Document:

EXHIBIT 10.19
                                                                   -------------

                              CONSULTING AGREEMENT
                              --------------------

     This Consulting Agreement (the "Agreement") is made and entered into as of
the 21st day of April, 2003, by and between Signature Eyewear, Inc., a
California corporation (the "Company"), and Dartmouth Commerce of Manhattan,
Inc., a California corporation ("Consultant"), with reference to the following
facts and objectives:

     (i) In connection with the acquisition by Consultant of a principal
minority ownership interest in the Company, and the restructuring of the
management and debt of the Company, the Company desires to obtain the services
of Consultant described herein, and Consultant desires to provide such services,
on the terms and conditions set forth herein.

     NOW, THEREFORE, the parties agree as follows:

     1. Engagement. The Company hereby engages Consultant, and Consultant hereby
accepts such engagement, to perform the consulting services described herein.

     2. Term. The term of this Agreement shall be a period of three (3) years,
commencing on the date hereof and continuing until March 31, 2005.

     3. Consulting Services. Consultant shall provide the Company with general
business advice and assistance in connection with the reorganization of its
management and debt, together with assistance in connection with the Company's
continuing restructuring and growth opportunities. Consultant shall use its
commercially reasonable best efforts to provide the personal services of Richard
Torre to provide the consulting services required hereby. If Consultant is
unable to provide the services of Richard Torre, the Company shall have the
right to accept or reject any individual substituted by Consultant to provide
its services hereunder, in the Company's sole and absolute discretion.

     4. Time and Place of Consulting Services. Consultant shall make the
services of Mr. Torre available from time to time during regular business hours
or otherwise, as and when reasonably requested by the Company. Consultant shall
not be required to devote a minimum number of hours to the affairs of the
Company; provided, however, that Consultant shall devote such productive
energies, abilities, and time as reasonably are required to perform its duties
hereunder. The Company shall use its reasonable best effort to appoint Mr. Torre
as Chairman of its Board of Directors for the

<PAGE>

three year term of this Agreement. Consultant shall assist in facilitating the
acceptance of such appointment.

     5. Compensation. In consideration of the consulting services to be provided
hereunder, the Company will pay Consultant an aggregate consulting fee of
$165,000 for the services to be provided hereunder, payable in equal monthly
installments over the term hereof, or otherwise as the Company and Consultant
shall agree. The parties acknowledge and agree that, due to the nature of the
services to be provided hereunder, the bulk of Consultant's services will be
required in the early portion of the term, with the Company's need for
Consultant's assistance diminishing as the Company adjusts to its reorganization
and restructuring. Accordingly, the parties agree that the full amount of the
consulting fee shall be earned in full by Consultant upon Consultant's
completion of one full year of services hereunder, notwithstanding the payment
of the consulting fee over the entire term hereof. Other than the compensation
specifically described herein, neither Consultant nor any of its employees shall
be entitled to any other compensation, employee related benefits, group plans,
bonuses, or any other benefits generally applicable to employees of the Company.

     6. Expenses. The Company shall pay directly or reimburse Consultant for all
reasonable business related expenses incurred by Consultant in connection with
the services to be provided by Consultant hereunder.

     7. Independent Contractor. In performing the services required hereunder,
Consultant is, and at all times shall remain, an independent contractor.
Consultant shall not have, and no
agent of Consultant shall represent himself as having, the authority to sign any
documents, enter into any agreements, or assume any liabilities on behalf of the
Company. Consultant shall be solely responsible, and the Company shall assume no
responsibility for: (i) the payment of all business taxes of Consultant,
including, but not limited to, federal and state income, franchise, and payroll
taxes; and (ii) all business licenses and insurance required of or desired by
Consultant.

     8. Termination.

          8.1 Either party may terminate this Agreement prior to the expiration
of the term hereof, on written notice to the other party of any of the events or
circumstances set forth below, and the failure of the other party to remedy the
event or circumstance within thirty (30) days after the date of such written
notice:

               8.1.1 The breach by either party of any material covenant or
obligation of this Agreement; or

<PAGE>

               8.1.2 If Consultant is unable to provide the personal services of
Richard Torre, the failure of Consultant to provide the services of a substitute
individual who is acceptable to the Company, in its sole and absolute
discretion; or

               8.1.3 Conduct by Consultant, including Mr. Torre or any other
agent appointed by Consultant to provide the services required hereunder, which
conduct results in the conviction of a felony or other crime against the
Company, or the plea of nolo contendere in connection with the allegation of any
such crime, or other conduct that is a violation of law or public or written
company policy and that could reasonable be expected to have a material adverse
effect on the Company, its business or reputation.

          8.2 Either party may terminate this Agreement without cause on sixty
(60) days written notice to the other party.

          8.3 If this Agreement is terminated by the Company for cause, or by
Consultant without cause, the Company shall have no obligation to pay Consultant
the balance of the consulting fees provided for hereunder for the unexpired term
hereof. If this Agreement is terminated by the Company without cause, or by
Consultant for cause, the Company shall continue to pay to Consultant the
consulting fees provided for hereunder, as and when such fees otherwise would
otherwise have been due.

     9. Notices. All notices, demands and other communications required,
desired, or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been given immediately if personally delivered or sent
by telecopier, cable, telex or other electronic transmitting device; twenty-four
hours after being delivered to overnight delivery couriers; or five days after
mailing by registered or certified mail, postage prepaid, return receipt
requested, addressed in accordance with the addresses set forth below, or to
such other addresses of which notice is given pursuant to this Section.

                        To Consultant:     Dartmouth Commerce of Manhattan, Inc.
                                           4621 Teller Avenue
                                           Suite 200
                                           Newport Beach, California 92660
                                           Telephone:  (949) 851-5900

<PAGE>

                        To the Company:    Signature Eyewear, Inc.
                                           498 North Oak Street
                                           Inglewood, California 90302
                                           Attention:  Mr. Michael Prince
                                           Telephone:  (310) 330-2700
                                           Facsimile:  (310) 330-2770

     10. Miscellaneous. This Agreement contains the entire agreement and
understanding between the parties hereto and supersedes all prior oral or
written negotiations and understandings of any kind with respect to the subject
matter hereof. If any action is brought to enforce or interpret this Agreement,
the prevailing party will be entitled to recover all attorneys fees actually
incurred in the action and in enforcing any judgment or award granted therein.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California. No supplement, amendment, or modification hereof shall
be valid unless it shall be in writing and signed by all parties hereto. This
Agreement may be executed in counterparts, each of which shall be deemed to be
an original, and all of which taken together shall constitute one and the same
instrument.

     IN WITNESS WHEREOF, the Company and Consultant have executed this
Consulting Agreement as of the day and year first written above.

SIGNATURE EYEWEAR, INC. a                       DARTMOUTH COMMERCE OF
California corporation                          MANHATTAN, INC., a California
                                                corporation

By: _________________________                   By: _______________________
      Michael Prince                                  Richard Torre

Its:  _________________________                 Its: _______________________Exhibit
10.1

 

EXECUTION COPY

 

 

 

LOAN AND SECURITY AGREEMENT

 

by and among

 

EARL SCHEIB, INC. and EARL SCHEIB
REALTY CORP.,

 

collectively, as Borrower,

 

and

 

WELLS FARGO FOOTHILL, INC.,

 

as Lender

 

Dated as of August 4, 2003

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”),
is entered into as of August 4, 2003 between WELLS FARGO FOOTHILL, INC., a
California corporation (“Lender”), EARL
SCHEIB, INC., a Delaware corporation (“Parent”),  EARL
SCHEIB REALTY CORP., a California corporation (“ES Realty”),
(Parent and ES Realty are referred to hereinafter collectively, jointly and
severally, as the “Borrower”).

 

The parties agree as
follows:

 

1.                   DEFINITIONS AND CONSTRUCTION.

 

1.1  Definitions.  As used in this Agreement, the following
terms shall have the following definitions:

 

“Account” means an
account (as that term is defined in the Code), and any and all supporting
obligations in respect thereof.

 

“Account Debtor”
means any Person who is obligated under, with respect to, or on account of, an
Account, chattel paper, or a General Intangible.

 

“Additional Documents”
has the meaning set forth in Section 4.4(c).

 

“Additional Reserve”
means the amount of reserves that Lender has established with respect to the
Reynolds Overtime Claim, which Additional Reserve shall equal $0 at such time
(and at all times thereafter) as Borrower has delivered to Lender evidence
satisfactory to Lender that (a) Borrower and its Subsidiaries have no further
obligations (including all amounts owing) in connection with the Reynolds
Overtime Claim and (b) a final judgment has been entered on the Reynolds
Overtime Claim.  The Additional Reserve
shall initially equal $2,500,000.  Such
amount has been established by Lender solely for the purposes of the Borrowings
hereunder and under no circumstances shall be used for any other purpose,
including, without limitation, by any Person or Governmental Authority as an
admission, determination, or estimation of the value of the underlying
liability to which such Additional Reserve relates.

 

“Advances” has the
meaning set forth in Section 2.1(a).

 

“Affiliate” means,
as applied to any Person, any other Person who, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person.  For purposes
of this definition, “control” means the possession, directly or indirectly
through one or more intermediaries, of the power to direct

 

1

 

the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise.

 

“Agreement” has
the meaning set forth in the preamble to this Agreement.

 

“Annual Compliance
Certificate” means a certificate substantially in the form of Exhibit E
delivered by the Vice President and Chief Financial Officer of Borrower to
Lender.

 

“Assignee” has the
meaning set forth in Section 14.1(a).

 

“Authorized Person”
means any officer or employee of Borrower.

 

“Availability”
means, as of any date of determination, the amount that Borrower is entitled to
borrow as Advances hereunder (after giving effect to all then outstanding
Obligations and all sublimits and reserves then applicable hereunder).

 

“Bankruptcy Code”
means title 11 of the United States Code, as in effect from time to time.

 

“Base Rate” means,
the rate of interest announced, from time to time, within Wells Fargo at its
principal office in San Francisco as its “prime rate”, with the understanding
that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto and is
evidenced by the recording thereof after its announcement in such internal
publications as Wells Fargo may designate.

 

“Base Rate Loan”
means the portion of the Advances that bears interest at a rate determined by
reference to the Base Rate.

 

“Base Rate Margin”
means 4 percentage points.

 

“Benefit Plan”
means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has
been an “employer” (as defined in Section 3(5) of ERISA) within the past 6
years.

 

“Board of Directors”
means the board of directors (or comparable managers) of Borrower or any
committee thereof duly authorized to act on behalf of the board of directors
(or comparable managers).

 

“Books” means
Borrower’s and the Guarantors’ now owned or hereafter acquired books and
records (including (a) all of their Records indicating, summarizing, or
evidencing their assets (including the Collateral) or liabilities, (b) all of
Borrower’s and the Guarantors’ Records relating to their business operations or
financial condition, and (c) all of their goods or General Intangibles related
to such information).

 

2

 

“Borrower” has the
meaning set forth in the preamble to this Agreement.

 

“Borrower Collateral”
means all of each Borrower’s now owned or hereafter acquired right, title, and
interest in and to each of the following:

 

(a)         all of its Accounts,

 

(b)        all of its Books,

 

(c)         all of its commercial
tort claims,

 

(d)        all of its Deposit
Accounts,

 

(e)         all of its Equipment,

 

(f)           all of its General
Intangibles,

 

(g)        all of its Inventory,

 

(h)        all of its Investment
Property (including all of its securities and Securities Accounts),

 

(i)            all of its Real
Property,

 

(j)            all of its Negotiable
Collateral,

 

(k)         money or other assets of
such Borrower that now or hereafter come into the possession, custody, or
control of the Lender, and

 

(l)            the proceeds and
products, whether tangible or intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the foregoing, and any and all
Accounts, Books, Deposit Accounts, Equipment, General Intangibles, Inventory,
Investment Property, Negotiable Collateral, Real Property, money, or other
tangible or intangible property resulting from the sale, exchange, collection,
or other disposition of any of the foregoing, or any portion thereof or
interest therein, and the proceeds thereof.

 

“Borrower Subordinated
Debt” has the meaning set forth in Section 11.4.

 

“Borrowing” means
a borrowing hereunder consisting of Advances.

 

“Borrowing Base”
means, as of any date of determination, the lesser
of:

 

(a)         $10,000,000 and

 

(b)        the result of:

 

3

 

(i)                                     70% multiplied
by

 

(ii)                                  the Quick Sale Value of all Eligible Real
Property, minus

 

(iii)                               the sum of

 

(A) outstanding
Advances made to Borrower,

 

(B) the Contingent Reserve,

 

(C) the Environmental Reserve,

 

(D) in the event that the outstanding Advances equal
or exceed $5,500,000, the Additional Reserve, and

 

(E) the aggregate amount of reserves (if any)
established by Lender under Section 2.1(b).

 

“Business Day”
means any day that is not a Saturday, Sunday, or other day on which banks are
authorized or required to close in the State of California.

 

“Capital Expenditures”
means, with respect to any Person for any period, the sum of (a) the aggregate
of all expenditures by such Person and its Subsidiaries during such period that
are capital expenditures as determined in accordance with GAAP, whether such
expenditures are paid in cash or financed, and (b) to the extent not covered by
clause (a), the aggregate of all expenditures by such Person and its
Subsidiaries during such period to acquire by purchase or otherwise the
business or capitalized assets of, or the Capital Stock of, any other Person.

 

“Capital Lease”
means a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.

 

“Capitalized Lease
Obligation” means that portion of the obligations under a Capital Lease
that is required to be capitalized in accordance with GAAP.

 

“Cash Equivalents”
means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or issued by any agency thereof and backed by
the full faith and credit of the United States, in each case maturing within 1
year from the date of acquisition thereof, (b) marketable direct
obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”) or Moody’s Investor
Service, Inc. (“Moody’s”), (c) commercial paper maturing no more
than 270 days from the date of acquisition thereof and, at the time of
acquisition, having a rating of at least A-1, from S&P or at least P-1 from
Moody’s, (d) certificates of

 

4

 

deposit or bankers’
acceptances maturing within 1 year from the date of acquisition thereof issued
by any bank organized under the laws of the United States or any state thereof
having at the date of acquisition thereof combined capital and surplus of not
less than $100,000,000, (e) demand Deposit Accounts maintained with any
bank organized under the laws of the United States or any state thereof so long
as the amount maintained with any individual bank is less than or equal to
$250,000 and is insured by the Federal Deposit Insurance Corporation, and
(f) Investments in money market funds substantially all of whose assets
are invested in the types of assets described in clauses (a) through (e)
above.

 

“Cash Management
Account” has the meaning set forth in Section 9.1(m)(i).

 

“Cash Management
Agreements” means those certain cash management agreements, in form and
substance satisfactory to Lender, each of which is among Borrower or one of the
Guarantors, Lender, and one of the Cash Management Banks.

 

“Cash Management Bank”
has the meaning set forth in Section 9.1(m)(i).

 

“Change of Control”
means that (a) any “person” or “group” (within the meaning of Sections 13(d)
and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 30%, or more, of the
Stock of Borrower having the right to vote for the election of members of the
Board of Directors (other than Gabelli Funds, Inc. and Affiliates), or (b) a
majority of the members of the Board of Directors do not constitute Continuing
Directors, or (c) Parent ceases to own, directly or indirectly, and control
100% of the outstanding Stock of each of the Guarantors extant as of the
Closing Date.

 

“City National Bank”
means City National Bank, a national banking association.

 

“Closing Date”
means the date of the making of the initial Advance (or other extension of
credit) hereunder or the date on which Lender sends Borrower a written notice
that each of the conditions precedent set forth in Section 3.1 either
have been satisfied or have been waived.

 

“Closing Date Business
Plan” means the set of Projections of Parent for the 1 year period
following the Closing Date (on a quarter by quarter basis), in form and
substance (including as to scope and underlying assumptions) reasonably
satisfactory to Lender.

 

“Code” means the
California Uniform Commercial Code, as in effect from time to time.

 

“Collateral” means
all assets and interests in assets and proceeds thereof now owned or hereafter
acquired by Borrower or the Guarantors in or upon which a Lien is granted under
any of the Loan Documents.

 

5

 

“Collateral Access
Agreement” means a landlord waiver, bailee letter, or acknowledgement
agreement of any lessor, warehouseman, processor, consignee, or other Person in
possession of, having a Lien upon, or having rights or interests in Borrower’s
or the Guarantors’ Books, Equipment, Inventory or other assets of Borrower or
the Guarantors in each case, in form and substance reasonably satisfactory to
Lender.

 

“Collections”
means all
cash, checks, notes, instruments, and other items of payment
(including insurance proceeds, proceeds of cash sales, rental proceeds, and tax
refunds).

 

“Commercial Tort Claim
Assignment” has the meaning set forth in Section 4.4(b).

 

“Contingent Reserve”
means, as of any date of determination, the amount of reserves that Lender has
established with respect to all contingent liabilities of Borrower and its
Subsidiaries, including but not limited to, taxes, levies, imposts, duties,
fees, assessments, penalties, interest and other charges related thereto
imposed or assessed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein that is claimed by such taxing authority to
be then due and owing to such taxing authority by Borrower or its Subsidiaries,
which Contingent Reserve is subject to increase by Lender on a quarterly basis
as of March 2004 by an amount equal to $150,000 (or a greater amount equal to
the interest or other charges that Lender determines will accrue during the
quarter subsequent to such date of determination), and which Contingent Reserve
shall equal $0 at such time (and at all times thereafter) as (a) Borrower has
delivered to Lender evidence satisfactory to Lender of payment in full
settlement by Borrower or any of its Subsidiaries of taxes, levies, imposts,
duties, fees, assessments, penalties, interest and other related charges
imposed or assessed by the Internal Revenue Service or other taxing authority
in connection with the Notice of Disallowance, and (b) Lender has obtained a
Phase-I environmental report and a real estate survey satisfactory to Lender in
its sole discretion, which shall be prepared by environmental consultants and
surveyors designated by Lender, for each of the 5 parcels of Real Property
Collateral located in California with the highest appraisal values as
determined by Lender.  The Contingent
Reserve shall initially equal $3,000,000. 
Such amount has been established by Lender solely for the purposes of
the Borrowings hereunder and under no circumstances shall be used for any other
purpose, including, without limitation, by any Person or Governmental Authority
as an admission, determination or estimation of the value of the underlying
liability to which such Contingent Reserve relates.

 

“Continuing Director”
means (a) any member of the Board of Directors who was a director (or
comparable manager) of Borrower on the Closing Date, and (b) any individual who
becomes a member of the Board of Directors after the Closing Date if such
individual was appointed or nominated for election to the Board of Directors by
a majority of the Continuing Directors, but excluding any such individual
originally proposed for election in opposition to the Board of Directors in
office at the Closing Date in an actual or threatened

 

6

 

election contest relating
to the election of the directors (or comparable managers) of Borrower and whose
initial assumption of office resulted from such contest or the settlement
thereof.

 

“Control Agreement”
means a control agreement substantially in the form attached hereto as Exhibit
D, in form and substance satisfactory to Lender, executed and delivered by
Borrower or one of the Guarantors, Lender, and the applicable securities
intermediary with respect to a Securities Account or bank with respect to a
Deposit Account.

 

“Daily Balance”
means, as of any date of determination and with respect to any Obligation, the
amount of such Obligation owed at the end of such day.

 

“Default” means an
event, condition, or default that, with the giving of notice, the passage of
time, or both, would be an Event of Default.

 

“Deposit Account”
means any deposit account (as that term is defined in the Code).

 

“Designated Account”
means the Deposit Account of Borrower identified on Schedule D-1.

 

“Designated Account
Bank” has the meaning ascribed thereto on Schedule D-1.

 

“Disbursement Letter”
means an instructional letter executed and delivered by Borrower to Lender
regarding the extensions of credit to be made on the Closing Date, the form and
substance of which is reasonably satisfactory to Lender.

 

“Dollars” or “$”
means United States dollars.

 

“Due Diligence Letter”
means the due diligence letter sent by Lender’s counsel to Borrower, together
with Borrower’s completed responses to the inquiries set forth therein, the
form and substance of such responses to be reasonably satisfactory to Lender.

 

“EBITDA” means,
with respect to any fiscal period, Borrower’s and its Subsidiaries’
consolidated net earnings (or loss), plus interest expense, income taxes,
restructuring charges comprised of lease termination costs and exit costs
related to the closing of shops, impairment write-downs for long-lived assets,
and depreciation and amortization for such period, as determined in accordance
with GAAP, minus
extraordinary gains, interest income and gains from the disposition of fixed
assets.

 

“Eligible Real
Property” means, on any date of determination, Real Property (a) listed on Schedule
E-1 or (b) for which Lender has received (i) an appraisal prepared in
accordance with FIRREA and satisfactory to Lender in its sole discretion, which
shall be prepared by an appraiser or appraisers designated by Lender, (ii) a
preliminary title report

 

7

 

satisfactory to Lender (iii) a Phase-I environmental
report satisfactory to Lender in its sole discretion, which shall be prepared
by an environmental consultant or consultants designated by Lender and (iv) for
each parcel of Real Property located outside California, a real estate survey
satisfactory to Lender in its sole discretion, which shall be prepared by a
surveyor or surveyors designated by Lender.

 

“Eligible Transferee”
means (a) a commercial bank organized under the laws of the United States,
or any state thereof, and having total capital in excess of $250,000,000,
(b) a commercial bank organized under the laws of any other country which
is a member of the Organization for Economic Cooperation and Development or a
political subdivision of any such country and which has total capital in excess
of $250,000,000, provided that such bank is acting through a branch or agency
located in the United States, (c) a finance company, insurance company, or
other financial institution or fund that is engaged in making, purchasing, or otherwise
investing in commercial loans in the ordinary course of its business and having
(together with its Affiliates) total capital in excess of $250,000,000,
(d) any Affiliate (other than individuals) of a Lender, (e) so long as no
Event of Default has occurred and is continuing, any other Person approved by
Borrower (which approval of Borrower shall not be unreasonably withheld,
delayed, or conditioned), and (f) during the continuation of an Event of
Default, any other Person approved by Lender.

 

“Environmental Actions”
means any complaint, summons, citation, notice, directive, order, claim,
litigation, investigation, judicial or administrative proceeding, judgment,
letter, or other communication from any Governmental Authority, or any third
party involving violations of Environmental Laws or releases of Hazardous
Materials from (a) any assets, properties, or businesses of Borrower, its
Subsidiaries, or any of their predecessors in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower, its Subsidiaries, or any of their
predecessors in interest.

 

“Environmental Law”
means any applicable federal, state, provincial, foreign or local statute, law,
rule, regulation, ordinance, code, binding and enforceable guideline, binding
and enforceable written policy, or rule of common law now or hereafter in
effect and in each case as amended, or any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, to the extent binding on Borrower or its Subsidiaries,
relating to the environment, employee health and safety, or Hazardous
Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33
USC § 1251 et  seq; the Toxic Substances Control Act, 15 USC,
§ 2601 et  seq; the Clean Air Act, 42 USC § 7401 et  seq.;
the Safe Drinking Water Act, 42 USC. § 3803 et  seq.; the Oil
Pollution Act of 1990, 33 USC. § 2701 et  seq.; the Emergency
Planning and the Community Right-to-Know Act of 1986, 42 USC. § 11001 et
seq.; the Hazardous Material Transportation Act, 49 USC § 1801 et
seq.; and the Occupational Safety and Health Act, 29 USC. §651 et
seq. (to the extent it regulates occupational exposure to Hazardous
Materials);

 

8

 

any state and local or
foreign counterparts or equivalents, in each case as amended from time to time.

