the
special allocation in Section 13.3 has been satisfied if the Plan is a
Top-Heavy Plan (as defined in Section 13.2(c)).

 

(c)                                  Eligibility for Additional Employer Contributions.  To
be eligible for an allocation of additional Employer contributions under
Section 4.2(b) for a Plan Year, a Participant must (1) have been credited
with at least one thousand (1,000) Hours of Service in the Plan Year and (2) be
employed by the Employer on the last day of the Plan Year; provided, however,
that if the Participant’s failure to be employed by the Employer on the last
day of the Plan Year is due to the Participant’s Disability, death or
retirement on or after his Normal Retirement Date during such Plan Year, such
Participant shall nevertheless be entitled to share in the allocation of any
additional Employer contributions for such Plan Year.

 

(d)                                 Allocation of Additional
Employer Contributions.  Any contribution made under Section 4.2(6)
shall be allocated among the Accounts of eligible Participants in accordance
with the ratio that each such eligible Participant’s Compensation bears to the
total Compensation of all such eligible Participants for the Plan Year.

 

(e)                                  Notwithstanding
anything herein to the contrary, in any situation where the exclusion of
certain Participants from receiving an allocation of any additional Employer
contributions hereunder would result in the Plan failing to satisfy minimum
coverage requirements under applicable provisions of the Code or Income Tax Regulations, then the following
may apply:

 

(1)                                  Such
affected Non-Highly Compensated Employee Participants shall receive an
allocation of additional Employer contributions in order of priority based upon
the number of Hours of Service rendered during the Plan Year by each such
Participant, so that an individual Non-Highly Compensated Employee Participant
who has rendered more Hours of Service during the Plan Year shall be first
deemed an eligible Participant, and so on, until the ratio of Non-Highly
Compensated Employee Participants who receive an allocation of additional
Employer contributions is at least seventy percent (70%) of the percent of
Highly-Compensated Employee Participants who receive such allocation.

 

(2)                                  If
two individuals referred to in subsection (1) have the same number of
Hours of Service, then they shall be deemed eligible Participants in order of a
priority based upon the earliest Employment Date with the Employer.

 

11

 

4.3                                 ROLLOVERS AND TRANSFERS OF FUNDS FROM
OTHER PLANS. With the approval of the Administrator, there may be paid to
the Trustee amounts which have been held under other plans qualified under Code
Section 401 either (a) maintained by the Employer which have been
discontinued or terminated with respect to any Employee, or (b) maintained by
another employer with respect to which any Employee has ceased to
participate.  Any such transfer or
rollover may also be made by means of an Individual Retirement Account
qualified under Section 408 of the Code, where the Individual Retirement
Account was used as a conduit from the former plan.  Any amounts so transferred on behalf of any
Employee shall be nonforfeitable and shall be maintained under a separate Plan
account, to be paid in addition to amounts otherwise payable under this
Plan.  The amount of any such account
shall be equal to the fair market value of such account as adjusted for income,
expenses, gains, losses and withdrawals attributable thereto.

 

An Employee
who would otherwise be eligible to participate in the Plan but for the failure
to satisfy the service requirement for participation as set forth under Section 3.1,
shall be eligible to complete a rollover to the Plan.  Such an Employee shall also be eligible to
obtain a loan or withdrawal in accordance with the provisions of Article Eight
prior to satisfying such service requirement.

 

4.4                                 TIMING OF CONTRIBUTIONS. Employer contributions
shall be made to the Plan no later than the time prescribed by law for filing
the Employer’s federal income tax return (including extensions) for its taxable
year ending with or within the
Plan Year.  Elective deferrals under Section 4.1
shall be paid to the Plan as soon as administratively possible, but no later
than the fifteenth (15th) business day of the month following the
month in which such deferrals would have been payable to the Participant in
cash, or such later date as permitted or prescribed by the Department of Labor.

 

12

 

ARTICLE V—ACCOUNTING
RULES

 

5.1                                 INVESTMENT OF ACCOUNTS AND ACCOUNTING
RULES

 

(a)                                  Investment Funds.  The investment of Participants’ Accounts
shall be made in a manner consistent with the provisions of the Trust.  The Administrator, in its discretion, may
allow the Trust to provide for separate funds for the directed investment of
each Participant’s Account.

 

(b)                                 Participant Direction of Investments.  In the
event Participants’ Accounts are subject to their investment direction, each
Participant may direct how his Account is to be invested among the available
investment funds in the percentage multiples established by the
Administrator.  In the event a
Participant fails to make an investment election, with respect to all or any
portion of his Account subject to his investment direction, the Trustee shall
invest all or such portion of his Account in the investment fund to be
designated by the Administrator.  A
Participant may change his investment election, with respect to future
contributions and, if applicable, forfeitures, and/or amounts previously
accumulated in the Participant’s Account in accordance with procedures
established by the Administrator.  Any
such change in a Participant’s investment election shall be effective at such
time as may be prescribed by the Administrator.  If the Plan’s rccordkeeper or
investments are changed, the Administrator may apply such administrative rules
and procedures as are necessary to provide for the transfer of records and/or
assets, including without limitation, the suspension of Participant’s
investment directions, withdrawals and distributions for such period of time as
is necessary, and the transfer of Participants’ Accounts to designated funds or
an interest bearing account until such change has been completed.

 

(c)                                  Allocation of Investment Experience.  As of
each Valuation Date, the investment fund(s) of the Trust shall be valued at
fair market value, and the income, loss, appreciation and depreciation
(realized and unrealized), and any paid expenses of the Trust attributable to
such fund shall be apportioned among Participants’ Accounts within the fund
based upon the value of each Account within the fund as of the preceding Valuation
Date.

 

(d)                                 Allocation of Contributions.  Employer
contributions shall be allocated to the Account of each eligible Participant as
of the last day of the period for which the contributions are made or as soon
as administratively practical
thereafter.

 

(e)                                  Manner and Time of Debiting Distributions.  For any Participant who is entitled to
receive a distribution from his Account, such distribution shall be made in
accordance with the provisions of Section 7.1 and Section 7.2.  The amount distributed shall be based upon
the fair market value of the Participant’s vested Account as of the Valuation
Date preceding the distribution.

 

5.2                                 PARTICIPANTS OMITTED IN ERROR. In the event
a Participant is not allocated a share of the Employer contribution and/or
forfeitures as a result of an administrative error in any

 

13

 

Plan Year, the Employer may elect to either (a) make an additional
contribution on behalf of such omitted Participant in an appropriate amount, or
(b) deduct the appropriate amount from any forfeitures and allocate such amount
to the Participant’s Account.

 

14

 

ARTICLE VI—VESTING,
RETIREMENT AND DISABILITY BENEFITS

 

6.1                                 VESTING.
A Participant shall at all times have a nonforfeitable (vested) right to his
Account derived from elective deferrals, any Employer “fail-safe” contributions
under Section 10.2, and any rollovers or transfers from other plans, as
adjusted for investment experience.  In
addition, any Employee employed by the Employer as of April 1, 2000, who
was also employed by Empress Entertainment, Inc., Empress Casino Hammond
Corporation, or Empress Casino Joliet Corporation, on or before July 1,
1998, shall also have a nonforfeitable vested right to his Account derived from
any Employer contributions under Sections 4.2(a) and 4.2(b), and any employer
contributions transferred from the Empress Plan.  Except as otherwise provided with respect to
Normal Retirement, Disability, or death, each other Participant shall have a nonforfeitable (vested) right
to a percentage of the value of his Account derived from Employer contributions
under Section 4.2(a) and Section 4.2(b) (and any employer
contributions transferred from the Empress Plan in connection with the merger
of such plan) as follows:

 

	
  Years of Service

  	
   

  	
  Vested
  Percentage

  	
   

  
	
  Less than
  1 year

  	
   

  	
  0

  	
  %

  
	
  1 year
  but less than 2

  	
   

  	
  25

  	
  %

  
	
  2 years
  but less than 3

  	
   

  	
  50

  	
  %

  
	
  3 years
  but less than 4

  	
   

  	
  75

  	
  %

  
	
  4 years
  and thereafter

  	
   

  	
  100

  	
  %

  

 

6.2                                 FORFEITURE OF NONVESTED BALANCE. The nonvested portion of a
Participant’s Account, as determined in accordance with Section 6.1, shall
be forfeited as of the earlier of (i) as soon as administratively practical following the date on which the
Participant receives distribution of his vested Account or (ii) as soon as administratively practical after the
last day of the Plan Year in which the Participant incurs five (5) consecutive
one (1)-year Breaks in Service.  The
amount forfeited shall be used to pay Plan expenses and/or used to reduce
Employer contributions under Section 4.2(a)/4.2(b).

 

If the
Participant returns to the employment of the Employer prior to incurring five
(5) consecutive one (1)-year Breaks in Service, and prior to receiving
distribution of his vested Account, the nonvested portion shall be
restored.  However, if the nonvested
portion of the Participant’s Account was allocated as a forfeiture as the
result of the Participant receiving distribution of his vested Account balance,
the nonvested portion shall be restored if:

 

(a)                                  the
Participant resumes employment prior to incurring five (5) consecutive one
(1)-year Breaks in Service; and

 

(b)                                 the
Participant repays to the Plan, as of the earlier of (i) the date which is five
(5) years after his reemployment date or (ii) the date which is the last day of
the period in which the Participant incurs five (5) consecutive one (1)-year
Breaks in Service, an amount equal to the total distribution derived from
Employer contributions under Section 4.2 and, if applicable, Section 13.3.

 

15

 

The nonvested
amount shall be restored to the Participant’s Account, without interest or
adjustment for interim Trust valuation experience, by a special Employer
contribution or from the next succeeding Employer contribution and forfeitures,
as appropriate.

 

6.3                                 DISTRIBUTION OF LESS THAN ENTIRE VESTED
ACCOUNT BALANCE. If a distribution (including a withdrawal) of any portion
of a Participant’s Account is made to the Participant at a time when he has a
vested percentage in such Account equal to less than one-hundred percent
(100%), a separate record shall be maintained of said Account balance.  The Participant’s vested interest at any time
in this separate account shall be an amount equal to the formula P(AB+D)-D, where P is the vested percentage at the
relevant time, AB is the Account balance at the
relevant time, and D is the amount
of the distribution (or withdrawal) made to the Participant.

 

6.4                                 NORMAL RETIREMENT. A Participant who is in the
employment of the Employer at his Normal Retirement Date shall have a
nonforfeitable interest in one hundred percent (100%) of his Account, if not
otherwise one hundred percent (100%) vested under the vesting schedule in Section 6.1.  A Participant who continues employment with
the Employer after his Normal Retirement Date shall continue to participate
under the Plan.

 

6.5                                 DISABILITY.
If a Participant incurs a Disability, the Participant shall have a
nonforfeitable interest in one hundred percent (100%) of his Account, if not
otherwise one hundred percent (100%) vested under the vesting schedule in Section 6.1.  Payment of such Participant’s Account balance
shall be made at the time and in the manner specified in Article Seven,
following receipt by the Administrator of the Participant’s written
distribution request.

