Document:

Exhibit 10.1

 

Thomas Group, Inc.

5221 N. O’Connor
Boulevard, Suite 500

Irving, Texas 75039-3714

 

PRIVATE &
CONFIDENTIAL

 

March 3, 2009

 

Mr. Michael E. McGrath

One Hanover Place

16633 Dallas Parkway

Suite 280

Dallas, Texas  75001

 

Re:  Amendment to Terms and Conditions of
Employment

 

Dear Mr. McGrath:

 

This letter will evidence
the terms and conditions relating to an amendment of the letter agreement
entered into by Thomas Group, Inc. and you dated February 19, 2008
(the “Employment Letter”).

 

Amendments to  Employment Letter

 

The Employment Letter is
hereby amended so that Section 1(c) of the Employment Letter shall
read in its entirety as follows:

 

(c)           Time Commitment.  You shall devote at least 33% of
your business time and energy to your duties as Executive Chairman during the
period beginning on the Effective Date and ending on the second anniversary of
the Effective Date (the “Initial Period”). 
During successive annual periods, you shall devote at least 25% of your
business time and energy to your duties as Executive Chairman.

 

The Employment Letter is
hereby amended so that Section 1(d) of the Employment Letter shall
read in its entirety as follows:

 

(d)           Compensation.  Your
base salary for the Initial Period shall be $330,000 annually and your base
salary for successive annual periods shall be $250,000.  Your base salary shall be payable in
accordance with the Company’s standard payroll policies and subject to standard
withholdings and deductions.

 

Ratification

 

Except as amended or
modified by this letter, the Employment Letter is hereby ratified by each of
the parties hereto and shall remain in full force and effect in accordance with
its terms.

 

Counterparts

 

This letter may be executed
in several counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.

 

 

If you agree that the
foregoing terms and conditions accurately evidence our agreement, please sign
and return this letter.

 

Very truly yours,

 

THOMAS GROUP, INC.

 

 

	
  By

  	
   

  	
  /s/ Earle Steinberg

  	
   

  	
   

  
	
   

  	
  Earle Steinberg

  	
   

  	
   

  
	
   

  	
  President and Chief
  Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ACCEPTED AND AGREED:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Michael E. McGrath

  
	
   

  	
   

  	
  Michael E. McGrath

  

 

2Exhibit 10.1

 

EXECUTION

 

LOAN AND
SECURITY AGREEMENT

 

by and among

 

FARMER BROS.
CO.

COFFEE BEAN INTERNATIONAL, INC.

as Borrowers

 

and

 

COFFEE BEAN
HOLDING CO., INC.

FBC FINANCE COMPANY

SL REALTY, LLC

as Guarantors

 

and

 

WACHOVIA BANK,
NATIONAL ASSOCIATION,

as Lender

 

Dated: March 2,
2009

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 1. DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 2. CREDIT FACILITIES

  	
  31

  
	
  2.1

  	
  Loans

  	
  31

  
	
  2.2

  	
  Letters of Credit

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 3. INTEREST AND FEES

  	
  35

  
	
  3.1

  	
  Interest

  	
  35

  
	
  3.2

  	
  Unused Line Fee

  	
  36

  
	
  3.3

  	
  Letter of Credit Fees

  	
  36

  
	
  3.4

  	
  Additional Fees

  	
  37

  
	
  3.5

  	
  Changes in Laws and Increased Costs of Loans

  	
  37

  
	
   

  	
   

  
	
  SECTION 4. CONDITIONS PRECEDENT

  	
  39

  
	
  4.1

  	
  Conditions Precedent to Initial Loans and Letters of Credit

  	
  39

  
	
  4.2

  	
  Conditions Precedent to All Loans and Letters of Credit

  	
  43

  
	
   

  	
   

  
	
  SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST

  	
  43

  
	
  5.1

  	
  Grant of Security Interest

  	
  43

  
	
  5.2

  	
  Perfection of Security Interests

  	
  45

  
	
  5.3

  	
  Special Provisions Regarding Collateral

  	
  49

  
	
   

  	
   

  	
   

  
	
  SECTION 6. COLLECTION AND ADMINISTRATION

  	
  49

  
	
  6.1

  	
  Borrowers’ Loan Accounts

  	
  49

  
	
  6.2

  	
  Statements

  	
  49

  
	
  6.3

  	
  Collection of Accounts

  	
  50

  
	
  6.4

  	
  Payments

  	
  51

  
	
  6.5

  	
  Taxes

  	
  52

  
	
  6.6

  	
  Authorization to Make Loans and Provide Letters of Credit

  	
  54

  

 

 

	
  6.7

  	
  Use of Proceeds

  	
  54

  
	
  6.8

  	
  Appointment of Administrative Borrower as Agent for Requesting Loans
  and Receipts of Loans and Statements

  	
  54

  
	
  6.9

  	
  Bank Products

  	
  55

  
	
   

  	
   

  	
   

  
	
  SECTION 7. COLLATERAL REPORTING AND COVENANTS

  	
  55

  
	
  7.1

  	
  Collateral Reporting

  	
  55

  
	
  7.2

  	
  Accounts Covenants

  	
  57

  
	
  7.3

  	
  Inventory Covenants

  	
  57

  
	
  7.4

  	
  Equipment and Real Property Covenants

  	
  58

  
	
  7.5

  	
  Power of Attorney

  	
  59

  
	
  7.6

  	
  Right to Cure

  	
  60

  
	
  7.7

  	
  Access to Premises

  	
  60

  
	
   

  	
   

  	
   

  
	
  SECTION 8. REPRESENTATIONS AND WARRANTIES

  	
  61

  
	
  8.1

  	
  Corporate or Limited Liability Company Existence, Power and Authority

  	
  61

  
	
  8.2

  	
  Name; State of Organization; Chief Executive Office; Collateral
  Locations

  	
  61

  
	
  8.3

  	
  Financial Statements; No Material Adverse Change

  	
  62

  
	
  8.4

  	
  Priority of Liens; Title to Properties

  	
  62

  
	
  8.5

  	
  Tax Returns

  	
  63

  
	
  8.6

  	
  Litigation

  	
  63

  
	
  8.7

  	
  Compliance with Other Agreements and Applicable Laws

  	
  63

  
	
  8.8

  	
  Environmental Compliance

  	
  64

  
	
  8.9

  	
  Employee Benefits

  	
  64

  
	
  8.10

  	
  Bank Accounts

  	
  65

  
	
  8.11

  	
  Intellectual Property

  	
  65

  
	
  8.12

  	
  Subsidiaries; Affiliates; Capitalization; Solvency

  	
  66

  
	
  8.13

  	
  Labor Disputes

  	
  67

  
	
  8.14

  	
  Restrictions on Subsidiaries

  	
  67

  
	
  8.15

  	
  Material Contracts

  	
  67

  
	
  8.16

  	
  Payable Practices

  	
  67

  

 

 

	
  8.17

  	
  OFAC

  	
  68

  
	
  8.18

  	
  Acquisition of Purchased Assets

  	
  68

  
	
  8.19

  	
  ESOP/ESOT

  	
  68

  
	
  8.20

  	
  ESOP Loan Documents

  	
  69

  
	
  8.21

  	
  Accuracy and Completeness of Information

  	
  69

  
	
  8.22

  	
  Survival of Warranties; Cumulative

  	
  70

  
	
   

  	
   

  
	
  SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS

  	
  70

  
	
  9.1

  	
  Maintenance of Existence

  	
  70

  
	
  9.2

  	
  New Collateral Locations

  	
  71

  
	
  9.3

  	
  Compliance with Laws, Regulations, Etc.

  	
  71

  
	
  9.4

  	
  Payment of Taxes and Claims

  	
  72

  
	
  9.5

  	
  Insurance

  	
  73

  
	
  9.6

  	
  Financial Statements and Other Information

  	
  74

  
	
  9.7

  	
  Sale of Assets, Consolidation, Merger, Dissolution, Etc.

  	
  77

  
	
  9.8

  	
  Encumbrances

  	
  80

  
	
  9.9

  	
  Indebtedness

  	
  82

  
	
  9.10

  	
  Loans, Investments, Etc.

  	
  85

  
	
  9.11

  	
  Dividends and Redemptions

  	
  90

  
	
  9.12

  	
  Transactions with Affiliates

  	
  92

  
	
  9.13

  	
  Compliance with ERISA

  	
  92

  
	
  9.14

  	
  End of Fiscal Years; Fiscal Quarters

  	
  93

  
	
  9.15

  	
  Change in Business

  	
  93

  
	
  9.16

  	
  Limitation of Restrictions Affecting Subsidiaries

  	
  93

  
	
  9.17

  	
  Capital Expenditures

  	
  94

  
	
  9.18

  	
  Fixed Charge Coverage Ratio

  	
  94

  
	
  9.19

  	
  Minimum Adjusted EBITDA

  	
  95

  
	
  9.20

  	
  Liquidity Trigger Event

  	
  96

  
	
  9.21

  	
  ESOP/ESOT; ESOP Loan Documents

  	
  96

  
	
  9.22

  	
  Preferred Stock Portfolio

  	
  97

  
	
  9.23

  	
  License Agreements

  	
  97

  
	
  9.24

  	
  Foreign Assets Control Regulations, Etc.