 

“Environmental
Liabilities and Costs” means all liabilities, monetary obligations,
Remedial Actions, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred by Borrower or its Subsidiaries as a result of any claim or
demand by any Governmental Authority or any third party, and which relate to
any Environmental Action.

 

“Environmental Lien”
means any Lien in favor of any Governmental Authority for Environmental
Liabilities and Costs.

 

“Environmental
Reserve” means, as of any date of determination, the amount of reserves the
Lender has established for potential Environmental Liabilities and Costs with
respect to Eligible Real Property.

 

“Environmental Risk
Report” means (a) a copy of Borrower’s and its Subsidiaries’ written plans
and procedures (if any) for compliance with all Environmental Laws, (b) a
description of any release, discharge, disposal or improper storage of any
Hazardous Materials by Borrower or any of its Subsidiaries on or affecting any
Real Property and (c) Borrower’s estimate of the Environmental Liabilities and
Costs and costs of other Remedial Actions that are then known or reasonably
anticipated by Borrower with respect to any Real Property.

 

“Equipment” means
equipment (as that term is defined in the Code) and includes machinery, machine
tools, motors, furniture, furnishings, fixtures, vehicles (including motor
vehicles), computer hardware, tools, parts, and goods (other than consumer
goods, farm products, or Inventory), wherever located, including all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute thereto.

 

“ERISA Affiliate”
means (a) any Person subject to ERISA whose employees are treated as employed
by the same employer as the employees of Borrower or its Subsidiaries under IRC
Section 414(b), (b) any trade or business subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower or its
Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302
of ERISA and Section 412 of the IRC, any organization subject to ERISA that is
a member of an affiliated service group of which Borrower or any of its
Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes
of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA
that is a party to an arrangement with Borrower or any of

 

9

 

its Subsidiaries and
whose employees are aggregated with the employees of Borrower or its
Subsidiaries under IRC Section 414(o).

 

“ES Realty” has
the meaning set forth in the preamble to this Agreement.

 

“Event of Default”
has the meaning set forth in Section 8.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, as in effect from time
to time.

 

“Fee
Letter” means that certain fee letter, dated as of even date herewith,
between Borrower and Lender, in form and substance reasonably satisfactory to
Lender.

 

“FEIN” means
Federal Employer Identification Number.

 

“FIRREA” means the
Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, as in effect from time to time.

 

“Funding Date”
means the date on which a Borrowing occurs.

 

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

 

“General Intangibles”
means general intangibles (as that term is defined in the Code), including
payment intangibles, contract rights, rights to payment, rights arising under
common law, statutes, or regulations, choses or things in action, goodwill,
patents, trade names, trade secrets, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, insurance premium rebates, tax refunds, and tax
refund claims, and any and all supporting obligations in respect thereof, and
any other personal property other than Accounts, Deposit Accounts, goods,
Investment Property, and Negotiable Collateral.

 

“Governing Documents”
means, with respect to any Person, the certificate or articles of
incorporation, by-laws, or other organizational documents of such Person.

 

“Governmental
Authority” means any federal, state, local, or other governmental or
administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.

 

“Guarantor” means,
collectively, the Material Guarantors and the Nonmaterial Guarantors.

 

10

 

“Guarantor Security
Agreement” means one or more security agreements executed and delivered by
each Guarantor in favor of Lender, in each case, in form and substance
reasonably satisfactory to Lender.

 

“Guaranty” means
that certain general continuing guaranty executed and delivered by each Guarantor
in favor of Lender in form and substance reasonably satisfactory to Lender.

 

“Hazardous Materials”
means (a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as “hazardous
substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or
any other formulation intended to define, list, or classify substances by
reason of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum,
or petroleum derived substances, natural gas, natural gas liquids, synthetic
gas, drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or
geothermal resources, (c) any flammable substances or explosives or any
radioactive materials, and (d) asbestos in any form or electrical equipment
that contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.

 

“Hedge Agreement”
means any and all agreements or documents now existing or hereafter entered
into by Borrower or its Subsidiaries that provide for an interest rate, credit,
commodity or equity swap, cap, floor, collar, forward foreign exchange
transaction, currency swap, cross currency rate swap, currency option, or any
combination of, or option with respect to, these or similar transactions, for
the purpose of hedging Borrower’s or its Subsidiaries’ exposure to fluctuations
in interest or exchange rates, loan, credit exchange, security or currency
valuations or commodity prices.

 

“Inactive Subsidiary”
means any Subsidiary of Parent (other than ES Realty) that is not a Guarantor.

 

“Indebtedness”
means (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or
other obligations in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) Capitalized Lease
Obligations, (d) all obligations or liabilities of others secured by a Lien on
any asset of a Person or its Subsidiaries, irrespective of whether such
obligation or liability is assumed, (e) all obligations to pay the deferred
purchase price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade practices),
(f) all obligations owing under Hedge Agreements, and (g) any obligation
guaranteeing or intended to guarantee (whether directly or indirectly
guaranteed, endorsed, co-made, discounted, or sold with recourse) any
obligation of any other Person that constitutes Indebtedness under any of
clauses (a) through (f) above.

 

11

 

“Indemnified
Liabilities” has the meaning set forth in Section 11.3.

 

“Indemnified Person”
has the meaning set forth in Section 11.3.

 

“Insolvency Proceeding”
means any proceeding commenced by or against any Person under any provision of
the Bankruptcy Code or under any other state or federal bankruptcy or
insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.

 

“Intangible Assets”
means, with respect to any Person, that portion of the book value of all of
such Person’s assets that would be treated as intangibles under GAAP.

 

“Intercompany
Subordination Agreement” means a subordination agreement executed and
delivered by Borrower and each of its Subsidiaries and Lender, the form and
substance of which is reasonably satisfactory to Lender.

 

“Inventory” means
inventory (as that term is defined in the Code).

 

“Investment”
means, with respect to any Person, any investment by such Person in any other
Person (including Affiliates) in the form of loans, guarantees, advances, or
capital contributions, purchases or other acquisitions of Indebtedness, Stock,
or all or substantially all of the assets of such other Person (or of any
division or business line of such other Person), and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP (excluding (a) commission, travel, and similar advances to officers and
employees of such Person made in the ordinary course of business, and (b) bona fide
Accounts arising in the ordinary course of business consistent with past
practices).

 

“Investment Property”
means investment property (as that term is defined in the Code), and any and
all supporting obligations in respect thereof.

 

“IRC” means the
Internal Revenue Code of 1986, as in effect from time to time.

 

“L/C” has the
meaning set forth in Section 2.10(a).

 

“L/C Disbursement”
means a payment made by Lender pursuant to a Letter of Credit.

 

“L/C Undertaking”
has the meaning set forth in Section 2.10(a).

 

“Lender” has the
meaning set forth in the preamble to this Agreement.

 

“Lender’s Account”
means the account identified in Schedule L-1.

 

12

 

“Lender Expenses”
means all (a) costs or expenses (including taxes, and insurance premiums)
required to be paid by Borrower or its Subsidiaries under any of the Loan
Documents that are paid, advanced, or incurred by Lender, (b) reasonable fees
or charges paid or incurred by Lender in connection with Lender’s transactions
with Borrower or its Subsidiaries, including fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record
searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation) contained in
this Agreement), real estate surveys, real estate title policies and
endorsements, and environmental audits, (c) costs and expenses incurred by
Lender in the disbursement of funds to Borrower (by wire transfer or
otherwise), (d) charges paid or incurred by Lender resulting from the
dishonor of checks, (e) reasonable costs and expenses paid or incurred by
Lender to correct any default or enforce any provision of the Loan Documents,
or in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Collateral,
or any portion thereof, irrespective of whether a sale is consummated, (f) audit
fees and expenses of Lender related to audit examinations of the Books to the
extent of the fees and charges (and up to the amount of any limitation)
contained in this Agreement, (g) reasonable costs and expenses of third
party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or Lender’s relationship with Borrower or
any of its Subsidiaries, (h) Lender’s reasonable costs and expenses (including
attorneys’ fees) paid or incurred by Lender in advising, structuring, drafting,
reviewing, administering or amending the Loan Documents, and (i) Lender’s
reasonable costs and expenses (including attorneys,’ accountants,’
consultants,’ and other advisors’ fees and expenses) paid or incurred by Lender
in terminating, enforcing (including attorneys’, accountants’, consultants’,
and other advisors’ fees and expenses incurred in connection with a “workout,”
a “restructuring,” or an Insolvency Proceeding concerning Borrower or its
Subsidiaries or in exercising rights or remedies under the Loan Documents), or
defending the Loan Documents, irrespective of whether suit is brought, or in
taking any Remedial Action concerning the Collateral.

 

“Lender’s Liens”
means the Liens granted by Borrower and the Guarantors to Lender under this
Agreement or the other Loan Documents.

 

“Lender-Related Person”
means Lender, together with its Affiliates, officers, directors, employees,
attorneys, and agents.

 

“Letter of Credit”
means an L/C or an L/C Undertaking, as the context requires.

 

“Letter of Credit
Usage” means, as of any date of determination, the aggregate undrawn amount
of all outstanding Letters of Credit.

 

13

 

“Lien” means any
interest in an asset securing an obligation owed to, or a claim by, any Person
other than the owner of the asset, irrespective of whether (a) such
interest is based on the common law, statute, or contract, (b) such
interest is recorded or perfected, and (c) such interest is contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances. 
Without limiting the generality of the foregoing, the term “Lien”
includes the lien or security interest arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, conditional sale or trust receipt, or from a lease, consignment, or
bailment for security purposes and also includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases, and other title exceptions and encumbrances affecting Real Property.

 

“Liquidity Event”
means any (a) sale by Borrower of all or substantially all of its assets;
(b)  merger, consolidation,
reorganization or similar transaction by Borrower or any of the Guarantors with
or into any other entity; (c) sale, exchange or other transfer by the holders
of Stock of the Borrower representing more than 50% of the voting power of the
Borrower; (d) sale, exchange or other transfer by Borrower of the Stock of any
of the Guarantors representing more than 50% of the voting power of such
Guarantors; or (e) recapitalization, refinancing or reclassification of the Stock
of Borrower or the Guarantors.

 

“Loan Account” has
the meaning set forth in Section 2.8.

 

“Loan Documents”
means this Agreement, the Disbursement Letter, the Due Diligence Letter, the
Fee Letter, the Guarantor Security Agreement, the Guaranty, the Intercompany
Subordination Agreement, the Letters of Credit, the Mortgages, the Officers’
Certificate and other certificates of Borrower and the Guarantors delivered to
Lender hereunder, the Stock Pledge Agreement, the Trademark Security Agreement
(Trademarks and Trademark Applications), the Revolving Credit Note and any
other note or notes executed by Borrower in connection with this Agreement and
payable to Lender, the UCC Filing Authorization Letter, and any other agreement
entered into, now or in the future, by Borrower and Lender in connection with
this Agreement.

 

“Material Adverse
Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole,
(b) a material impairment of Borrower’s and its Subsidiaries’ ability to
perform their obligations under the Loan Documents to which they are parties or
of Lender’s ability to enforce the Obligations or realize upon the Collateral,
or (c) a material impairment of the enforceability or priority of the
Lender’s Liens with respect to the Collateral as a result of an action or
failure to act on the part of Borrower or the Guarantors; provided, however,
that any taxes, levies, imposts, duties, fees, assessments, penalties, interest
and other charges imposed or assessed by, but excluding any Liens in favor of,
the Internal Revenue Service or other representative or

 

14

 

taxing authority relating
to the Notice of Disallowance shall not constitute a Material Adverse Change.

 

“Material Guarantor”
means each of (a) Earl Scheib Automotive Paint Finishes, Inc., a Missouri
corporation, (b) Earl Scheib of Arizona, Inc., an Arizona corporation, (c) Earl
Scheib of California, Inc., a California corporation, (d) Earl Scheib of D.C.,
Inc., a District of Columbia corporation, (e) Earl Scheib of Hawaii, Inc., a
California corporation, (f) Earl Scheib of Illinois, Inc., an Illinois corporation,
(g) Earl Scheib of Indiana, Inc., an Indiana corporation, (h) Earl Scheib of
Louisiana, Inc., a Louisiana corporation, (i) Earl Scheib of Maryland, Inc., a
Maryland corporation, (j) Earl Scheib of Missouri, Inc., a Missouri
corporation, (k) Earl Scheib of Nevada, Inc., a Nevada corporation, (l) Earl
Scheib of New York, Inc., a New York corporation, (m) Earl Scheib of
Pennsylvania, Inc., a Pennsylvania corporation, (n) Earl Scheib of Texas, Inc.,
a Texas corporation and (o) Earl Scheib of Virginia, Inc., a Virginia
corporation.

 

“Maturity Date”
has the meaning set forth in Section 3.4.

 

“Maximum Revolver
Amount” means $10,000,000; provided, however, that until such time that the
following conditions have been fulfilled, “Maximum Revolver Amount” means $5,500,000:

 

(a)         Lender has obtained a
Phase-I environmental report satisfactory to Lender in its sole discretion,
which shall be prepared by an environmental consultant or consultants
designated by Lender, for (i) each of the 5 parcels of Real Property Collateral
located in California with the highest appraisal values as determined by Lender
and (ii) each parcel of Eligible Real Property located outside of California;

 

(b)       Lender has obtained a real
estate survey satisfactory to Lender in its sole discretion, which shall be
prepared by surveyor or surveyors designated by Lender, for each parcel of Real
Property Collateral located outside of California;

 

(c)        Lender has obtained an
appraisal prepared in accordance with FIRREA and satisfactory to Lender in its
sole discretion, which shall be prepared by an appraiser or appraisers
designated by Lender, for each parcel of Eligible Real Property located outside
of California; and

 

(d)       satisfaction of the
conditions set forth in Section 3.2(b).

 

“Monthly Compliance
Certificate” means a certificate substantially in the form of Exhibit A
delivered by the Vice President and Chief Financial Officer of Borrower to
Lender.

 

“Mortgages” means,
individually and collectively, one or more mortgages, deeds of trust, or deeds
to secure debt, executed and delivered by Borrower or the Guarantors

 

15

 

in favor of Lender, in
form and substance reasonably satisfactory to Lender, that encumber the Real
Property Collateral and the related improvements thereto.

 

“Negotiable Collateral”
means letters of credit, letter of credit rights, instruments, promissory
notes, drafts, documents, and chattel paper (including electronic chattel paper
and tangible chattel paper), and any and all supporting obligations in respect
thereof.

 

“Nonmaterial Guarantor”
means each of (a) Each Scheib of Idaho, Inc., an Idaho corporation, (b) Earl
Scheib of Colorado, Inc., a Colorado corporation, (c) Earl Scheib of Michigan,
Inc., a Michigan corporation, (d) Earl Scheib of New Mexico, Inc., a New Mexico
corporation, (e) Earl Scheib of New Jersey, Inc., a New Jersey corporation, (f)
Earl Scheib of North Carolina, Inc., a North Carolina corporation, (g) Earl
Scheib of Ohio, Inc., an Ohio corporation, (h) Earl Scheib of Oregon, Inc., an
Oregon corporation, (i) Earl Scheib of South Carolina, Inc., a South Carolina
corporation, (j) Earl Scheib of Utah, Inc., a Utah corporation, (k) Earl Scheib
of Washington, Inc., a Washington corporation, (l) Earl Scheib of West
Virginia, Inc., a West Virginia corporation, and (m) Precision Coatings, Inc.,
a Missouri corporation.

 

“Notice of
Disallowance” means that certain Notice of Disallowance received by Parent
from the Internal Revenue Service in February 1999.

 

“Obligations”
means all loans, Advances, debts, principal, interest (including any
interest that, but for the commencement of an Insolvency Proceeding, would have
accrued), contingent reimbursement obligations with respect to outstanding
Letters of Credit, premiums, liabilities (including all amounts charged to
Borrower’s Loan Account pursuant hereto), obligations (including
indemnification obligations), fees (including the fees provided for in the Fee
Letter), charges, costs, Lender Expenses (including any fees or expenses that,
but for the commencement of an Insolvency Proceeding, would have accrued),
lease payments, guaranties, covenants, and duties of any kind and description
owing by Borrower to Lender pursuant to or evidenced by the Loan Documents and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, and including all interest not paid when due and all Lender Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.  Any reference in this
Agreement or in the Loan Documents to the Obligations shall include all
extensions, modifications, renewals or alterations thereof, both prior and
subsequent to any Insolvency Proceeding.

 

“Officers’ Certificate”
means a certificate executed by the Vice President and Chief Financial Officer
of Borrower attesting to the accuracy, in all respects as of the date hereof,
of the representations and warranties of officers form submitted by Lender to
Borrower, together with Borrower’s completed responses to the inquiries set
forth therein, the form and substance of such responses to be reasonably
satisfactory to Lender.

 

16

 

“Overadvance” has
the meaning set forth in Section 2.4.

 

“Parent” has the
meaning set forth in the preamble to this Agreement.

 

“Participant” has
the meaning set forth in Section 14.1(e).

 

“Pay-Off Letter”
means a letter, in form and substance reasonably satisfactory to Lender, from
City National Bank to Lender respecting the amount necessary to repay in full
all of the obligations of Parent owing to City National Bank and obtain a
release of all of the Liens existing in favor of City National Bank in and to
the assets of Parent.

 

“Permitted Discretion”
means a determination made in the exercise of reasonable (from the perspective
of a secured asset-based lender) business judgment.

 

“Permitted
Dispositions” means (a) sales or other dispositions of Equipment that
is substantially worn, damaged, or obsolete in the ordinary course of business,
(b) sales of Inventory to buyers in the ordinary course of business,
(c) the use or transfer of money or Cash Equivalents in a manner that is
not prohibited by the terms of this Agreement or the other Loan Documents,
(d) the licensing, on a non-exclusive basis, of patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business, (e) sales or other
dispositions of the assets (including any Real Property) of Borrower or the
Guarantors located in Tempe, Arizona; Bakersfield, California; Denver,
Colorado; South Holland, Illinois; Baltimore, Maryland; Warren, Michigan; West
Detroit, Michigan; Fayetteville, North Carolina; Cleveland, Ohio; Dayton, Ohio;
Emsworth, Pennsylvania; Houston, Texas; Everett, Washington; Tacoma,
Washington; and Charleston, West Virginia.

 

“Permitted Investments”
means (a) Investments in cash and Cash Equivalents, (b) Investments
in negotiable instruments for collection, (c) advances made in connection
with purchases of goods or services in the ordinary course of business,
(d) Investments received in settlement of amounts due to Borrower or any
of the Guarantors effected in the ordinary course of business or owing to
Borrower or any of the Guarantors as a result of Insolvency Proceedings
involving an Account Debtor or upon the foreclosure or enforcement of any Lien
in favor of Borrower or the Guarantors and (e) Investments in one or more of
the Guarantors.

 

“Permitted Liens”
means (a) Liens held by Lender, (b) Liens for unpaid taxes that
either (i) are not yet delinquent, or (ii) do not constitute an Event
of Default hereunder and are the subject of Permitted Protests, (c) Liens
set forth on Schedule P-1, (d) the interests of lessors under
operating leases, (e) purchase money Liens or the interests of lessors
under Capital Leases to the extent that such Liens or interests secure
Permitted Purchase Money Indebtedness and so long as such Lien attaches only to
the asset purchased or acquired and the proceeds thereof, (f) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business and not in connection with the borrowing of money, and which Liens

 

17

 

either (i) are for
sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(g) Liens arising from deposits made in connection with obtaining worker’s
compensation, unemployment insurance, or otherwise required by applicable
social security legislation, (h) Liens or deposits to secure performance
of bids, tenders, or leases incurred in the ordinary course of business and not
in connection with the borrowing of money, (i) Liens granted as security
for surety or appeal bonds in connection with obtaining such bonds in the
ordinary course of business, (j) Liens resulting from any judgment or
award that is not an Event of Default hereunder, (k) with respect to any
Real Property, any exceptions contained in the Mortgage Policies approved by
Lender, and easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof, (l) banker’s
Liens in the nature of rights of setoff arising in the ordinary course of
business, (m) additional Liens upon any assets of Borrower (excluding Real
Property Collateral) created after the Closing Date not included in paragraphs
(a) through (l), provided that the aggregate Indebtedness secured by such Lien
and incurred on or after the Closing Date shall not exceed $500,000 in the
aggregate at any one time outstanding, and (n) any extension, renewal or
replacement of any of the foregoing.

 

“Permitted Protest”
means the right of Borrower or any of the Guarantors to protest any Lien (other
than any Lien that secures the Obligations), taxes (other than payroll taxes or
taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the Books in such amount as is required under GAAP, (b) any
such protest is instituted promptly and prosecuted diligently by Borrower or a
Guarantor, as applicable, in good faith, and (c) Lender is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Lender’s Liens.  Without limiting the foregoing, each of the
matters disclosed on Schedule P-2 shall be a Permitted Protest.

 

“Permitted Purchase
Money Indebtedness” means, as of any date of determination, Purchase Money
Indebtedness incurred after the Closing Date in an aggregate principal amount
outstanding at any one time not in excess of $300,000.

 

“Person” means
natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, joint
ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.

 

“Projections”
means Parent’s forecasted (a) balance sheets, (b) profit and loss statements,
and (c) cash flow statements, all prepared on a basis consistent with Parent’s
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.

 

“Purchase Money
Indebtedness” means Indebtedness (other than the Obligations, but including
Capitalized Lease Obligations), incurred at the time of, or within

 

18

 

90 days after, the
acquisition of any fixed assets for the purpose of financing all or any part of
the acquisition cost thereof.

 

“Quarterly Compliance
Certificate” means a certificate substantially in the form of Exhibit C
delivered by the Vice President and Chief Financial Officer of Borrower to
Lender.

 

“Quick Sale Value”
means, as of any date of determination, the amount of the net proceeds expected
from the sale of Eligible Real Property as determined by an appraiser
satisfactory to Lender.

 

“Real Property”
means any estates or interests in real property now owned or hereafter acquired
by Borrower or its Subsidiaries and the improvements thereto.

 

“Real Property
Collateral” means the parcel or parcels of Real Property identified on Schedule
R-1 and any Real Property hereafter acquired by Borrower or its
Subsidiaries.

 

“Record” means
information that is inscribed on a tangible medium or which is stored in an
electronic or other medium and is retrievable in perceivable form.

 

“Remedial Action”
means all actions taken to (a) clean up, remove, remediate, contain, treat,
monitor, assess, evaluate, or in any way address Hazardous Materials in the
indoor or outdoor environment, (b) prevent or minimize a release or threatened
release of Hazardous Materials so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment, (c)
perform any pre-remedial studies, investigations, or post-remedial operation
and maintenance activities, or (d) conduct any other actions authorized by 42
USC § 9601 et seq.