 

16

 

ARTICLE VII—MANNER
AND TIME OF DISTRIBUTING BENEFITS

 

7.1                                 MANNER OF PAYMENT. The Participant’s vested Account
shall be distributed to the Participant (or to the Participant’s Beneficiary in
the event of the Participant’s death) by either of the following methods (or a
combination thereof), as elected by the Participant or, when applicable, the
Participant’s Beneficiary:

 

(a)                                  in
a single lump-sum payment; or

 

(b)                                 provided
the Participant’s vested Account exceeds $3,500 (or, effective May 1, 1999, $5,000), in periodic
installments (at least annual), subject to the minimum distribution rules of Section 7.4.

 

7.2                                 TIME OF COMMENCEMENT OF BENEFIT
PAYMENTS. Subject to the following provisions of this Section, at the
election of the Participant, distribution of the Participant’s vested Account
shall be made or commence no later than the sixtieth (60th) day
after the later of the close of the Plan Year in which: (a) the Participant attains age sixty-five (65) (or
Normal Retirement Date, if earlier) or (b) the date the Participant terminates
Service with the Employer.

 

Notwithstanding
the foregoing, if the Participant’s vested Account does not exceed $3,500 (or,
effective May 1, 1999, $5,000), the Participant’s vested Account shall be
distributed to the Participant (or, in the event of the Participant’s death,
his Beneficiary) in a lump-sum payment as soon as administratively practicable
following the date the Participant retires, dies or otherwise separates from
Service.

 

Notwithstanding
any provision contained herein to the contrary, a Participant who is not vested in  any portion of
his Account balance attributable to
Employer contributions shall be
deemed to have received distribution of such portion of his Account as of the
end of the Plan Year following the Plan Year in which he separates from
Service.

 

For years beginning after December 31,
1996, in no event shall distribution of the Participant’s vested Account be made
or commence later than the April 1st following
the end of the calendar year in which the Participant attains age seventy and
one-half (701⁄2), or, except for a Participant who is a five percent (5%) owner
of the Employer (within the meaning of Section 401(a)(9) of the Code), if
later, the April 1st following the calendar year in which the Participant
retires or otherwise separates from Service. 
Notwithstanding the foregoing, the provisions of this paragraph shall be
subject to any prior election complying with the provisions of Section 242(b)
of TEFRA.  In addition, any Participant
attaining age seventy and one-half (701⁄2) prior to January 1, 1999 may
elect to receive distribution of his vested Account in accordance with the
provisions of this Article Seven.

 

7.3                                 FURNISHING INFORMATION. Prior to the payment of
any benefit under the Plan, each Participant or Beneficiary may be required to
complete such administrative forms and furnish such proof as may be deemed
necessary or appropriate by the Employer, Administrator, and/or Trustee.

 

17

 

7.4                                 MINIMUM DISTRIBUTION RULES FOR
INSTALLMENT PAYMENTS. If a distribution is made in installments the
following rules shall apply:

 

(a)                                  Payments to Participant or to Participant and
Surviving Spouse.  Payment
shall commence no later than a date provided for in Section 7.2.  The amount to be distributed each year shall be at least equal to the
vested balance in the Participant’s Account as of the preceding Valuation Date
multiplied by the following fraction: the numerator shall be one (1) and the
denominator shall be the life expectancy of the Participant (or the joint life
expectancies of the Participant and the Participant’s spouse) determined as of
the Valuation Date preceding the first payment and reduced by one for each
succeeding year.

 

(b)                                 Payments to Participant and Non-Spouse Beneficiary.  Payment shall commence no later than a
date provided for in Section 7.2. 
The amount to be distributed each year shall be at least equal to the
vested balance in the Participant’s Account as of the preceding Valuation Date
multiplied by the following fraction: the numerator shall be one (1) and the
denominator shall be the joint life
expectancies of the Participant and the Participant’s Beneficiary computed as
of the Valuation Date preceding the first payment and reduced by one (1) for
each succeeding year.  Payments shall be restricted under
this option to insure compliance with the minimum distribution incidental death
benefit requirement of Section 401(a)(9) of the Code and the regulations
promulgated thereunder.

 

(c)                                  Payments to Beneficiary.  Payment shall commence no later than a
date provided for in Section 7.7. 
The amount to be distributed each year
shall be at least equal to the vested balance in the Participant’s
Account as of the preceding Valuation Date multiplied by the following
fraction: the numerator shall be one (1) and the denominator shall be the life
expectancy of the Participant’s Beneficiary computed as of the Valuation Date
preceding the first payment and reduced by one (1) for each succeeding year.

 

(d)                                 Recalculation of Life
Expectancy.  If  distribution is
to be made over the life expectancy of the Participant or, where the
Participant’s spouse is his Beneficiary, the life expectancy of the Participant’s
surviving spouse, or the joint life expectancies of the Participant and his
spouse, such life expectancy or joint life expectancies shall not be
recalculated; provided, however, that a Participant who has commenced receiving
payments pursuant to the last paragraph of Section 7.2 may elect to recalculate his life
expectancy or the joint life expectancy of the Participant and his spouse where
applicable.  Any such election shall be
irrevocable as to the Participant (and spouse, if applicable) and shall apply
to all subsequent years.  In no event,
however, shall the life expectancy of a non-spouse Beneficiary be recalculated.

 

7.5                                 AMOUNT OF DEATH BENEFIT

 

(a)                                  Death Before Termination of Employment.  In the event of the death of a
Participant while in the employ of the Employer, vesting in the Participant’s

 

18

 

Account shall be one hundred percent (100%),
if not otherwise one hundred percent (100%) vested under Section 6.1, with
the credit balance of the Participant’s Account being payable to his
Beneficiary.

 

(b)                                 Death After Termination of Employment.  In the event of the death of a former
Participant after termination of employment, but prior to the complete
distribution of his vested Account balance under the Plan, the undistributed
vested balance of the Participant’s Account shall be paid to the Participant’s
Beneficiary.

 

7.6                                 DESIGNATION OF BENEFICIARY. Each Participant
shall file with the Administrator a designation of Beneficiary to receive
payment of any death benefit payable hereunder if such Beneficiary should
survive the Participant.  However, no
Participant who is married shall be permitted to designate a Beneficiary other
than his spouse unless the Participant’s spouse has signed a written consent
(witnessed by a Plan representative or a notary public), which provides for the
designation of an alternate Beneficiary.

 

Subject to the
above, Beneficiary designations may include primary and contingent
Beneficiaries, and may be revoked or amended at any time in similar manner or
form, and the most recent designation shall govern.  A designation of a Beneficiary made by an
unmarried Participant shall cease to be effective upon his marriage.  In the absence of an effective designation of
Beneficiary, the Participant’s vested Account shall be paid to the surviving
spouse of the Participant, or, if no surviving spouse, to the Participant’s
estate.  Notification to Participants of
the death benefits under the Plan and the method of designating a Beneficiary
shall be given at the time and in the manner provided by regulations and
rulings under the Code.

 

In the event
of the death of a Beneficiary who has become entitled to receive benefits under
the Plan, any benefits remaining to be paid to the Beneficiary shall be paid to
his estate.

 

7.7                                 DISTRIBUTION OF DEATH BENEFITS. The
Beneficiary shall be allowed to designate the mode of receiving benefits in
accordance with Section 7.1, unless the Participant had designated a
method in writing and indicated that the method was not revocable by the Beneficiary.

 

(a)                                  Distribution Beginning Before Death.  If
the Participant dies after distribution of his vested Account has commenced,
any survivor’s benefit must be paid at least as rapidly as under the method of
payment in effect at the time of the Participant’s death.

 

(b)                                 Distribution Beginning After Death.  If the Participant dies before
distribution of his vested Account has commenced, distribution of the
Participant’s vested Account shall be completed by December 31 of the
calendar year containing the fifth anniversary of the Participant’s death,
except as provided below:

 

(i)                                     if
any portion of the Participant’s
vested Account is payable to a designated Beneficiary, and if distribution is
to be made over the life or over a period certain not greater than the life
expectancy of the designated

 

19

 

Beneficiary (pursuant to the provisions of Section 7.1
above) such payments shall commence on or before December 31 of the
calendar year immediately following the calendar year in which the Participant
died;

 

(ii)                                  if
the designated Beneficiary is the Participant’s surviving spouse, the date
distribution is required to begin shall not be earlier than the later of
(A) December 31 of the calendar year immediately following the
calendar year in which the Participant died and (B) December 31 of
the calendar year in which the Participant would have attained age seventy and
one-half (701⁄2).

 

For purposes
of this paragraph (b), if the surviving spouse dies after the Participant, but
before payments to such spouse begin, the provisions of this paragraph, with
the exception of paragraph (ii) herein, shall be applied as if the surviving
spouse were the Participant.

 

Notwithstanding
the foregoing, if the Participant has no designated Beneficiary (within the
meaning of Section 401(a)(9) of the Code and the regulations thereunder),
distribution of the Participant’s vested Account must be completed by December 31
of the calendar year containing the fifth anniversary of the Participant’s
death.

 

7.8                                 ELIGIBLE ROLLOVER DISTRIBUTIONS.
Notwithstanding the foregoing provisions of this Article Seven, the
provisions of this Section 7.8 shall apply to distributions made under the
Plan.

 

(a)                                  A
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributes in a
direct rollover.

 

(b)                                 Definitions:

 

(i)                                     Eligible Rollover Distribution.  An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not
include:  any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee’s designated Beneficiary,
or for a specified period of ten (10) years or more; any distribution to the
extent such distribution is required under Section 401(a)(9) of the Code;
any withdrawals of elective deferrals pursuant to Section 8.2; and the
portion of any distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).

 

(ii)                                  Eligible Retirement Plan.  An eligible
retirement plan is an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in Section 408(b)
of the Code, an annuity

 

20

 

plan described in Section 403(a) of the
Code or a qualified trust described in Section 401(a) of the Code, that
accepts the distributee’s eligible rollover distribution.  However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.

 

(iii)                               Distributee.  A distributee includes an Employee or
former Employee.  In addition, the
Employee’s or former Employee’s surviving spouse and the Employee’s or former
Employee’s spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.

 

(iv)                              Direct Rollover.  A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.

 

(c)                                  If
a distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than thirty (30) days after the
notice required under Section 1.411(a)-11(c) of the Income Tax Regulations
is given, provided that:

 

(i)                                     the
Administrator clearly informs the Participant that the Participant has a right
to a period of at least thirty (30) days after receiving the notice to consider
the decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and

 

(ii)                                  the
Participant, after receiving the notice, affirmatively elects a distribution.

 

21

 

ARTICLE VIII—LOANS AND IN-SERVICE WITHDRAWALS

 

8.1                                 LOANS

 

(a)                                  Permissible Amount and Procedures.  Upon
the application of a Participant, the Administrator may, in accordance
with a uniform and nondiscriminatory policy, direct the Trustee to grant a loan
to the Participant, which loan shall be secured by the Participant’s vested
Account balance.  The Participant’s
signature shall be required on a promissory note.  In addition, if the Participant is married,
such Participant’s spouse shall be required to consent in writing to the making
of the loan.  Such written consent must
(1) be obtained within the ninety (90)-day period preceding the granting of the
loan, (2) acknowledge the effect of the loan, and (3) be witnessed by a
Plan representative or notary public. 
Such consent shall thereafter be binding with respect to the consenting
spouse or any subsequent spouse with respect to that loan.  In determining a rate of interest on such
loan, the Administrator may refer to the rate of interest used for obligations
of a comparable nature by commercial lending institutions within a radius of fifty (50) miles of the Employer’s
principal place of business.  Participant
loans shall be treated as segregated investments, and interest repayments shall
be credited only to the Participant’s Account.