  	
  98

  

 

 

	
  9.25

  	
  After Acquired Real Property

  	
  99

  
	
  9.26

  	
  Costs and Expenses

  	
  99

  
	
  9.27

  	
  Inactive Subsidiaries

  	
  100

  
	
  9.28

  	
  Further Assurances

  	
  101

  
	
   

  	
   

  	
   

  
	
  SECTION 10. EVENTS OF DEFAULT AND REMEDIES

  	
  101

  
	
  10.1

  	
  Events of Default

  	
  101

  
	
  10.2

  	
  Remedies

  	
  103

  
	
   

  	
   

  	
   

  
	
  SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING
  LAW

  	
  107

  
	
  11.1

  	
  Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver

  	
  107

  
	
  11.2

  	
  Waiver of Notices

  	
  108

  
	
  11.3

  	
  Amendments and Waivers

  	
  108

  
	
  11.4

  	
  Waiver of Counterclaims

  	
  109

  
	
  11.5

  	
  Indemnification

  	
  109

  
	
   

  	
   

  	
   

  
	
  SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS

  	
  110

  
	
  12.1

  	
  Term

  	
  110

  
	
  12.2

  	
  Interpretative Provisions

  	
  111

  
	
  12.3

  	
  Notices

  	
  113

  
	
  12.4

  	
  Partial Invalidity

  	
  114

  
	
  12.5

  	
  Successors

  	
  114

  
	
  12.6

  	
  Confidentiality

  	
  115

  
	
  12.7

  	
  Entire Agreement

  	
  116

  
	
  12.8

  	
  USA Patriot Act

  	
  116

  
	
  12.9

  	
  Counterparts, Etc.

  	
  116

  

 

 

INDEX 

TO

EXHIBITS AND SCHEDULES

 

	
  Exhibit A

  	
  Form of
  Borrowing Base Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Information
  Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of
  Compliance Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form of
  Investment Liquidity Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  1.56

  	
  Existing
  Letter of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  1.100

  	
  Permitted
  Holders

  	
   

  

 

 

LOAN AND
SECURITY AGREEMENT

 

This Loan and Security
Agreement dated March 2, 2009 is entered into by and among Wachovia Bank,
National Association, a national banking association (“Lender” as hereinafter
further defined) and Farmer Bros. Co., a Delaware corporation (“Farmer”) and
Coffee Bean International, Inc., an Oregon corporation (“CBI” and together
with Farmer, each individually a “Borrower” and collectively, “Borrowers” as
hereinafter further defined), Coffee Bean Holding Co., Inc., a Delaware
corporation (“Coffee Holding”), FBC Finance Company, a California corporation (“Finance”),
SL Realty, LLC, a Delaware limited liability company (“Realty” and together
with Coffee Holding, Finance, each individually a “Guarantor” and collectively,
“Guarantors” as hereinafter further defined).

 

W  I  T  N  E
S  S  E  T  H:

 

WHEREAS, Borrowers and
Guarantors have requested that Lender enter into financing arrangements with
Borrowers pursuant to which Lender may make loans and provide other financial
accommodations to Borrowers; and

 

WHEREAS, Lender is willing to
agree to make such loans and provide such financial accommodations on the terms
and conditions set forth herein;

 

NOW, THEREFORE, in
consideration of the mutual conditions and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

 

SECTION  1.  DEFINITIONS

 

For purposes of this Agreement,
the following terms shall have the respective meanings given to them below:

 

1.1           “Accounts” shall mean, as to each Borrower and Guarantor,
all present and future rights of such Borrower and Guarantor to payment of a
monetary obligation, whether or not earned by performance, which is not
evidenced by chattel paper or an instrument, (a) for property that has
been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for
services rendered or to be rendered, (c) for a secondary obligation
incurred or to be incurred, or (d) arising out of the use of a credit or
charge card or information contained on or for use with the card.

 

1.2           “Acquisition” shall mean the purchase by Farmer of all of
the Purchased Assets pursuant to the Purchase Agreements.

 

1.3           “Adjusted EBITDA” shall mean, as to any Person, with
respect to any period, an amount equal to (a) EBITDA, plus (b) the
amount of all non-cash contributions to employee stock ownership plans by such
Person during such period net of all interest income paid by such employee
stock ownership plans to such Person with respect to such non-cash contributions,
plus 

 

 

(c) the
amount of all unrealized losses (or minus the amount of all unrealized gains)
during such period arising from investments being marked to market, plus,
(d) the amount of all losses (or minus the amount of all gains) realized
during such period upon the sale or other disposition of any of any
investments, plus (e) the amount of all losses (or minus the amount
of all gains) realized during such period upon the sale or other disposition of
property or assets that are sold or otherwise disposed of outside the ordinary
course of business; minus (f) the amount of any interest income of
such Person during such period on investment property of such Person, minus,
(g) the amount of all dividend income of and equity in earnings of
investments to the extent received in cash during such period, plus (h) the
amount of all non-cash losses (or minus the amount of all non-cash gains)
included in the calculation of Consolidated Net Income as a result of the
application of any non-cash LIFO adjustment, plus (i) any
extraordinary, one-time or non-recurring losses or charges during such period, minus
(j) any extraordinary, one time or non-recurring gains during such period.

 

1.4           “Adjusted Eurodollar Rate” shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan comprising part of the same
borrowing (including conversions, extensions and renewals), the greater of (a) the
rate per annum determined by dividing (i) the London Interbank Offered
Rate for such Interest Period by (ii) a percentage equal to: (A) one (1) minus
(B) the Reserve Percentage and (b) one and one quarter (1.25%)
percent per annum.  For purposes hereof, “Reserve
Percentage” shall mean for any day, that percentage (expressed as a decimal)
which is in effect from time to time under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as such regulation
may be amended from time to time or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or against
any other category of liabilities that includes deposits by reference to which
the interest rate of Eurodollar Rate Loans is determined), whether or not
Lender has any Eurocurrency liabilities subject to such reserve requirement at
that time.  Eurodollar Rate Loans shall
be deemed to constitute Eurocurrency liabilities and as such shall be deemed
subject to reserve requirements without benefits of credits for proration,
exceptions or offsets that may be available from time to time to Lender.  The Adjusted Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in the
Reserve Percentage.

 

1.5           “Administrative Borrower” shall mean Farmer Bros. Co., a
Delaware corporation, in its capacity as Administrative Borrower on behalf of
itself and the other Borrowers pursuant to Section 6.8 hereof and it
successors and assigns in such capacity.

 

1.6           “Affiliate” shall mean, with respect to a specified
Person, any other Person which directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
such Person, and without limiting the generality of the foregoing, includes (a) any
Person which beneficially owns or holds five (5%) percent or more of any class
of Voting Stock of such Person or other equity interests in such Person, (b) any
Person of which such Person beneficially owns or holds five (5%) percent or
more of any class of Voting Stock or

 

2

 

in which such
Person beneficially owns or holds five (5%) percent or more of the equity
interests and (c) any director or executive officer of such Person.  For the purposes of this definition, the term
“control” (including with correlative meanings, the terms “controlled by” and “under
common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.

 

1.7           “Applicable Margin” shall mean, with
respect to Prime Rate Loans and Eurodollar Rate Loans, subject to the
provisions below, the applicable percentage (on a per annum basis) set forth
below if the Monthly Average Excess Availability for the immediately preceding
calendar month is at or within the amounts indicated for such percentage as of
the last day of the immediately preceding calendar month:

 

	
  Tier

  	
   

  	
  Monthly Average Excess

  Availability

  	
   

  	
  Applicable Margin

  with respect to

  Eurodollar Rate Loans

  	
   

  	
  Applicable

  Margin with

  respect to Prime

  Rate Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Greater than
  $20,000,000

  	
   

  	
  2.25

  	
  %

  	
  .25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Less than or equal to $20,000,000 and
  greater than $12,500,000

  	
   

  	
  2.50

  	
  %

  	
  .50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Less than or
  equal to $12,500,000

  	
   

  	
  2.75

  	
  %

  	
  .75

  	
  %

  

 

provided, that, (i) the Applicable
Margin shall be calculated and established once each calendar month (commencing
with the month beginning April 1, 2009) based on the Monthly Average
Excess Availability and shall remain in effect until adjusted thereafter after
the end of the next calendar month, (ii) each adjustment of the Applicable
Margin shall be effective as of the first day of each such calendar month based
on the Monthly Average Excess Availability for the immediately preceding
calendar month, (iii) the Applicable Margin through August 31, 2009
shall be the amount for Tier 2 set forth above and (iv) in the event that
Borrowers fail to provide any Borrowing Base Certificate or other information
with respect thereto for any period on the date required hereunder, effective
as of the date on which such Borrowing Base Certificate or other information
was otherwise required, at Lender’s option, the Applicable Margin shall be
based on the highest rate above until the next Business Day after the Borrowing
Base Certificate or other information is provided for the applicable period at
which time the Applicable Margin shall be adjusted as otherwise provided
herein.  In the event that at any time
after the end of any calendar month the Monthly Average Excess Availability for
such calendar month used for the determination of the Applicable Margin was
greater than the actual amount of the Monthly Average Excess Availability for
such calendar month as a result of the inaccuracy of information provided by or
on behalf of Borrowers to Lender for the calculation of Excess Availability,
the Applicable Margin for such prior period shall be adjusted to the applicable
percentage based on

 

3

 

such actual
Monthly Average Excess Availability and any additional interest for the
applicable period as a result of such recalculation shall be promptly paid to
Lender.  The foregoing shall not be
construed to limit the rights of Lender with respect to the amount of interest
payable after a Default or Event of Default whether based on such recalculated
percentage or otherwise.