 

“Revolver Usage”
means, as of any date of determination, the sum of (a) the then extant amount
of outstanding Advances, plus (b) the then extant amount of the
Letter of Credit Usage.

 

“Revolving Credit Note”
means the promissory note substantially in the form of Exhibit B.

 

“Reynolds Overtime
Claim” means that certain case entitled Reynolds Steve v. Scheib Calif
Inc Earl, et al, civil case number BC 226353, filed with the Los Angeles
Superior Court.

 

 “SEC” means the United States
Securities and Exchange Commission and any successor thereto.

 

“Securities Account”
means a “securities account” as that term is defined in the Code.

 

19

 

“Solvent” means,
with respect to any Person on a particular date, (a) at fair valuations, the
sum of such Person’s assets is greater than all of such Person’s debts and (b)
such Person is able to pay its debts as they become due.

 

“Stock” means all
shares, options, warrants, interests, participations, or other equivalents
(regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as
such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the SEC under the Exchange Act).

 

“Stock Pledge
Agreement” means a stock pledge agreement, in form and substance reasonably
satisfactory to Lender, executed and delivered by Borrower to Lender with
respect to the pledge of Borrower’s Stock of its Subsidiaries.

 

“Subordinated Debt”  means Indebtedness of Borrower or any of its
Subsidiaries that is subordinated to the Obligations in a manner satisfactory
to Lender in its sole discretion.

 

“Subsidiary” of a
Person means a corporation, partnership, limited liability company, or other
entity in which that Person directly or indirectly owns or controls the shares
of Stock having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.

 

“Tangible Net Worth”
means, as of any date of determination, determined on a consolidated basis and
in accordance with GAAP, the result of (a) Parent’s total stockholder’s equity,
minus
(b) the sum of (i) all Intangible Assets of Borrower and its Subsidiaries, (ii)
all of Parent’s and its Subsidiaries’ prepaid expenses, and (iii) all amounts
due to Parent and its Subsidiaries from their Affiliates.

 

“Tax Lien Analysis”
means (a) a copy of all assessments, notices, correspondence or other documents
received by Borrower or any of its Subsidiaries with respect to the Notice of
Disallowance; (b) a written description from Borrower’s counsel describing the
current status of any actions, discussions or negotiations between Borrower or
its Subsidiaries and the Internal Revenue Service or other representative or
taxing authority with respect to the Notice of Disallowance; (c) Borrower’s
analysis of its and its Subsidiaries’ potential liability with respect to the
Notice of Disallowance, which shall specifically include: (i) the aggregate
amount of taxes, levies, imposts, duties, fees, assessments or related charges
claimed to be owing, (ii) the aggregate amount of all penalties or related
charges accrued or claimed to be accrued with respect to such taxes, levies,
imposts, duties, fees, assessments or related charges, (iii) the aggregate
amount of all interest or related charges accrued or claimed to be accrued with
respect to such taxes, levies, imposts, duties, fees, assessments and
penalties, (iv) the daily rate of accrual of penalties, if any, (v) the daily
rate of accrual of interest, if any, and (vi) Borrower’s good faith estimate of

 

20

 

the aggregate amount of
all taxes, levies, imposts, duties, fees, assessments, penalties, interest and
other charges related thereto then claimed to be owing from Borrower or its
Subsidiaries, and the facts and assumptions on which Parent bases such good
faith estimate; and (d) confirmation that the Internal Revenue Service or other
representative or taxing authority has not obtained a Lien upon any of the
Collateral; provided, however, that in the event that Borrower’s counsel
advises Borrower in writing that disclosure of any specific information
required to be provided or disclosed pursuant to (a) through (d) above would
reasonably be expected to result in the waiver of attorney-client privilege,
Borrower can redact from its Tax Lien Analysis only such privileged
information.

 

“Taxes” has the
meaning set forth in Section 16.5.

 

“Trademark Security
Agreement (Trademarks and Trademark Applications)” means a grant of
security of trademarks and trademark applications executed and delivered by
Borrower or the Guarantors, as applicable, the form and substance of which is
reasonably satisfactory to Lender.

 

“UCC Filing Authorization Letter” means a
letter duly executed by Borrower and each Guarantor authorizing Lender to file
appropriate financing statements on Form UCC-1 without the signature of
Borrower or such Guarantor, as applicable, in such office or offices as may be
necessary or, in the opinion of Lender, desirable to perfect the security
interests purported to be created by the Loan Documents.

 

“Underlying Issuer”
means a third Person which is the beneficiary of an L/C Undertaking and which
has issued a letter of credit at the request of Lender for the benefit of
Borrower.

 

“Underlying Letter of
Credit” means a letter of credit that has been issued by an Underlying
Issuer.

 

“United States”
means the United States of America.

 

“Voidable Transfer”
has the meaning set forth in Section 16.8.

 

“Wells Fargo”
means Wells Fargo Bank, National Association, a national banking association.

 

1.2  Accounting Terms.  All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.  When used herein, the term “financial
statements” shall include the notes and schedules thereto.  Whenever the term “Borrower” is used in
respect of a financial covenant or a related definition, it shall be understood
to mean Parent and its Subsidiaries on a consolidated basis unless the context
clearly requires otherwise.

 

21

 

1.3  Code.  Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.

 

1.4  Construction. 
Unless the context of this Agreement or any other Loan Document clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term “including” is not limiting, and
the term “or” has, except where otherwise indicated, the inclusive meaning
represented by the phrase “and/or.”  The
words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this
Agreement or any other Loan Document refer to this Agreement or such other Loan
Document, as the case may be, as a whole and not to any particular provision of
this Agreement or such other Loan Document, as the case may be.  Section, subsection, clause, schedule, and
exhibit references herein are to this Agreement unless otherwise
specified.  Any reference in this
Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein).  Any reference herein to the repayment in
full of the Obligations shall mean the repayment in full in cash of all Obligations
other than contingent indemnification Obligations.  Any reference herein to any Person shall be construed to include
such Person’s successors and assigns. 
Any requirement of a writing contained herein or in the other Loan
Documents shall be satisfied by the transmission of a Record and any Record
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

 

1.5  Schedules and Exhibits.  All of the schedules and exhibits attached to this Agreement
shall be deemed incorporated herein by reference.

 

2.                   LOAN AND TERMS OF PAYMENT.

 

2.1  Revolver Advances

 

(a)         Subject to the terms and
conditions of this Agreement, and during the term of this Agreement, Lender
agrees to make advances (“Advances”) to Borrower in an amount at any one
time outstanding not to exceed an amount equal to the lesser of (i) the
Maximum Revolver Amount less the Letter of Credit Usage, or (ii)
the Borrowing Base less the Letter of Credit Usage.

 

(b)        Anything to the contrary
in this Section 2.1 notwithstanding, Lender shall have the right to
establish reserves in such amounts, and with respect to such matters, as Lender
in its Permitted Discretion shall deem necessary or appropriate, against the
Borrowing Base, including reserves with respect to (i) sums that Borrower is
required to pay (such as taxes, assessments or insurance premiums) and has
failed to pay under any Section of this Agreement or any other Loan Document,
and (ii) amounts owing by Borrower or its Subsidiaries to any Person to the
extent secured by a Lien on, or trust over, any of the

 

22

 

Collateral (other than any Permitted Lien set forth on
Schedule P-1 which is specifically identified thereon as entitled to
have priority over the Lender’s Liens), which Lien or trust, in the Permitted
Discretion of Lender, likely would have a priority superior to the Lender’s
Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers,
mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem,
excise, sales, or other taxes where given priority under applicable law) in and
to such item of the Collateral.

 

(c)         Lender shall have no
obligation to make additional Advances hereunder to the extent such additional
Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount.

 

(d)        Amounts
borrowed pursuant to this Section 2.1 may be repaid and, subject to
the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement.

 

2.2  Borrowing Procedures and
Settlements.

 

(a)         Procedure
for Borrowing.  Each
Borrowing shall be made by an irrevocable written request by an Authorized
Person delivered to Lender (which notice must be received by Lender no later
than 10:00 a.m. (California time) on a Business Day) specifying (i) the amount
of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day.  At Lender’s election, in lieu of delivering the above-described written
request, any Authorized Person may give Lender telephonic notice of such
request by the required time.  In such
circumstances, Borrower agrees that any such telephonic notice will be
confirmed in writing within 24 hours of the giving of such notice and the failure
to provide such written confirmation shall not affect the validity of the
request.

 

(b)        Making of Advances.  If Lender has received a timely
request for a Borrowing in accordance with the provisions hereof, and subject
to the satisfaction of the applicable terms and conditions set forth herein,
Lender shall make the proceeds of such Advance available to Borrower on the
applicable Funding Date by transferring immediately available funds equal to
such proceeds to Borrower’s Designated Account.

 

2.3 
Payments.

 

(a)         Payments by Borrower.  Except as otherwise expressly provided
herein, all payments by Borrower shall be made to Lender’s Account for the
account of the Lender and shall be made in immediately available funds, no
later than 11:00 a.m. (California time) on the date specified herein.  Any payment received by Lender later than
11:00 a.m. (California time) shall be deemed to have been received on the
following Business Day and any applicable interest or fees shall continue to
accrue until such following Business Day.

 

(b)        Application of Payments.

 

23

 

(i)                                     All payments shall be remitted to Lender
and all such payments, and all proceeds of Collateral received by Lender, shall
be applied as follows:

 

(A) first, to pay any Lender Expenses then
due to Lender under the Loan Documents, until paid in full,

 

(B) second, to pay any fees then due to
Lender under the Loan Documents until paid in full,

 

(C) third, to pay interest due in respect
of the Advances until paid in full,

 

(D) fourth, so long as no Event of Default
has occurred and is continuing, to pay the principal of all Advances until paid
in full,

 

(E) fifth, if an Event of Default has
occurred and is continuing, ratably (i) to pay the principal of all Advances
until paid in full, and (ii) to Lender, to be held by Lender as cash collateral
in an amount up to 105% of the then extant Letter of Credit Usage until paid in
full,

 

(F) sixth, if an Event of Default has
occurred and is continuing, to pay any other Obligations, and

 

(G) seventh, to Borrower (to be wired to
the Designated Account) or such other Person entitled thereto under applicable
law.

 

(ii)                                  In each instance, so long as no Event of
Default has occurred and is continuing, this Section 2.3(b) shall not
apply to any payment by Borrower specified by Borrower to be for the payment of
specific Obligations then due and payable (or prepayable) under any provision
of this Agreement.

 

(iii)                               For purposes of the foregoing, “paid in full” means
payment of all amounts owing under the Loan Documents according to the terms
thereof, including loan fees, service fees, professional fees, interest (and
specifically including interest accrued after the commencement of any
Insolvency Proceeding), default interest, interest on interest, and expense
reimbursements, whether or not any of the foregoing would be or is allowed or
disallowed in whole or in part in any Insolvency Proceeding.

 

(iv)                              In the event of a direct conflict between
the priority provisions of this Section 2.3(b) and other provisions
contained in any other Loan Document, it is the intention of the parties hereto
that such priority provisions in such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each
other.  In the event of any actual,

 

24

 

irreconcilable conflict that cannot be resolved as aforesaid, the terms
and provisions of this Section 2.3(b) shall control and govern.

 

2.4  Overadvances. 
If, at any time or for any reason, the amount of Obligations owed by
Borrower to Lender pursuant to Section 2.1 or Section 2.10 is greater
than either the Dollar or percentage limitations set forth in Section 2.1 or
Section 2.10, as applicable (an “Overadvance”), Borrower immediately
shall pay to Lender, in cash, the amount of such excess, which amount shall be
used by Lender to reduce the Obligations in accordance with the priorities set
forth in Section 2.3(b), but subject to Section 2.3(b)(ii).  In addition, Borrower hereby promises to pay
the Obligations (including principal, interest, fees, costs, and expenses) in
Dollars in full as and when due and payable under the terms of this Agreement
and the other Loan Documents.

 

2.5  Interest Rates and Letter of Credit
Fee:  Rates, Payments, and Calculations.

 

(a)         Interest Rates.  Except as provided in clause (c) below, all
Obligations (except for reimbursement obligations relating to undrawn Letters
of Credit) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal to the Base Rate plus the Base Rate Margin.

 

(b)        Letter of Credit Fee.  Borrower shall pay Lender a Letter of Credit
fee (in addition to the usage charge set forth in Section 2.10(d) and
any potential charges, commissions, fees, and costs contemplated by Section 2.10(e))
which shall accrue at a rate equal to 4% per annum times the Daily Balance of
the Letter of Credit Usage.

 

(c)         Default Rate.  Upon the occurrence and during the
continuation of an Event of Default (and at the election of Lender),

 

(i)                                     all Obligations (except for undrawn
Letters of Credit) that have been charged to the Loan Account pursuant to the
terms hereof shall bear interest on the Daily Balance thereof at a per annum
rate equal to 4 percentage points above the per annum rate otherwise applicable
hereunder, and

 

(ii)                                  the Letter of Credit fee provided for
above shall be increased to 2 percentage points above the per annum rate
otherwise applicable hereunder.

 

(d)        Payment.  Interest, Letter of Credit fees, and all
other fees payable hereunder shall be due and payable, in arrears, on the first
day of each month at any time that Obligations or obligation to extend credit
hereunder are outstanding.  Borrower
hereby authorizes Lender, from time to time without prior notice to Borrower,
to charge such interest and fees, all Lender Expenses (as and when incurred),
the charges, commissions, fees, and costs provided for in Section 2.10(e)
(as and when accrued or incurred), the fees and costs provided for in Section
2.9 (as and when accrued or incurred), and all other payments as and when
due and payable under any Loan Document to Borrower’s Loan

 

25

 

Account, which amounts thereafter shall constitute
Advances hereunder and shall accrue interest at the rate then applicable to
Advances hereunder.  Any interest not
paid when due shall be compounded by being charged to Borrower’s Loan Account
and shall thereafter constitute Advances hereunder and shall accrue interest at
the rate then applicable to Advances that are Base Rate Loans hereunder.

 

(e)         Computation.  All interest and fees chargeable under the
Loan Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed.  In the event the
Base Rate is changed from time to time hereafter, the rates of interest
hereunder based upon the Base Rate automatically and immediately shall be
increased or decreased by an amount equal to such change in the Base Rate.

 

(f)           Intent to Limit Charges to Maximum
Lawful Rate.  In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable.  Borrower and Lender,
in executing and delivering this Agreement, intend legally to agree upon the
rate or rates of interest and manner of payment stated within it; provided,
however, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of payment exceeds
the maximum allowable under applicable law, then, ipso facto, as of the date
of this Agreement, Borrower is and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrower in excess of such
legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.

 

2.6  Crediting Payments.  The receipt of any payment item by Lender shall not be considered
a payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Lender’s Account or unless and until such
payment item is honored when presented for payment.  Should any payment item not be honored when presented for
payment, then Borrower shall be deemed not to have made such payment and
interest shall be calculated accordingly. 
Anything to the contrary contained herein notwithstanding, any payment
item shall be deemed received by Lender only if it is received into the
Lender’s Account on a Business Day on or before 11:00 a.m. (California
time).  If any payment item is received
into the Lender’s Account on a non-Business Day or after 11:00 a.m. (California
time) on a Business Day, it shall be deemed to have been received by Lender as
of the opening of business on the immediately following Business Day.

 

2.7  Designated Account.  Lender is authorized to make the Advances, and Lender is
authorized to issue the Letters of Credit, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.5(d).  Borrower agrees to establish and maintain
the Designated Account with the Designated Account Bank for the purpose of
receiving the proceeds of the Advances requested by Borrower and made by Lender
hereunder.  Unless

 

26

 

otherwise agreed by
Lender and Borrower, any Advance requested by Borrower and made by Lender
hereunder shall be made to the Designated Account.

 

2.8  Maintenance of Loan Account;
Statements of Obligations. 
Lender shall maintain an account on its books in the name of Borrower
(the “Loan Account”) on which Borrower will be charged with all Advances
made by Lender to Borrower or for Borrower’s account, the Letters of Credit
issued by Lender for Borrower’s account, and with all other payment Obligations
hereunder or under the other Loan Documents, including, accrued interest, fees
and expenses, and Lender Expenses.  In
accordance with Section 2.6, the Loan Account will be credited with
all payments received by Lender from Borrower or for Borrower’s account.  Lender shall render statements regarding the
Loan Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Lender Expenses owing, and
such statements, absent manifest error, shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and
Lender unless, within 60 days after receipt thereof by Borrower, Borrower shall
deliver to Lender written objection thereto describing the error or errors
contained in any such statements.

 

2.9  Fees. 
Borrower shall pay to Lender the following fees and charges, which fees
and charges shall be non-refundable when paid (irrespective of whether this
Agreement is terminated thereafter):

 

(a)         Unused Line Fee.  On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to .25% per annum
times
the result of (i) the lesser of
the Maximum Revolver Amount or $8,000,000, less (ii) the sum of (A) the average Daily
Balance of Advances that were outstanding during the immediately preceding
month, plus
(B) the average Daily Balance of the Letter of Credit Usage during the
immediately preceding month,

 

(b)        Fee Letter Fees.  As and when due and payable under the terms
of the Fee Letter, the fees set forth in the Fee Letter, and

 

(c)         Audit, Appraisal, and Valuation Charges.  Audit, appraisal, and valuation fees and
charges as follows (i) a fee of $850 per day, per auditor, plus out-of-pocket
expenses for each financial audit of Borrower performed by personnel employed
by Lender, and (ii) the actual charges paid or incurred by Lender if it elects
to employ the services of one or more third Persons to perform financial audits
of Borrower or its Subsidiaries, to appraise the Collateral, or any portion
thereof, or to assess Borrower’s or its Subsidiaries’ business valuation;
provided, however, that absent the occurrence and continuation of a Default or
Event of Default, Lender shall not perform more than 4 financial audits during
any calendar year.

 

27

 

2.10  Letters of Credit

 

(a)                                  Subject
to the terms and conditions of this Agreement, Lender agrees to issue stand-by
letters of credit for the account of Borrower (each, an “L/C”) or to
purchase participations or execute indemnities or reimbursement obligations
(each such undertaking, an “L/C Undertaking”) with respect to stand-by
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be Wells Fargo) for the account of
Borrower.  To request the issuance of an
L/C or an L/C Undertaking (or the amendment, renewal, or extension of an
outstanding L/C or L/C Undertaking), Borrower shall hand-deliver or telecopy
(or transmit by electronic communication, if arrangements for doing so have
been approved by Lender) to Lender (reasonably in advance of the requested date
of issuance, amendment, renewal, or extension) a notice requesting the issuance
of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be
amended, renewed, or extended, the date of issuance, amendment, renewal, or
extension, the date on which such L/C or L/C Undertaking is to expire, the
amount of such L/C or L/C Undertaking, the name and address of the beneficiary
thereof (or the beneficiary of the Underlying Letter of Credit, as applicable),
and such other information as shall be necessary to prepare, amend, renew, or
extend such L/C or L/C Undertaking.  If
requested by Lender, Borrower also shall be an applicant under the application
with respect to any Underlying Letter of Credit that is to be the subject of an
L/C Undertaking.  Lender shall have no
obligation to issue a Letter of Credit if any of the following would result
after giving effect to the requested Letter of Credit:

 

(i)                                     the Letter of Credit Usage would exceed
the Borrowing Base less the then extant amount of outstanding
Advances, or

 

(ii)                                  the Letter of Credit Usage would exceed
$5,000,000, or

 

(iii)                               the Letter of Credit Usage would exceed the Maximum
Revolver Amount less the then extant amount of outstanding Advances.

 

Borrower and Lender
acknowledge and agree that certain Underlying Letters of Credit may be issued
to support or replace letters of credit that already are outstanding as of the
Closing Date.  Each Letter of Credit (and
corresponding Underlying Letter of Credit) shall be in form and substance
acceptable to Lender (in the exercise of its Permitted Discretion), including
the requirement that the amounts payable thereunder must be payable in
Dollars.  If Lender is obligated to
advance funds under a Letter of Credit, Borrower immediately shall reimburse
such L/C Disbursement to Lender by paying to Lender an amount equal to such L/C
Disbursement not later than 11:00 a.m., California time, on the date that such
L/C Disbursement is made, if Borrower shall have received written or telephonic
notice of such L/C Disbursement prior to 10:00 a.m., California time, on such
date, or, if such notice has not been received by Borrower prior to such time
on such date, then not later than 11:00 a.m., California time, on the Business
Day that Borrower receives such notice, if such notice is received prior to
10:00 a.m., California time, on the date of receipt, and, in the absence of
such reimbursement, the L/C Disbursement immediately and

 

28

 

automatically shall be
deemed to be an Advance hereunder and, thereafter, shall bear interest at the
rate then applicable to Advances that are Base Rate Loans under Section 2.5.  To the extent an L/C Disbursement is deemed
to be an Advance hereunder, Borrower’s obligation to reimburse such L/C
Disbursement shall be discharged and replaced by the resulting Advance.

 

(b)        Borrower hereby agrees to
indemnify, save, defend, and hold Lender harmless from any loss, cost, expense,
or liability, and reasonable attorneys’ fees incurred by Lender arising out of
or in connection with any Letter of Credit; provided, however,
that Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense, or liability to the extent that it is caused by the gross negligence
or willful misconduct of Lender. 
Borrower agrees to be bound by the Underlying Issuer’s regulations of
any Underlying Letter of Credit, and Borrower understands and agrees that
Lender shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower’s instructions or those contained
in the Letter of Credit or any modifications, amendments, or supplements
thereto, other than with respect to Lender in its capacity as issuer of an
L/C.  Borrower understands that the L/C
Undertakings may require Lender to indemnify the Underlying Issuer for certain
costs or liabilities arising out of claims by Borrower against such Underlying
Issuer.  Borrower hereby agrees to
indemnify, save, defend, and hold Lender harmless with respect to any loss,
cost, expense (including reasonable attorneys’ fees), or liability incurred by
Lender under any L/C Undertaking as a result of Lender’s indemnification of any
Underlying Issuer; provided, however, that Borrower shall not be
obligated hereunder to indemnify for any loss, cost, expense, or liability to
the extent that it is caused by the gross negligence or willful misconduct of
Lender.

 

(c)         Borrower hereby
authorizes and directs any Underlying Issuer to deliver to Lender all
instruments, documents, and other writings and property received by such
Underlying Issuer pursuant to such Underlying Letter of Credit and to accept
and rely upon Lender’s instructions with respect to all matters arising in connection
with such Underlying Letter of Credit and the related application.

 

(d)        Any and all charges,
commissions, fees, and costs incurred by Lender relating to Underlying Letters
of Credit shall be Lender Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Lender for the account of Lender; it being
acknowledged and agreed by Borrower that, as of the Closing Date, the usage
charge imposed by the prospective Underlying Issuer is .825% per annum times
the face amount of each Underlying Letter of Credit, that such issuance charge
may be changed from time to time, and that the Underlying Issuer also imposes a
schedule of charges for amendments, extensions, drawings, and renewals.