 

(b)                                 Limitation on Amount of Loans.  A Participant’s loan shall not exceed the
lesser of:

 

(1)                                  $50,000,
which amount shall be reduced by the highest outstanding loan balance during
the preceding twelve (12)-month period; or

 

(2)                                  one-half
(1⁄2) of the vested value of the Participant’s Account, determined as of the
Valuation Date preceding the date of the Participant’s loan.

 

Any loan must
be repaid within five (5) years, unless made for the purpose of acquiring the
primary residence of the Participant, in which case such loan may be repaid
over a longer period of time not to exceed twenty (20) years.  The repayment of any loan must be made in at
least quarterly installments of principal and interest; provided, however, that
this requirement shall not apply for a period, not longer than one year, that a
Participant is on a leave of absence (“Leave”), either without pay from the
Employer or at a rate of pay (after income and employment tax withholding) that
is less than the amount of the installment payments required under the terms of
the loan.  However, the loan must be
repaid by the latest date permitted under Section 72(p)(2)(B) of the Code
and the installments due after the Leave ends (or, if earlier, upon the
expiration of the first year of the Leave) must not be less than those required
under the terms of the original loan.

 

If a
Participant defaults on any outstanding loan, the unpaid balance, and any
interest due thereon, shall become due and payable in accordance with the terms
of the underlying promissory note; provided, however, that such foreclosure on
the promissory note and attachment of security shall not occur until a
distributable event occurs in accordance with the provisions of Article Seven.

 

22

 

If a
Participant terminates employment while any loan balance is outstanding, the
unpaid balance, and any interest due thereon, shall become due and payable in
accordance with the terms of the underlying promissory note.  If such amount is not paid to the Plan, it
shall be charged against the amounts that are otherwise payable to the
Participant or the Participant’s Beneficiary under the provisions of the Plan.

 

Notwithstanding
the foregoing provisions of this Section, no loan shall be made to any
Participant who is a five percent (5%) or greater shareholder-employee of an
electing small business (Subchapter S) corporation, an owner of more than ten
percent (10%) of either the capital interest or the profits interest of an
unincorporated Employer, or a family member (as defined in Section 267(c)(4)
of the Code) of such Participant, unless an exemption for the loan is obtained
pursuant to Section 408 of the Employee Retirement Income Security Act of
1974, as amended.

 

In the case of
a Participant who has loans outstanding from other plans of the Employer (or a
member of the Employer’s related group (within the meaning of Section 2.5(b)),
the Administrator shall be responsible for reporting to the Trustee the
existence of said loans in order to aggregate all such loans within the limits
of Section 72(p) of the Code.

 

8.2                                 HARDSHIP DISTRIBUTIONS. In the case of a
financial hardship resulting from a proven immediate and heavy financial need,
a Participant may with his spouse’s written consent, if applicable (which
consent must either be notarized or witnessed by a Plan representative),
receive a distribution not to exceed the lesser of (i) the vested value of the
Participant’s Account, without regard to earnings on his elective deferrals
after December 31, 1988, and without regard to any “fail safe”
contributions made under Section 10.2, or (ii) the amount necessary to
satisfy the financial hardship.  The
amount of any such immediate and heavy financial need may include any amounts
necessary to pay federal, state or local income taxes reasonably anticipated to
result from the distribution.  Such
distribution shall be made in accordance with nondiscriminatory and objective
standards consistently applied by the Administrator.

 

Hardship
distributions under this Section shall be deemed to be the result of an
immediate and heavy financial need if such distribution is to (a) pay expenses for medical care (as
described in Section 213(d) of the Code) previously incurred by the
Participant, the Participant’s spouse, or any dependents of the Participant (as
defined in Section 152 of the Code), or to permit the Participant, the
Participant’s spouse, or any dependents of the Participant to obtain such
medical care, (b) purchase the principal residence of the Participant
(excluding mortgage payments), (c) pay tuition and related educational fees for
the next twelve (12) months of post-secondary education for the Participant,
Participant’s spouse, or any of the Participant’s dependents or (d) prevent the
eviction of the Participant from his principal residence or foreclosure on the
Participant’s principal residence.  In
addition, any hardship distribution hereunder shall only be made provided that
the funds for such hardship are not available from other financial resources of
the Participant, the Participant’s spouse or the Participant’s minor
children.  Distributions paid pursuant to
this Section shall be deemed to be made as of the Valuation Date
immediately preceding the hardship distribution, and the Participant’s Account
shall be reduced accordingly.

 

23

 

The provisions
of this Section (relating to hardship distributions) are intended to
comply with Treasury Regulations issued under Section 401(k) of the Code,
and shall be so interpreted.

 

8.3                                 WITHDRAWALS AFTER AGE 591⁄2 . After attaining age
fifty-nine and one-half (591⁄2), a Participant, by giving written notice to the
Administrator, may with his spouse’s written consent, if applicable (which
consent must either be notarized or witnessed by a Plan representative),
withdraw from the Plan a sum (a) not in excess of the credit balance of his
vested Account and (b) not less than such minimum amount as the Administrator
may establish from time to time to facilitate administration of the Plan.  Any such withdrawals shall be made in
accordance with nondiscriminatory and objective standards consistently applied
by the Administrator.

 

8.4                                 WITHDRAWALS OF ROLLOVER CONTRIBUTIONS.
A Participant, by giving written notice to the Administrator, may with his
spouse’s written consent, if applicable (which consent must either be notarized
or witnessed by a Plan representative), withdraw from the Plan a sum (a) not in
excess of the credit balance of the Participant’s Account attributable to his
rollover contributions and (b) not less than such minimum amount as the
Administrator may establish from time to time to facilitate administration of
the Plan.  Any such withdrawals shall be
made in accordance with nondiscriminatory and objective standards consistently
applied by the Administrator.

 

24

 

ARTICLE IX—ADMINISTRATION OF THE PLAN

 

9.1           PLAN
ADMINISTRATION.  The Company shall
be the Plan Administrator, hereinbefore and hereinafter called the
Administrator, and “named fiduciary” (for purposes of Section 402(a)(l) of the
Employee Retirement Income Security Act of 1974, as amended from time to time)
of the Plan, unless the Company, by action of its board of directors, shall
designate a person or committee of persons to be the Administrator and named
fiduciary.  The administration of the
Plan, as provided herein, including a determination of the payment of benefits
to Participants and their Beneficiaries, shall be the responsibility of the
Administrator; provided, however, that the Administrator may delegate any of
its powers, authority, duties or responsibilities to any person or committee of
persons.  The Administrator shall have
full discretion to interpret the terms of the Plan, to determine factual
questions that arise in the course of administering the Plan, to adopt rules
and regulations regarding the administration of the Plan, to determine the
conditions under which benefits become payable under the Plan, to determine
eligibility under the Plan and to make any other determinations that the
Administrator believes are necessary and advisable for the administration of
the Plan.  Benefits under the Plan will
be paid to any Participant only if the Administrator determines that the
Participant is entitled to such benefits. 
Any determination made by the Administrator shall be final and binding
on all parties.

 

In the event more than one party shall act as
Administrator, all actions shall be made by majority decisions.  In the administration of the Plan, the
Administrator may (a) employ
agents to carry out nonfiduciary responsibilities (other than Trustee
responsibilities), (b) consult with counsel, who may be counsel to the
Company, and (c) provide for the allocation of fiduciary responsibilities
(other than Trustee responsibilities) among its members.  Actions dealing with fiduciary
responsibilities shall be taken in writing and the performance of agents,
counsel and fiduciaries to whom fiduciary responsibilities have been delegated
shall be reviewed periodically.

 

The expenses of administering the Plan and
the compensation of all employees, agents, or counsel of the Administrator,
including accounting fees, recordkeeper’s fees, and the fees of any benefit
consulting firm, shall be paid by the Plan, or shall be paid by the Company if
the Company so elects.  To the extent
required by applicable law, compensation may not be paid by the Plan to
full-time Employees of the Company.

 

In the event the Company pays the expenses of
administering the Plan, the Company may seek reimbursement from the Plan for
the payment of such expenses. 
Reimbursement shall be permitted only for Plan expenses paid by the
Company within the last twelve (12)-month period.

 

The Administrator shall obtain from the
Trustee, not less often than annually, a report with respect to the value of
the assets held in the Trust Fund, in such form as may be required by the
Administrator.

 

The Administrator shall administer the Plan
and adopt such rules and regulations as, in the opinion of the Administrator,
are necessary or advisable to implement and administer the Plan and to transact
its business.

 

25

 

9.2           CLAIMS PROCEDURE

 

(a)           Pursuant to procedures
established by the Administrator, claims for benefits under the Plan made by a
Participant or Beneficiary (the “claimant”) must be submitted in writing to the
Administrator.  Approved claims shall be
processed and instructions issued to the Trustee or custodian authorizing
payment as claimed.

 

If a claim is
denied in whole or in part, the Administrator shall notify the claimant whose
claim for benefit has been denied within ninety (90) days after receipt of the
claim (or within one hundred eighty (180) days, if special circumstances
require an extension of time for processing the claim, and provided written
notice indicating the special circumstances and the date by which a final
decision is expected to be rendered is given to the claimant within the initial
ninety (90) day period).  If notification
is not given in such period, the claim shall be considered denied as of the
last day of such period and the claimant may request a review of the claim.

 

The notice of
the denial of the claim shall be written in a manner calculated to be
understood by the claimant and shall set forth the following:

 

(i)            the specific reason or
reasons for the denial of the claim;

 

(ii)           the specific references
to the pertinent Plan provisions on which the denial is based;

 

(iii)          a description of any
additional material or information necessary to perfect the claim, and an
explanation of why such material or information is necessary; and

 

(iv)          a statement that any
appeal of the denial must be made by giving to the Administrator, within sixty
(60) days after receipt of the denial of the claim, written notice of such
appeal, such notice to include a full
description of the pertinent issues and basis of the claim.

 

(b)           Upon denial of a claim
in whole or part, the claimant (or his duly authorized representative) shall
have the right to submit a written request to the Administrator for a full and
fair review of the denied claim; to be permitted to review documents pertinent
to the denial, and to submit issues and comments in writing.  Any appeal of the denial must be given to the
Administrator within the period of time prescribed under (a)(iv) above.  If the claimant (or his duly authorized
representative) fails to appeal the denial to the Administrator within the
prescribed time, the Administrator’s adverse determination shall be final,
binding and conclusive and the claimant shall have no right to further review
or to bring a claim in a court of law or equity.

 

The Administrator may hold a hearing or
otherwise ascertain such facts as it deems necessary and shall render a
decision which shall be binding upon both parties.  The Administrator shall advise the claimant
of the results of the review within sixty (60) days

 

26

 

after receipt of the written request for the
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as possible but
not later than one hundred twenty (120) days after receipt of the request for
review.  If such extension of time is
required, written notice of the extension shall be furnished to the claimant prior
to the commencement of the extension. 
The decision of the review shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the decision
and specific references to the pertinent Plan provisions on which the decision
is based.  The decision of the
Administrator shall be final, binding and conclusive.

 

9.3           TRUST AGREEMENT.  The Trust Agreement entered into by and
between the Employer and the Trustee, including any supplements or amendments
thereto, or any successor Trust Agreement, is incorporated by reference herein.