 

1.8           “Asset
Purchase Agreement” shall mean the Asset Purchase Agreement, dated December 2,
2008, between Farmer and Sellers, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.9           “Bank
Products” shall mean any one or more of the following types or services or
facilities provided to any Borrower or any Guarantor by Lender or any Affiliate
of Lender: (a) credit cards, procurement cards, debit cards or stored
value cards or the processing of credit card sales or receipts, (b) cash
management or related services, including (i) the automated clearinghouse
transfer of funds for the account of any Borrower or any Guarantor pursuant to
agreement or overdraft for any accounts of any Borrower or any Guarantor
maintained at Lender or any Affiliate of Lender, and (ii) controlled
disbursement services and (c) Hedge Agreements if and to the extent
permitted hereunder.

 

1.10         “Borrowers”
shall mean, collectively, the following (together with their respective
successors and assigns):  (a) Farmer
Bros. Co., a Delaware corporation; (b) Coffee Bean International, Inc.,
an Oregon corporation; and (c) any other Person that at any time after the
date hereof becomes a Borrower; each sometimes being referred to herein
individually as a “Borrower”.

 

1.11         “Borrowing
Base” shall mean, at any time, the amount equal to:

 

(a)           the amount equal to: (i) eighty-five
(85%) percent of the Eligible Accounts, plus (ii) the lesser of (A) the
Inventory Loan Limit or (B) the sum of 
(1) the lesser of sixty-five (65%) percent multiplied by the Value
of the Eligible Inventory consisting of finished goods or eighty-five (85%)
percent of the Net Recovery Percentage multiplied by the Value of such Eligible
Inventory and (2) the lesser of sixty-five (65%) percent multiplied by the
Value of the Eligible Inventory consisting of raw materials or eighty-five
(85%) percent of the Net Recovery Percentage multiplied by the Value of such
Eligible Inventory, minus

 

(b)           Reserves.

 

For purposes only of applying the Inventory
Loan Limit, Lender may treat the then undrawn amounts of outstanding Letters of
Credit for the purpose of purchasing Eligible Inventory as Revolving Loans to
the extent Lender is in effect basing the issuance of the Letter of Credit on
the Value of the Eligible Inventory being purchased with such Letter of
Credit.  In determining the actual
amounts of such Letter of Credit to be so treated for purposes of the sublimit,
the outstanding Revolving Loans and Reserves shall be attributed first to any
components of the lending formulas set forth above that are not subject to such
sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.  The amounts of
Eligible

 

4

 

Inventory of any Borrower shall, at Lender’s
option, be determined based on the lesser of the amount of Inventory set forth
in the general ledger of such Borrower or the perpetual inventory record
maintained by such Borrower.

 

1.12         “Borrowing Base Certificate” shall mean a certificate by the
chief financial officer, vice president of finance, treasurer or controller of
Administrative Borrower, substantially in the form of Exhibit A (or
another form reasonably acceptable to Lender) setting forth the calculation of
the Borrowing Base, including a calculation of each component thereof, all in
such detail as shall be reasonably satisfactory to Lender.  All calculations of the Borrowing Base in
connection with the preparation of any Borrowing Base Certificate shall
originally be made by Borrowers and certified to Lender; provided, that,
Lender shall have the right to review and adjust any such calculation to the
extent that Lender determines that such calculation is not in accordance with
this Agreement.

 

1.13         “Business Day” shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks are authorized or required to
close under the laws of the State of California or the State of North Carolina,
and a day on which Lender is open for the transaction of business, except that
if a determination of a Business Day shall relate to any Eurodollar Rate Loans,
the term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.

 

1.14         “Capital Expenditures” shall mean with respect to any Person
for any period the aggregate of all expenditures by such Person and its
Subsidiaries made during such period that in accordance with GAAP are or should
be included in “property, plant and equipment” or in a similar fixed asset
account on its balance sheet, whether such expenditures are paid in cash or
financed and including all obligations under Capital Leases paid or payable
during such period.  Notwithstanding the
foregoing Capital Expenditures shall not include, without duplication, (a) consideration
paid for assets purchased as part of the Acquisition, (b) expenditures for
assets made in connection with the replacement, substitution, restoration or
repair of assets to the extent (i) financed with insurance proceeds paid
on account of the loss of or damage to the assets being replaced, repaired,
restored or substituted therefor, (ii) expressly permitted to be so
applied in accordance with this Agreement, and (c) expenditures to the
extent paid for with the proceeds of any disposition permitted under this
Agreement consisting of a sale of like Equipment or like Real Property.

 

1.15         “Capital Leases” shall mean, as applied to any Person, any
lease of (or any agreement conveying the right to use) any property (whether
real, personal or mixed) by such Person as lessee which in accordance with
GAAP, is required to be reflected as a liability on the balance sheet of such
Person.

 

1.16         “Capital Stock” shall mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated) of such Person’s capital stock or partnership, limited liability
company or other equity interests at any time outstanding, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock or

 

5

 

other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).

 

1.17         “Cash Dominion Event” shall mean (a) an Event of
Default exists or has occurred and is continuing, or (b) Excess
Availability has been less than $10,000,000 for three (3) or more
consecutive Business Days, or (c) Excess Availability is less than
$5,000,000 on any day, or (d) a Liquidity Trigger Event has occurred.

 

1.18         “Cash Equivalents” shall mean, at any time, (a) any
evidence of Indebtedness with a maturity date of ninety (90) days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof; provided, that,
the full faith and credit of the United States of America is pledged in support
thereof; (b) certificates of deposit or bankers’ acceptances with a
maturity of ninety (90) days or less of any financial institution that is a
member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $1,000,000,000; (c) commercial paper
(including variable rate demand notes) with a maturity of ninety (90) days or
less issued by a corporation (except an Affiliate of any Borrower or Guarantor)
organized under the laws of any State of the United States of America or the
District of Columbia and rated at least A-1 by Standard & Poor’s
Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least
P-1 by Moody’s Investors Service, Inc.; (d) repurchase obligations
with a term of not more than thirty (30) days for underlying securities of the
types described in clause (a) above entered into with any financial
institution having combined capital and surplus and undivided profits of not
less than $1,000,000,000; (e) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the United States of America or issued by any governmental agency
thereof and backed by the full faith and credit of the United States of
America, in each case maturing within ninety (90) days or less from the date of
acquisition; provided, that, the terms of such agreements comply
with the guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985; and (f) investments in money
market funds and mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above.

 

1.19         “Cash Investment Accounts” shall mean, collectively, deposit
or investment accounts (other than Cash Management Accounts and Concentration
Accounts) as may be established and maintained from time to time by Parent with
Lender containing solely cash and Cash Equivalents.

 

1.20         “Cash Management Accounts” shall have the meaning set forth
in Section 6.3(a).

 

1.21         “Change of Control” shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of any Borrower or Guarantor to any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act), other than as
permitted in Section 9.7 hereof; (b) the liquidation or dissolution
of any Borrower or Guarantor or the adoption of a plan by the stockholders of
any Borrower or Guarantor relating to the dissolution

 

6

 

or liquidation
of such Borrower or Guarantor, other than as permitted in Section 9.7
hereof; (c) the acquisition by any Person or group (as such term is used
in Section 13(d)(3) of the Exchange Act), except for one or more
Permitted Holders, of beneficial ownership, directly or indirectly, of more
than fifty (50%) percent of the voting power of the total outstanding Voting
Stock of Parent; (d) during any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of Parent (together with any new directors who have been appointed by
any Permitted Holder, or whose nomination for election by the stockholders of
Parent was approved by a vote of at least sixty-six and two-thirds (66 2/3%)
percent of the nominating committee members who were either nominating
committee members at the beginning of such period or whose election or
nomination for election or direction was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of Parent then still
in office; or (e) the failure of Parent to own directly or indirectly one
hundred (100%) percent of the voting power of the total outstanding Voting
Stock of any other Borrower or Guarantor.

 

1.22         “Code” shall mean the Internal Revenue Code of 1986, as the
same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.

 

1.23         “Coffee Brewing Equipment” shall mean brewed and liquid
coffee equipment, including coffee brewers and grinders, cocoa and cappuccino
dispensing machines, and similar machines, and all spare parts relating to any
of the foregoing.

 

1.24         “Collateral” shall have the meaning set forth in Section 5
hereof.

 

1.25         “Collateral Access Agreement” shall mean an agreement in
writing, in form and substance reasonably satisfactory to Lender, from any
lessor of premises to any Borrower or Guarantor, or any other person to whom any
Collateral is consigned or who has custody, control or possession of any such
Collateral or is otherwise the owner or operator of any premises on which any
of such Collateral is located, in favor of Lender with respect to the
Collateral at such premises or otherwise in the custody, control or possession
of such lessor, consignee or other person.