 

(e)         If by reason of (i) any
change after the Closing Date in any applicable law, treaty, rule, or
regulation or any change in the interpretation or application

 

29

 

thereof by any
Governmental Authority, or (ii) compliance by the Underlying Issuer or Lender
with any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including,
Regulation D of the Federal Reserve Board as from time to time in effect (and
any successor thereto):

 

(i)                                     any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of any Letter of
Credit issued hereunder, or

 

(ii)                                  there shall be imposed on the Underlying
Issuer or Lender any other condition regarding any Underlying Letter of Credit
or any Letter of Credit issued pursuant hereto,

 

and the result of the
foregoing is to increase, directly or indirectly, the cost to Lender of
issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce
the amount receivable in respect thereof by Lender, then, and in any such case,
Lender may, at any time within a reasonable period after the additional cost is
incurred or the amount received is reduced, notify Borrower, and Borrower shall
pay on demand such amounts as Lender may specify to be necessary to compensate
Lender for such additional cost or reduced receipt, together with interest on
such amount from the date of such demand until payment in full thereof at the
rate then applicable to Base Rate Loans hereunder; provided, however, that
Lender shall be entitled to payments from Borrower pursuant to this Section 2.10(e)
only if it makes a similar demand on, and receives similar payments from, its
borrowers generally.  The determination
by Lender of any amount due pursuant to this Section, as set forth in a
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.

 

2.11 
Capital Requirements.  If, after the date hereof, Lender determines that (i) the
adoption of or change in any law, rule, regulation or guideline regarding
capital requirements for banks or bank holding companies, or any change in the
interpretation or application thereof by any Governmental Authority charged
with the administration thereof, or (ii) compliance by Lender or its
parent bank holding company with any guideline, request, or directive of any
such entity regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender’s or such holding
company’s capital as a consequence of Lender’s obligations hereunder to a level
below that which Lender or such holding company could have achieved but for
such adoption, change, or compliance (taking into consideration Lender’s or
such holding company’s then existing policies with respect to capital adequacy
and assuming the full utilization of such entity’s capital) by any amount
deemed by Lender to be material, then Lender may notify Borrower thereof.  Following receipt of such notice, Borrower
agrees to pay Lender on demand the amount of such reduction of return on
capital as and when such reduction is determined, payable within 90 days after
presentation by Lender to Borrower of a statement in the amount and setting
forth in reasonable detail Lender’s calculation thereof and the assumptions
upon which such

 

30

 

calculation was based
(which statement shall be deemed true and correct absent manifest error);
provided, however, that Lender shall be entitled to payments from Borrower
pursuant to this Section 2.11 only if it makes a similar demand on, and
receives similar payments from, its borrowers generally.  In determining such amount, Lender may use
any reasonable averaging and attribution methods.

 

2.12        Joint and Several Liability of
Borrower.

 

(a)                             Each
Borrower is accepting joint and several liability hereunder and under the other
Loan Documents in consideration of the financial accommodations to be provided
by Lender under this Agreement, for the mutual benefit, directly and
indirectly, of each Borrower and in consideration of the undertakings of the
other Borrower to accept joint and several liability for the Obligations.

 

(b)                            Each
Borrower, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Borrower, with respect to the payment and performance
of all of the Obligations (including, without limitation, any Obligations
arising under this Section 2.12), it being the intention of the parties
hereto that all the Obligations shall be the joint and several obligations of
each Person composing Borrower without preferences or distinction among them.

 

(c)                             If
and to the extent that any Borrower shall fail to make any payment with respect
to any of the Obligations as and when due or to perform any of the Obligations
in accordance with the terms thereof, then in each such event the other Persons
composing Borrower will make such payment with respect to, or perform, such
Obligation.

 

(d)                            The
Obligations of each Person composing Borrower under the provisions of this Section
2.12 constitute the absolute and unconditional, full recourse Obligations
of each Person composing Borrower enforceable against each Borrower to the full
extent of its properties and assets, irrespective of the validity, regularity
or enforceability of this Agreement against any other Person composing Borrower
or any other circumstances whatsoever.

 

(e)                             Except
as otherwise expressly provided in this Agreement, each Person composing
Borrower hereby waives notice of acceptance of its joint and several liability,
notice of any Advances or Letters of Credit issued under or pursuant to this
Agreement, notice of the occurrence of any Default, Event of Default, or of any
demand for any payment under this Agreement, notice of any action at any time
taken or omitted by Lender under or in respect of any of the Obligations, any
requirement of diligence or to mitigate damages and, generally, to the extent
permitted by applicable law, all demands, notices and other formalities of
every kind in connection with this Agreement (except, in each case, as
otherwise provided in this Agreement). 
Each Person composing Borrower hereby assents to, and waives notice of,
any extension or postponement of the time for the payment of any of

 

31

 

the Obligations,
the acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
Lender at any time or times in respect of any default by any Person composing
Borrower in the performance or satisfaction of any term, covenant, condition or
provision of this Agreement, any and all other indulgences whatsoever by Lender
in respect of any of the Obligations, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any security for any of
the Obligations or the addition, substitution or release, in whole or in part,
of any Person composing Borrower. 
Without limiting the generality of the foregoing, each Borrower assents
to any other action or delay in acting or failure to act on the part of Lender
with respect to the failure by any other Person composing Borrower to comply
with any of its respective Obligations, including, without limitation, any
failure strictly or diligently to assert any right or to pursue any remedy or
to comply fully with applicable laws or regulations thereunder, which might,
but for the provisions of this Section 2.12 afford grounds for
terminating, discharging or relieving any other Person composing Borrower, in
whole or in part, from any of its Obligations under this Section 2.12,
it being the intention of each Person composing Borrower that, so long as any
of the Obligations hereunder remain unsatisfied, the Obligations of such Person
composing Borrower under this Section 2.12 shall not be discharged except
by performance and then only to the extent of such performance.  The Obligations of each Person composing
Borrower under this Section 2.12 shall not be diminished or
rendered unenforceable by any winding up, reorganization, arrangement,
liquidation, reconstruction or similar proceeding with respect to any other
Person composing Borrower or Lender. 
The joint and several liability of the Persons composing Borrower
hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
constitution or place of formation of any of the Persons composing Borrower or
Lender.

 

(f)                               Each
Person composing Borrower represents and warrants to Lender that such Borrower
is currently informed of the financial condition of each other Borrower and of
all other circumstances which a diligent inquiry would reveal and which bear
upon the risk of nonpayment of the Obligations.  Each Person composing Borrower further represents and warrants to
Lender that such Borrower has read and understands the terms and conditions of
the Loan Documents.  Each Person
composing Borrower hereby covenants that such Borrower will continue to keep
informed of each other Borrower’s financial condition, the financial condition
of other guarantors, if any, and of all other circumstances which bear upon the
risk of nonpayment or nonperformance of the Obligations.

 

(g)                            Each
of the Persons composing Borrower waives all rights and defenses arising out of
an election of remedies by Lender, even though that election of remedies, such
as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Lender’s rights of subrogation and reimbursement
against such Borrower by the operation of Section 580(d) of the California Code
of Civil Procedure or otherwise.

 

32

 

(h)                            Each
of the Persons composing Borrower waives all rights and defenses that such
Borrower may have because the Obligations are secured by Real Property.  This means, among other things:

 

(i)                                     Lender may collect from such Borrower
without first foreclosing on any Collateral pledged by each other Borrower.

 

(ii)                                  If Lender forecloses on any Real Property
Collateral pledged by Borrower:

 

(A) The amount of the Obligations may be reduced
only by the price for which that Real Property Collateral is sold at the
foreclosure sale, even if such Real Property Collateral is worth more than the
sale price.

 

(B) Lender may collect from such Borrower even if
Lender, by foreclosing on the Real Property Collateral, has destroyed any right
such Borrower may have to collect from each other Borrower.

 

This is an unconditional
and irrevocable waiver of any rights and defenses such Borrower may have
because the Obligations are secured by Real Property.  These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d or 726 of the California
Code of Civil Procedure.

 

(i)                                The
provisions of this Section 2.12 are made for the benefit of Lender and
its successors and assigns, and may be enforced by it or them from time to time
against any or all of the Persons composing Borrower as often as occasion
therefor may arise and without requirement on the part of Lender, successor, or
assign first to marshal any of its or their claims or to exercise any of its or
their rights against any of the other Persons composing Borrower or to exhaust
any remedies available to it or them against any of the other Persons composing
Borrower or to resort to any other source or means of obtaining payment of any
of the Obligations hereunder or to elect any other remedy.  The provisions of this Section 2.12
shall remain in effect until all of the Obligations shall have been paid in
full or otherwise fully satisfied.  If
at any time, any payment, or any part thereof, made in respect of any of the
Obligations, is rescinded or must otherwise be restored or returned by Lender
upon the insolvency, bankruptcy or reorganization of any of the Persons
composing Borrower, or otherwise, the provisions of this Section 2.12
will forthwith be reinstated in effect, as though such payment had not been
made.

 

(j)                                Each
of the Persons composing Borrower hereby agrees that it will not enforce any of
its rights of contribution or subrogation against the other Persons composing
Borrower with respect to any liability incurred by it hereunder or under any of
the other Loan Documents, any payments made by it to Lender with respect to any
of the Obligations or any collateral security therefor until such time as all
of the Obligations have been paid in full.

 

33

 

Any claim which
any Borrower may have against any other Borrower with respect to any payments
to Lender hereunder or under any other Loan Documents are hereby expressly made
subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior
payment in full of the Obligations and, in the event of any insolvency,
bankruptcy, receivership, liquidation, reorganization or other similar
proceeding under the laws of any jurisdiction relating to any Borrower, its
debts or its assets, whether voluntary or involuntary, all such Obligations
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made to any other
Borrower therefor.

 

(k)                             Each
of the Persons composing Borrower hereby agrees that, after the occurrence and
during the continuance of any Default or Event of Default, the payment of any
amounts due with respect to the indebtedness owing by any Borrower to any other
Borrower is hereby subordinated to the prior payment in full of the
Obligations.  Each Borrower hereby
agrees that after the occurrence and during the continuance of any Default or
Event of Default, such Borrower will not demand, sue for or otherwise attempt
to collect any indebtedness of any other Borrower owing to such Borrower until
the Obligations shall have been paid in full. 
If, notwithstanding the foregoing sentence, such Borrower shall collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Borrower as trustee for the
Lender, and such Borrower shall deliver any such amounts to Lender for
application to the Obligations in accordance with Section 2.3(b).

 

3.                   CONDITIONS; TERM OF AGREEMENT.

 

3.1  Conditions Precedent to the Initial
Extension of Credit.  The obligation of Lender to make the initial
Advance (or otherwise to extend any credit provided for hereunder), is subject
to the fulfillment, to the satisfaction of Lender, of each of the conditions
precedent set forth below:

 

(a)        the Closing Date shall
occur on or before August 6, 2003;

 

(b)       Lender shall have received
a UCC Filing Authorization Letter, duly executed by Borrower and each
Guarantor, together with appropriate financing statements on Form UCC-1, duly
filed in such office or offices as may be necessary or, in the opinion of Lender,
desirable to perfect the Lender’s Liens in and to the Collateral, and Lender
shall have received searches reflecting the filing of all such financing
statements;

 

(c)        Lender shall have received
each of the following documents, in form and substance satisfactory to Lender,
duly executed, and each such document shall be in full force and effect:

 

(i)                              the Revolving Credit Note,

 

34

 

(ii)                           the Disbursement Letter,

 

(iii)                        the Due Diligence Letter,

 

(iv)                       the Fee Letter,

 

(v)                          the Guarantor Security Agreement,

 

(vi)                       the Guaranty,

 

(vii)                    the Intercompany Subordination Agreement,

 

(viii)                 the Mortgages for all parcels of Real Property Collateral,

 

(ix)                         the Officers’ Certificate,

 

(x)                            the Stock Pledge Agreement and, to the
extent such shares of Stock are certificated, all certificates representing the
shares of Stock pledged thereunder, as well as stock powers with respect
thereto endorsed in blank,

 

(xi)                         the Trademark Security Agreement
(Trademarks and Trademark Applications), and

 

(xii)                      the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination of the Liens of
City National Bank in and to the properties and assets of Parent.

 

(d)       Lender shall have received
a certificate from the Secretary of Parent attesting to the resolutions of
Parent’s Board of Directors authorizing the execution, delivery, and
performance of this Agreement and the other Loan Documents to which Parent is a
party and authorizing specific officers of Parent to execute the same;

 

(e)        Lender shall have received
a certificate from the Secretary of ES Realty attesting to the resolutions of
ES Realty’s Board of Directors authorizing the execution, delivery, and
performance of this Agreement and the other Loan Documents to which ES Realty
is a party and authorizing specific officers of ES Realty to execute the same;

 

(f)          Lender shall have
received copies of each Borrower’s Governing Documents, as amended, modified,
or supplemented to the Closing Date, certified by the Secretary of each
Borrower;

 

(g)       Lender shall have received
a certificate of status with respect to each Borrower, dated within 10 days of
the Closing Date, such certificate to be issued by the

 

35

 

appropriate officer of
the jurisdiction of organization of such Borrower, which certificate shall
indicate that such Borrower is in good standing in such jurisdiction;

 

(h)       Lender shall have received
certificates of status with respect to each Borrower, each dated within 30 days
of the Closing Date, such certificates to be issued by the appropriate officer
of the jurisdictions (other than the jurisdiction of organization of Borrower)
in which its failure to be duly qualified or licensed would constitute a
Material Adverse Change, which certificates shall indicate that such Borrower
is in good standing in such jurisdictions;

 

(i)           Lender shall have
received a certificate from the Secretary of each Guarantor attesting to the
resolutions of such Guarantor’s board of directors authorizing its execution,
delivery, and performance of the Loan Documents to which such Guarantor is a
party and authorizing specific officers of such Guarantor to execute the same;

 

(j)           Lender shall have
received copies of each Guarantor’s Governing Documents, as amended, modified,
or supplemented to the Closing Date, certified by the Secretary of such
Guarantor;

 

(k)        Lender shall have received
a certificate of status with respect to each Guarantor, dated within 10 days of
the Closing Date, such certificate to be issued by the appropriate officer of
the jurisdiction of organization of such Guarantor, which certificate shall
indicate that Guarantor is in good standing in such jurisdiction;

 

(l)           Lender shall have
received certificates of status with respect to each Guarantor, each dated
within 30 days of the Closing Date, such certificates to be issued by the
appropriate officer of the jurisdictions (other than the jurisdiction of
organization of such Guarantor) in which its failure to be duly qualified or
licensed would constitute a Material Adverse Change, which certificates shall
indicate that such Guarantor is in good standing in such jurisdictions;

 

(m)     Lender shall have received a
certificate of insurance, together with the endorsements thereto, as are
required by Section 6.7, the form and substance of which shall be
satisfactory to Lender;

 

(n)       Lender shall have received
a Collateral Access Agreement with respect to the following location: Parent’s
headquarters located at 15206 Ventura Boulevard, Suite 200, Sherman Oaks,
California 91403;

 

(o)       Lender shall have received
an opinion of Borrower’s counsel in form and substance reasonably satisfactory
to Lender;

 

(p)       Lender shall have received
reasonably satisfactory evidence (including a certificate of the Vice President
and Chief Financial Officer of Borrower) that

 

36

 

all tax returns required
to be filed by Borrower and its Subsidiaries have been timely filed and all
taxes upon Borrower and its Subsidiaries or their properties, assets, income,
and franchises (including Real Property taxes, sales taxes, and payroll taxes)
have been paid prior to delinquency, except such taxes that are the subject of
a Permitted Protest and Lender shall be satisfied, in its Permitted Discretion,
with the contents and conclusions of Borrower’s Tax Lien Analysis;

 

(q)       Lender shall have completed
its business, legal, and Collateral due diligence, including a collateral audit
and review of Borrower’s and its Subsidiaries books and records and
verification of Borrower’s representations and warranties to Lender, the
results of which shall be reasonably satisfactory to Lender;

 

(r)          Lender shall have
received completed reference checks with respect to Borrower’s senior
management, the results of which are satisfactory to Lender in its sole
discretion;

 

(s)        Lender shall have received
the consolidated balance sheet of Parent and its Subsidiaries, prepared in
accordance with GAAP, and dated April 30, 2003;

 

(t)          Lender shall have
received Parent’s Closing Date Business Plan, together with a certificate of
the Vice President and Chief Financial Officer of Parent certifying such
Closing Date Business Plan as being such officer’s good faith best estimate of
the financial performance of Parent during the period covered thereby;

 

(u)       Borrower shall have paid
all Lender Expenses incurred in connection with the transactions evidenced by
this Agreement;

 

(v)       Lender shall have received,
for no fewer than 16 parcels of Eligible Real Property located in California
(i) appraisals prepared in accordance with FIRREA and satisfactory to Lender
and (ii) mortgage title insurance policies issued by a title insurance company
satisfactory to Lender (each a “Mortgage Policy” and, collectively, the
“Mortgage Policies”) in amounts satisfactory to Lender assuring Lender
that the Mortgages on such Eligible Real Property are valid and enforceable
first priority mortgage Liens on such Eligible Real Property free and clear of
all defects and encumbrances except Permitted Liens, and the Mortgage Policies
otherwise shall be in form and substance satisfactory to Lender;

 

(w)     Lender shall have received,
for no fewer than 16 parcels of Eligible Real Property located in California, a
Phase-I environmental report satisfactory to Lender in its sole discretion;

 

(x)         Lender shall have
received copies of each of the Environmental Risk Report and the Tax Lien
Analysis, together with a certificate of the Secretary of Parent certifying
each such document as being a true, correct, and complete copy thereof;

 

37

 

(y)       Borrower and each of the
Guarantors shall have received all licenses, approvals or evidence of other
actions required by any Governmental Authority in connection with the execution
and delivery by Borrower or the Guarantors of the Loan Documents or with the
consummation of the transactions contemplated thereby; and

 

(z)         all
other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Lender.

 

3.2  Conditions
Subsequent to the Initial Extension of Credit.  The obligation of Lender to continue to make
Advances (or otherwise extend credit) hereunder is subject to the fulfillment,
on or before the date applicable thereto, of the following conditions
subsequent (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):

 

(a)        within 30 days after the
Closing Date, deliver to Lender certified copies of the policies of insurance,
together with the endorsements thereto, as are required by Section 6.7,
the form and substance of which shall be satisfactory to Lender and its
counsel; and

 

(b)       Lender shall have completed
its business, legal and Collateral due diligence within 60 days after the
Closing Date to Lender’s satisfaction.

 

3.3  Conditions Precedent to all Extensions
of Credit.  The
obligation of Lender to make any Advances hereunder at any time (or to extend
any other credit hereunder) shall be subject to the following conditions
precedent:

 

(a)        All of the conditions
subsequent set forth in Section 3.2 have been fulfilled;

 

(b)       the representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of the date of such
extension of credit, as though made on and as of such date (except to the
extent that such representations and warranties relate solely to an earlier date
or dates);

 

(c)        no Default or Event of
Default shall have occurred and be continuing on the date of such extension of
credit, nor shall either result from the making thereof;

 

(d)       no injunction, writ,
restraining order, or other order of any nature restricting or prohibiting,
directly or indirectly, the extending of such credit shall have been issued and
remain in force by any Governmental Authority against Borrower, Lender, or any
of their Affiliates;

 

38

 

(e)        no Material Adverse Change
shall have occurred; and

 

(f)          no Lien has been filed
in favor of the Internal Revenue Service or other representative or taxing
authority in connection with the Notice of Disallowance that purports to
encumber any of the Collateral; provided, however, that in the event such a
Lien has been filed, Lender may, in its sole discretion, make Advances to
Borrower solely for the purpose of satisfying the obligations secured by such
Lien.

 

3.4  Term.  This
Agreement shall continue in full force and effect for a term ending on August
6, 2005 (the “Maturity Date”). 
The foregoing notwithstanding, Lender shall have the right to terminate
its obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.

 

3.5  Effect of Termination.  On the date of termination of this Agreement, all Obligations
(including contingent reimbursement obligations of Borrower with respect to
outstanding Letters of Credit) immediately shall become due and payable without
notice or demand (including either (a) providing cash collateral to be
held by Lender in an amount equal to 105% of the then extant Letter of Credit
Usage, or (b) causing the original Letters of Credit to be returned to Lender).  No termination of this Agreement, however,
shall relieve or discharge Borrower or the Guarantors of their duties,
Obligations, or covenants hereunder, and the Lender’s Liens in the Collateral
shall remain in effect until all Obligations have been paid in full and
Lender’s obligations to provide additional credit hereunder have been
terminated.  When this Agreement has
been terminated and all of the Obligations have been paid in full and Lender’s
obligations to provide additional credit under the Loan Documents have been
terminated irrevocably, Lender will, at Borrower’s sole expense, execute and
deliver any UCC termination statements, lien releases, mortgage releases,
re-assignments of trademarks, discharges of security interests, and other
similar discharge or release documents (and, if applicable, in recordable form)
as are reasonably necessary to release, as of record, the Lender’s Liens and
all notices of security interests and liens previously filed by Lender with
respect to the Obligations.

 

3.6  Early Termination by Borrower.  Borrower has the option, at any time upon 30
days’ prior written notice to Lender, to terminate this Agreement by paying to
Lender, in cash, the Obligations (including either (a) providing cash
collateral to be held by Lender in an amount equal to 105% of the then extant
Letter of Credit Usage, or (b) causing the original Letters of Credit to be
returned to Lender) in full.  If
Borrower has sent a notice of termination pursuant to the provisions of this
Section, then Lender’s obligations to extend credit hereunder shall terminate
and Borrower shall be obligated to repay the Obligations (including either (y)
providing cash collateral to be held by Lender in an amount equal to 105% of
the then extant Letter of Credit Usage, or (z) causing the original Letters of
Credit to be returned to Lender) in full, on the date set forth as the date of
termination of this Agreement in such notice.

 

39

 

4.                   CREATION OF SECURITY INTEREST.

 

4.1  Grant of Security Interest.  Each Borrower hereby grants to Lender for the benefit of Lender a
continuing security interest in all of its right, title, and interest in all
currently existing and hereafter acquired or arising Borrower Collateral in
order to secure prompt repayment of any and all of the Obligations in
accordance with the terms and conditions of the Loan Documents and in order to
secure prompt performance by each Borrower of each of its covenants and duties
under the Loan Documents.  The Lender’s
Liens in and to the Borrower Collateral shall attach to all Borrower Collateral
without further act on the part of Lender or Borrower.  Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for Permitted
Dispositions, Borrower and its Subsidiaries have no authority, express or
implied, to dispose of any item or portion of the Borrower Collateral.

 

4.2  Negotiable Collateral.  In the event that any Borrower Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, and if and to the extent
that Lender determines in its Permitted Discretion that perfection or priority
of Lender’s security interest is dependent on or enhanced by possession,
Borrower, promptly upon the request of Lender, shall endorse and deliver
physical possession of such Negotiable Collateral to Lender.