 

27

 

ARTICLE X—SPECIAL COMPLIANCE PROVISIONS

 

10.1         DISTRIBUTION
OF EXCESS DEFERRAL AMOUNTS. 
Notwithstanding any other provision of the Plan, “Excess Deferral
Amounts” (as defined below) (and income or loss allocable thereto, including
all earnings, expenses and appreciation or depreciation in value, whether or
not realized) shall be distributed no later than each April 15 to Participants
who claim Excess Deferral Amounts for the preceding calendar year.

 

“Excess Deferral Amount” shall mean the
amount of elective deferrals for a calendar year that the Participant
designates to the Plan pursuant to the following procedure.  The Participant’s designation: shall be
submitted to the Administrator in writing no later than March 1; shall specify
the Participant’s Excess Deferral Amount for the preceding calendar year; and
shall be accompanied by the Participant’s written statement that if the Excess
Deferral Amount is not distributed, it will, when added to amounts deferred
under other plans or arrangements described in Section 401(k), 408(k) or 403(b)
of the Code, exceed the limit imposed on the Participant by Section 402(g) of
the Code for the year in which the deferral occurred.

 

An Excess Deferral Amount, and the income or
loss allocable thereto, may be distributed before the end of the calendar year in which the elective deferrals
were made.  A Participant who has an
Excess Deferral Amount for a taxable year, taking into account only his
elective deferrals under the Plan or any other plans of the Employer (including
any member of the Employer’s related group (within the meaning of Section
2.5(b)), shall be deemed to have designated the entire amount of such Excess
Deferral Amount.

 

10.2         LIMITATIONS
ON 401(k) CONTRIBUTIONS.

 

(a)           Average Actual Deferral Percentage Test.  Amounts contributed as elective deferrals
under Section 4.1(a), and any “fail-safe” contributions made under this
Section, are considered to be amounts deferred pursuant to Section 401(k) of
the Code.  For purposes of this Section,
these amounts are referred to as the “deferred amounts.” For purposes of the “average
actual deferral percentage test” described below, (i) such deferred amounts
must be made before the last day of the twelve (12)-month period immediately
following the Plan Year to which the contributions relate, and (ii) the
deferred amounts relate to Compensation that either (A) would have been
received by the Participant in the Plan Year but for the Participant’s election
to make deferrals, or (B) is attributable to services performed by the
Participant in the Plan Year but for the Participant’s election to make
deferrals, would have been received by the Participant within two and one-half
(21⁄2) months after the close of the Plan Year. 
The Employer shall maintain records sufficient to demonstrate
satisfaction of the average actual deferral percentage test and the deferred
amounts used in such test.

 

Effective for
Plan Years beginning on or after January 1, 1997, as of the last day of each
Plan Year, the deferred amounts for the Participants who are Highly-Compensated
Employees for the Plan Year shall satisfy either of the following tests:

 

28

 

(1)           The average actual deferral
percentage for the eligible Participants who are Highly-Compensated Employees
for the Plan Year shall not exceed the average actual deferral percentage for
eligible Participants who were Nonhighly-Compensated Employees for the prior
Plan Year multiplied by 1.25; or

 

(2)           The average actual
deferral percentage for eligible Participants who are Highly-Compensated
Employees for the Plan Year shall not exceed the average actual deferral
percentage of eligible Participants who were Nonhighly-Compensated Employees
for the prior Plan Year multiplied by two (2), provided that the average actual
deferral percentage for eligible Participants who are Highly-Compensated
Employees for the Plan Year does not exceed the average  actual
deferral percentage for eligible Participants who were Nonhighly-Compensated
Employees in the prior Plan Year by more than two (2) percentage points, or
such lesser amount as the Secretary of the Treasury shall prescribe to prevent
the multiple use of this alternative limitation with respect to any
Highly-Compensated Employee.

 

Notwithstanding the foregoing, if elected by
the Employer, the foregoing percentage tests shall be applied as though the
references therein to “the prior Plan Year” read “such Plan Year;” provided,
however, the change in testing methods complies with the requirements set forth
in Notice 98-1 and any other superseding guidance.  Such election was made under the Plan and the
Empress Plan for the 1997, 1998 and 1999 Plan Years.

 

Effective for testing years beginning January
1, 1999, in the event the Plan changes from the current year testing method to
the prior year testing method, then, for purposes of the first testing year for
which the change is effective, the average actual deferral percentage for
Nonhighly-Compensated Employees for the prior year shall be determined by
taking into account only (a) elective deferrals for those Nonhighly-Compensated
Employees that were taken into account for purposes of the average actual deferral percentage
test (and not the actual contribution percentage test) under the current year
testing method for the prior year and (b) any qualified nonelective
contributions that were allocated to the Accounts of those
Nonhighly-Compensated Employees for the prior year but were not used to satisfy
the actual average deferral percentage test or the average contribution
percentage test under the current year testing method for the prior year.

 

In the event the Plan changes from the
current year to the prior year testing method for the first time for either the
1997 or 1998 testing year, the average actual deferral percentage for
Nonhighly-Compensated Employees used for that testing year shall be the same as
the average actual deferral percentage for Nonhighly-Compensated Employees used
for the prior testing year.

 

For purposes of the above tests, the “actual
deferral percentage” shall mean the ratio (expressed as a percentage) that the
deferred amounts, which are allocated to the Participant’s Account as of any
day in the Plan Year, on behalf of each eligible Participant for the Plan Year
bears to the eligible Participant’s compensation (within the

 

29

 

meaning of Section 1.414(s)-1(d)(2) of the
Income Tax Regulations) for the Plan Year. 
The “average actual deferral percentage” shall mean the average
(expressed as a percentage) of the actual deferral percentages of the eligible
Participants in each group.  “Eligible
Participant” shall mean each Employee who is eligible to participate in the
Plan under Section 3.1.

 

For purposes of this Section 10.2, the actual
deferral percentage for any eligible
Participant who is a Highly-Compensated Employee for the Plan Year and who is
eligible to have elective deferrals allocated to his account under two (2) or
more plans or arrangements described in Code Section 401(k) that are maintained
by the Employer or any employer who is a related group member (within the
meaning of Section 2.5(b)) shall be determined as if all such deferrals were
made under a single arrangement.  In the
event that this Plan satisfies the requirements of Code Section 401(k),
401(a)(4) or 410(b) only if aggregated with one (1) or more other plans, or if
one (1) or more other plans satisfy the requirements of such Sections of the
Code only if aggregated with this Plan, then the provisions of this Section
10.2 shall be applied by determining the actual deferral percentage of eligible
Participants as if all such plans were a single plan.  Any adjustments to the Nonhighly-Compensated
Employee actual deferral percentage for the prior year shall be made in
accordance with Notice 98-1 and any superseding guidance, unless the Employer
has elected to use the current year testing method.  Plans may be aggregated in order to satisfy
Section 401(k) of the Code only if they have the same Plan Year and use the
same average actual deferral
percentage testing method.

 

For purposes of determining the actual
deferral percentage of a Participant who is classified as a Highly-Compensated
Employee as the result of being a five percent (5%) owner, or who is one of the
ten (10) highest paid Highly-Compensated Employees, the deferred amount and the
compensation of such Participant shall include the deferred amounts and
compensation of his family members (as defined in Code Section 414(q)(6)(B))
participating in the Plan.  Such family
members shall be disregarded in determining the average actual deferral
percentage for Participants who are Nonhighly-Compensated Employees.  The application of the family aggregation
rule set forth in this paragraph, however, shall not apply for Plan Years
beginning on and after January 1,
1997.

 

The determination and treatment of deferred
amounts and the actual deferral percentage of any Participant shall be subject
to the prescribed requirements of the Secretary of the Treasury.

 

In the event the average actual deferral percentage test is not satisfied for a
Plan Year, the Employer, in its discretion, may make a special “fail-safe”
contribution for eligible Participants who are Nonhighly-Compensated Employees
and who are employed on the last day of the Plan Year (“Eligible
Nonhighly-Compensated Employee(s)”).  The
fail safe contribution shall be allocated first to the Eligible
Nonhighly-Compensated Employee whose Compensation is the lowest of all Eligible
Nonhighly-Compensated Employees in an amount that does not exceed the
limitations on annual additions set forth under Article Eleven of the Plan;
then to the Eligible Nonhighly-Compensated Employee with the second lowest
Compensation of all Eligible Nonhighly-Compensated Employees

 

30

 

in the same manner as set forth above, and
continuing to be allocated to Eligible Nonhighly-Compensated Employees in the
order of ascending Compensation until the average actual deferral percentage
test is satisfied.

 

(b)           Distributions
of Excess Contributions.

 

(1)           In General.  If the average actual deferral percentage
test of Section 10.2(a) is not satisfied for a Plan Year, then the “excess
contributions”, and income allocable thereto, shall be distributed, to the
extent required under Treasury regulations, no later than the last day of the
Plan Year following the Plan Year for which the excess contributions were
made.  However, if such excess
contributions are distributed later than two and one-half (21⁄2) months following
the last day of the Plan Year in which such excess contributions were made, a
ten percent (10%) excise tax shall be imposed upon the Employer with respect to
such excess contributions.

 

(2)           Excess Contributions.  For purposes of this Section, “excess
contributions” shall consist of the excess of the aggregate amount of deferred
amounts made by or on behalf of the Highly-Compensated Employees for such Plan
Year over the maximum amount of all such contributions permitted under the test
under Section 10.2(a).  In order to
comply with Section 401(k)(8)(C) of the Code (as amended by the Small Business
Job Protection Act of 1996), effective January 1, 1997, excess contributions
shall be allocated to the Highly-Compensated Employees with the largest amounts
of contributions taken into account in calculating the average actual deferral
percentage test for the year  in which the excess arose,
beginning with the Highly-Compensated Employee with the largest amount of such
contributions and continuing in descending order until all the excess
contributions have been allocated.

 

(3)           Determination of
Income.  The income allocable to
excess contributions allocated to each Participant shall be determined by
multiplying the income allocable to the Participant’s deferred amounts for the
Plan Year by a fraction, the numerator of which is the excess contributions
made on behalf of the Participant for the Plan Year, and the denominator of
which is the sum of the Participant’s Account balances attributable to the
Participant’s deferred amounts on the last day of the Plan Year.

 

(4)           Maximum
Distributable Amount.  The excess
contributions to be distributed to a Participant shall be adjusted for income
and, if there is a loss allocable to the excess contribution, shall in no event
be less than the lesser of the Participant’s Account under the Plan or the
Participant’s deferred amounts for the Plan Year.  Excess contributions shall be distributed
from that portion of the Participant’s Account attributable to such deferred
amounts to the extent allowable under Treasury regulations.

 

31

 

10.3         NONDISCRIMINATION
TEST FOR EMPLOYER MATCHING CONTRIBUTIONS

 

(a)           Average Contribution Percentage Test.  The provisions of this Section shall
apply if Employer matching contributions are made in any Plan Year under
Section 4.2(a) and such matching contributions are not used to satisfy the
average actual deferral percentage test of Section 10.2 or if Employee
after-tax contributions are made to the Plan under Section 4.5.