 

1.26         “Concentration Accounts” shall mean, collectively, the
deposit accounts of Borrowers identified on Schedule 8.10 of the Information
Certificate as the concentration accounts and such other accounts as may be
established after the date of this Agreement in accordance with the terms
hereof used to receive funds from the Cash Management Accounts; sometimes being
referred to herein individually as a “Concentration Account”.

 

1.27         “Consolidated Net Income” shall mean,
with respect to any Person for any period, the aggregate of the net income
(loss) of such Person and its Subsidiaries, on a consolidated basis, for such
period, all as determined in accordance with GAAP; provided, that,

 

7

 

(a)           the
net income of any Person that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid or payable to such Person or a Subsidiary of such Person;

 

(b)           except
to the extent included pursuant to the foregoing clause, the net income of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with such Person or any of its Subsidiaries or that
Person’s assets are acquired by such Person or by any of its Subsidiaries shall
be excluded;

 

(c)           the
net income (if positive) of any wholly-owned Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
wholly-owned Subsidiary to such Person or to any other wholly-owned Subsidiary
of such Person is not at the date of determination permitted by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such wholly-owned
Subsidiary shall be excluded.

 

For the purposes of this definition, net
income excludes any gain and non-cash loss together with any related Provision
for Taxes for such gain and non-cash loss realized upon the sale or other
disposition of any assets that are not sold in the ordinary course of business
or of any Capital Stock of such Person or a Subsidiary of such Person, and any
net income or non-cash loss realized as a result of changes in accounting
principles or the application thereof to such Person and any net income or
non-cash loss realized as the result of the extinguishment of debt.

 

1.28         “Credit Facility” shall mean the Loans and Letters of Credit
provided to or for the benefit of any Borrower pursuant to Sections 2.1 and 2.2
hereof.

 

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

 

1.30         “Deposit Account Control Agreement” shall mean an agreement
in writing, in form and substance reasonably satisfactory to Lender, by and
among Lender, the Borrower or Guarantor with a deposit account at any bank and
the bank at which such deposit account is at any time maintained which provides
that such bank will comply with instructions originated by Lender directing
disposition of the funds in the deposit account without further consent by such
Borrower or Guarantor and has such other terms and conditions as Lender may
reasonably  require.

 

1.31         “EBITDA” shall mean, as to any Person, with respect to any
period, an amount equal to (a) the Consolidated Net Income of such Person
and its Subsidiaries for such period determined in accordance with GAAP, plus
(b) each of the following, in each case to the extent deducted in the
calculation of such Consolidated Net Income for such period: (i) depreciation
and amortization (including, but not limited to, imputed interest and deferred
compensation) of such Person and its Subsidiaries for such period, all in
accordance with GAAP, plus (ii) the Interest Expense of such Person
and its Subsidiaries for such period, plus (iii) Provision for

 

8

 

Taxes for such
period.

 

1.32         “Eligible Accounts” shall mean Accounts created by a
Borrower that in each case satisfy the criteria set forth below as determined
by Lender.

 

(a)            In general, Accounts shall be Eligible Accounts
if:

 

(i)  such Accounts
arise from the actual and bona  fide sale and delivery of goods by
such Borrower in the ordinary course of its business which transactions are
completed in accordance with the terms and provisions contained in any
documents related thereto;

 

(ii)  such Accounts are not unpaid
more than ninety (90) days after the date of the original invoice for them or
more than sixty (60) days after the original due date for them;

 

(iii)  such Accounts comply with
the terms and conditions contained in Section 7.2(b) of this
Agreement;

 

(iv)  such Accounts do not arise
from sales on consignment, guaranteed sale, sale and return, sale on approval,
or other terms under which payment by the account debtor may be conditional or
contingent;

 

(v)  the chief executive office of
the account debtor with respect to such Accounts is located in the United States
of America or Canada (provided, that, at any time promptly upon
Lender’s request, such Borrower shall execute and deliver, or cause to be
executed and delivered, such other agreements, documents and instruments as may
be reasonably required by Lender to perfect the security interests of Lender in
those Accounts of an account debtor with its chief executive office or
principal place of business in Canada in accordance with the applicable laws of
the Province of Canada in which such chief executive office or principal place
of business is located and take or cause to be taken such other and further
actions as Lender may reasonably request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or Provincial
laws of Canada) or, at Lender’s option, if the chief executive office and
principal place of business of the account debtor with respect to such Accounts
is located other than in the United States of America or Canada, then if
either:  (A) the account debtor has
delivered to such Borrower an irrevocable letter of credit issued or confirmed
by a bank reasonably satisfactory to Lender and payable only in the United
States of America and in U.S. dollars, sufficient to cover such Account, in
form and substance reasonably satisfactory to Lender and if reasonably required
by Lender, the original of such letter of credit has been delivered to Lender
or Lender’s agent and the issuer thereof, and such Borrower has complied with
the terms of Section 5.2(f) hereof with respect to the assignment of
the proceeds of such letter of credit to Lender or naming Lender as transferee
beneficiary thereunder, as Lender may specify, or (B) such Account is
subject to credit insurance payable to Lender issued by an insurer and on terms
and in an amount reasonably acceptable to Lender, or (C) such

 

9

 

Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect thereto as
Lender may reasonably determine);

 

(vi)  such Accounts do not consist
of progress billings (such that the obligation of the account debtors with
respect to such Accounts is conditioned upon such Borrower’s satisfactory
completion of any further performance under the agreement giving rise thereto),
bill and hold invoices or retainage invoices, except as to bill and hold
invoices, if Lender shall have received an agreement in writing from the
account debtor, in form and substance reasonably satisfactory to Lender,
confirming the unconditional obligation of the account debtor to take the goods
related thereto and pay such invoice;

 

(vii)  the account debtor with
respect to such Accounts has not asserted a counterclaim, defense or dispute
and is not owed or does not claim to be owed any amounts that may give rise to
any right of setoff or recoupment against such Accounts (but the portion of the
Accounts of such account debtor in excess of the amount at any time and from
time to time owed by such Borrower to such account debtor or claimed owed by
such account debtor may be deemed Eligible Accounts);

 

(viii)  there are no facts, events
or occurrences which would impair the validity, enforceability or
collectability of such Accounts or reduce the amount payable or delay payment
thereunder;

 

(ix)  such Accounts are subject to
the first priority, valid and perfected security interest of Lender and any
goods giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in this Agreement that are
subject to an intercreditor agreement in form and substance satisfactory to
Lender between the holder of such security interest or lien and Lender;

 

(x)  neither the account debtor nor
any officer or employee of the account debtor with respect to such Accounts is
an officer, employee, agent or other Affiliate of any Borrower or Guarantor;

 

(xi)  the account debtors with
respect to such Accounts are not any foreign government, the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, upon Lender’s request, the Federal Assignment of
Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner reasonably satisfactory to
Lender;

 

(xii)  there are no proceedings or
actions which are threatened or pending against the account debtors with
respect to such Accounts which might result in any material adverse change in
any such account debtor’s financial condition (including, without limitation,
any bankruptcy, dissolution, liquidation, reorganization or similar
proceeding);

 

10

 

(xiii)  the aggregate amount of
such Accounts owing by a single account debtor do not constitute more than
twenty (20%) percent of the aggregate amount of all otherwise Eligible Accounts
(but the portion of the Accounts not in excess of the applicable percentages
may be deemed Eligible Accounts);

 

(xiv)  such Accounts are not owed
by an account debtor who has Accounts unpaid more than ninety (90) days after
the original invoice date for them or more than sixty (60) days after the
original due date for them which constitute more than fifty (50%) percent of
the total Accounts of such account debtor;

 

(xv)  the account debtor is not
located in a state requiring the filing of a Notice of Business Activities
Report or similar report in order to permit such Borrower to seek judicial
enforcement in such State of payment of such Account, unless such Borrower has
qualified to do business in such state or has filed a Notice of Business
Activities Report or equivalent report for the then current year or such
failure to file and inability to seek judicial enforcement is capable of being
remedied without any material delay or material cost;

 

(xvi)  such Accounts are owed by
account debtors whose total indebtedness to such Borrower does not exceed the
credit limit with respect to such account debtors as determined by such
Borrower from time to time, to the extent such credit limit as to any account
debtor is established consistent with the current practices of such Borrower as
of the date hereof and such credit limit is acceptable to Lender (but the
portion of the Accounts not in excess of such credit limit may be deemed
Eligible Accounts); and

 

(xvii)  such Accounts do not arise
from servicing coffee equipment or from rentals or sales of coffee equipment to
any account debtor;

 

(xviii)  such Accounts are not owed
by a Seller or any Affiliate of any Seller;

 

(xix)  such Accounts are not Sara
Lee DSD Business Accounts until such time as the conditions set forth in clause
(b) of this definition below are satisfied;

 

(xx)  such Accounts are owed by
account debtors deemed creditworthy at all times by Lender in good faith.