 

4.3  Collection of Accounts, General
Intangibles, and Negotiable Collateral.  At any time after the occurrence and during
the continuation of an Event of Default, Lender or Lender’s designee may (a)
notify Account Debtors of Borrower that Borrower’s Accounts, chattel paper, or
General Intangibles have been assigned to Lender or that Lender has a security
interest therein, or (b) collect Borrower’s Accounts, chattel paper, or General
Intangibles directly and charge the collection costs and expenses to the Loan
Account.  Each Borrower agrees that at
any time after the occurrence and during the continuation of an Event of
Default, it will hold in trust for Lender, as Lender’s trustee, any of its or
its Subsidiaries’ Collections that it receives and immediately will deliver
such Collections to Lender or a Cash Management Bank (if applicable) in their
original form as received by such Borrower or its Subsidiaries.

 

4.4  Filing of
Financing Statements; Commercial Tort Claims; Delivery of Additional
Documentation Required.

 

(a)        Each Borrower authorizes
Lender to file any financing statement necessary or desirable to effectuate the
transactions contemplated by the Loan Documents, and any continuation statement
or amendment with respect thereto, in any appropriate filing office without the
signature of Borrower where permitted by applicable law. Borrower hereby
ratifies the filing of any financing statement filed by or on behalf of Lender
without the signature of Borrower prior to the date hereof.

 

40

 

(b)       If Borrower or the
Guarantors acquire any commercial tort claims after the date hereof, Borrower
shall promptly (but in any event within 3 Business Days after such acquisition)
deliver to Lender a written description of such commercial tort claim and shall
deliver a written agreement, in form and substance satisfactory to Lender,
pursuant to which Borrower or the Guarantors, as applicable, shall pledge and
collaterally assign all of its right, title and interest in and to such
commercial tort claim to Lender, as security for the Obligations (a “Commercial
Tort Claim Assignment”).

 

(c)        At any time upon the
request of Lender, Borrower shall execute or deliver to Lender, and shall cause
the Guarantors to execute or deliver to Lender, any and all financing
statements, original financing statements in lieu of continuation statements,
fixture filings, security agreements, pledges, assignments, Commercial Tort
Claim Assignments, endorsements of certificates of title, and all other
documents (collectively, the “Additional Documents”) that Lender may
request in its Permitted Discretion, in form and substance satisfactory to
Lender, to create, perfect and continue perfected or to better perfect the
Lender’s Liens in the assets of Borrower and the Guarantors (whether now owned
or hereafter arising or acquired, tangible or intangible, real or personal), to
create and perfect Liens in favor of Lender in any Real Property acquired after
the Closing Date, and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents, subject in each case to
all Permitted Liens.  To the maximum
extent permitted by applicable law, Borrower authorizes Lender to execute any
such Additional Documents in Borrower’s name and authorizes Lender to file such
executed Additional Documents in any appropriate filing office.  In addition, on such periodic basis as
Lender shall require, Borrower shall (i) provide Lender with a report of all
new material patentable, copyrightable, or trademarkable materials acquired or
generated by Borrower or the Guarantors during the prior period, (ii) cause all
material patents, copyrights, and trademarks acquired or generated by Borrower
or the Guarantors that are not already the subject of a registration with the
appropriate filing office (or an application therefor diligently prosecuted) to
be registered with such appropriate filing office in a manner sufficient to
impart constructive notice of Borrower’s or the applicable Guarantor’s
ownership thereof, and (iii) cause to be prepared, executed, and delivered to
Lender supplemental schedules to the applicable Loan Documents to identify such
patents, copyrights, and trademarks as being subject to the security interests
created thereunder.

 

4.5  Power of Attorney. 
Each Borrower hereby irrevocably makes, constitutes, and appoints Lender
(and any of Lender’s officers, employees, or agents designated by Lender) as
such Borrower’s true and lawful attorney, with power to (a) if Borrower refuses
to, or fails timely to execute and deliver any of the documents described in Section
4.4, sign the name of Borrower on any of the documents described in Section
4.4, (b) at any time that an Event of Default has occurred and is
continuing, sign Borrower’s name on any invoice or bill of lading relating to
the Borrower Collateral, drafts against Account Debtors, or notices to Account
Debtors, (c) at any time that an Event of Default has occurred and is
continuing, send requests for verification of any of the Borrower’s or the
Guarantors’ Accounts, (d) at

 

41

 

any time that an Event of
Default has occurred and is continuing, endorse Borrower’s name on any of its
payment items (including all of its Collections) that may come into Lender’s
possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Borrower’s policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting
any of the Borrower’s or the Guarantors’ Accounts, chattel paper, or General
Intangibles directly with Account Debtors, for amounts and upon terms that
Lender determines to be reasonable in its Permitted Discretion, and Lender may
cause to be executed and delivered any documents and releases that Lender
determines to be necessary in its Permitted Discretion.  The appointment of Lender as each Borrower’s
attorney, and each and every one of its rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Lender’s obligations to extend credit
hereunder are terminated.

 

4.6  Right to Inspect. 
Lender  and its officers,
employees, or agents shall have the right, from time to time hereafter to
inspect the Books and make copies or abstracts thereof and to check, test, and
appraise the Collateral, or any portion thereof, in order to verify Borrower’s
and the Guarantors’ financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.

 

4.7  Control Agreements.  Borrower agrees that it will not, and will not permit the
Guarantors to, transfer assets out of any of their Deposit Accounts or
Securities Accounts; provided, however, that so long as no Event of Default has
occurred and is continuing or would result therefrom, Borrower and the
Guarantors may use the assets in the Deposit Accounts or Securities Accounts
(and the proceeds thereof) to the extent not prohibited by this Agreement or
the other Loan Documents.  At any time
that an Event of Default has occurred and is continuing, Borrower agrees that
it will and will cause the Guarantors to take any or all reasonable steps that
Lender requests in order for Lender to obtain control in accordance with
Sections 9-104, 9-105, 9-106, and 9-107 of the Code with respect to any of its
or their Securities Accounts, Deposit Accounts, electronic chattel paper,
Investment Property, and letter-of-credit rights, including, without
limitation, entering into a Control Agreement with Lender and the applicable
bank or securities intermediary.  No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Lender. 
Upon the occurrence and during the continuance of an Event of Default,
Lender may notify any bank or securities intermediary to liquidate the
applicable Deposit Account or Securities Account or any related Investment
Property maintained or held thereby and remit the proceeds thereof to the
Lender’s Account.

 

42

 

5.                   REPRESENTATIONS AND WARRANTIES.

 

In order to induce Lender
to enter into this Agreement, each Borrower makes the following representations
and warranties to Lender which shall be true, correct, and complete, in all
material respects, as of the date hereof, and shall be true, correct, and
complete, in all material respects, as of the Closing Date, and at and as of
the date of the making of each Advance (or other extension of credit) made
thereafter, as though made on and as of the date of such Advance (or other
extension of credit) (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement, provided
that, with respect to those Guarantors that are Nonmaterial Guarantors, such
representations and warranties are given to the Borrower’s best knowledge:

 

5.1 
No Encumbrances.  Each Borrower
and the Guarantors have good and indefeasible title to their personal property
assets and good and marketable title to their Real Property, in each case, free
and clear of Liens except for Permitted Liens.

 

5.2  State of
Incorporation; Location of Chief Executive Office; FEIN;
Organizational ID Number; Commercial Tort Claims.

 

(a)                                  The
jurisdiction of organization of each Borrower and each Guarantor is set forth
on Schedule 5.2(a).

 

(b)                                 The
chief executive office of each Borrower and each Guarantor is located at the
address indicated on Schedule 5.2(b).

 

(c)                                  Each
Borrower’s and each Guarantor’s FEIN and organizational identification number,
if any, are identified on Schedule 5.2(c).

 

(d)                                 As
of the Closing Date, each Borrower and each Guarantor does not hold any
commercial tort claims, except as set forth on Schedule 5.2(d).

 

5.3  Due Organization and Qualification;
Subsidiaries; Stock.

 

(a)        Each Borrower is duly
organized and existing and in good standing under the laws of the jurisdiction
of its organization and qualified to do business in any state where the failure
to be so qualified reasonably could be expected to have a Material Adverse
Change.

 

(b)       Set forth on Schedule
5.3(b) is a complete and accurate list of Parent’s direct and indirect
Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the
number of shares of each class of common and preferred stock authorized for
each of such Subsidiaries, and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or indirectly by
Parent.  All of the outstanding capital
Stock of

 

43

 

each such Subsidiary has
been validly issued and is fully paid and non-assessable.  ES Realty does not have any Subsidiaries.

 

(c)        Except as set forth on Schedule
5.3(c), there are no subscriptions, options, warrants, or calls relating to
any shares of Borrower’s Subsidiaries’ capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument.  Neither Borrower nor any of its Subsidiaries
is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of Borrower’s Subsidiaries’ capital
Stock or any security convertible into or exchangeable for any such capital
Stock.

 

5.4  Due Authorization; No Conflict.

 

(a)        The execution, delivery,
and performance by each Borrower of this Agreement and the other Loan Documents
to which it is a party have been duly authorized by all necessary action on the
part of such Borrower.

 

(b)       The execution, delivery,
and performance by each Borrower of this Agreement and the other Loan Documents
to which it is a party do not and will not (i) violate any provision of
federal, state, or local law or regulation applicable to Borrower, the
Governing Documents of each Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of either Borrower,
(iii) result in or require the creation or imposition of any Lien of any
nature whatsoever upon any properties or assets of either Borrower, other than
Permitted Liens, or (iv) require any approval of either Borrower’s
stockholders or any approval or consent of any Person under any material
contractual obligation of either Borrower, other than consents or approvals
that have been obtained and that are still in force and effect.

 

(c)        Other than the filing of
financing statements, and the recordation of the Mortgages, the execution,
delivery, and performance by Borrower of this Agreement and the other Loan
Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority other than consents or approvals that have
been obtained and that are still in force and effect.

 

(d)       This Agreement and the
other Loan Documents to which either Borrower is a party, and all other
documents contemplated hereby and thereby, when executed and delivered by such
Borrower will be the legally valid and binding obligations of Borrower,
enforceable against such Borrower in accordance with their respective terms,
except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors’ rights generally.

 

44

 

(e)        The Lender’s Liens are
validly created and, upon filing of the appropriate financing statements or
Mortgages, will be perfected, first priority Liens in the Collateral in favor
of Lender, securing, in accordance with the terms and conditions of the Loan
Documents, the Obligations, subject only to Permitted Liens.

 

(f)          The execution, delivery,
and performance by each Guarantor of the Loan Documents to which it is a party
have been duly authorized by all necessary action on the part of such
Guarantor.

 

(g)       The execution, delivery,
and performance by each Guarantor of the Loan Documents to which it is a party
do not and will not (i) violate any provision of federal, state, or local
law or regulation applicable to such Guarantor, the Governing Documents of such
Guarantor, or any order, judgment, or decree of any court or other Governmental
Authority binding on such Guarantor, (ii) conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of such Guarantor, (iii) result
in or require the creation or imposition of any Lien of any nature whatsoever
upon any properties or assets of such Guarantor, other than Permitted Liens, or
(iv) require any approval of such Guarantor’s stockholders or any approval
or consent of any Person under any material contractual obligation of such
Guarantor, other than consents or approvals that have been obtained and that
are still in force and effect.

 

(h)       Other than the filing of
financing statements and the recordation of the Mortgages, the execution,
delivery, and performance by each Guarantor of the Loan Documents to which such
Guarantor is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any
Governmental Authority other than consents or approvals that have been obtained
and that are still in force and effect.

 

(i)           The Loan Documents to
which each Guarantor is a party, and all other documents contemplated hereby
and thereby, when executed and delivered by such Guarantor will be the legally
valid and binding obligations of such Guarantor, enforceable against such
Guarantor in accordance with their respective terms, except as enforcement may
be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors’
rights generally.

 

5.5 
Litigation.  Other than those matters disclosed on Schedule
5.5, there are no actions, suits, or proceedings pending or, to the best
knowledge of Borrower, threatened against Borrower, or any of its Subsidiaries,
as applicable, except for (a) matters that are fully covered by insurance
(subject to customary deductibles), (b) matters existing as of the Closing Date
and claiming an amount that does not exceed, in the aggregate, $150,000, and
(c) matters arising after the Closing Date that, if decided adversely to
Borrower, or any of its Subsidiaries,
as applicable, reasonably could not be expected to result in a Material Adverse
Change.

 

45

 

5.6  No Material Adverse Change.  All financial statements relating to Borrower and its
Subsidiaries that have been delivered by Borrower to Lender have been prepared
in accordance with GAAP (except, in the case of unaudited financial statements,
for the lack of footnotes and being subject to year-end audit adjustments) and
present fairly in all material respects, Borrower’s and its Subsidiaries’
financial condition as of the date thereof and results of operations for the
period then ended.  There has not been a
Material Adverse Change with respect to Borrower and its Subsidiaries since the
date of the latest financial statements submitted to Lender on or before the
Closing Date.

 

5.7  Fraudulent Transfer.

 

(a)        Borrower and each of the
Guarantors is Solvent and, immediately following execution and delivery of the
Loan Documents by Borrower and the Guarantors, and immediately following the
Closing Date, each Borrower and each of the Guarantors will be Solvent.

 

(b)       No transfer of property is
being made by Borrower or the Guarantors and no obligation is being incurred by
Borrower or the Guarantors in connection with the transactions contemplated by
this Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower or the Guarantors.

 

5.8  Employee Benefits; Labor Relations.

 

(a)        None of Borrower, the
Guarantors, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan.

 

(b)       Except as set forth on Schedule
5.8(b), no employee of Borrower is presently a member of a unit of
employees represented by a labor union.

 

5.9  Environmental Condition.  Except as set forth on Schedule 5.9, (a) to
Borrower’s knowledge, none of Borrower’s or the Guarantors’ assets has ever
been used by Borrower, the Guarantors, or by previous owners or operators in
the disposal of, or to produce, store, handle, treat, release, or transport,
any Hazardous Materials, where such production, storage, handling, treatment,
release or transport was in violation, in any material respect, of applicable
Environmental Law, (b) to Borrower’s knowledge, none of Borrower’s or the
Guarantors’ properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, (c) neither Borrower nor any of the Guarantors
has received notice that a Lien arising under any Environmental Law has attached
to any revenues or to any Real Property owned or operated by Borrower or the
Guarantors and (d) neither Borrower nor the Guarantors has received a
summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by

 

46

 

Borrower or the
Guarantors resulting in the releasing or disposing of Hazardous Materials into
the environment.

 

5.10  Brokerage Fees. 
Neither Borrower nor any of its Subsidiaries has utilized the services
of any broker or finder in connection with Borrower’s obtaining financing from
Lender under this Agreement and no brokerage commission or finders fee is
payable by Borrower or its Subsidiaries in connection herewith.

 

5.11  Intellectual
Property.  Borrower and the Guarantors own, or holds
licenses in, all trademarks, trade names, copyrights, patents, patent rights,
and licenses that are necessary to the conduct of their business as currently
conducted.  Attached hereto as Schedule
5.11 (as updated from time to time) is a true, correct, and complete
listing of all material patents, patent applications, trademarks, trademark
applications, copyrights, and copyright registrations as to which Borrower or
one of the Guarantors is the owner or is an exclusive licensee.

 

5.12  Leases. 
Borrower and the Guarantors enjoy peaceful and undisturbed possession
under all leases material to their business and to which they are parties or
under which they are operating.  All of
such leases are valid and existing and no material default by Borrower or the
Guarantors exists under any of them.

 

5.13  Deposit
Accounts and Securities Accounts.  Set forth on Schedule 5.13 is all of
Borrower’s and the Guarantors’ Deposit Accounts and Securities Accounts,
including, with respect to each bank or securities intermediary (i) the name
and address of such Person, and (ii) the account numbers of the Deposit
Accounts or Securities Accounts maintained with such Person.

 

5.14  Complete
Disclosure.  All factual information (taken as a whole)
furnished by or on behalf of Borrower or its Subsidiaries in writing to Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of Borrower or its Subsidiaries in writing to Lender will be, true and
accurate, in all material respects, on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary
to make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
provided.  On the Closing Date, the
Closing Date Projections represent, and as of the date on which any other
Projections are delivered to Lender, such additional Projections represent,
with respect to Borrower’s and its Subsidiaries’ future performance for the
periods covered thereby, Borrower’s good faith estimates and reasonable
assumptions, it being recognized by the Lender that such financial information
as it relates to future events is not to be viewed as fact and that actual
results during the period or periods covered by such financial information may
differ from the projected results set forth therein by a material amount.

 

47

 

5.15  Indebtedness.  Set
forth on Schedule 5.15 is a true and complete list of all Indebtedness
of Borrower and the Guarantors outstanding immediately prior to the Closing
Date that is to remain outstanding after the Closing Date and such Schedule
accurately reflects the aggregate principal amount of such Indebtedness and the
principal terms thereof.

 

5.16  Inactive Subsidiaries.  None of the Inactive Subsidiaries own any assets, sell any
products, provide any services, receive any earnings or otherwise conduct any
business.

 

6.                   AFFIRMATIVE COVENANTS.

 

Borrower covenants and
agrees that, so long as any credit hereunder shall be available and until
payment in full of the Obligations, Borrower shall and shall cause each of its
Subsidiaries to do all of the following:

 

6.1  Accounting System. 
Maintain a system of accounting that enables Borrower to produce
financial statements in accordance with GAAP and maintain records pertaining to
the Real Property Collateral that contain information as from time to time
reasonably may be requested by Lender.

 

6.2  Collateral Reporting.  Provide Lender with the following documents at the following
times in form satisfactory to Lender:

 

	
  5 Days from the Date of
  Occurrence

  	
   

  	
  (a) with respect to the
  Notice of Disallowance, until such time that Lender has received evidence
  satisfactory to Lender that such matter is fully and finally settled and
  resolved and Borrower or its Subsidiaries have no further monetary or other
  obligations, Borrower shall provide to Lender a detailed report describing
  any significant developments;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b) a detailed report
  regarding any changes to Borrower’s Environmental Risk Report, including a
  description of any Environmental Actions, Environmental Liens or violations
  of any Environmental Laws by or affecting Borrower, any of its Subsidiaries,
  or any Real Property; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c) a detailed report
  regarding any significant changes in the current status of Borrower’s efforts
  to obtain a Liquidity Event, including the most likely Liquidity Event
  outcome.

  
	
   

  	
   

  	
   

  
	
  Monthly (not later than
  30 days after the end of each month, unless otherwise indicated)

  	
   

  	
  (d) a detailed
  calculation of the Borrowing Base;

  

  (e) a summary aging, by vendor, of Borrower’s and its Subsidiaries’ accounts
  payable and any book overdraft.

  

 

48

 

	
  Quarterly (not later
  than 45 days after the end of each fiscal quarter)

  	
   

  	
  (f) a report regarding
  Borrower’s and its Subsidiaries’ accrued, but unpaid, ad valorem taxes; and

  

  (g) a detailed report regarding all real property tax payments made by
  Borrower for the quarter most recently ended.

  
	
   

  	
   

  	
   

  
	
  Upon request by Lender

  	
   

  	
  (h) such other reports
  as to the Collateral or the financial condition of Borrower and its
  Subsidiaries, as Lender may request.

  

 

6.3  Financial
Statements, Reports, Certificates.  Deliver to Lender:

 

(a)        as soon as available, but
in any event within 30 days (45 days in the case of a month that is the end of
one of Borrower’s fiscal quarters) after the end of each month during each of
Borrower’s fiscal years,

 

(i)                                   a company prepared consolidated balance
sheet and income statement covering Borrower’s and its Subsidiaries’ operations
during such period;

 

(ii)                                a Monthly Compliance Certificate signed
by the Vice President and Chief Financial Officer of Parent to the effect that:

 

(A) the financial statements delivered at any
quarter end hereunder have been prepared in accordance with GAAP (except for
the lack of footnotes and being subject to year-end audit adjustments) and all
financial statements fairly present in all material respects the financial
condition of Borrower and its Subsidiaries,

 

(B) the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), and

 

(C) there does not exist any condition or event
that constitutes a Default or Event of Default (or, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto),

 

(iii)                             unaudited, unit-level profit and loss statements for
such month, for each operating shop of each Borrower and Guarantor, in each
instance indicating whether it is owned or leased,

 

49

 

(b)       as soon as available, but
in any event within 45 days after the end of each of Borrower’s fiscal
quarters, for each quarter that is the date on which a financial covenant in Section
7.15 is to be tested, a Quarterly Compliance Certificate signed by the Vice
President and Chief Financial Officer of Parent demonstrating, in reasonable
detail, compliance at the end of such period with the applicable financial
covenants contained in Section 7.15,

 

(c)        as soon as available, but
in any event within 30 days prior to the start of each of Borrower’s fiscal
years, copies of the Projections, in form and substance (including as to scope
and underlying assumptions) satisfactory to Lender, in its sole discretion, for
the forthcoming fiscal year, quarter by quarter, and an Annual Compliance
Certificate signed by the Vice President and Chief Financial Officer of Parent
as being such officers’ good faith best estimate of the financial performance
of Borrower and its Subsidiaries during the period covered thereby,

 

(d)       as soon as available, but
in any event within 90 days after the end of each of Borrower’s fiscal years,

 

(i)                                   financial statements of Borrower and its
Subsidiaries for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Lender and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP (such audited financial statements to include a balance sheet, income
statement, and statement of cash flow and, if prepared, such accountants’
letter to management), and

 

(ii)                                a certificate of such accountants
addressed to Lender stating that such accountants do not have knowledge of the
existence of any Default or Event of Default under Section 7.15,

 

(e)        within 2 Business Days of
filing by Borrower,

 

(i)                                   Form 10-Q quarterly reports, Form 10-K
annual reports, and Form 8-K current reports,

 

(ii)                                any other filings made by Borrower with
the SEC,

 

(iii)                             copies of Borrower’s federal income tax returns, and
any amendments thereto, filed with the Internal Revenue Service, and

 

(iv)                            any other information that is provided by
Borrower to its shareholders generally,

 

50

 

(f)          if and when filed by
Borrower or its Subsidiaries and as requested by Lender, satisfactory evidence
of payment of applicable excise taxes in each jurisdiction in which (i)
Borrower or its Subsidiaries conducts business or is required to pay any such
excise tax, (ii) where Borrower’s or its Subsidiaries’ failure to pay any such
applicable excise tax would result in a Lien on the properties or assets of
Borrower or its Subsidiaries, or (iii) where Borrower’s or its Subsidiaries’
failure to pay any such applicable excise tax reasonably could be expected to
result in a Material Adverse Change,

 

(g)       as soon as Borrower has
knowledge of any event or condition that constitutes a Default or an Event of
Default, notice thereof and a statement of the curative action that Borrower
proposes to take with respect thereto,

 

(h)       promptly after the
commencement thereof, but in any event within 5 days after the service of
process with respect thereto on Borrower or any of its Subsidiaries, notice of
all actions, suits, or proceedings brought by or against Borrower or any of its
Subsidiaries before any Governmental Authority which, if determined adversely
to Borrower or such Subsidiary, reasonably could be expected to result in a
Material Adverse Change, and

 

(i)           upon the request of
Lender, any other report reasonably requested relating to the financial
condition of Borrower or its Subsidiaries.