 

Effective for Plan Years beginning on or
after January 1, 1997, as of the last day of each Plan Year, the average
contribution percentage for Highly-Compensated Employees for the Plan Year
shall satisfy either of the following tests:

 

(1)           The average
contribution percentage for eligible Participants who are Highly-Compensated
Employees for the Plan Year shall not exceed the average contribution
percentage for eligible Participants who were Nonhighly-Compensated Employees
for the prior Plan Year multiplied by 1.25; or

 

(2)           The average
contribution percentage for eligible Participants who are Highly-Compensated
Employees for the Plan Year shall not exceed the average contribution
percentage for eligible Participants who were Nonhighly-Compensated Employees
for the prior Plan Year multiplied by two (2), provided that the average contribution percentage for
eligible Participants who are Highly-Compensated Employees for the Plan Year
does not exceed the average contribution
percentage for eligible Participants who were Nonhighly-Compensated Employees
in the prior Plan Year by more than two (2) percentage points or such lesser
amount as the Secretary of the Treasury shall prescribe to prevent the multiple
use of this alternative limitation with respect to any Highly-Compensated
Employee.

 

Notwithstanding the foregoing, if elected by
the Employer, the foregoing percentage tests shall be applied as though the
references therein to “the prior Plan Year” read “such Plan Year;” provided,
however, the change in testing methods complies with the requirements set forth
in Notice 98-1 and any other superseding guidance.  Such election was made under the Plan and the
Empress Plan for the 1997, 1998 and 1999 Plan Years.

 

Effective for testing years beginning January
1, 1999, in the event the Plan changes from the current year testing method to
the prior year testing method, then, for purposes of the first testing year for which the change is
effective, the average contribution
percentage for Nonhighly-Compensated Employees for the prior year shall be
determined by taking into account only (a) after-tax contributions for those
Nonhighly-Compensated Employees for the prior year, (b) matching contributions
for those Nonhighly-Compensated Employees that were taken into account for
purposes of the average contribution percentage test (and not the average
actual deferral percentage test) under the current year testing method for the
prior year, and (c) any qualified nonelective contributions that were allocated
to the Accounts of those Nonhighly-Compensated 

 

32

 

Employees for the prior year but that were
not used to satisfy the average contribution percentage test or the average
actual deferral percentage test under the current year testing method for the
prior year.

 

In the event the Plan changes from the
current year to the prior year testing method for the first time for either the
1997 or 1998 testing year, the average contribution percentage for
Nonhighly-Compensated Employees used for that testing year shall be the same as
the average contribution percentage for Nonhighly-Compensated Employees used
for the prior testing year.

 

For purposes of the above tests, the “average
contribution percentage” shall mean the average (expressed as a percentage) of
the contribution percentages of the “eligible Participants” in each group.  The “contribution percentage” shall mean the
ratio (expressed as a percentage) that the sum of Employer matching
contributions and elective deferrals (to the extent such elective deferrals are
not used to satisfy the average actual deferral percentage test of Section
10.2) under the Plan on behalf of the eligible Participant for the Plan Year
bears to the eligible Participant’s compensation (within the meaning of Section
1.414(s)-1(d)(2) of the Income Tax Regulations) for the Plan Year.  Such average contribution percentage shall be
determined without regard to matching contributions that are used either to
correct excess contributions hereunder or because contributions to which they
relate are excess deferrals under Section 10.1 or excess contributions under
Section 10.2.  “Eligible Participant”
shall mean each Employee who is eligible to participate in the Plan under
Section 3.1.

 

For purposes of this Section 10.3, the
contribution percentage for any eligible Participant who is a
Highly-Compensated Employee for the Plan Year and who is eligible to have
Employer matching contributions, elective deferrals and/or after-tax
contributions allocated to his account under two (2) or more plans described in
Section 401(a) of the Code or under arrangements described in Section 401(k) of
the Code that are maintained by the Employer or any member of the Employer’s
related group (within the meaning of Section 2.5(b)), shall be determined as if
all such contributions were made under a single plan.

 

In the event that this Plan satisfies the
requirements of Section 401(m), 401(a)(4) or 410(b) of the Code only if aggregated
with one (1) or more other plans, or if one (1) or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with this Plan,
then the provisions of this Section 10.3 shall be applied by determining the
contribution percentages of eligible Participants as if all such plans were a
single plan.  Any adjustments to the
Nonhighly-Compensated Employee actual contribution percentage for the prior
year shall be made in accordance with Notice 98-1 and any superseding guidance,
unless the Employer has elected to use the current year testing method.  Plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same Plan Year and use the
same average contribution percentage testing method.

 

For purposes of determining the contribution
percentage of an eligible Participant who is classified as a Highly-Compensated
Employee as the result of being a five percent (5%)

 

33

 

owner or who is one of the ten (10) highest
paid Highly-Compensated Employees, the Employer matching contributions,
elective deferrals (to the extent not used to satisfy the average actual deferral percentage
test of Section 10.2) and compensation of such Participant shall include the
Employer matching contributions, such elective deferrals and compensation of
his family members (as defined in Code Section 414(q)(6)(B)) participating in
the Plan.  Such family members shall be
disregarded in determining the average contribution percentage for eligible
Participants who are Nonhighly-Compensated Employees.  The application of the family aggregation
rule set forth in this paragraph, however, shall not apply for Plan Years
beginning on and after January 1, 1997.

 

The determination and treatment of the
contribution percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.

 

(b)           Distribution
of Excess Employer Matching Contributions.

 

(1)           In General.  If the nondiscrimination tests of Section
10.3(a) are not satisfied for a Plan Year, then the “excess aggregate
contributions”, and any income allocable thereto, shall be forfeited, if
otherwise forfeitable, no later than the last day of the Plan Year following
the Plan Year for which the nondiscrimination tests are not satisfied, and
shall be used to reduce Employer contributions under Section 4.2(a).  To the extent that such “excess aggregate
contributions” are nonforfeitable, such excess contributions shall be
distributed to the Participant on whose behalf the excess contributions were
made no later than the last day of the Plan Year following the Plan Year for
which such “excess aggregate contributions” were made.  However, if such excess aggregate
contributions are distributed later than two and one-half (21⁄2) months following
the last day of the Plan Year in which such excess aggregate contributions were
made, a ten percent (10%) excise tax shall be imposed upon the Employer with
respect to such excess aggregate contributions. 
For purposes of the limitations of Section 11.1(b)(1) of the Plan,
excess aggregate contributions shall be considered annual additions.

 

(2)           Excess Aggregate
Contributions.  For purposes of this
Section, “excess aggregate contributions” shall consist of the excess of the
aggregate amount of Employer matching contributions and, if applicable,
Employee after-tax contributions, and elective deferrals (to the extent not
used to satisfy the average actual
deferral percentage test of Section 10.2) made on behalf of the Highly-Compensated
Employees for such Plan Year over the maximum amount of all such contributions
permitted under the nondiscrimination tests under Section 10.3(a).  In order to comply with Section 401(m)(6)(C)
of the Code (as amended by the Small Business Job Protection Act of 1996),
effective January 1, 1997, excess contributions shall be allocated to the
Highly-Compensated Employee with the largest “contribution percentage amounts”
(as defined below) taken into account in calculating the average contribution percentage
test for the year  in

 

34

 

which the
excess arose, beginning with the Highly-Compensated Employee with the largest
contribution percentage amounts and continuing in descending order until all
the excess aggregate contributions have been allocated.

 

For purposes
of the preceding paragraph, “contribution percentage amounts” shall mean the
sum of Employer matching contributions and elective deferrals (to the extent
not used to satisfy the average actual
deferral percentage test of Section 10.2) made under the Plan on behalf of the
Participant for the Plan Year.

 

(3)           Determination of Income.  The income allocable to excess contributions
allocated to each Participant shall be determined by multiplying the income
allocable to the Employer matching contributions and such elective deferrals by
a fraction, the numerator of which is the excess aggregate contributions on
behalf of the Participant for the Plan Year, and the denominator of which is
the sum of the Participant’s Account balances attributable to Employer matching
contributions on the last day of the Plan Year.

 

Notwithstanding
the foregoing, to the extent otherwise required to comply with the requirements
of Section 401(a)(4) of the Code and the regulations thereunder, vested
matching contributions may be forfeited.

 

10.4         LIMITATION
ON THE MULTIPLE USE ALTERNATIVE. 
The sum of the average actual deferral percentage of Highly-Compensated
Employees under Section 10.2(a) and the average contribution percentage of
Highly-Compensated Employees under Section 10.3(a) shall not exceed the “aggregate
limit,” as defined in Section 401(m)(9) of the Code and the regulations
promulgated thereunder.

 

If the aggregate limit is exceeded, the
average contribution percentage of the Highly-Compensated Employees shall be
reduced in accordance with the provisions of Section 10.3(6).  In lieu of reducing the average contribution
percentage, the Administrator may reduce the average actual deferral percentage
of the Highly-Compensated Employees in accordance with the provisions of
Section 10.2(b).  The reductions under
this Section shall be made only to the extent necessary to comply with the
restrictions on the multiple use of the “alternative limitation” within the
meaning of Code Section 401(m)(9).

 

35

 

ARTICLE XI—LIMITATION ON ANNUAL ADDITIONS

 

11.1         RULES AND
DEFINITIONS

 

(a)           Rules. 
The following rules shall limit additions to Participants’ Accounts:

 

(1)           If the Participant does
not participate, and has never participated, in another qualified plan
maintained by the Employer, the amount of annual additions which may be
credited to the Participant’s Account for any limitation year shall not exceed
the lesser of the “maximum permissible” amount (as hereafter defined) or any
other limitation contained in this Plan. 
If the Employer contribution that would otherwise be allocated to the
Participant’s Account would cause the annual additions for the limitation year
to exceed the maximum permissible amount, the amount allocated shall be reduced
so that the annual additions for the limitation year shall equal the maximum
permissible amount.

 

(2)           Prior to determining
the Participant’s actual compensation for the limitation year, the Employer may
determine the maximum permissible amount for a Participant on the basis of a
reasonable estimation of the Participant’s compensation for the limitation
year, uniformly determined for all Participants similarly situated.

 

(3)           As soon as is
administratively feasible after the end of the limitation year, the maximum
permissible amount for the limitation year shall be determined on the basis of
the Participant’s actual compensation for the limitation year.

 

(4)           If, as a result of the
allocation of forfeitures, a reasonable error in estimating a Participant’s
annual Compensation, a reasonable error in determining elective deferrals, the
limitations of Section 415 of the Code are exceeded, such excess amount shall
be disposed of as follows:

 

(A)          Any nondeductible
Employee after-tax contributions (plus attributable earnings) and, to the
extent elected by the Administrator pursuant to a nondiscriminatory procedure,
elective deferrals under Section 4.1(a) (plus attributable earnings), to the
extent they would reduce the excess amount, shall be returned to the
Participant.

 

(B)           If an excess amount
still exists after the application of subparagraph (A), and the Participant is
covered by the Plan at the end of the limitation year, the excess amount in the Participant’s Account shall be
used to reduce Employer contributions (including any allocation of forfeitures,
if applicable) for such Participant in the next limitation year, and each
succeeding limitation year if necessary;

 

36

 

(C)           If an excess amount
still exists after the application of subparagraph (A), and the Participant is
not covered by the Plan at the end of the limitation year, the excess amount
shall be held unallocated in a suspense account and applied to reduce future
Employer contributions (including allocation of any forfeitures) for all
remaining Participants in the next limitation year, and each succeeding
limitation year if necessary.  Excess
amounts may not be distributed to Participants or former Participants.