 

(b)          Sara
Lee DSD Business Accounts shall not be deemed Eligible Accounts until such time
as (i) Lender shall have completed a field examination with respect to the
Collateral, including the Purchased Assets, in accordance with Lender’s
customary procedures and practices, including as required by the nature and
circumstances of the business of the Sara Lee DSD Business, the scope and
results of which shall be satisfactory to Lender, and (ii) the criteria
for Eligible Accounts set forth in this Agreement are satisfied with respect
thereto in accordance with this Agreement (or such other or additional criteria
as Lender may, at its option, establish with respect thereto in accordance with
clause (c) below and subject to such Reserves

 

11

 

as Lender may establish in connection with
the Sara Lee DSD Business Accounts); provided, that, in any event
such Sara Lee DSD Business Accounts shall not in any event be Eligible Accounts
prior to the six (6) month anniversary of the date of this Agreement.

 

(c)           The
criteria for Eligible Accounts set forth above may only be changed and any new
criteria for Eligible Accounts may only be established by Lender in good faith
based on either:  (i) an event,
condition or other circumstance arising after the date hereof, or (ii) an
event, condition or other circumstance existing on the date hereof to the
extent Lender has no written notice thereof from a Borrower prior to the date
hereof, in either case under clause (i) or (ii) which adversely
affects or could reasonably be expected to adversely affect the Accounts in the
good faith determination of Lender.  Any
Accounts that are not Eligible Accounts shall nevertheless be part of the
Collateral.

 

1.33         “Eligible Domestic In-Transit Inventory” shall mean
Inventory (other than Eligible Route Sales Inventory) that would otherwise be
Eligible Inventory (other than for its location) that has been shipped from (a) any
manufacturing facility or distribution center of any Borrower or Guarantor
within the United States of America for receipt at a branch location of any
Borrower or Guarantor within the United States of America and permitted hereunder,
(b) any branch location of any Borrower or Guarantor within the United
States of America for receipt at another branch location of any Borrower or
Guarantor within the United States of America and permitted hereunder, or (c) any
supplier of any Borrower or Guarantor on a vehicle of any Borrower or Guarantor
for receipt at a manufacturing facility or distribution center of any Borrower
or Guarantor within the United States of America and permitted hereunder, in
each case within five (5) days of shipment, but in any case, which has not
yet been received at such manufacturing facility or distribution center and
which is insured in accordance with the terms of this Agreement; provided,
that, the aggregate amount of Inventory constituting Eligible Domestic
In-Transit Inventory for purposes of the calculation of the Borrowing Base at
any time will not exceed $3,000,000.

 

1.34         “Eligible Inventory” shall mean, as to each Borrower,
Inventory of such Borrower consisting of finished goods held for resale in the
ordinary course of the business of such Borrower and raw materials for such
finished goods, that in each case satisfy the criteria set forth below as
determined by Lender.  In general,
Eligible Inventory shall not include: (a) work-in-process; (b) components
which are not part of finished goods; (c) spare parts for equipment; (d) packaging
and shipping materials; (e) supplies used or consumed in such Borrower’s
business; (f) any Inventory that is not located at premises owned or
leased and controlled by any Borrower, except (i) for Eligible Domestic
In-Transit Inventory, (ii) for Eligible Route Sales Inventory and (iii) Inventory
which would otherwise be deemed Eligible Inventory that is not located at
premises owned and operated by such Borrower may nevertheless be considered
Eligible Inventory: (A) as to locations which are leased by any Borrower,
if Lender shall have received a Collateral Access Agreement from the owner and
lessor of such location, duly authorized, executed and delivered by such owner
and lessor, or if Lender shall not have received such Collateral Access
Agreement (or Lender shall determine to accept a Collateral Access

 

12

 

Agreement that
does not include all required provisions or provisions in the form otherwise
required by Lender), Lender may, at its option, nevertheless consider Inventory
at such location to be Eligible Inventory to the extent Lender shall have
established such Reserves in respect of amounts at any time payable by such
Borrower to the owner and lessor thereof as Lender shall determine in good
faith; provided, that, Inventory located in any manufacturing
plant, distribution center or warehouse (other than any branch warehouse)
leased by any Borrower or Guarantor with respect to which Lender has not
obtained a Collateral Access Agreement within thirty (30) days after the date
hereof shall not be Eligible Inventory, (B) as to locations owned and
operated by a third person, (1) if Lender shall have received a Collateral
Access Agreement from such owner and operator with respect to such location,
duly authorized, executed and delivered by such owner and operator or if Lender
shall not have received such Collateral Access Agreement (or Lender shall
determine to accept a Collateral Access Agreement that does not include all
required provisions or provisions in the form otherwise required by Lender),
Lender may, at its option, nevertheless consider Inventory at such location to
be Eligible Inventory to the extent Lender shall have established such Reserves
in respect of amounts at any time payable by such Borrower to the owner and
operator thereof as Lender shall determine, and (2) in addition, if
required by Lender, if Lender shall have received: (x) UCC financing
statements between the owner and operator, as consignee or bailee and such
Borrower, as consignor or bailor, in form and substance satisfactory to Lender,
which are duly assigned to Lender and (y) a written notice to any lender
to the owner and operator of the first priority security interest in such
Inventory of Lender; (g) Inventory subject to a security interest or lien
in favor of any Person other than Lender except those permitted in this
Agreement that are subject to an intercreditor agreement in form and substance
satisfactory to Lender between the holder of such security interest or lien and
Lender; (h) bill and hold goods; (i) unserviceable, obsolete or slow
moving Inventory; (j) Inventory that is not subject to the first priority,
valid and perfected security interest of Lender; (k) returned Inventory
which is not held for sale in the ordinary course of business, or damaged
and/or defective Inventory; (l) Inventory purchased or sold on
consignment; (m) Inventory located outside the United States of America, (n) any
Inventory that contains or bears any intellectual property rights licensed to
such Borrower unless Lender is satisfied that it may sell or otherwise dispose
of such Inventory without (i) infringing the rights of such licensor, (ii) violating
any contract with such licensor, or (iii) incurring any liability with
respect to payment of royalties other than royalties incurred pursuant to sale
of such Inventory under the current licensing agreement, (o) Inventory
located at any owned or leased locations of any Borrower at which Inventory
with a net book value of less than $100,000 is stored, (p) Inventory of
such Borrower associated with “Brewmatic” division, (q) any Inventory
consisting of equipment, including Coffee Brewing Equipment, and (r) any
Inventory that has not been subject to at least one periodic cycle count or
wall to wall counts during the previous fiscal year.  The criteria for Eligible Inventory set forth
above may only be changed and any new criteria for Eligible Inventory may only
be established by Lender in good faith based on either: (i) an event,
condition or other circumstance arising after the date hereof, or (ii) an
event, condition or other circumstance existing on the date hereof to the
extent Lender has no written notice thereof from a Borrower prior to the date
hereof, in either case under clause (i) or (ii) which adversely
affects or

 

13

 

could
reasonably be expected to adversely affect the Inventory in the good faith
determination of Lender.  Any Inventory
that is not Eligible Inventory shall nevertheless be part of the
Collateral.  Notwithstanding the
foregoing, no portion of the Inventory acquired in connection with the
Acquisition shall be Eligible Inventory until Lender shall have completed a
field examination with respect to such Inventory in accordance with Lender’s
customary procedures and practices and as otherwise reasonably required, and
the criteria for Eligible Inventory set forth herein are satisfied with respect
thereto in accordance with this Agreement (or such other or additional criteria
as Lender may, at its option, reasonably establish with respect thereto in
accordance with this Agreement and subject to such Reserves as Lender may
reasonably establish in connection therewith).

 

1.35         “Eligible Route Sales Inventory” shall mean Inventory (other
than Eligible Domestic In-Transit Inventory) that would otherwise be Eligible
Inventory (other than for its location) that has been shipped from a branch
location of any Borrower or Guarantor within the United States of America and
is located on vehicles making route sales in the ordinary course of business; provided,
that, the aggregate amount of Inventory constituting Eligible Route
Sales Inventory for purposes of the calculation of the Borrowing Base at any
time will not exceed $5,000,000.

 

1.36         “Environmental Laws” shall mean all foreign, Federal, State
and local laws (including common law), legislation, rules, codes, licenses,
permits (including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower or
Guarantor and any Governmental Authority, (a) relating to pollution and
the protection, preservation or restoration of the environment (including air,
water vapor, surface water, ground water, drinking water, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, (b) relating to the
exposure to, or the use, storage, recycling, treatment, generation,
manufacture, processing, distribution, transportation, handling, labeling,
production, release or disposal, or threatened release, of Hazardous Materials,
or (c) relating to all laws with regard to recordkeeping, notification,
disclosure and reporting requirements respecting Hazardous Materials.  The term “Environmental Laws” includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.

 

1.37         “Equipment” shall mean, as to each Borrower and Guarantor,
all of such Borrower’s and Guarantor’s now owned and hereafter acquired
equipment, wherever located,

 

14

 

including
machinery, data processing and computer equipment (whether owned or licensed
and including embedded software), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.

 

1.38                           “ERISA”
shall mean the Employee Retirement Income Security Act of 1974, together with
all rules, regulations and interpretations thereunder or related thereto.