 

Borrower agrees that no
Subsidiary of Borrower will have a fiscal year different from that of
Borrower.  Borrower agrees to cooperate
with Lender to allow Lender to consult with its independent certified public
accountants if Lender reasonably requests the right to do so and that, in such
connection, its independent certified public accountants are authorized to
communicate with Lender and to release to Lender whatever financial information
concerning Borrower Lender reasonably may request.

 

6.4  Guarantor Reports. 
Cause each Guarantor to deliver its annual financial statements at the
time when Borrower provides its audited financial statements to Lender, but
only to the extent such Guarantor’s financial statements are not consolidated
with Borrower’s financial statements, and copies of all federal income tax
returns as soon as the same are available and in any event no later than 30
days after the same are required to be filed by law.

 

6.5  Maintenance of Properties.  Maintain and preserve all of its properties which are necessary
to or useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply at all times with the
provisions of all leases to which it is a party as lessee so as to prevent any
loss or forfeiture thereof or thereunder.

 

6.6  Taxes. 
Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against Borrower, its
Subsidiaries, or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the

 

51

 

subject of a Permitted
Protest.  Borrower will and will cause
its Subsidiaries to make timely payment or deposit of all tax payments and
withholding taxes required of it and them by applicable laws, including those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, except to the extent that the validity of such payment or
deposit shall be the subject of a Permitted Protest, and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower and
its Subsidiaries have made such payments or deposits.

 

6.7  Insurance.

 

(a)        At Borrower’s expense,
maintain insurance respecting its and the Guarantors’ assets wherever located,
covering loss or damage by fire, theft, explosion, and all other hazards and
risks as ordinarily are insured against by other Persons engaged in the same or
similar businesses. Borrower also shall maintain business interruption, public
liability, and product liability insurance, as well as insurance against
larceny, embezzlement, and criminal misappropriation.  All such policies of insurance shall be in such amounts and with
such insurance companies as are reasonably satisfactory to Lender. Borrower
shall deliver copies of all such policies to Lender with a satisfactory
lender’s loss payable endorsement naming Lender as sole loss payee or
additional insured, as appropriate. 
Each policy of insurance or endorsement shall contain a clause requiring
the insurer to give not less than 30 days prior written notice to Lender in the
event of cancellation of the policy for any reason other than nonpayment of
premium and 10 days prior written notice to Lender in the event of cancellation
of the policy for nonpayment of premium.

 

(b)       With respect to any losses
claimed under any insurance policies set forth in Section 6.7(a) in
excess of $100,000 (or in any amount after the occurrence and during the
continuation of an Event of Default), (i) Borrower shall give Lender prompt
notice of any such loss and (ii) Lender shall have the exclusive right to
adjust any such losses claimed, without any liability to Borrower whatsoever in
respect of such adjustments.  Any monies
received as payment for any loss under any insurance policy mentioned above
(other than liability insurance policies) or as payment of any award or compensation
for condemnation or taking by eminent domain, shall be paid over to Lender to
be applied at the option of Lender either to the prepayment of the Obligations
or shall be disbursed to Borrower under staged payment terms reasonably
satisfactory to Lender for application to the cost of repairs, replacements, or
restorations. Any such repairs, replacements, or restorations shall be effected
with reasonable promptness and shall be of a value at least equal to the value
of the items of property destroyed prior to such damage or destruction.

 

(c)        Borrower will not and will
not suffer or permit its Subsidiaries to take out separate insurance concurrent
in form or contributing in the event of loss with that required to be
maintained under this Section 6.7, unless Lender is included thereon as
named insured with the loss payable to Lender under a lender’s loss payable
endorsement or its equivalent.  Borrower
immediately shall notify Lender whenever such separate insurance is

 

52

 

taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and copies of such policies promptly shall be provided to Lender.

 

6.8 
Compliance with Laws.  Comply with the
requirements of all applicable laws, rules, regulations, and orders of any
Governmental Authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act, other than laws, rules, regulations, and
orders the non-compliance with which, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Change.

 

6.9 
Existence.  At all times preserve and keep in full force
and effect Borrower’s and the Guarantors’ valid existence and good standing and
any rights and franchises material to their businesses.

 

6.10  Environmental.

 

(a) Keep any
property either owned or operated by Borrower or its Subsidiaries free of any
Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens,
(b) comply, in all material respects, with Environmental Laws and provide
to Lender documentation of such compliance which Lender reasonably requests,
(c) promptly notify Lender of any release of a Hazardous Material in any
reportable quantity from or onto property owned or operated by Borrower or its
Subsidiaries and take any Remedial Actions required to abate said release or
otherwise to come into compliance with applicable Environmental Law, and
(d) promptly, but in any event within 5 days of its receipt thereof,
provide Lender with written notice of any of the following:  (i) notice that an Environmental Lien
has been filed against any of the real or personal property of Borrower or its
Subsidiaries, (ii)  commencement of any Environmental Action against
Borrower or its Subsidiaries or notice that an Environmental Action will be
filed against Borrower or its Subsidiaries, and (iii) notice of a
violation, citation, or other administrative order which reasonably could be
expected to result in a Material Adverse Change.

 

6.11  Disclosure Updates.  Promptly and in no event
later than 5 Business Days after obtaining knowledge thereof, notify Lender if
any written information, exhibit, or report furnished to Lender contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made.  The
foregoing to the contrary notwithstanding, any notification pursuant to the
foregoing provision will not cure or remedy the effect of the prior untrue
statement of a material fact or omission of any material fact nor shall any
such notification have the affect of amending or, modifying this Agreement or
any of the Schedules hereto.

 

6.12  Formation of Subsidiaries.  At the time that
Borrower or any Guarantor forms any direct or indirect Subsidiary or acquires
any direct or indirect Subsidiary after the Closing Date, Borrower or such
Guarantor shall (a) cause such new Subsidiary to provide to

 

53

 

Lender a joinder to the
Guaranty and the Guarantor Security Agreement, together with such other
security documents (including Mortgages with respect to any Real Property of
such new Subsidiary), as well as appropriate UCC-1 financing statements (and
with respect to all property subject to a Mortgage, fixture filings), all in
form and substance satisfactory to Lender (including being sufficient to grant
Lender a first priority Lien (subject to Permitted Liens) in and to the assets
of such newly formed or acquired Subsidiary), (b) provide to Lender a pledge
agreement and appropriate certificates and powers or UCC-1 financing
statements, hypothecating all of the direct or beneficial ownership interest in
such new Subsidiary, in form and substance satisfactory to Lender, and (c)
provide to Lender all other documentation, including one or more opinions of
counsel satisfactory to Lender, which in its opinion is appropriate with
respect to the execution and delivery of the applicable documentation referred
to above (including policies of title insurance or other documentation with
respect to all property subject to a Mortgage).  Any document, agreement, or instrument executed or issued
pursuant to this Section 6.12 shall be a Loan Document.

 

7.                   NEGATIVE COVENANTS.

 

Borrower covenants and
agrees that, so long as any credit hereunder shall be available and until
payment in full of the Obligations, Borrower will not and will not permit any
of its Subsidiaries to do any of the following:

 

7.1 
Indebtedness. 
Create, incur, assume, suffer to exist, guarantee, or otherwise become
or remain, directly or indirectly, liable with respect to any Indebtedness,
except:

 

(a)          Indebtedness evidenced
by this Agreement and the other Loan Documents, together with Indebtedness owed
to Underlying Issuers with respect to Underlying Letters of Credit,

 

(b)         Indebtedness set forth on
Schedule 5.15,

 

(c)          Permitted Purchase Money
Indebtedness,

 

(d)         Indebtedness of
Subsidiaries of Borrower to Borrower or to the Guarantors,

 

(e)          refinancings, renewals,
or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1
(and continuance or renewal of any Permitted Liens associated therewith) so
long as: (i) the terms and conditions of such refinancings, renewals, or
extensions do not, in Lender’s judgment, materially impair the prospects of
repayment of the Obligations by Borrower or materially impair Borrower’s
creditworthiness, (ii) such refinancings, renewals, or extensions do not result
in an increase in the then extant principal amount of, or interest rate with
respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, nor

 

54

 

are they on terms or
conditions that, taken as a whole, are materially more burdensome or restrictive
to Borrower, (iv) if the Indebtedness that is refinanced, renewed, or extended
was subordinated in right of payment to the Obligations, then the terms and
conditions of the refinancing, renewal, or extension Indebtedness must include
subordination terms and conditions that are at least as favorable to Lender as
those that were applicable to the refinanced, renewed, or extended
Indebtedness, and (v) the Indebtedness that is refinanced, renewed, or extended
is not recourse to any Person that is liable on account of the Obligations
other than those Persons which were obligated with respect to the Indebtedness
that was refinanced, renewed, or extended,

 

(f)            obligations related to
the financing of premium payments for existing or hereafter acquired insurance
policies,

 

(g)         endorsement of
instruments or other payment items for deposit,

 

(h)         Indebtedness composing
Permitted Investments, and

 

(i)             Indebtedness not
included in (a) through (h) above, including Subordinated Debt, which does not
exceed, at any time, in the aggregate, the sum of $250,000.

 

7.2 
Liens.  Create, incur, assume, or suffer to exist,
directly or indirectly, any Lien on or with respect to any of its assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced,
renewed, or extended under Section 7.1(e) and so long as the
replacement Liens only encumber those assets that secured the refinanced,
renewed, or extended Indebtedness).

 

7.3 
Restrictions on Fundamental
Changes.

 

(a)          Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its Stock.

 

(b)         Liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution).

 

(c)          Convey, sell, lease,
license, assign, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its assets.

 

7.4 
Disposal of Assets.  Other than Permitted
Dispositions, convey, sell, lease, license, assign, transfer, or otherwise
dispose of (a) any of Borrower’s or the Material Guarantors’, assets or (b) any
of the Nonmaterial Guarantors’ assets that could reasonably be expected, either
individually or in the aggregate, to result in a Material Adverse Change.

 

55

 

7.5 
Change Name.  Change Borrower’s or any of its
Subsidiaries’ names, FEINs, organizational identification number, state of
organizational or organization identity; provided, however, that
Borrower or any of its Subsidiaries may change their names upon at least 30
days’ prior written notice to Lender of such change and so long as, at the time
of such written notification, Borrower or its Subsidiaries provides any
financing statements necessary to perfect and continue perfected the Lender’s
Liens.

 

7.6 
Nature of Business.  Make any change in the
principal nature of its or their business.

 

7.7 
Prepayments and Amendments.

 

Except in
connection with a refinancing permitted by Section 7.1(e),

 

(a)          prepay, redeem, defease,
purchase, or otherwise acquire any Indebtedness of Borrower or the Guarantors,
other than the Obligations in accordance with this Agreement, or

 

(b)         directly or indirectly,
amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing  or concerning Indebtedness permitted under Section 7.1(b)
or (c).

 

7.8 
Change of Control.  Cause, permit, or
suffer, directly or indirectly, any Change of Control.

 

7.9 
Distributions.  Make any distribution or
declare or pay any dividends (in cash or other property, other than common
stock) on, or purchase, acquire, redeem, or retire any of Borrower’s Stock, of
any class, whether now or hereafter outstanding.

 

7.10 
Accounting Methods. 
Modify or change its fiscal year or its method of accounting (other than
as may be required to conform to GAAP) or enter into, modify, or terminate any
agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower’s or its Subsidiaries’ accounting records without said accounting firm
or service bureau agreeing to provide Lender information regarding Borrower’s
and its Subsidiaries’ financial condition.

 

7.11 
Investments.
Except for Permitted Investments, directly or indirectly, make or acquire any
Investment or incur any liabilities (including contingent obligations) for or
in connection with any Investment; provided, however, that at any
time an Event of Default has occurred and is continuing, Borrower and its
Subsidiaries shall not have Permitted Investments in the Deposit Accounts or
Securities Accounts in an aggregate amount in excess of $750,000 outstanding at
any one time unless Borrower or its Subsidiary, as applicable, and the
applicable securities intermediary or bank have entered into Control Agreements
governing such Permitted Investments in order to perfect (and further
establish)

 

56

 

the Lender’s Liens in
such Permitted Investments.  At any time
an Event of Default has occurred and is continuing, subject to the foregoing
proviso, Borrower shall not and shall not permit its Subsidiaries to establish
or maintain any Deposit Account or Securities Account unless Lender shall have
received a Control Agreement in respect of such Deposit Account or Securities
Account.

 

7.12 
Transactions with Affiliates.  Directly or indirectly enter into or permit
to exist any transaction with any Affiliate of Borrower except for intercompany
transactions related to rent charges, occupancy expenses, or the furnishing of
products and materials,  transactions
that are in the ordinary course of Borrower’s business, upon fair and
reasonable terms, that are fully disclosed to Lender, and that are no less
favorable to Borrower than would be obtained in an arm’s length transaction
with a non-Affiliate.

 

7.13  Suspension. 
With respect to Borrower or the Guarantors, suspend or go out of a
substantial portion of its or their business.

 

7.14  Use of Proceeds.  Use the proceeds of the
Advances for any purpose other than (a) on the Closing Date, to pay
transactional fees, costs, and expenses incurred in connection with this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby (including, without limitation, Lender Expenses), (b) for payment
in full settlement of taxes, levies, imposts, duties, fees, assessments,
penalties, interest and other related charges imposed or assessed by the
Internal Revenue Service in connection with the Notice of Disallowance in an
amount not to exceed $1,500,000, provided that the Internal Revenue Service has
accepted Borrower’s Offer In Compromise, (c) to replace any letters of credit
for the account of Borrower existing as of the Closing Date, (d) for payment in
full of any final judgment or settlement of the Reynolds Overtime Claim in an
amount not to exceed $1,200,000 and (e) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted purposes.

 

7.15  Financial
Covenants.

 

(a)          Fail to maintain or
achieve:

 

(i)                                     Minimum EBITDA.  EBITDA,
measured on a quarter-end basis, of at least the required amount set forth in
the following table for the applicable period set forth opposite thereto:

 

57

 

	
  Applicable Amount

  	
   

  	
  Applicable
  Period

  
	
   

  	
   

  	
   

  
	
  $(50,000)

  	
   

  	
  For the quarter ending July 31, 2003

  
	
   

  	
   

  	
   

  
	
  $(200,000)

  	
   

  	
  For the quarter
  ending October 31, 2003

  
	
   

  	
   

  	
   

  
	
  $(1,050,000)

  	
   

  	
  For the quarter
  ending January 31, 2004

  
	
   

  	
   

  	
   

  
	
  $50,000

  	
   

  	
  For the quarter
  ending April 30, 2004

  
	
   

  	
   

  	
   

  
	
  $50,000

  	
   

  	
  For the quarter ending July 31, 2004

  
	
   

  	
   

  	
   

  
	
  To be determined by Lender in its sole discretion
  upon receipt of the Projections for the forthcoming fiscal year in accordance
  with Section 6.3(c)

  	
   

  	
  For each subsequent quarter thereafter

  

 

(ii)                                  Tangible Net Worth.  Tangible Net
Worth of at least the required amount set forth in the following table,
 measured  as of the applicable date set forth opposite thereto:

 

	
  Applicable Amount

  	
   

  	
  Applicable
  Date

  
	
   

  	
   

  	
   

  
	
  $5,900,000

  	
   

  	
  July 31, 2003

  
	
   

  	
   

  	
   

  
	
  $5,200,000

  	
   

  	
  October 31, 2003

  
	
   

  	
   

  	
   

  
	
  $3,900,000

  	
   

  	
  January 31, 2004

  
	
   

  	
   

  	
   

  
	
  $3,500,000

  	
   

  	
  April 30, 2004

  
	
   

  	
   

  	
   

  
	
  $3,500,000

  	
   

  	
  July 31, 2004

  
	
   

  	
   

  	
   

  
	
  To be determined by Lender in its sole discretion
  upon receipt of the Projections for the forthcoming fiscal year in accordance
  with Section 6.3(c)

  	
   

  	
  For each subsequent applicable date thereafter

  

 

(b)         Make:

 

(i)                                     Capital Expenditures.  Capital expenditures in any fiscal year
in excess of the amount set forth in the following table for the applicable
period:

 

	
  Fiscal Year 2004

  	
   

  	
  Fiscal
  Year 2005

  	
   

  	
  Fiscal
  Year 2006

  	
   

  
	
  $

  	
  250,000

  	
   

  	
  $

  	
  250,000

  	
   

  	
  $

  	
  250,000

  	
   

  
									

 

58

 

7.16  Deferred Compensation.  Make, directly or
indirectly, any payment in respect of any liability of Borrower or its
Subsidiaries for deferred compensation in excess of $270,000 per year.

 

7.17  Inactive Subsidiaries.  Permit any of the
Inactive Subsidiaries to own any assets, sell any products, provide any
services, receive any earnings or otherwise conduct any business.

 

8.                   EVENTS OF DEFAULT.

 

Any one or more of the
following events shall constitute an event of default (each, an “Event of
Default”) under this Agreement:

 

8.1  If Borrower fails to pay when due and
payable, or when declared due and payable, all or any portion of the
Obligations (whether of principal, interest (including any interest which, but
for the provisions of the Bankruptcy Code, would have accrued on such amounts),
fees and charges due Lender, reimbursement of Lender Expenses, or other amounts
constituting Obligations);

 

8.2  If
Borrower fails or neglects to perform, keep, or observe any term, provision,
covenant, or agreement contains in Sections 3.2, 4.2, 4.4, 4.6, 6.7, 6.9,
6.12 or 7.1 through 7.17 of this Agreement;

 

8.3  If
Borrower fails or neglects to perform, keep, or observe any term, provision,
covenant, or agreement contains in Sections 4.5, 6.2, 6.3, 6.5, 6.6 or 6.11
of this Agreement and such failure continues for a period of 5 Business Days;

 

8.4  If Borrower fails or neglects to perform, keep, or
observe any other term, provision, covenant, or agreement contained in this
Agreement, or in any of the other Loan Documents (giving effect to any grace
periods, cure periods, or required notices, if any, expressly provided for in
such Loan Documents); in each case, other than any such term, provision,
covenant, or agreement that is the subject of another provision of this Section 8
(in which event such other provision of this Section 8 shall
govern), and such failure continues for a period of 10 Business Days;

 

;provided that, during any period of time that
any such failure or neglect referred to in this paragraph exists, even if such
failure or neglect is not yet an Event of Default, Lender shall be relieved of
its obligation to extend credit hereunder;

 

8.5  If
any material portion of Borrower’s or any of the Guarantors’ assets is
attached, seized, subjected to a writ or distress warrant, levied upon, or
comes into the possession of any third Person;

 

59

 

8.6  If
an Insolvency Proceeding is commenced by Borrower or any of the Guarantors;

 

8.7  If
an Insolvency Proceeding is commenced against Borrower, or any of the
Guarantors, and any of the following events occur:  (a) Borrower or such Guarantor consents to the institution
of such Insolvency Proceeding against it, (b) the petition commencing the
Insolvency Proceeding is not timely controverted; provided, however, that,
during the pendency of such period, Lender shall be relieved of its obligations
to extend credit hereunder, (c) the petition commencing the Insolvency
Proceeding is not dismissed within 45 calendar days of the date of the filing
thereof; provided, however, that, during the pendency of such period, Lender
shall be relieved of its obligations to extend credit hereunder, (d) an
interim trustee is appointed to take possession of all or any substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower or any of the Guarantors, or (e) an
order for relief shall have been entered therein;

 

8.8  If
Borrower or any of the Guarantors is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;

 

8.9  Other than in
connection with the Notice of Disallowance, if (a) a notice of Lien, levy, or
assessment is filed of record with respect to any of Borrower’s or any of the
Guarantors’ assets by the United States, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien, whether choate or otherwise, upon any of
Borrower’s or any of the Guarantors’ assets and the same is not paid before
such payment is delinquent, and (b) the amount of Indebtedness secured by such
Lien exceeds $25,000;

 

8.10  If
one or more judgments or other claims involving in excess of:

 

(a)          $1,000,000, if such
judgments or other claims do not involve either the Reynolds Overtime Claim or
the Notice of Disallowance,

 

(b)         $2,500,000, if such
judgments or other claims involve the Reynolds Overtime Claim but do not
involve the Notice of Disallowance,

 

(c)          $3,000,000, if such
judgments or other claims involve the Notice of Disallowance but do not involve
the Reynolds Overtime Claim, or

 

(d)         $5,000,000, if such
judgments or other claims involve the Notice of Disallowance and the Reynolds
Overtime Claim;

 

in the aggregate over the amount of any insurance
proceeds and exclusive of any amount of such judgment satisfied by the issuance
of consideration that does not consist of cash or cash equivalents, becomes a
Lien or encumbrance upon any of Borrower’s or any of the

 

60

 

Guarantors’ assets and the same is not released,
discharged, bonded against, or stayed pending appeal before the earlier of 30
days after the date it first arises or 5 days prior to the date on which such
asset is subject to being forfeited by Borrower or any of the Guarantors;

 

8.11  If there is a
default in any material agreement to which Borrower or any of the Guarantors is
a party and such default (a) occurs at the final maturity of the obligations
thereunder, or (b) results in a right by the other party thereto, irrespective
of whether exercised, to accelerate the maturity of Borrower’s or the
Guarantors’ obligations thereunder, or to terminate such agreement;

 

8.12  If Borrower or
any of the Guarantors makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

 

8.13  If any
misstatement or misrepresentation exists now or hereafter in any warranty,
representation, statement, or Record made to
Lender by Borrower, the Guarantors, or any officer, employee, agent, or
director of Borrower or any of the Guarantors;

 

8.14  If the
obligation of any Guarantor under the Guaranty is limited or terminated by
operation of law or if the obligation of any Guarantor thereunder is limited or
terminated by such Guarantor;

 

8.15  If this
Agreement or any other Loan Document that purports to create a Lien, shall, for
any reason, fail or cease to create a valid and perfected
and, except to the extent permitted by the terms hereof or thereof, first
priority Lien on or security interest in the Collateral covered hereby or
thereby; or

 

8.16  Any provision of any Loan Document shall at any time
for any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by Borrower or any of the Guarantors,
or a proceeding shall be commenced by Borrower or any of the Guarantors, or by
any Governmental Authority having jurisdiction over Borrower or any of the
Guarantors seeking to establish the invalidity or unenforceability thereof, or
Borrower or any of the Guarantors, shall deny that Borrower or the Guarantors
has any liability or obligation purported to be created under any Loan
Document.