 

(D)          If a suspense account is
in existence at any time during the limitation year pursuant to this Section
11.1(a) (4), it shall not participate in the allocation of the Trust’s
investment gains and losses.  In
addition, all amounts held in the suspense account shall be allocated and
reallocated to Participants’ Accounts before any Employer or Employee
contributions may be made for the limitation year.

 

(5)           If, in addition to this
Plan, the Participant is covered under another defined contribution plan
maintained by the Employer, or a welfare benefit fund, as defined in Code
Section 419(e), maintained by the Employer, or an individual medical account,
as defined in Code Section 415(1)(2), maintained by the Employer which provides
an annual addition, the annual additions which may be credited to a Participant’s
account under all such plans for any such limitation year shall not exceed the
maximum permissible amount.  Benefits
shall be reduced under any discretionary defined contribution plan before they
are reduced under any defined contribution pension plan.  If both plans are discretionary contribution
plans, they shall first be reduced under this Plan.  Any excess amount attributable to this Plan
shall be disposed of in the manner described in Section 11.1(a)(4).

 

(6)           If the Employer
maintains, or at any time maintained, a qualified defined benefit plan covering
any Participant in this Plan, the sum of the Participant’s defined benefit plan
fraction and defined contribution plan fraction shall not exceed 1.0 in any
limitation year.  The annual additions
which may be credited to the Participant’s Account under this Plan for any
limitation year shall be
limited so that if the limitations of Code Section 415(e) become applicable,
benefits under a defined contribution plan shall have first been provided
before benefits under a defined benefit plan are provided.

 

The combined
limitation set forth in the preceding paragraph shall not apply to any
limitation year beginning after December 31, 1999.

 

(7)           In any Plan Year in
which the Plan becomes a Super Top-Heavy Plan (as defined in Section 13.2(b)),
the denominators of the defined benefit fraction and defined contribution
fraction shall be computed using one 

 

37

 

hundred
percent (100%) of the maximum dollar limitation instead of one hundred and
twenty-five percent (125%).

 

(8)           In any year in which
the Plan is a Top-Heavy Plan (as defined in Section 13.2(c)) (but not a Super
Top-Heavy Plan), the limitations shall be similarly reduced, subject to the
special provisions of Section 13.3, which provide for the use of the one
hundred and twenty-five percent (125%) limitation subject to the added minimum
allocations.

 

(b)           Definitions.

 

(1)           Annual additions:
The following amounts credited to a Participant’s
Account for the limitation year shall be treated as annual additions:

 

(A)                              Employer
contributions;

 

(B)                                Elective
deferrals;

 

(C)                                Employee
after-tax contributions, if any;

 

(D)                               Forfeitures,
if any; and

 

(E)                                 Amounts
allocated after March 31, 1984 to an individual medical account, as defined in
Section 415(l)(2) of the Code, which is part of a pension or annuity plan
maintained by the Employer.  Also,
amounts derived from contributions paid or accrued after December 31, 1985 in
taxable years ending after such date which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee, as
defined in Section 419A(d)(3), and amounts under a welfare benefit fund, as
defined in Section 419(e), maintained by the Employer, shall be treated as
annual additions to a defined contribution plan.

 

Employer and
employee contributions taken into account as annual additions shall include “excess
contributions” as defined in Section 401(k)(8)(B) of the Code, “excess
aggregate contributions” as defined in Section 401(m)(6)(B) of the Code, and “excess
deferrals” as defined in Section 402(g) of the Code, regardless of whether such
amounts are distributed, recharacterized or forfeited, unless such amounts constitute
excess deferrals that were distributed to the Participant no later than April
15 of the taxable year following
the taxable year of the Participant in which such deferrals were made.

 

For this
purpose, any excess amount applied under Section 11.1(a)(4) in the limitation
year to reduce Employer contributions shall be considered annual additions for
such limitation year.

 

(2)           Compensation:
For purposes of determining maximum permitted benefits under this Section,
compensation shall include all of a Participant’s earned income, wages,
salaries, and fees for professional services, and other

 

38

 

amounts
received for personal services actually rendered in the course of employment
with the Employer, including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips and bonuses, and effective for limitation years
beginning after December 31, 1997, including also any elective deferrals (as
defined in

Section 402(g)(3) of the Code) made by an Employee to the Plan and any
amount contributed or deferred by an Employee on an elective basis and not
includable in the gross income of the Employee under Section 125 of the Code;
and excluding the following:

 

(A)          Except as provided in
the preceding paragraph of this Section 11.1(b)(2), Employer contributions to a
plan of deferred compensation which are not included in the Employee’s gross
income for the taxable year in which contributed, or Employer contributions
under a simplified employee pension plan (funded with individual retirement
accounts or annuities) to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred compensation;

 

(B)           Amounts realized from
the exercise of a nonqualified stock option, or when restricted stock (or
property) held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture;

 

(C)           Amounts realized from
the sale, exchange, or other disposition of stock acquired under a qualified
stock option; and

 

(D)          Other amounts which
received special tax benefits, or contributions made by the Employer (whether
or not under a salary reduction agreement) toward the purchase of an annuity
described in Section 403(b) of the Code (whether or not the amounts are
actually excludable from the gross income of the Employee).

 

Compensation
shall be measured on the basis of compensation paid in the limitation year.

 

(3)           Defined benefit
fraction: This shall mean a fraction, the numerator of which is the sum of
the Participant’s projected annual benefits under all the defined benefit plans
maintained or previously maintained by the Employer, and the denominator of
which is the lesser of one hundred and twenty-five percent (125%) of the dollar
limitation in effect for the limitation year
under Section 415(b)(1)(A) of the Code or one hundred and forty percent
(140%) of the highest average compensation
including any adjustment under Code Section 415(b).

 

(4)           Defined contribution
fraction: This shall mean a fraction, the numerator of which is the sum of
the annual additions to the Participant’s account under

 

39

 

all the
defined contribution plans (whether or not terminated), welfare benefit funds,
and individual medical accounts maintained by the Employer for the current and
all prior limitation years, and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior limitation years of
Service with the Employer, regardless of whether a defined contribution plan
was maintained by the Employer.

 

The maximum
aggregate amount in any limitation year is the lesser of one hundred and
twenty-five percent (125%) of the dollar limitation then in effect under
Section 415(c)(1)(A) of the Code or thirty-five (35%) of the Participant’s
compensation for such year.

 

If the
Employee, as of the end of the first day of the first limitation year beginning
after December 31, 1986, was a participant in one (1) or more defined
contribution plans maintained by the Employer which were in existence on May 5, 1986, the numerator of this
fraction shall be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this Plan.  Under the adjustment, an amount equal to the
product of (i) the excess of the sum of the fractions over 1.0 and
(ii) the denominator of this fraction, will be permanently subtracted from
the numerator of this fraction.  The
adjustment is calculated using the fractions as they would be computed as of
the end of the last limitation year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan made after May
5, 1986, but using the Code Section 415 limitation applicable to the first
limitation year beginning on or
after January 1, 1987.

 

The annual
addition for any limitation year beginning before January 1, 1987, shall not be
recomputed to treat all Employee contributions as annual additions.

 

(5)           Defined contribution
dollar limitation: Effective January 1, 1995, this shall mean $30,000, as
adjusted under Section 415(d) of the Code.

 

(6)           Employer: This
term refers to the Employer that adopts this Plan, and all members of a
controlled group of corporations (as defined in Section 414(b) of the Code, as
modified by Section 415(h)), commonly-controlled trades or businesses (as
defined in Section 414(c), as modified by Section 415(h)), or affiliated
service groups (as defined in Section 414(m)) of which the Employer is a part,
or any other entity required to be aggregated with the Employer under Code
Section 414(o).

 

(7)           Highest average
compensation: This means the average
compensation for the three (3) consecutive limitation years with the
Employer that produces the highest average.

 

(8)           Limitation year:
This shall mean the Plan Year, unless the Employer elects a different twelve
(12) consecutive month period.  The
election shall be made by the adoption of a Plan amendment by the
Employer.  If the

 

40

 

limitation
year is amended to a different twelve (12) consecutive month period, the new
limitation year must begin on a date within the limitation year in which the
amendment is made.

 

(9)           Maximum permissible
amount: This shall mean an amount equal to the lesser of the defined
contribution dollar limitation or twenty-five percent (25%) of the Participant’s
compensation for the limitation year.  If
a short limitation year is created
because of an amendment changing the limitation year to a different twelve
(12)-consecutive month period, the maximum permissible amount shall not exceed
the defined contribution dollar limitation multiplied by the following
fraction:

 

	
   

  	
  Number of months in the short limitation year

  	
   

  
	
   

  	
  12

  	
   

  

 

(10)         Projected annual
benefit: This is the annual retirement benefit (adjusted to an actuarially
equivalent straight life annuity if such benefit is expressed in a form other
than a straight life annuity or qualified joint and survivor annuity) to which
the Participant would be entitled under the terms of the plan, assuming:

 

(A)          the Participant will
continue employment until normal retirement age under the plan (or current age,
if later), and

 

(B)           the Participant’s
compensation for the current limitation year and all other relevant factors
used to determine benefits under the plan will remain constant for all future
limitation years.

 

41

 

ARTICLE XII—AMENDMENT AND TERMINATION

 

12.1         AMENDMENT.  The Company, by resolution of its board of
directors, (or, to the extent permitted by resolution of such board of
directors, by action of a duly authorized officer of the Company) shall have
the right to amend, alter or modify the Plan at any time, or from time to time,
in whole or in part.  Any such amendment
shall become effective under its terms upon adoption by the Company.  However, no amendment affecting the duties,
powers or responsibilities of the Trustee may be made without the written
consent of the Trustee.  No amendment
shall be made to the Plan which shall:

 

(a)           make it possible (other
than as provided in Section 14.3) for any part of the corpus or income of the
Trust Fund (other than such part as may be required to pay taxes and
administrative expenses) to be used for or diverted to purposes other than the
exclusive benefit of the Participants or their Beneficiaries;

 

(b)           decrease a Participant’s
account balance or eliminate an optional form of payment with respect to benefits
accrued as of the later of (i) the date such amendment is adopted, or (ii) the
date the amendment becomes effective; or

 

(c)           alter the schedule for
vesting in a Participant’s Account with respect to any Participant with three
(3) or more Years of Service without his consent or deprive any Participant of
any nonforfeitable portion of his Account.

 

Notwithstanding the other provisions of this
Section or any other provisions of the Plan, any amendment or modification of
the Plan may be made retroactively if necessary or appropriate to conform to or
to satisfy the conditions of any law, governmental regulation, or ruling, and
to meet the requirements of the Employee Retirement Income Security Act of
1974, as it may be amended.