 

1.39                           “ERISA
Affiliate” shall mean any person required to be aggregated with any Borrower,
any Guarantor or any of its or their respective Subsidiaries under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.40                           “ERISA
Event” shall mean (a) any “reportable event”, as defined in Section 4043(c) of
ERISA or the regulations issued thereunder, with respect to a Pension Plan,
other than events as to which the requirement of notice has been waived in
regulations by the Pension Benefit Guaranty Corporation; (b) the adoption
of any amendment to a Pension Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) a
complete or partial withdrawal by any Borrower, Guarantor or any ERISA
Affiliate from a Multiemployer Plan or a cessation of operations which is
treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Pension Plan amendment as a termination under Section 4041
or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit
Guaranty Corporation to terminate a Pension Plan; (e) an event or
condition which could reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Plan; (f) the imposition of any liability under Title IV of ERISA,
other than the Pension Benefit Guaranty Corporation premiums due but not
delinquent under Section 4007 of ERISA, upon any Borrower, Guarantor or
any ERISA Affiliate in excess of $250,000 and (g) any other event or
condition with respect to a Plan including any Pension Plan subject to Title IV
of ERISA maintained, or contributed to, by any ERISA Affiliate that could
reasonably be expected to result in liability of any Borrower in excess of
$250,000.

 

1.41                           “ESOP”
shall mean Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan,
effective January 1, 2000, as the same now exists and may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.42                           “ESOP
Documents” shall mean, collectively, the ESOP, the ESOT Trust Agreement and all
other agreements, documents and instruments executed and/or delivered in
connection with any of the foregoing, as each of the foregoing now exists and
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.

 

1.43                           “ESOP
Indebtedness” shall mean the Indebtedness owing by the ESOP to Parent pursuant
to the ESOP Loan Documents and all interest, fees, reimbursement obligations,
expenses, indemnification and other obligations with respect thereto.

 

15

 

1.44                           “ESOP
Loan Agreements” shall mean the (a) ESOP Loan Agreement, dated as of March 28,
2000, between Parent, as lender and the ESOT and (b) ESOP Loan Agreement No. 2,
dated as of July 21, 2003, between Parent, as lender, and the ESOT, in
each case as the same now exists and may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.45                           “ESOP
Loan Documents” shall mean, collectively, the ESOP Loan Agreements, the ESOP
Notes and all other agreements, documents and instruments executed and/or
delivered in connection with any of the foregoing, as each of the foregoing now
exists and may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced

 

1.46                           “ESOP
Notes” means the (a) Promissory Note, dated March 28, 2000 and (b) Promissory
Note, dated July 21, 2003, in each case payable by the ESOT to Parent, as
the same now exists and may hereafter be amended, modified, supplemented,
executed, renewed, restated or replaced.

 

1.47                           “ESOP
Shares” shall mean Company Stock, as defined in the ESOP as in effect on the
date of this Agreement.

 

1.48                           “ESOT”
shall mean Farmer Bros. Co. Employee Stock Ownership Benefit Trust, created by
Borrower pursuant to the ESOT Trust Agreement to implement the ESOP, as the
same now exists and may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

1.49                           “ESOT
Trust Agreement” shall mean the Farmer Bros. Co. Employee Stock Ownership Trust
Agreement, dated September 28, 2005, between Parent and the ESOT Trustee,
as the same now exists and may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

 

1.50                           “ESOT
Trustee” shall mean Greatbanc Trust Company and any successors in such
capacity.

 

1.51                           “Eurodollar
Rate Loans” shall mean any Loans or portion thereof on which interest is
payable based on the Adjusted Eurodollar Rate in accordance with the terms
hereof.

 

1.52                           “Event
of Default” shall mean the occurrence or existence of any event or condition
described in Section 10.1 hereof.

 

1.53                           “Excess
Availability” shall mean the amount, as determined by Lender, calculated at any
date of determination in accordance with the terms hereof, equal to: (a) the
lesser of:  (i)  the Borrowing Base
and (ii) the Maximum Credit (in each case under (i) or (ii) after
giving effect to any Reserves other than any Reserves in respect of Letter of
Credit Obligations), minus (b) the sum of:  (i) the amount of all then outstanding
and unpaid Obligations (but not including for this purpose Obligations of a
Borrower arising pursuant to any guarantees in favor of Lender of the

 

16

 

Obligations of
the other Borrowers or any outstanding Letter of Credit Obligations), plus
(ii) the amount of all Reserves then established in respect of Letter of
Credit Obligations, plus (iii) the aggregate amount of all then
outstanding and unpaid trade payables and other obligations of such Borrower
which are outstanding more than thirty (30) days past due as of the end of the
immediately preceding month (other than trade payables or other obligations being
contested or disputed by such Borrower in good faith), plus (iv) without
duplication, the amount of checks issued by such Borrower to pay trade payables
and other obligations which are more than thirty (30) days past due as of the
end of the immediately preceding month (other than trade payables or other
obligations being contested or disputed by such Borrower in good faith), but
not yet sent.

 

1.54                   “Exchange Act”
shall mean the Securities Exchange Act of 1934, together with all rules,
regulations and interpretations thereunder or related thereto.

 

1.55                   “Excluded
Property” shall mean:

 

(a)                                  motor vehicles
subject to certificates of title in accordance with applicable State law;

 

(b)                               Real Property owned by
Borrowers and Guarantors on the date hereof; and.

 

(c)                                any rights or interests
in any contract, lease, permit, license, charter or license agreement covering
real or personal property, as such, if under the terms of such contract, lease,
permit, license, charter or license agreement, or applicable law with respect
thereto, the valid grant of a security interest or lien therein to Lender is
prohibited and such prohibition has not been or is not waived or the consent of
the other party to such contract, lease, permit, license, charter or license
agreement has not been or is not otherwise obtained or under applicable law
such prohibition cannot be waived; provided, that, the foregoing
exclusion shall in no way be construed (i) to apply if any such
prohibition is unenforceable under Sections 9-406, 9-407 or 9-408 of the UCC or
other applicable law or (ii) so as to limit, impair or otherwise affect
Lender’s unconditional continuing security interests in and liens upon any
rights or interests of a Borrower in or to monies due or to become due under
any such contract, lease, permit, license, charter or license agreement
(including any Receivables).

 

1.56                           “Existing
Letter of Credit” shall mean the letter of credit issued for the account of
Parent listed on Schedule 1.56 hereto, as the same now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.57                           “Fee
Letter” shall mean the letter agreement, dated of even date herewith, by and
between Borrowers and Lender, setting forth certain fees payable by Borrowers
to Lender, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.58                           “Financing
Agreements” shall mean, collectively, this Agreement and all notes,

 

17

 

guarantees,
security agreements, deposit account control agreements, investment property
control agreements, intercreditor agreements and all other agreements,
documents and instruments now or at any time hereafter executed and/or
delivered by any Borrower or Guarantor in connection with this Agreement; provided,
that, in no event shall the term Financing Agreements be deemed to
include any Hedge Agreement.

 

1.59                           “Fixed
Charge Coverage Ratio” shall mean, as to any Person, with respect to any
period, the ratio of (a) the amount equal to the Adjusted EBITDA of such
Person and its Subsidiaries, on a consolidated basis, for such period, to (b) Fixed
Charges of such Person and its Subsidiaries, on a consolidated basis, for such
period.

 

1.60                           “Fixed
Charges” shall mean, as to any Person and its Subsidiaries, on a consolidated
basis, with respect to any period, the sum of, without duplication, (a) all
Interest Expense paid in cash, plus (b) all principal payments of
Indebtedness for borrowed money, and payments of Indebtedness for the deferred
purchase price of any property or services (including, without limitation, any
indemnification, adjustment of purchase price, earn-outs or other similar
obligations incurred in connection with the Acquisition or any acquisition or
sale or other disposition of assets) and Capital Leases (and without
duplication of items (a) and (b) of this definition, the interest
component with respect to Indebtedness under Capital Leases), plus (c) the
amount of Capital Expenditures of such Person and its Subsidiaries during such
period to the extent not financed by Indebtedness permitted hereunder for such
purpose, plus (d) all taxes paid (less all tax refunds received) by
such person and its Subsidiaries in cash during such period, plus (e) all
dividends, distributions, repurchases and redemptions in respect of Capital
Stock paid by such Person and its Subsidiaries during such period in cash.

 

1.61                           “Funding
Bank” shall have the meaning given to such term in Section 3.5 hereof.

 

1.62                           “GAAP”
shall mean generally accepted accounting principles in the United States of
America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except that, for purposes
of Sections 9.18 and 9.19 hereof, GAAP shall be determined on the basis of such
principles in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements delivered to Lender
prior to the date hereof.

 

1.63                           “Governmental
Authority” shall mean any nation or government, any state, province, or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

 

1.64                           “Guarantors”
shall mean, collectively, the following (together with their respective
successors and assigns):  (a) Coffee
Bean Holding Co., Inc., a Delaware corporation; (b) FBC Finance
Company, a California corporation; (c) SL Realty, LLC, a Delaware limited

 

18

 

liability
company; and (d) any other Person that at any time after the date hereof
becomes party to a guarantee in favor of Lender or otherwise liable on or with
respect to the Obligations or who is the owner of any property which is
security for the Obligations (other than Borrowers); each sometimes being
referred to herein individually as a “Guarantor”.