 

9.                   LENDER’S RIGHTS AND REMEDIES.

 

9.1  Rights and Remedies.  Upon the occurrence, and
during the continuation, of an Event of Default, Lender (at its election but
without notice of its election and without demand) may do any one or more of
the following, all of which are authorized by Borrower:

 

(a)          Declare all Obligations,
whether evidenced by this Agreement, by any of the other Loan Documents, or
otherwise, immediately due and payable;

 

61

 

(b)         Cease advancing money or
extending credit to or for the benefit of Borrower under this Agreement, under any
of the Loan Documents, or under any other agreement between Borrower and
Lender;

 

(c)          Terminate this Agreement
and any of the other Loan Documents as to any future liability or obligation of
Lender, but without affecting any of the Lender’s Liens in the Collateral and
without affecting the Obligations;

 

(d)         Settle or adjust disputes
and claims directly with Borrower’s Account Debtors for amounts and upon terms
which Lender considers advisable, and in such cases, Lender will credit
Borrower’s Loan Account with only the net amounts received by Lender in payment
of such disputed Accounts after deducting all Lender Expenses incurred or
expended in connection therewith;

 

(e)          Without notice to or
demand upon Borrower, make such payments and do such acts as Lender considers
necessary or reasonable to protect its security interests in the Borrower
Collateral.  Borrower agrees to assemble
the Borrower Collateral if Lender so requires, and to make the Borrower
Collateral available to Lender at a place that Lender may designate which is
reasonably convenient to both parties. 
Borrower authorizes Lender to enter the premises where the Borrower
Collateral is located, to take and maintain possession of the Borrower
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
Lien that in Lender’s determination appears to conflict with the Lender’s Liens
in and to the Borrower Collateral and to pay all expenses incurred in
connection therewith and to charge Borrower’s Loan Account therefor.  With respect to any of Borrower’s owned
premises, Borrower hereby grants Lender a license to enter into possession of
such premises and to occupy the same, without charge, in order to exercise any
of Lender’s rights or remedies provided herein, at law, in equity, or otherwise;

 

(f)            Without notice to
Borrower (such notice being expressly waived), and without constituting an
acceptance of any collateral in full or partial satisfaction of an obligation
(within the meaning of the Code), set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Lender, or (ii) Indebtedness
at any time owing to or for the credit or the account of Borrower held by
Lender;

 

(g)         Hold, as cash collateral,
any and all balances and deposits of Borrower held by Lender to secure the
repayment in full of all of the Obligations;

 

(h)         Ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Borrower Collateral.  Borrower hereby grants to Lender a license
or other right to use, without charge, Borrower’s labels, patents, copyrights,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Borrower Collateral,
in completing production of, advertising for sale, and selling any Borrower

 

62

 

Collateral and Borrower’s
rights under all licenses and all franchise agreements shall inure to Lender’s
benefit;

 

(i)             Sell the Borrower
Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Borrower’s premises) as Lender determines is commercially
reasonable.  It is not necessary that
the Borrower Collateral be present at any such sale;

 

(j)             Lender shall give
notice of the disposition of the Borrower Collateral as follows:

 

(i)                                     Lender shall give Borrower a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale, the time on or after which
the private sale or other disposition is to be made; and

 

(ii)                                  The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section 12,
at least 10 days before the earliest time of disposition set forth in the
notice; no notice needs to be given prior to the disposition of any portion of
the Borrower Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market;

 

(k)          Lender may credit bid
and purchase at any public sale;

 

(l)             Lender may seek the
appointment of a receiver or keeper to take possession of all or any portion of
the Borrower Collateral or to operate same and, to the maximum extent permitted
by law, may seek the appointment of such a receiver without the requirement of
prior notice or a hearing;

 

(m)                        (i)
Provided that Borrower is given an additional 15 days to cure any Event of Default
(over and above any cure periods set forth in Article 8) and such Event of
Default nevertheless continues on the 16th day, Lender may require Borrower and
each of the Guarantors to (y) establish and maintain cash management
services of a type and on terms satisfactory to Lender at one or more of the
banks set forth on Schedule 9.1(m)(i) (each, a “Cash Management
Bank”), and to request in writing and otherwise take such reasonable steps
to ensure that all of Borrower’s and the Guarantors’ Account Debtors forward
payment of the amounts owed by them directly to such Cash Management Bank, and
(z) deposit or cause to be deposited promptly, and in any event no later
than the first Business Day after the date of receipt thereof, all of their
Collections (including those sent directly by their Account Debtors to a Cash
Management Bank) into a bank account in Lender’s name (a “Cash Management
Account”) at one of the Cash Management Banks.

 

63

 

(ii)                                  At
such time as cash management services are established pursuant to (i) above,
each Cash Management Bank shall establish and maintain Cash Management
Agreements with Lender and Borrower or one of the Guarantors, in form and
substance reasonably acceptable to Lender. 
Each such Cash Management Agreement shall provide, among other things,
that (x) all items of payment deposited in such Cash Management Account
and proceeds thereof are held by such Cash Management Bank as agent or
bailee-in-possession for Lender, (y) the Cash Management Bank has no rights of
setoff or recoupment or any other claim against the applicable Cash Management
Account other than for payment of its service fees and other charges directly
related to the administration of such Cash Management Account and for returned
checks or other items of payment, and (z) it immediately will forward by daily
sweep all amounts in the applicable Cash Management Account to the Lender’s
Account.

 

(iii)                               So
long as no Event of Default has occurred and is continuing, Borrower may amend Schedule 9.1(m)(i)
to add or replace a Cash Management Bank; provided, however, that
such prospective Cash Management Bank shall be satisfactory to Lender and
Lender shall have consented in writing in advance to the opening of a Cash
Management Account with the prospective Cash Management Bank.  Borrower (or the Guarantors, as applicable)
shall close any of its Cash Management Accounts (and establish replacement Cash
Management Accounts) promptly and in any event within 30 days of notice from Lender
that the creditworthiness of any Cash Management Bank is no longer acceptable
in Lender’s reasonable judgment, or as promptly as practicable and in any event
within 60 days of notice from Lender that the operating performance, funds
transfer, or availability procedures or performance of the Cash Management Bank
with respect to Cash Management Accounts or Lender’s liability under any Cash
Management Agreement with such Cash Management Bank is no longer acceptable in
Lender’s reasonable judgment.

 

(iv)                              If
and when created, the Cash Management Accounts shall be cash collateral
accounts, with all cash, checks, and similar items of payment in such accounts
securing payment of the Obligations, and at such time, Borrower will grant a
Lien in such Cash Management Accounts to Lender.

 

(n)         Lender shall have all
other rights and remedies available at law or in equity or pursuant to any
other Loan Document; provided, however, that upon the occurrence
of any Event of Default described in Section 8.6 or Section 8.7,
in addition to the remedies set forth above, without any notice to Borrower or
any other Person or any act by the Lender, the Obligations then outstanding,
together with all accrued and unpaid interest thereon and all fees and all
other amounts due under this Agreement and the other Loan

 

64

 

Documents, shall
automatically and immediately become due and payable, without presentment,
demand, protest, or notice of any kind, all of which are expressly waived by Borrower.

 

9.2 
Remedies Cumulative.  The rights and remedies
of Lender under this Agreement, the other Loan Documents, and all other
agreements shall be cumulative.  Lender
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. 
No exercise by Lender of one right or remedy shall be deemed an
election, and no waiver by Lender of any Event of Default shall be deemed a
continuing waiver.  No delay by Lender
shall constitute a waiver, election, or acquiescence by it.

 

10.            TAXES AND EXPENSES.

 

If Borrower fails to pay
any monies (whether taxes, assessments, insurance premiums, or, in the case of
leased properties or assets, rents or other amounts payable under such leases)
due to third Persons, or fails to make any deposits or furnish any required
proof of payment or deposit, all as required under the terms of this Agreement,
then Lender, in its sole discretion and without prior notice to Borrower, may
do any or all of the following: 
(a) make payment of the same or any part thereof, (b) set up such
reserves in Borrower’s Loan Account as Lender deems necessary to protect Lender
from the exposure created by such failure, or (c) in the case of the failure to
comply with Section 6.7 hereof, obtain and maintain insurance
policies of the type described in Section 6.7 and take any action
with respect to such policies as Lender deems prudent.  Any such amounts paid by Lender shall
constitute Lender Expenses and any such payments shall not constitute an
agreement by Lender to make similar payments in the future or a waiver by
Lender of any Event of Default under this Agreement.  Lender need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.

 

11.            WAIVERS; INDEMNIFICATION;
SUBORDINATION.

 

11.1 
Demand; Protest. 
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of documents, instruments,
chattel paper, and guarantees at any time held by Lender on which Borrower may
in any way be liable.

 

11.2  Lender’s
Liability for Collateral.  Borrower hereby agrees that:  (a) so long as Lender complies with its
obligations, if any, under the Code, Lender shall not in any way or manner be
liable or responsible for:  (i) the
safekeeping of the Borrower Collateral, (ii) any loss or damage thereto
occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person, and
(b) all risk of loss, damage, or destruction of the Borrower Collateral
shall be borne by Borrower.

 

65

 

11.3  Indemnification.  Each Borrower shall pay,
indemnify, defend, and hold the Lender-Related Persons, and each Participant
(each, an “Indemnified Person”) harmless (to the fullest extent
permitted by law) from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all reasonable attorneys’ fees
and disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of
them (a) in connection with or as a result of or related to the execution,
delivery, enforcement, performance, or administration (including any
restructuring or workout with respect hereto) of this Agreement, any of the
other Loan Documents, or the transactions contemplated hereby or thereby or the
monitoring of Borrower’s and the Guarantors’ compliance with the terms of the
Loan Documents, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of
the proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively,
the “Indemnified Liabilities”). 
The foregoing to the contrary notwithstanding, Borrower shall have no
obligation to any Indemnified Person under this Section 11.3 with
respect to any Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. 
This provision shall survive the termination of this Agreement and the
repayment of the Obligations.  If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrower was required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrower
with respect thereto.  WITHOUT
LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR
ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY
OTHER PERSON.

 

11.4  Subordination.  Each Borrower hereby absolutely
subordinates, both in right of payment and in time of payment, any and all
present or future obligations and liabilities of each Borrower owing to the
other Borrower (“Borrower Subordinated Debt”) to the prior payment in
full of the Obligations, whether or not such Borrower Subordinated Debt
constitutes or arises out of any subrogation, reimbursement, contribution,
indemnity or similar right attributable to this Agreement.  At any time a Default or Event of Default
has occurred and is continuing, no payment or distribution of assets of either
Borrower of any kind or character, whether in cash, securities or other
property, shall be made on or with respect to the Borrower Subordinated Debt
prior to the payment in full of the Obligations.  If, at any time a Default or Event of Default has occurred and is
continuing, whether or not at Lender’s request, a Borrower shall receive, prior
to payment in full of all Obligations, payment of any sum from the other
Borrower upon the Borrower Subordinated Debt, any such sum shall be received by
such Borrower as trustee for Lender and shall forthwith be

 

66

 

paid over to Lender on
account of the Obligations, without reducing or affecting in any manner the
liability of such Borrower under this Agreement.

 

12.            NOTICES.

 

Unless otherwise provided
in this Agreement, all notices or demands by Borrower or Lender to the other
relating to this Agreement or any other Loan Document (other than as may be
permitted by Lender pursuant to Section 2.2(a) with respect to
requests for borrowing) shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by registered or
certified mail (postage prepaid, return receipt requested), overnight courier,
electronic mail (at such email addresses as Borrower or Lender, as applicable,
may designate to each other in accordance herewith), or telefacsimile to
Borrower or Lender, as the case may be, at its address set forth below:

 

	
  If to Borrower:

  	
   

  	
  EARL
  SCHEIB, INC.

  
	
   

  	
   

  	
   

  	
  15206 Ventura Blvd.,
  Suite 200

  
	
   

  	
   

  	
   

  	
  Sherman Oaks,
  California 91403

  
	
   

  	
   

  	
   

  	
  Attn: 

  	
  Vice President
  and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
  General Counsel

  
	
   

  	
   

  	
   

  	
  Fax
  No. 818-981-8804

  
	
   

  	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  MUNGER,
  TOLLES & OLSON LLP

  
	
   

  	
   

  	
   

  	
  355 South Grand Avenue,
  35th Floor

  
	
   

  	
   

  	
   

  	
  Los Angeles, California
  90071

  
	
   

  	
   

  	
   

  	
  Attn:  Emily Stephens, Esq.

  
	
   

  	
   

  	
   

  	
  Fax
  No. 213-683-4097

  
	
   

  	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  WELLS FARGO FOOTHILL, INC.

  
	
   

  	
   

  	
   

  	
  2450 Colorado Avenue

  
	
   

  	
   

  	
   

  	
  Suite 3000 West

  
	
   

  	
   

  	
   

  	
  Santa Monica,
  California 90404

  
	
   

  	
   

  	
   

  	
  Attn: Business
  Finance Manager

  
	
   

  	
   

  	
   

  	
  Fax
  No. 310-453-7413

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  WELLS FARGO FOOTHILL, INC.

  
	
   

  	
   

  	
   

  	
  One Boston Place, 18th
  Floor

  
	
   

  	
   

  	
   

  	
  Boston, Massachusetts
  02108

  
	
   

  	
   

  	
   

  	
  Attn: Business
  Finance Manager

  
	
   

  	
   

  	
   

  	
  Fax
  No. 617-523-1697

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  WELLS FARGO FOOTHILL, INC.

  
	
   

  	
   

  	
   

  	
  1000 Abernathy Road,
  Suite 1450

  
	
   

  	
   

  	
   

  	
  Atlanta, Georgia 30328

  

 

67

 

	
   

  	
   

  	
   

  	
  Attn:  Business Finance Manager

  
	
   

  	
   

  	
   

  	
  Fax No. 770-508-1375

  
	
   

  	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  ALSCHULER
  GROSSMAN STEIN & KAHAN LLP

  
	
   

  	
   

  	
   

  	
  1620 26th
  Street, Fourth Floor, North Tower

  
	
   

  	
   

  	
   

  	
  Santa Monica,
  California 90404-4060

  
	
   

  	
   

  	
   

  	
  Attn:  Matthew Nelson, Esq.

  
	
   

  	
   

  	
   

  	
  Fax
  No. 310-907-2000

  

 

Lender and Borrower may
change the address at which they are to receive notices hereunder by notice in
writing in the foregoing manner given to the other party.  All notices or demands sent in accordance
with this Section 12, other than notices by Lender in connection
with enforcement rights against the Borrower Collateral under the provisions of
the Code, shall be deemed received on the earlier of the date of actual receipt
or 3 Business Days after the deposit thereof in the mail.  Borrower acknowledges and agrees that
notices sent by Lender in connection with the exercise of enforcement rights
against Borrower Collateral under the provisions of the Code shall be deemed
sent when deposited in the mail or personally delivered or, where permitted by
law, transmitted by telefacsimile or any other method set forth above.

 

13.            CHOICE OF LAW AND VENUE; JURY TRIAL
WAIVER.

 

(a)             THE VALIDITY OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE
CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REFERENCE TO ANY CHOICE OF LAW RULES THEREUNDER.

 

(b)            THE PARTIES AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY BORROWER
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE
SUCH BORROWER COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  BORROWER AND LENDER WAIVE, TO THE EXTENT
PERMITTED UNDER

 

68

 

APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM  NON  CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE
WITH THIS SECTION 13(b).

 

(c)          BORROWER AND LENDER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  BORROWER AND LENDER REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

14.            ASSIGNMENTS AND PARTICIPATIONS;
SUCCESSORS.

 

14.1  Assignments and Participations.

 

(a)          Lender may assign and
delegate to one or more assignees (each an “Assignee”) that are Eligible
Transferees all, or any ratable part of all, of the Obligations and the other
rights and obligations of Lender hereunder and under the other Loan Documents; provided,
however, that Borrower may continue to deal solely and directly with
Lender in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions,
addresses, and related information with respect to the Assignee, have been
given to Borrower by Lender and the Assignee, (ii) Lender and its Assignee
have delivered to Borrower an appropriate assignment and acceptance.  Anything contained herein to the contrary
notwithstanding, the Assignee need not be an Eligible Transferee if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of Lender.

 

(b)         From and after the date
that Lender provides Borrower with such written notice and executed assignment
and acceptance, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such assignment and acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) Lender shall, to the extent that
rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such assignment and acceptance, relinquish its
rights (except with respect to Section 11.3 hereof) and be released
from any future obligations in connection therewith under this Agreement (and
in the case of an assignment and acceptance covering all or the remaining
portion of Lender’s rights and obligations under this Agreement and the other
Loan Documents, such Lender shall cease to be a party hereto and thereto), and
such assignment shall effect a

 

69

 

novation between Borrower
and the Assignee with respect to the assigned rights and obligations; provided,
however, that nothing contained herein shall release Lender from
obligations that survive the termination of this Agreement, including Lender’s
obligations under Section 16.9 of this Agreement.

 

(c)          Immediately upon
Borrower’s receipt of such fully executed assignment and acceptance, this
Agreement shall be deemed to be amended to the extent, but only to the extent,
necessary to reflect the addition of the Assignee and the resulting adjustment
of the rights and duties of Lender arising therefrom.

 

(d)         Notwithstanding Sections
14.1(a) through (c) above, Lender and its Assignee shall not assign their
respective rights and obligations under this Agreement except in whole,
provided that Lender or its Assignee may assign its rights and obligations
under this Agreement in part if, prior to such assignment, this Agreement has
been amended to provide for the appointment of an agent acting on behalf of all
lenders hereunder or other provisions for the coordinated action of multiple
lenders hereunder based upon the determination of lenders holding a majority of
the Advances then outstanding.  Each
Borrower and Guarantor hereby agree to execute such an amendment promptly upon
request by the Lender or its Assignee.

 

(e)          Lender may at any time
sell to one or more commercial banks, financial institutions, or other Persons
not Affiliates of such Lender (a “Participant”) participating interests
in the Obligations and the other rights and interests of Lender hereunder and
under the other Loan Documents; provided, however, that (i) 
Lender shall remain the “Lender” for all purposes of this Agreement and the
other Loan Documents and the Participant receiving the participating interest
in the Obligations and the other rights and interests of Lender hereunder shall
not constitute a “Lender” hereunder or under the other Loan Documents and
Lender’s obligations under this Agreement shall remain unchanged, (ii) 
Lender shall remain solely responsible for the performance of such obligations,
(iii) Borrower and the Lender shall continue to deal solely and directly
with each other Lender in connection with Lender’s rights and obligations under
this Agreement and the other Loan Documents, (iv) Lender shall not
transfer or grant any participating interest under which the Participant has
the right to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the
Loan Documents) supporting the Obligations hereunder in which such Participant
is participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through Lender, or (E) change the
amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower

 

70

 

hereunder shall be
determined as if Lender had not sold such participation, except that, if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event
of Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as Lender under this Agreement. 
The rights of any Participant only shall be derivative through Lender
and no Participant shall have any rights under this Agreement or the other Loan
Documents or any direct rights as to Borrower, the Collections of Borrower or
its Subsidiaries, the Collateral, or otherwise in respect of the
Obligations.  No Participant shall have
the right to participate directly in the making of decisions by Lender.

 

(f)            In connection with any
such assignment or participation or proposed assignment or participation,
Lender may, subject to the provisions of Section 16.9, disclose all
documents and information which it now or hereafter may have relating to
Borrower and its Subsidiaries and their respective businesses.

 

(g)         Any other provision in
this Agreement notwithstanding, Lender may at any time create a security
interest in, or pledge, all or any portion of its rights under and interest in
this Agreement in favor of any Federal Reserve Bank in accordance with
Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §
203.24, and such Federal Reserve Bank may enforce such pledge or security interest
in any manner permitted under applicable law.

 

14.2  Successors. 
This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Lender’s prior written consent and any prohibited assignment shall be
absolutely void ab initio.  No
consent to assignment by Lender shall release Borrower from its
Obligations.  Lender may assign this
Agreement and the other Loan Documents and its rights and duties hereunder and
thereunder pursuant to Section 14.1 hereof and, except as expressly
required pursuant to Section 14.1 hereof, no consent or approval by
Borrower is required in connection with any such assignment.

 

15.            AMENDMENTS; WAIVERS.

 

15.1  Amendments and Waivers.  No amendment or waiver
of any provision of this Agreement or any other Loan Document, and no consent
with respect to any departure by Borrower therefrom, shall be effective unless
the same shall be in writing and signed by Lender and Borrower and then any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.

 

15.2  No Waivers; Cumulative Remedies.  No failure by Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by

 

71

 

Lender in exercising the
same, will operate as a waiver thereof. 
No waiver by Lender will be effective unless it is in writing, and then
only to the extent specifically stated. 
No waiver by Lender on any occasion shall affect or diminish Lender’s
rights thereafter to require strict performance by Borrower of any provision of
this Agreement.  Lender’s rights under
this Agreement and the other Loan Documents will be cumulative and not
exclusive of any other right or remedy that Lender may have.

 

16.            GENERAL PROVISIONS.

 

16.1  Effectiveness.  This Agreement shall be
binding and deemed effective when executed by Borrower and Lender.

 

16.2  Section Headings.  Headings and numbers
have been set forth herein for convenience only.  Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

 

16.3  Interpretation.  Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed against Lender or
Borrower, whether under any rule of construction or otherwise.  On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.

 

16.4  Severability of Provisions.  Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.

 

16.5  Withholding Taxes.  All payments made by Borrower hereunder or under any
note will be made without setoff, counterclaim, or other defense, except as
required by applicable law other than for Taxes (as defined below).  All such payments will be made free and
clear of, and without deduction or withholding for, any present or future
taxes, levies, imposts, duties, fees, assessments or other charges of whatever
nature now or hereafter imposed by any jurisdiction (other than the United
States) or by any political subdivision or taxing authority thereof or therein
(other than of the United States) with respect to such payments (but excluding,
any tax imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein (i) measured by or based on the net income or net
profits of Lender, or (ii) to the extent that such tax results from a change in
the circumstances of Lender, including a change in the residence, place of
organization, or principal place of business of Lender, or a change in the
branch or lending office of Lender participating in the transactions set forth
herein) and all interest, penalties or similar liabilities with respect thereto
(all such non-excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to collectively as “Taxes”).  If any Taxes are so levied or imposed,
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any note, including any amount paid pursuant to this Section 16.5
after withholding or deduction

 

72

 

for or on account of any
Taxes, will not be less than the amount provided for herein; provided, however,
that Borrower shall not be required to increase any such amounts payable to
Lender if the increase in such amount payable results from Lender’s own willful
misconduct or gross negligence. 
Borrower will furnish to Lender as promptly as possible after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by Borrower.

 

16.6  Amendments in Writing. 
This Agreement only can be amended by a writing signed by Lender and
Borrower.

 

16.7  Counterparts; Telefacsimile
Execution. 
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Loan
Document mutatis
mutandis.

 

16.8  Revival and Reinstatement of
Obligations. 
If the incurrence or payment of the Obligations by either Borrower or
the Guarantors or the transfer to Lender of any property should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors’ rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, or other voidable or
recoverable payments of money or transfers of property (collectively, a “Voidable
Transfer”), and if Lender is required to repay or restore, in whole or in
part, any such Voidable Transfer, or elects to do so upon the reasonable advice
of its counsel, then, as to any such Voidable Transfer, or the amount thereof
that Lender is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys’ fees of Lender related thereto, the liability
of Borrower or Guarantors automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.