 

12.2         TERMINATION
OF THE PLAN.  The Company, by
resolution of its board of directors, reserves the right at any time and in its
sole discretion to discontinue payments under the Plan and to terminate the
Plan.  In the event the Plan is
terminated, or upon complete discontinuance of contributions under the Plan by
the Company, the rights of each Participant to his Account on the date of such
termination or discontinuance of contributions, to the extent of the fair
market value under the Trust Fund, shall become fully vested and nonforfeitable.  The Company shall direct the Trustee to
distribute the Trust Fund in accordance with the Plan’s distribution provisions
to the Participants and their Beneficiaries, each Participant or Beneficiary
receiving a portion of the Trust Fund equal to the value of his Account as of
the date of distribution.  These
distributions may be implemented by the continuance of the Trust and the
distribution of the Participants’ Account shall be made at such time and in
such manner as though the Plan had not terminated, or by any other appropriate method, including rollover into
Individual Retirement Accounts.  Upon
distribution of the Trust Fund, the Trustee shall be discharged from all
obligations under the Trust and no Participant or Beneficiary shall have any further
right or claim therein.  In the event of
the partial termination of the Plan, the Accounts of all affected Participants
shall become fully vested and nonforfeitable and the provisions of the
preceding paragraph shall apply with respect to such Participants’ Accounts.

 

42

 

12.3         DISTRIBUTION
UPON SALE OR DISPOSITION OF STOCK OR ASSETS.  The vested balances of affected Participants
(as defined below) may be distributed, in a single lump-sum payment, as soon as
administratively practical following:

 

(i)            the sale or other
disposition of the Employer’s interest in a subsidiary (within the meaning of
Section 409(d)(3) of the Code) to an entity that is not a “related group member”
(within the meaning of Section 2.5(b)), provided that the Employer and not the
acquirer continues to maintain the Plan after
the disposition.  In this case,
affected Participants shall be those Participants who continue employment with
such subsidiary.

 

(ii)           the sale or other
disposition of “substantially all” (within the meaning of Section
1.401(k)-1(d)(4) of the Income Tax Regulations) of the assets used by the
Employer in a trade or business to an unrelated corporation, provided that the
Employer and not the acquirer continues to maintain the Plan after the
disposition.  In this case, affected
Participants shall be those Participants who continue employment with the
corporation acquiring such assets.

 

43

 

ARTICLE
XIII—TOP-HEAVY PROVISIONS

 

13.1         APPLICABILITY.  The provisions of this Article shall become
applicable only for any Plan Year in which the Plan is a Top-Heavy Plan (as
defined in Section 13.2(c)).  The
determination of whether the Plan is a Top-Heavy Plan shall be made each Plan Year
by the Administrator.

 

13.2         DEFINITIONS.  For purposes of this Article, the following
definitions shall apply:

 

(a)           “Key Employee”: “Key
Employee” shall mean any Employee or former Employee (and the Beneficiaries of
such Employee) who, at any time during the determination period, was (1) an
officer of the Employer earning compensation (as defined in Section 416(i) of
the Code) in excess of fifty percent (50%) of the dollar limitation under
Section 415(b)(1)(A) of the Code, (2) an owner (or considered an owner under
Section 318 of the Code) of both more than a one-half percent (1⁄2%) interest in
the Employer and one of the ten (10) largest interests in the Employer if such
individual’s compensation exceeds the dollar limitation under Section
415(c)(1)(A) of the Code, (3) a five percent (5%) owner of the Employer, or (4)
a one percent (1%) owner of the Employer who has an annual compensation of more
than $150,000.  For purposes of this
Section, annual compensation shall mean compensation as defined in Code Section
415(c)(3), but including amounts contributed by the Employer pursuant to a salary reduction agreement which are
excludable from the Employee’s income under Code Sections 125, 402(g), 402(h)
or 403(b).  The determination period of
the Plan is the Plan Year containing the “determination date” as defined in
Section 13.2(c)(4) and the four (4) preceding Plan Years.

 

The
determination of who is a Key Employee (including the terms “5% owner” and “1%
owner”) shall be made in accordance with Section 416(i)(1) of the Code and the
regulations thereunder.

 

(b)           “Super Top-Heavy Plan”: The Plan shall
constitute a “Super Top-Heavy Plan” if it meets the test for status as a
Top-Heavy Plan, where “90%” is substituted for “60%” at each place in Section
13.2(c).

 

(c)           “Top-Heavy Plan”:

 

(1)           The Plan shall
constitute a “Top-Heavy Plan” if any of the following conditions exist:

 

(A)          The top-heavy ratio for
the Plan exceeds sixty percent (60%) and the Plan is not part of any required aggregation group or
permissive aggregation group of plans; or

 

(B)           The Plan is part of a
required aggregation group of plans (but is not part of a permissive
aggregation group) and the top-heavy ratio for the group of plans exceeds sixty
percent (60%); or

 

44

 

(C)           The Plan is a part of a
required aggregation group of plans and part of a permissive aggregation group
and the top-heavy ratio for the permissive aggregation group exceeds sixty
percent (60%).

 

(2)           If the Employer
maintains one (1) or more defined contribution plans (including any simplified
employee pension plan funded with individual retirement accounts or annuities)
and the Employer maintains or has maintained one (1) or more defined benefit
plans which have covered or could cover a Participant in this Plan, the
top-heavy ratio is a fraction, the numerator of which is the sum of account
balances under the defined contribution plans for all Key Employees and the
actuarial equivalents of accrued benefits under the defined benefit plans for all
Key Employees, and the denominator of which is the sum of the account balances
under the defined contribution plans for all Participants and the actuarial
equivalents of accrued benefits under the defined benefit plans for all
Participants.  Both the numerator and
denominator of the top-heavy ratio shall include any distribution of an account
balance or an accrued benefit made in the five (5)-year period ending on the
determination date and any contribution due to a defined contribution pension
plan but unpaid as of the determination date. 
In determining the accrued benefit of a non-Key Employee who is
participating in a plan that is part of a required aggregation group, the
method of determining such benefit shall be either (i) in accordance with the method,
if any, that uniformly applies
for accrual purposes under all plans maintained by the Employer or any member
of the Employer’s related group (within the meaning of Section 2.5(b)), or (ii)
if there is no such method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional accrual rate of Code
Section 411(b)(1)(C).

 

(3)           For purposes of (1) and
(2) above, the value of account balances and the actuarial equivalents of
accrued benefits shall be determined as of the most recent Valuation Date that
falls within or ends with the twelve (12)-month period ending on the
determination date.  The account balances
and accrued benefits of a Participant who is not a Key Employee but who was a
Key Employee in a prior year shall be disregarded.  The accrued benefits and account balances of
Participants who have performed no Hours of Service with any Employer
maintaining the plan for the five (5)-year period ending on the determination
date shall be disregarded.  The calculations
of the top-heavy ratio, and the extent to which distributions, rollovers, and
transfers are taken into account shall be made under Section 416 of the Code
and regulations issued thereunder. 
Deductible Employee contributions shall not be taken into account for
purposes of computing the top-heavy ratio. 
When aggregating plans, the value of account balances and accrued
benefits shall be calculated with reference to the determination dates that
fall within the same calendar year.

 

45

 

(4)           Definition of terms
for Top-Heavy status:

 

(A)          “Top-heavy ratio” shall
mean the following:

 

(1)           If the Employer
maintains one or more defined contribution plans (including any simplified
employee pension plan funded with individual retirement accounts or annuities)
and the Employer has never maintained any defined benefit plans which have
covered or could cover a Participant in this Plan, the top-heavy ratio is a
fraction, the numerator of which is the sum of the account balances of all Key
Employees as of the determination date (including any part of any account
balance distributed in the five (5)-year period ending on the determination
date), and the denominator of which is the sum of the account balances
(including any part of any account balance distributed in the five (5)-year
period ending on the determination date) of all Participants as of the
determination date.  Both the numerator
and the denominator shall be increased by any contributions due but unpaid to a
defined contribution pension plan as of the determination date.

 

(B)           “Permissive
aggregation group” shall mean the required aggregation group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the required aggregation group, would continue to satisfy the
requirements of Sections 401(a) (4) and 410 of the Code.

 

(C)           “Required
aggregation group”  shall
mean (i) each qualified plan of the Employer (including any terminated plan) in
which at least one Key Employee participates, and (ii) any other qualified plan
of the Employer which enables a plan described in (i) to meet the requirements
of Section 401(a)(4) or 410 of the Code.

 

(D)          “Determination
date” shall mean, for any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. 
For the first Plan Year of the Plan, “determination date” shall mean the
last day of that Plan Year.

 

(E)           “Valuation
Date” shall mean the last day of the Plan Year.

 

(F)           Actuarial equivalence
shall be based on the interest and mortality rates utilized to determine
actuarial equivalence when benefits are paid from any defined benefit
plan.  If no rates are specified in said
plan, the following shall be utilized: pre- and post-retirement interest — five
percent (5%); post-retirement mortality based on the

 

46

 

Unisex Pension (1984) Table as used by the Pension Benefit Guaranty
Corporation on the date of execution hereof.

 

13.3         ALLOCATION
OF EMPLOYER CONTRIBUTIONS AND FORFEITURES FOR A TOP-HEAVY PLAN YEAR.

 

(a)           Except as otherwise
provided below, in any Plan Year in which the Plan is a Top-Heavy Plan, the
Employer contributions and forfeitures allocated on behalf of any Participant
who is a non-Key Employee shall not be less than the lesser of three percent
(3%) of such Participant’s compensation (as defined in Section 11.1(b)(2) and
as limited by Section 401(a) (17) of the Code) or the largest percentage of
Employer contributions, elective deferrals, and forfeitures as a percentage of
the Key Employee’s compensation (as defined in Section 11.1(b)(2) and as
limited by Section 401(a)(17) of the Code), allocated on behalf of any Key
Employee for that Plan Year.  This
minimum allocation shall be made even though, under other Plan provisions, the
Participant would not otherwise be entitled to receive an allocation or would
have received a lesser allocation for the Plan Year because of insufficient
Employer contributions under Section 4.2, the Participant’s failure to complete
one thousand (1,000) Hours of Service or the Participant’s failure to make
elective deferrals under Section 4.1.

 

(b)           The minimum allocation
under this Section shall not apply to any Participant who was not employed by
the Employer on the last day of the Plan Year.

 

(c)           Neither elective
deferrals nor Employer matching contributions may be taken into account for the
purpose of satisfying the minimum allocation.

 

(d)           For purposes of the
Plan, a non-Key Employee shall be any Employee or Beneficiary of such Employee,
any former Employee, or Beneficiary of such former Employee, who is not or was
not a Key Employee during the Plan Year ending on the determination date, nor
during the four (4) preceding Plan Years.

 

(e)           If no defined benefit
plan has ever been part of a permissive or required aggregation group of plans
of the Employer, the contributions and forfeitures under this step shall be
offset by any allocation of contributions and forfeitures under any other
defined contribution plan of the Employer with a Plan Year ending in the same
calendar year as this Plan’s Valuation Date.

 

(f)            There shall be no
duplication of the minimum benefits required under Code Section 416.  Benefits shall be provided under defined
contribution plans before under defined benefit plans.  If a defined benefit plan (active or
terminated) is part of the permissive or required aggregation group of plans,
the allocation method of subparagraph (a) above shall apply, except that “3%”
shall be increased to “5%”.

 

(g)           There shall be no
duplication of the minimum benefits required under Code Section 416.  Benefits shall be provided under defined
contribution plans before defined benefit plans.  If a defined benefit plan (active or
terminated) is part of the

 

47

 

permissive or
required aggregation group of plans, and if any Participant in the Plan would have his benefits limited due to
the application of the Code limitation rule in Section 11.1 in a Plan Year in
which the Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan, the
allocation method of subparagraph (f) above shall apply, except that “5%” shall
be increased to “7.5%.”  In the event any
Participant in the Plan would have his benefits limited due to the application
of the special Code limitation rule in Section 11.1 in a Plan Year in which the
Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan and the Participant is
covered only by a defined contribution plan, the allocation method of
subparagraph (a) shall apply, except that “3%” shall be increased to “4%”.