 

1.65                           “Hazardous
Materials” shall mean any hazardous, toxic or dangerous substances, materials
and wastes, including hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation, radioactive materials, biological substances, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type of pollutants
or contaminants (including materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including any that
are or become classified as hazardous or toxic under any Environmental Law).

 

1.66                           “Hedge
Agreement” shall mean an agreement between Borrower and Lender or any Affiliate
of Lender that is a swap agreement as such term is defined in 11 U.S.C. Section 101,
and including any rate swap agreement, basis swap, forward rate agreement,
commodity swap, interest rate option, forward foreign exchange agreement, spot
foreign exchange agreement, rate cap agreement rate, floor agreement, rate
collar agreement, currency swap agreement, cross-currency rate swap agreement,
currency option, any other similar agreement (including any option to enter
into any of the foregoing or a master agreement for any the foregoing together
with all supplements thereto) for the purpose of protecting against or managing
exposure to fluctuations in interest or exchange rates, currency valuations or
commodity prices; sometimes being collectively referred to herein as “Hedge
Agreements”.

 

1.67                           “Inactive
Subsidiary” shall mean Sierra Herb Company, Inc., a California
corporation.

 

1.68                           “Indebtedness”
shall mean, with respect to any Person, any liability, whether or not
contingent, (a) in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such Person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) representing
the balance deferred and unpaid of the purchase price of property or services
purchased by such Person which are due six (6) months or more from the
date after such property is acquired or such services are completed, and
including, without limitation, customary indemnification, adjustment of
purchase price or similar obligations, earn-outs or other similar obligations,
in each case, incurred in connection with the Acquisition, any acquisition
permitted under Section 9.10(i) of this Agreement (but excluding trade
debt and accrued expenses incurred in the ordinary course of business on normal
trade terms and not overdue by more than ninety (90) days) which would appear
as liabilities on a balance sheet of such Person in accordance with GAAP, (c) all
obligations as lessee under leases which have been, or should be, in accordance
with GAAP recorded as Capital Leases; (d) any contractual obligation,
contingent or otherwise, of such Person to pay or be liable for the payment of
any indebtedness described in this definition of another Person, including,
without

 

19

 

limitation,
any such indebtedness, directly or indirectly guaranteed, or any agreement to
purchase, repurchase, or otherwise acquire such indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof, or to maintain solvency, assets, level of income, or other
financial condition; (e) all obligations with respect to redeemable stock
and redemption or repurchase obligations under any Capital Stock or other
equity securities issued by such Person; (f) all reimbursement obligations
and other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker’s acceptances, drafts or
similar documents or instruments issued for such Person’s account; (g) all
indebtedness of such Person in respect of indebtedness of another Person for
borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and
indebtedness of such Person (marked to market) arising under swap agreements,
cap agreements and collar agreements and other agreements or arrangements
designed to protect such person against fluctuations in interest rates or
currency or commodity values; (i) all obligations owed by such Person
under License Agreements with respect to non-refundable, advance or minimum
guarantee royalty payments; (j) indebtedness of any partnership or joint
venture in which such Person is a general partner or a joint venturer to the
extent such Person is liable therefor as a result of such Person’s ownership
interest in such entity, except to the extent that the terms of such
indebtedness expressly provide that such Person is not liable therefor or such
Person has no liability therefor as a matter of law and (k) the principal
and interest portions of all rental obligations of such Person under any
synthetic lease or similar off-balance sheet financing where such transaction
is considered to be borrowed money for tax purposes but is classified as an
operating lease in accordance with GAAP.

 

1.69                           “Information
Certificate” shall mean, collectively, the Information Certificates of
Borrowers and Guarantors constituting Exhibit B hereto containing material
information with respect to Borrowers and Guarantors, their respective
businesses and assets provided by or on behalf of Borrowers and Guarantors to
Lender in connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for herein.

 

1.70                           “Intellectual
Property” shall mean, as to each Borrower and Guarantor, such Borrower’s and
Guarantor’s now owned and hereafter arising or acquired:  patents, patent rights, patent applications,
copyrights, works which are the subject matter of copyrights, copyright
applications, copyright registrations, trademarks, servicemarks, trade names,
trade styles, trademark and service mark applications, and licenses and rights
to use any of the foregoing and all applications, registrations and recordings
relating to any of the foregoing as may be filed in the United States Copyright
Office, the United States Patent and Trademark Office or in any similar office
or agency of the United States of America, any State thereof, any political
subdivision thereof or in any other country or jurisdiction, together with all
rights and privileges

 

20

 

arising under
applicable law with respect to any Borrower’s or Guarantor’s use of any of the
foregoing; all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints,
surveys, reports, manuals, and operating standards; goodwill (including any
goodwill associated with any trademark or servicemark, or the license of any
trademark or servicemark); customer and other lists in whatever form
maintained; delivery routes; trade secret rights, copyright rights, rights in
works of authorship, domain names and domain name registrations; software and
contract rights relating to computer software programs, in whatever form
created or maintained.

 

1.71                           “Interest
Expense” shall mean, for any period, as to any Person, as determined in
accordance with GAAP, the amount equal to the total interest expense of such
Person and its Subsidiaries on a consolidated basis for such period, whether
paid or accrued (including the interest component of any Capital Lease for such
period), and in any event, including, without limitation, (a) discounts in
connection with the sale of any Accounts, (b) bank fees,  commissions, discounts and other fees and
charges owed with respect to letters of credit, banker’s acceptances or similar
instruments or any factoring, securitization or similar arrangements, (c) interest
payable by addition to principal or in the form of property other than cash and
any other interest expense not payable in cash, and (d) the costs or fees
for such period associated with Hedge Agreements to the extent not otherwise
included in such total interest expense (excluding breakage costs incurred in
connection with the termination of Hedge Agreements on or about the date
hereof, if any), provided, that, Interest Expense shall not
include, to the extent treated as interest in accordance with GAAP, all
non-cash amounts in connection with borrowed money (including paid-in-kind
interest).

 

1.72                           “Interest
Period” shall mean for any Eurodollar Rate Loan, a period of approximately one
(1), two (2), or three (3) months duration as any Borrower (or
Administrative Borrower on behalf of such Borrower) may elect, the exact
duration to be determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, such Borrower (or
Administrative Borrower on behalf of such Borrower) may not elect an Interest
Period which will end after the last day of the then-current term of this
Agreement.

 

1.73                           “Interest
Rate” shall mean,

 

(a)                                  Subject
to clause (b) of this definition below:

 

(i)                 as to Prime Rate Loans, a rate equal
to the then Applicable Margin for Prime Rate Loans on a per annum basis plus
the Prime Rate, and

 

(ii)              as to Eurodollar Rate Loans, a rate equal
to the then Applicable Margin for Eurodollar Rate Loans on a per annum basis plus
the Adjusted Eurodollar Rate.

 

(b)                               Notwithstanding anything
to the contrary contained herein,

 

21

 

(i)                 Lender may, at its option, increase
the Applicable Margin otherwise used to calculate the Interest Rate for Prime
Rate Loans and Eurodollar Rate Loans in each case to the highest percentage set
forth in the definition of the term Applicable Margin for each category of
Loans (without regard to the amount of Monthly Average Excess Availability) plus
two (2%) percent per annum, for the period from and after the date of the
occurrence of an Event of Default but only for so long as such Event of Default
is continuing; and

 

(ii)              Lender may, at its option, increase the
Applicable Margin otherwise used to calculate the Interest Rate for Prime Rate
Loans and Eurodollar Rate Loans, in each case to the highest percentage set
forth in the definition of the term Applicable Margin for each category of
Loans (without regard to the amount of Monthly Average Excess Availability) plus
two (2%) percent per annum, on Revolving Loans at any time outstanding in the
aggregate in excess of the Borrowing Base (in each case whether or not such
excess(es) arise or are made with or without the knowledge or consent of Lender
and whether made before or after an Event of Default).

 

1.74                           “Inventory”
shall mean, as to each Borrower and Guarantor, all of such Borrower’s and
Guarantor’s now owned and hereafter existing or acquired goods, wherever
located, which (a) are leased by such Borrower or Guarantor as lessor; (b) are
held by such Borrower for sale or lease or to be furnished under a contract of
service; (c) are furnished by such Borrower or Guarantor under a contract
of service; or (d) consist of raw materials, work in process, finished
goods or materials used or consumed in its business.

 

1.75                           “Inventory
Loan Limit” shall mean, at any time on and after the date on which the Sara Lee
DSD Business Accounts have become Eligible Accounts, the amount equal to
$25,000,000.

 

1.76                           “Investment
Property Control Agreement” shall mean an agreement in writing, in form and
substance reasonably satisfactory to Lender, by and among Lender, any Borrower
or Guarantor (as the case may be) and any securities intermediary, commodity
intermediary or other person who has custody, control or possession of any
investment property of such Borrower or Guarantor acknowledging that such
securities intermediary, commodity intermediary or other person has custody,
control or possession of such investment property on behalf of Lender, that it
will comply with entitlement orders originated by Lender with respect to such
investment property, or other instructions of Lender, and has such other terms
and conditions as Lender may reasonably require.