 

16.9  Confidentiality.

 

Lender agrees that
material, non-public information regarding Borrower and its Subsidiaries, their
operations, assets, and existing and contemplated business plans shall be
treated by Lender in a confidential manner, and shall not be disclosed by
Lender to Persons who are not parties to this Agreement, except:  (a) to attorneys for and other advisors,
accountants, auditors, and consultants to Lender, so long as Lender instructs
such attorneys, advisors, accounts, auditors and consultants to treat such
information in a confidential manner, (b) to Subsidiaries and Affiliates of
Lender, provided that any such Subsidiary or Affiliate shall have agreed to
receive such information hereunder subject to the

 

73

 

terms of this Section 16.9,
(c) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation (in which case Lender will use its reasonable
efforts to provide reasonable notice to Borrower so that Borrower has an
opportunity to seek a protective order), (d) as may be agreed to in advance by
Borrower or its Subsidiaries or as requested or required by any Governmental
Authority pursuant to any subpoena or other legal process, (e) as to any such
information that is or becomes generally available to the public (other than as
a result of prohibited disclosure by Lender), (f) in connection with any
assignment, prospective assignment, sale, prospective sale, participation or
prospective participations, or pledge or prospective pledge of Lender’s interest
under this Agreement, provided that any such assignee, prospective assignee,
purchaser, prospective purchaser, participant, prospective participant,
pledgee, or prospective pledgee shall have agreed in writing to receive such
information hereunder subject to the terms of this Section, and (g) in
connection with any litigation or other adversary proceeding involving parties
hereto which such litigation or other adversary proceeding involving parties
hereto with such litigation or adversary proceeding involves claims related to
the rights or duties of such parties under this Agreement or the other Loan
Documents.  The provisions of this Section 16.9
shall survive for 2 years after the payment in full of the Obligations.  Anything contained herein or in any other
Loan Document to the contrary notwithstanding, the obligations of
confidentiality contained herein and therein, as they relate to the
transactions contemplated hereby, shall not apply to the federal tax structure
or federal tax treatment of such transactions, and each party hereto (and any
employee, representative, or agent of any party hereto) may disclose to any and
all Persons, without limitation of any kind, the federal tax structure and
federal tax treatment of such transactions (including all written materials
related to such tax structure and tax treatment).  The preceding sentence is intended to cause the transactions
contemplated hereby to not be treated as having been offered under conditions
of confidentiality for purposes of Section 1.6011-4(b)(3) (or any
successor provision) of the Treasury Regulations promulgated under
Section 6011 of the IRC, and shall be construed in a manner consistent
with such purpose.  In addition, each
party hereto acknowledges that it has no proprietary or exclusive rights to the
tax structure of the transactions contemplated hereby or any tax matter or tax
idea related thereto.

 

16.10  Integration.  This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

 

[Signature page to
follow.]

 

74

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed and delivered as of
the date first above written.

 

 

	
   

  	
  BORROWER

  
	
   

  	
   

  
	
   

  	
  EARL SCHEIB, INC.,
a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  EARL SCHEIB REALTY CORP.,

  a California
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO FOOTHILL, INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

75

 

	
  1.

  	
  DEFINITIONS AND CONSTRUCTION

  
	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  
	
   

  	
   

  	
   

  
	
   

  	
  1.2

  	
  Accounting Terms

  
	
   

  	
   

  	
   

  
	
   

  	
  1.3

  	
  Code

  
	
   

  	
   

  	
   

  
	
   

  	
  1.4

  	
  Construction

  
	
   

  	
   

  	
   

  
	
   

  	
  1.5

  	
  Schedules and Exhibits

  
	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT

  
	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Revolver Advances

  
	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Borrowing
  Procedures and Settlements

  
	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Payments

  
	
   

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Overadvances

  
	
   

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Interest
  Rates and Letter of Credit Fee: 
  Rates, Payments, and Calculations

  
	
   

  	
   

  	
   

  
	
   

  	
  2.6

  	
  Crediting Payments

  
	
   

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Designated Account

  
	
   

  	
   

  	
   

  
	
   

  	
  2.8

  	
  Maintenance
  of Loan Account; Statements of Obligations

  
	
   

  	
   

  	
   

  
	
   

  	
  2.9

  	
  Fees

  
	
   

  	
   

  	
   

  
	
   

  	
  2.10

  	
  Letters of Credit

  
	
   

  	
   

  	
   

  
	
   

  	
  2.11

  	
  Capital Requirements

  
	
   

  	
   

  	
   

  
	
   

  	
  2.12

  	
  Joint and
  Several Liability of Borrower

  
	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS; TERM OF
  AGREEMENT

  
	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Conditions
  Precedent to the Initial Extension of Credit

  
	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Conditions Subsequent to the Initial
  Extension of Credit

  
	
   

  	
   

  	
   

  
	
   

  	
  3.3

  	
  Conditions Precedent to all
  Extensions of Credit

  
	
   

  	
   

  	
   

  
	
   

  	
  3.4

  	
  Term

  
	
   

  	
   

  	
   

  
	
   

  	
  3.5

  	
  Effect of Termination

  
	
   

  	
   

  	
   

  
	
   

  	
  3.6

  	
  Early Termination by
  Borrower

  
	
   

  	
   

  	
   

  
	
  4.

  	
  CREATION OF SECURITY
  INTEREST

  
	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Grant of Security Interest

  
	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Negotiable Collateral

  
	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Collection of Accounts, General
  Intangibles, and Negotiable Collateral

  
	
   

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Filing of Financing Statements;
  Commercial Tort Claims; Delivery of Additional Documentation Required

  
	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Power of Attorney

  

 

 

	
   

  	
  4.6

  	
  Right to Inspect

  
	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Control Agreements

  
	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND WARRANTIES

  
	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  No Encumbrances

  
	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  State of Incorporation;
  Location of Chief Executive Office; FEIN; Organizational ID Number;
  Commercial Tort Claims

  
	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Due Organization and
  Qualification; Subsidiaries; Stock

  
	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Due Authorization; No
  Conflict

  
	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Litigation

  
	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
  No Material Adverse Change

  
	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Fraudulent Transfer

  
	
   

  	
   

  	
   

  
	
   

  	
  5.8

  	
  Employee Benefits;
  Labor Relations

  
	
   

  	
   

  	
   

  
	
   

  	
  5.9

  	
  Environmental Condition

  
	
   

  	
   

  	
   

  
	
   

  	
  5.10

  	
  Brokerage Fees

  
	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Intellectual Property

  
	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  Leases

  
	
   

  	
   

  	
   

  
	
   

  	
  5.13

  	
  Deposit
  Accounts and Securities Accounts

  
	
   

  	
   

  	
   

  
	
   

  	
  5.14

  	
  Complete Disclosure

  
	
   

  	
   

  	
   

  
	
   

  	
  5.15

  	
  Indebtedness

  
	
   

  	
   

  	
   

  
	
   

  	
  5.16

  	
  Inactive Subsidiaries

  
	
   

  	
   

  	
   

  
	
  6.

  	
  AFFIRMATIVE COVENANTS

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Accounting System

  
	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Collateral Reporting

  
	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Financial
  Statements, Reports, Certificates

  
	
   

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Guarantor Reports

  
	
   

  	
   

  	
   

  
	
   

  	
  6.5

  	
  Maintenance of Properties

  
	
   

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Taxes

  
	
   

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Insurance

  
	
   

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Compliance
  with Laws

  
	
   

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Existence

  
	
   

  	
   

  	
   

  
	
   

  	
  6.10

  	
  Environmental

  
	
   

  	
   

  	
   

  
	
   

  	
  6.11

  	
  Disclosure
  Updates

  
	
   

  	
   

  	
   

  
	
   

  	
  6.12

  	
  Formation of Subsidiaries

  

 

 

	
  7.

  	
  NEGATIVE
  COVENANTS

  
	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Indebtedness

  
	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Liens

  
	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Restrictions on
  Fundamental Changes

  
	
   

  	
   

  	
   

  
	
   

  	
  7.4

  	
  Disposal of
  Assets

  
	
   

  	
   

  	
   

  
	
   

  	
  7.5

  	
  Change Name

  
	
   

  	
   

  	
   

  
	
   

  	
  7.6

  	
  Nature of
  Business

  
	
   

  	
   

  	
   

  
	
   

  	
  7.7

  	
  Prepayments and Amendments

  
	
   

  	
   

  	
   

  
	
   

  	
  7.8

  	
  Change of
  Control

  
	
   

  	
   

  	
   

  
	
   

  	
  7.9

  	
  Distributions

  
	
   

  	
   

  	
   

  
	
   

  	
  7.10

  	
  Accounting
  Methods

  
	
   

  	
   

  	
   

  
	
   

  	
  7.11

  	
  Investments

  
	
   

  	
   

  	
   

  
	
   

  	
  7.12

  	
  Transactions with
  Affiliates

  
	
   

  	
   

  	
   

  
	
   

  	
  7.13

  	
  Suspension

  
	
   

  	
   

  	
   

  
	
   

  	
  7.14

  	
  Use of Proceeds

  
	
   

  	
   

  	
   

  
	
   

  	
  7.15

  	
  Financial
  Covenants

  
	
   

  	
   

  	
   

  
	
   

  	
  7.16

  	
  Deferred
  Compensation

  
	
   

  	
   

  	
   

  
	
   

  	
  7.17

  	
  Inactive
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  8.

  	
  EVENTS OF
  DEFAULT

  
	
   

  	
   

  	
   

  
	
  9.

  	
  LENDER’S RIGHTS AND
  REMEDIES

  
	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Rights
  and Remedies

  
	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Remedies
  Cumulative

  
	
   

  	
   

  	
   

  
	
  10.

  	
  TAXES AND
  EXPENSES

  
	
   

  	
   

  	
   

  
	
  11.

  	
  WAIVERS;
  INDEMNIFICATION; SUBORDINATION

  
	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Demand; Protest

  
	
   

  	
   

  	
   

  
	
   

  	
  11.2

  	
  Lender’s Liability
  for Collateral

  
	
   

  	
   

  	
   

  
	
   

  	
  11.3

  	
  Indemnification

  
	
   

  	
   

  	
   

  
	
   

  	
  11.4

  	
  Subordination

  
	
   

  	
   

  	
   

  
	
  12.

  	
  NOTICES

  
	
   

  	
   

  	
   

  
	
  13.

  	
  CHOICE OF
  LAW AND VENUE; JURY TRIAL WAIVER

  
	
   

  	
   

  	
   

  
	
  14.

  	
  ASSIGNMENTS
  AND PARTICIPATIONS; SUCCESSORS

  
	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Assignments and
  Participations

  
	
   

  	
   

  	
   

  
	
   

  	
  14.2

  	
  Successors

  

 

 

	
  15.

  	
  AMENDMENTS;
  WAIVERS

  
	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Amendments
  and Waivers

  
	
   

  	
   

  	
   

  
	
   

  	
  15.2

  	
  No Waivers; Cumulative
  Remedies

  
	
   

  	
   

  	
   

  
	
  16.

  	
  GENERAL
  PROVISIONS

  
	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Effectiveness

  
	
   

  	
   

  	
   

  
	
   

  	
  16.2

  	
  Section Headings

  
	
   

  	
   

  	
   

  
	
   

  	
  16.3

  	
  Interpretation

  
	
   

  	
   

  	
   

  
	
   

  	
  16.4

  	
  Severability of Provisions

  
	
   

  	
   

  	
   

  
	
   

  	
  16.5

  	
  Withholding
  Taxes

  
	
   

  	
   

  	
   

  
	
   

  	
  16.6

  	
  Amendments in Writing

  
	
   

  	
   

  	
   

  
	
   

  	
  16.7

  	
  Counterparts;
  Telefacsimile Execution

  
	
   

  	
   

  	
   

  
	
   

  	
  16.8

  	
  Revival and
  Reinstatement of Obligations

  
	
   

  	
   

  	
   

  
	
   

  	
  16.9

  	
  Confidentiality

  
	
   

  	
   

  	
   

  
	
   

  	
  16.10

  	
  Integration

  

 

 

EXHIBITS AND
SCHEDULES

 

	
  Exhibit A

  	
   

  	
  Form of Monthly Compliance
  Certificate

  
	
  Exhibit B

  	
   

  	
  Form of Revolving Credit
  Note

  
	
  Exhibit C

  	
   

  	
  Form of Quarterly Compliance
  Certificate

  
	
  Exhibit D

  	
   

  	
  Form of Control Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Annual Compliance
  Certificate

  
	
  Schedule D-1

  	
   

  	
  Designated Account

  
	
  Schedule E-1

  	
   

  	
  Eligible Real Property

  
	
  Schedule L-1

  	
   

  	
  Lender’s Account

  
	
  Schedule P-1

  	
   

  	
  Permitted Liens

  
	
  Schedule P-2

  	
   

  	
  Permitted Protests

  
	
  Schedule R-1

  	
   

  	
  Real Property
  Collateral

  
	
  Schedule 5.2(a)

  	
   

  	
  States of Organization

  
	
  Schedule 5.2(b)

  	
   

  	
  Chief Executive Offices

  
	
  Schedule 5.2(c)

  	
   

  	
  FEINs

  
	
  Schedule 5.2(d)

  	
   

  	
  Commercial Tort Claims

  
	
  Schedule 5.3(b)

  	
   

  	
  Subsidiaries

  
	
  Schedule 5.3(c)

  	
   

  	
  Capitalization of Borrower’s Subsidiaries

  
	
  Schedule 5.5

  	
   

  	
  Litigation

  
	
  Schedule 5.8(b)

  	
   

  	
  Labor Unions

  
	
  Schedule 5.9

  	
   

  	
  Environmental Matters

  
	
  Schedule 5.11

  	
   

  	
  Intellectual Property

  
	
  Schedule 5.13

  	
   

  	
  Deposit Accounts and Securities Accounts

  
	
  Schedule 5.15

  	
   

  	
  Permitted Indebtedness

  

 

 

 

EXHIBIT
A

 

FORM OF MONTHLY COMPLIANCE
CERTIFICATE

 

See
attached.

 

 

EXHIBIT
B

 

FORM OF REVOLVING CREDIT NOTE

 

See
attached.

 

 

EXHIBIT
C

 

FORM OF QUARTERLY COMPLIANCE
CERTIFICATE

 

See
attached.

 

 

EXHIBIT
D

 

FORM OF CONTROL AGREEMENT

 

See
attached.

 

 

EXHIBIT
E

 

FORM OF ANNUAL COMPLIANCE CERTIFICATE

 

See
attached.

 

 

SCHEDULE
D-1

 

DESIGNATED
ACCOUNT

 

Account
number 112119019 of Borrower maintained with Borrower’s Designated Account
Bank, or such other deposit account of Borrower (located within the United
States) that has been designated as such, in writing, by Borrower to Lender.

 

“Designated
Account Bank” means City National Bank, whose office is located at 400
North Roxbury Drive, Beverly Hills, California 90210, and whose ABA number is
122016066.

 

 

SCHEDULE
E-1

 

ELIGIBLE
REAL PROPERTY

 

	
  Street

  	
   

  	
  City

  	
   

  	
  County

  	
   

  	
  State

  
	
  5416-20 Santa Monica
  Blvd.

  	
   

  	
  Hollywood

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  2826 E. Anaheim

  	
   

  	
  Long Beach

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  3252 Rosecrans

  	
   

  	
  Hawthorne

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  17115 Lakewood Bl.

  	
   

  	
  Bellflower

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  4441-51 San Fernando
  Rd.

  	
   

  	
  Glendale

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  3431 Tyler Ave.

  	
   

  	
  El Monte

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  1102 E. 17th St.

  	
   

  	
  Santa Ana

  	
   

  	
  Orange

  	
   

  	
  CA

  
	
  3700 Chicago Ave.

  	
   

  	
  Riverside

  	
   

  	
  Riverside

  	
   

  	
  CA

  
	
  540 W. Mill St.

  	
   

  	
  San Bernardino

  	
   

  	
  San Bernardino

  	
   

  	
  CA

  
	
  10937 Central Ave

  	
   

  	
  Ontario

  	
   

  	
  San Bernardino

  	
   

  	
  CA

  
	
  2650 Sunrise Blvd.

  	
   

  	
  Rancho Cordova

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  1421 34th St.

  	
   

  	
  Bakersfield

  	
   

  	
  Kern

  	
   

  	
  CA

  
	
  2431 Fruitridge Rd.

  	
   

  	
  Sacramento

  	
   

  	
  Sacramento

  	
   

  	
  CA

  
	
  111 National City Blvd.

  	
   

  	
  National City

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  951 Broadway

  	
   

  	
  Chula Vista

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  1002 W. Main

  	
   

  	
  El Cajon

  	
   

  	
  San Diego

  	
   

  	
  CA

  

 

 

SCHEDULE L-1

 

LENDER’S ACCOUNT

 

An account at a bank
designated by Lender from time to time as the account into which Borrower shall
make all payments to Lender under this Agreement and the other Loan Documents;
unless and until Lender notifies Borrower to the contrary, Lender’s Account
shall be that certain deposit account bearing account number 323-266193 and
maintained by Lender with JPMorgan Chase Bank, 4 New York Plaza, 15th Floor,
New York, New York 10004, ABA 
#021000021.

 

 

SCHEDULE
P-1

 

PERMITTED
LIENS

 

Blanket
lien against Parent in favor of City National Bank, File number 1122186,
filed September 24, 2001.

 

 

SCHEDULE
P-2

 

PERMITTED
PROTESTS

 

Protest
against Notice of Disallowance.

 

 

SCHEDULE
R-1

 

REAL
PROPERTY COLLATERAL

 

 

	
  Street

  	
   

  	
  City

  	
   

  	
  County

  	
   

  	
  State

  
	
  1730 E. Apache Blvd.

  	
   

  	
  Tempe

  	
   

  	
  Maricopa

  	
   

  	
  AZ

  
	
  11025 N. Cave Creek

  	
   

  	
  Phoenix

  	
   

  	
  Maricopa

  	
   

  	
  AZ

  
	
  1555 E. 22nd St.

  	
   

  	
  Tucson

  	
   

  	
  Pima

  	
   

  	
  AZ

  
	
  5416-20 Santa Monica
  Blvd.

  	
   

  	
  Hollywood

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  2826 E. Anaheim

  	
   

  	
  Long Beach

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  3252 Rosecrans

  	
   

  	
  Hawthorne

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  17115 Lakewood Bl.

  	
   

  	
  Bellflower

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  4441-51 San Fernando
  Rd.

  	
   

  	
  Glendale

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  3431 Tyler Ave.

  	
   

  	
  El Monte

  	
   

  	
  Los Angeles

  	
   

  	
  CA

  
	
  1102 E. 17th St.

  	
   

  	
  Santa Ana

  	
   

  	
  Orange

  	
   

  	
  CA

  
	
  3700 Chicago Ave.

  	
   

  	
  Riverside

  	
   

  	
  Riverside

  	
   

  	
  CA

  
	
  540 W. Mill St.

  	
   

  	
  San Bernardino

  	
   

  	
  San Bernardino

  	
   

  	
  CA

  
	
  10937 Central Ave.

  	
   

  	
  Ontario

  	
   

  	
  San Bernardino

  	
   

  	
  CA

  
	
  2650 Sunrise Blvd.

  	
   

  	
  Rancho Cordova

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  1421 34th St.

  	
   

  	
  Bakersfield

  	
   

  	
  Kern

  	
   

  	
  CA

  
	
  2431 Fruitridge Rd.

  	
   

  	
  Sacramento

  	
   

  	
  Sacramento

  	
   

  	
  CA

  
	
  111 National City Blvd.

  	
   

  	
  National City

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  951 Broadway

  	
   

  	
  Chula Vista

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  1002 W. Main

  	
   

  	
  El Cajon

  	
   

  	
  San Diego

  	
   

  	
  CA

  
	
  1913 Bladensburg NE

  	
   

  	
  Washington

  	
   

  	
  DC

  	
   

  	
  DC

  
	
  4224 Chinden Blvd.

  	
   

  	
  Garden City

  	
   

  	
  Ada

  	
   

  	
  ID

  

 

 

	
  Street

  	
   

  	
  City

  	
   

  	
  County

  	
   

  	
  State

  
	
  6647 S. Western Ave.

  	
   

  	
  Chicago

  	
   

  	
  Cook

  	
   

  	
  IL

  
	
  2416 W. Irving Park Rd.

  	
   

  	
  Chicago

  	
   

  	
  Cook

  	
   

  	
  IL

  
	
  1731 W. 127th St.

  	
   

  	
  Calumet Park

  	
   

  	
  Cook

  	
   

  	
  IL

  
	
  7550 Plank Rd.

  	
   

  	
  Baton Rouge

  	
   

  	
  Baton Rouge

  	
   

  	
  LA

  
	
  5901 & 5913 Eastern
  Ave.

  	
   

  	
  Baltimore

  	
   

  	
  Baltimore

  	
   

  	
  MD

  
	
  4211 Reistertown Rd.

  	
   

  	
  Baltimore

  	
   

  	
  Baltimore

  	
   

  	
  MD

  
	
  3401 Frederick Ave.

  	
   

  	
  Baltimore

  	
   

  	
  Baltimore

  	
   

  	
  MD

  
	
  4570-76 Manchester Ave.

  	
   

  	
  St. Louis

  	
   

  	
  St. Louis

  	
   

  	
  MO

  
	
  6171 Natural Bridge Rd.

  	
   

  	
  St. Louis

  	
   

  	
  St. Louis

  	
   

  	
  MO

  
	
  3485 Boulder Hwy.

  	
   

  	
  Las Vegas

  	
   

  	
  Las Vegas

  	
   

  	
  NV

  
	
  3070 Valley View Blvd.

  	
   

  	
  Las Vegas

  	
   

  	
  Las Vegas

  	
   

  	
  NV

  
	
  921 Texas Ave.

  	
   

  	
  El Paso

  	
   

  	
  El Paso

  	
   

  	
  TX

  
	
  3660 SW Military Dr.

  	
   

  	
  San Antonio

  	
   

  	
  Bexar

  	
   

  	
  TX

  
	
  5005 E. Cesar Chavet
  St.

  	
   

  	
  Austin

  	
   

  	
  Travis

  	
   

  	
  TX

  
	
  5001 Dyer St.

  	
   

  	
  El Paso

  	
   

  	
  El Paso

  	
   

  	
  TX

  
	
  1489 S. State St.

  	
   

  	
  Salt Lake City

  	
   

  	
  Salt Lake

  	
   

  	
  UT

  
	
  7470 S. State St.

  	
   

  	
  Midvale

  	
   

  	
  Salt Lake

  	
   

  	
  UT

  
	
  1824-26 Fifth Ave.

  	
   

  	
  Mckeesport

  	
   

  	
  Allegheny

  	
   

  	
  PA

  
	
  5817 Broad St.

  	
   

  	
  Philadelphia

  	
   

  	
  Philadelpia

  	
   

  	
  PA

  
	
  2912 Jefferson Davis
  Hwy.

  	
   

  	
  Alexandria

  	
   

  	
  Independent City

  	
   

  	
  VA

  
	
  5805 Jefferson Ave.

  	
   

  	
  Newport News

  	
   

  	
  Independent City

  	
   

  	
  VA

  
	
  540 Orange Ave NE.

  	
   

  	
  Roanoke

  	
   

  	
  Independent City

  	
   

  	
  VA

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}]]