 

13.4         VESTING.  The provisions contained in Section 6.1
relating to vesting shall continue to apply in any Plan Year in which the Plan
is a Top-Heavy Plan, and apply to all benefits within the meaning of Section
411(a)(7) of the Code except those attributable to Employee contributions and
elective deferrals under Section 4.1, including benefits accrued before the
effective date of Section 416 and benefits accrued before the Plan became a
Top-Heavy Plan.  Further, no reduction in
vested benefits may occur in the event the Plan’s status as a Top-Heavy Plan
changes for any Plan Year and the vesting schedule is amended.  In addition, if a Plan’s status changes from
a Top-Heavy Plan to that of a non-Top-Heavy Plan, a Participant with three (3)
Years of Service shall continue to have his vested rights determined under the
schedule which he selects, in the event the vesting schedule is subsequently
amended.

 

Payment of a Participant’s vested Account
balance under this Section shall be made in accordance with the provisions of
Article Seven.

 

48

 

ARTICLE XIV—MISCELLANEOUS PROVISIONS

 

14.1         PLAN
DOES NOT AFFECT EMPLOYMENT.  Neither the creation of this Plan, any
amendment thereto, the creation of any fund nor the payment of benefits
hereunder shall be construed as giving any legal or equitable right to any
Employee or Participant against the Employer, its officers or Employees, or
against the Trustee.  All liabilities
under this Plan shall be satisfied, if at all, only out of the Trust Fund held
by the Trustee.  Participation in the
Plan shall not give any Participant any right to be retained in the employ of
the Employer, and the Employer hereby expressly retains the right to hire and
discharge any Employee at any time with or without cause, as if the Plan had
not been adopted, and any such discharged Participant shall have only such
rights or interests in the Trust Fund as may be specified herein.

 

14.2         SUCCESSOR
TO THE EMPLOYER.  In the event of
the merger, consolidation, reorganization or sale of assets of the Employer,
under circumstances in which a successor person, firm, or corporation shall
carry on all or a substantial part of the business of the Employer, and such
successor shall employ a substantial number of Employees of the Employer and
shall elect to carry on the provisions of the Plan, such successor shall be
substituted for the Employer under the terms and provisions of the Plan upon
the filing in writing with the Trustee of its election to do so.

 

14.3         REPAYMENTS
TO THE EMPLOYER.  Notwithstanding
any provisions of this Plan to the contrary:

 

(a)           Any monies or other
Plan assets attributable to any contribution made to this Plan by the Employer
because of a mistake of fact shall be returned to the Employer within one (1)
year after the date of contribution.

 

(b)           Any monies or other
Plan assets attributable to any contribution
made to this Plan by the Employer shall be refunded to the Employer, to the
extent such contribution is predicated on the deductibility thereof under the
Code and the income tax deduction for such contribution is disallowed.  Such amount shall be refunded within one (1)
taxable year after the date of such disallowance or within one (1) year of the
resolution of any judicial or
administrative process with respect to the disallowance.  All Employer contributions hereunder are
expressly contributed based upon such contributions’ deductibility under the
Code.

 

14.4         BENEFITS NOT
ASSIGNABLE.  Except as provided in
Section 414(p) of the Code with respect to “qualified domestic relations
orders,” the rights of any Participant or his Beneficiary to any benefit or
payment hereunder shall not be subject to voluntary or involuntary alienation
or assignment.

 

With respect to any “qualified domestic
relations order” relating to the Plan, the Plan shall permit distribution to an
alternate payee under such order at any time, irrespective of whether the
Participant has attained his “earliest retirement age” (within the meaning of
Section 414(p)(4)(B) of the Code) under the Plan.  A distribution to an alternate payee prior to
the Participant’s attainment of his earliest retirement age shall, however, be
available only if the order specifies distribution at that time or permits an
agreement

 

49

 

between the Plan and the alternate payee to
authorize an earlier distribution. 
Nothing in this paragraph shall, however, give a Participant a right to
receive distribution at a time otherwise not permitted under the Plan nor does
it permit the alternate payee to receive a form of payment not otherwise
permitted under the Plan or under said Section 414(p) of the Code.

 

14.5         MERGER OF PLANS.  In the case of any merger or consolidation of
this Plan with, or transfer of the assets or liabilities of the Plan to, any
other plan, the terms of such merger, consolidation or transfer shall be such
that each Participant would receive (in the event of termination of this Plan
or its successor immediately thereafter) a benefit which is no less than what
the Participant would have received in the event of termination of this Plan
immediately before such merger, consolidation or transfer.

 

14.6         INVESTMENT
EXPERIENCE NOT A FORFEITURE.  The
decrease in value of any Account due to adverse investment experience shall not
be considered an impermissible “forfeiture” of any vested balance.

 

14.7         CONSTRUCTION.  Wherever appropriate, the use of the
masculine gender shall be extended to include the feminine and/or neuter or
vice versa; and the singular form of words shall be extended to include the
plural; and the plural shall be restricted to mean the singular.

 

14.8         GOVERNING
DOCUMENTS.  A Participant’s rights
shall be determined under the terms of the Plan as in effect at the Participant’s
date of separation from Service.

 

14.9         GOVERNING LAW.  The provisions of this Plan shall be
construed under the laws of the state of the situs of the Trust, except to the
extent such laws are preempted by Federal law.

 

14.10       HEADINGS.  The Article headings and Section numbers are
included solely for ease of reference. 
If there is any conflict between such headings or numbers and the text
of the Plan, the text shall control.

 

14.11       COUNTERPARTS.  This Plan may be executed in any number of
counterparts, each of which shall be deemed an original; said counterparts
shall constitute but one and the same instrument, which may be sufficiently
evidenced by any one counterpart.

 

14.12       LOCATION
OF PARTICIPANT OR BENEFICIARY UNKNOWN. 
In the event that all or any portion of the distribution payable to a
Participant or to a Participant’s Beneficiary hereunder shall, at the
expiration of five (5) years after it shall become payable, remain unpaid
solely by reason of the inability of the Administrator to ascertain the whereabouts
of such Participant or Beneficiary, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent
effort, the amount so distributable shall be used to pay Plan expenses and/or
handled in the same manner as a forfeiture under Section 6.2 pursuant to this
Plan.  In the event a Participant or
Beneficiary is located subsequent to the forfeiture of his Account balance,
such Account balance shall be restored.

 

IN WITNESS WHEREOF, the Employer, by its duly
authorized officer, has caused this Plan to be executed on the 24th day of May,
2000.

 

50

 

	
   

  	
  HORSESHOE GAMING HOLDING CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk
  Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

51

 

ADOPTION
AGREEMENT

 

HORSESHOE
GAMING HOLDING CORP. 401(k) PLAN

 

WHEREAS, the Board of Directors of HORSESHOE
GAMING HOLDING CORP. established the Horseshoe Gaming Holding Corp. 401(k) Plan
(hereinafter referred to as the “Plan”) in such form that other employers may assume the obligations of the Plan with respect to their
employees: and

 

WHEREAS, Robinson Property Group L.P.
(hereinafter referred to as the “Employer”) herefore adopted the Plan for the benefit of its employees; and

 

WHEREAS, the Plan was subsequently merged and restated in its entirety
and the Employer desires to adopt the restated plan (“Restated Plan”);

 

NOW, THEREFORE, the Employer hereby assumes
the obligations of the Restated Plan with respect to its employees, effective
as of April 1, 2000.

 

	
   

  	
  ROBINSON PROPERTY GROUP L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The foregoing Adoption
  Agreement is hereby

  acknowledged and confirmed, and the
  undersigned
hereby joins in the same this
  24th day of May,

  2000.

  
	
   

  	
   

  	
   

  
	
   

  	
  HORSESHOE GAMING HOLDING CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
					

 

 

ADOPTION
AGREEMENT

 

HORSESHOE
GAMING HOLDING CORP. 401(k) PLAN

 

WHEREAS, the Board of Directors of HORSESHOE
GAMING HOLDING CORP. established the Horseshoe Gaming Holding Corp. 401(k) Plan
(hereinafter referred to as the “Plan”) in such form that other employers may assume the obligations of the Plan with respect to their
employees: and

 

WHEREAS, Horseshoe Entertainment L.P.
(hereinafter referred to as the “Employer”) herefore adopted the Plan for the benefit of its employees; and

 

WHEREAS, the Plan was subsequently merged and restated in its entirety
and the Employer desires to adopt the restated plan (“Restated Plan”);

 

NOW, THEREFORE, the Employer hereby assumes
the obligations of the Restated Plan with respect to its employees, effective
as of April 1, 2000.

 

	
   

  	
  HORSESHOE ENTERTAINMENT, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The foregoing Adoption
  Agreement is hereby

  acknowledged and confirmed, and the
  undersigned
hereby joins in the same this
  24th day of May,

  2000.

  
	
   

  	
   

  	
   

  
	
   

  	
  HORSESHOE GAMING HOLDING CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  

 

 

ADOPTION
AGREEMENT

 

HORSESHOE
GAMING HOLDING CORP. 401(k) PLAN

 

WHEREAS, the Board of Directors of HORSESHOE
GAMING HOLDING CORP. established the Horseshoe Gaming Holding Corp. 401(k) Plan
(hereinafter referred to as the “Plan”) in such form that other employers may assume the obligations of the Plan with respect to their
employees: and

 

WHEREAS, Empress Casino Joliet Corporation
(hereinafter referred to as the “Employer”) herefore adopted the Plan for the benefit of its employees; and

 

NOW, THEREFORE, the Employer hereby assumes the
obligations of the Plan with respect to its employees, effective as of April 1,
2000.

 

	
   

  	
  EMPRESS CASINO JOLIET CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The foregoing Adoption
  Agreement is hereby

  acknowledged and confirmed, and the
  undersigned
hereby joins in the same this
  24th day of May,

  2000.

  
	
   

  	
   

  	
   

  
	
   

  	
  HORSESHOE GAMING HOLDING CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  

 

 

ADOPTION
AGREEMENT

 

HORSESHOE
GAMING HOLDING CORP. 401(k) PLAN

 

WHEREAS, the Board of Directors of HORSESHOE
GAMING HOLDING CORP. established the Horseshoe Gaming Holding Corp. 401(k) Plan
(hereinafter referred to as the “Plan”) in such form that other employers may assume the obligations of the Plan with respect to their
employees: and

 

WHEREAS, Empress Casino Hammond Corporation
(hereinafter referred to as the “Employer”) desires to assume the obligations
of the Plan with respect to its employees,

 

NOW, THEREFORE, the Employer hereby assumes
the obligations of the Plan with respect to its employees, effective as of
April 1, 2000.

 

	
   

  	
  EMPRESS CASINO HAMMOND

  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The foregoing Adoption
  Agreement is hereby

  acknowledged and confirmed, and the
  undersigned
hereby joins in the same this
  24th day of May,

  2000.

  
	
   

  	
   

  	
   

  
	
   

  	
  HORSESHOE GAMING HOLDING CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Kirk Saylor

  	
   

  
	
   

  	
   

  	
  Authorized Officer

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