 

1.77                           “Lender”
shall mean Wachovia Bank, National Association, a national banking association,
and its successors and assigns.

 

1.78                           “Lender
Payment Account” shall mean account no. 5000000030266 of Lender at Wachovia
Bank, National Association or such other account of Lender as Lender may from
time to time designate to Administrative Borrower as the Lender Payment Account
for purposes of this Agreement and the other Financing Agreements.

 

22

 

1.79                           “Letter
of Credit Documents” shall mean, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in connection
therewith, any application therefor, and any agreements, instruments,
guarantees or other documents (whether general in application or applicable
only to such Letter of Credit) governing or providing for (a) the rights
and obligations of the parties concerned or at risk or (b) any collateral
security for such obligations.

 

1.80                           “Letter
of Credit Limit” shall mean $10,000,000.

 

1.81                           “Letter
of Credit Obligations” shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time, plus
(b) the aggregate amount of all drawings under Letters of Credit for which
Lender has not at such time been reimbursed.

 

1.82                           “Letters
of Credit” shall mean all letters of credit (whether documentary or stand-by
and whether for the purchase of inventory, equipment or otherwise) issued by
Lender for the account of any Borrower pursuant to this Agreement, and all
amendments, renewals, extensions or replacements thereof.

 

1.83                           “License
Agreements” shall have the meaning set forth in Section 8.11 hereof.

 

1.84                           “Liquidity
Trigger Event” shall mean the determination by Lender that the sum of (a) the
aggregate dollar value of the Preferred Stock Portfolio plus (b) the
aggregate amount of cash and Cash Equivalents in the Cash Investment Accounts,
is less than $35,000,000; it being understood that Lender shall only require
one deposit of cash collateral pursuant to Section 9.20 of this Agreement
regardless of the number of Liquidity Trigger Events that occur during the term
of this Agreement.

 

1.85                           “Loans”
shall mean the Revolving Loans.

 

1.86                           “London
Interbank Offered Rate” shall mean, with respect to any Eurodollar Rate Loan
for the Interest Period applicable thereto, the rate appearing on Reuters
Screen LIBOR01 Page (or on any successor or substitute page of such
service, or any successor to or substitute for such service, providing rate
quotations comparable to those currently provided on such page of such
service, as determined by Lender from time to time for purposes of providing
quotations of interest rates applicable to eurodollar deposits in dollars in
the London interbank market) at approximately 11:00 A.M. (London time) two
(2) Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, that, if more than one rate
is specified on such Page for such comparable period, the applicable rate
shall be the arithmetic mean of all such rates. 
In the event that such rate is not available at such time for any
reason, then the term “London Interbank Offered Rate” shall mean, with respect
to any Eurodollar Rate Loan for the Interest Period applicable thereto, the
rate of interest per annum at which dollar deposits of $5,000,000 and for a
term comparable to such Interest Period are offered by the principal London
office of Lender in immediately available funds in the London

 

23

 

interbank
market at approximately 11:00 a.m. London time two (2) Business Days
prior to the commencement of such Interest Period.

 

1.87                           “Material
Adverse Effect” shall mean a material adverse effect on (a) the financial
condition, business, performance or operations of any Borrower or of Borrowers
and Guarantors (taken as a whole) (b) the legality, validity or
enforceability of this Agreement or any of the other Financing Agreements; (c) the
legality, validity, enforceability, perfection or priority of the security
interests and liens of Lender upon the Collateral; (d) the Collateral or
its value; (e) the ability of Borrowers and Guarantors (taken as a whole)
to repay the Obligations or of any Borrower to perform its obligations under
this Agreement or any of the other Financing Agreements as and when to be
performed; or (f) the ability of Lender to enforce the Obligations or
realize upon the Collateral or otherwise with respect to the rights and
remedies of Lender under this Agreement or any of the other Financing
Agreements.

 

1.88                           “Material
Contract” shall mean: (a) the Asset Purchase Agreement, (b) each of
the Operational Agreements (as defined in the Asset Purchase Agreement as in
effect on the date hereof), (c) the Option Agreement; (d) any
contract or other agreement (other than the Financing Agreements), written or
oral, of any Borrower or Guarantor involving monetary liability of or to any
Person in an amount in excess of $500,000 in any fiscal year and (e) any
other contract or other agreement (other than the Financing Agreements),
whether written or oral, to which any Borrower or Guarantor is a party as to
which the breach, nonperformance, cancellation or failure to renew by any party
thereto would have a Material Adverse Effect.

 

1.89                           “Maturity
Date” shall have the meaning set forth in Section 12.1 hereof.

 

1.90                           “Maximum
Credit” shall mean the amount of $50,000,000.

 

1.91                           “Monthly
Average Excess Availability” shall mean, at any time, the daily average of the
Excess Availability for the immediately preceding calendar month as calculated
by Lender.

 

1.92                           “Multiemployer
Plan” shall mean a “multi-employer plan” as defined in Section 4001(a)(3) of
ERISA which is or was at any time during the current year or the immediately
preceding six (6) years contributed to by any Borrower, Guarantor or any
ERISA Affiliate or with respect to which any Borrower, Guarantor or any ERISA
Affiliate may incur any liability.

 

1.93                           “Net
Cash Proceeds” shall mean the aggregate cash proceeds payable to Parent or any
of its Subsidiaries in respect of any sale, lease, transfer or other
disposition of any assets or properties, or interest in assets and properties
or as proceeds of any loans or other financial accommodations provided to it or
as proceeds from the issuance and/or sale of any Capital Stock, in each case
net of the reasonable and customary direct costs relating to such sale, lease,
transfer or other disposition or loans or other financial accommodation or
issuance and/or sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and taxes paid or payable as a
result thereof (after taking into account any available tax credits or

 

24

 

deductions and
any tax sharing arrangements), and amounts applied to the repayment of
indebtedness secured by a valid and enforceable lien on the asset or assets
that are the subject of such sale or other disposition required to be repaid in
connection with such transaction.

 

1.94                           “Net
Recovery Percentage” shall mean the fraction, expressed as a percentage, (a) the
numerator of which is the amount equal to the amount of the recovery in respect
of the Inventory at such time on a “net orderly liquidation value” basis as set
forth in the most recent acceptable appraisal of Inventory received by Lender
in accordance with Section 7.3, net of operating expenses, liquidation
expenses and commissions, and (b) the denominator of which is the
applicable original cost of the aggregate amount of the Inventory subject to
such appraisal.

 

1.95                           “Obligations”
shall mean (a) any and all Loans, Letter of Credit Obligations and all
other obligations, liabilities and indebtedness of every kind, nature and
description owing by any or all of Borrowers to Lender and/or any of its
Affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under this Agreement or any of the other Financing
Agreements or on account of any Letter of Credit and all other Letter of Credit
Obligations, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the commencement
of any case with respect to such Borrower under the United States Bankruptcy
Code or any similar statute (including the payment of interest and other
amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated, or
secured or unsecured and (b) for purposes only of Section 5.1 hereof
and the Security Provisions and subject to the priority in right of payment set
forth in Section 6.4 hereof, all obligations, liabilities and indebtedness
of every kind, nature and description owing by any Borrower to Lender or any
Affiliate of Lender arising under or pursuant to any Bank Products, whether now
existing or hereafter arising (and in the case of any Affiliate of Lender,
Lender shall be deemed to act as agent for such Affiliate for purposes of Section 5.1
hereof and references to Lender shall include such Affiliate).

 

1.96                           “OFAC”
means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

 

1.97                           “Option
Agreement” shall mean the Right of First Offer and Purchase Option Agreement,
dated the date hereof, by and between Sara Lee and Farmer.

 

1.98                           “Parent”
shall mean Farmer Bros. Co., a Delaware corporation, and its successors and
assigns.

 

1.99                           “Participant”
shall mean any financial institution that acquires and holds a participation in
the interest of Lender in any of the Loans and Letters of Credit in conformity
with the provisions of Section 12.5 of this Agreement governing
participations.

 

25

 

1.100                     “Permitted
Holders” shall mean the persons listed on Schedule 1.100 hereto.

 

1.101                     “Person” or “person”
shall mean any individual, sole proprietorship, partnership, corporation
(including any corporation which elects subchapter S status under the Code),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.

 

1.102                     “Pension Plan”
shall mean a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which any Borrower or Guarantor sponsors,
maintains, or to which any Borrower, Guarantor or ERISA Affiliate makes, is
making, or is obligated to make contributions, other than a Multiemployer Plan.

 

1.103                     “Plan” shall
mean an employee benefit plan (as defined in Section 3(3) of ERISA)
which any Borrower or Guarantor sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions, or in the case of a
Multiemployer Plan has made contributions at any time during the immediately
preceding six (6) plan years or with respect to which any Borrower or
Guarantor may incur liability.

 

1.104                     “Preferred
Stock Portfolio” shall mean investment property owned by Finance consisting of
preferred stock in publicly filed companies (other than Parent) to the extent
such preferred stock is held in the Specified Investment Account.

 

1.105                     “Prime Rate”
shall mean, on any date, the greatest of (a) the rate from time to time
publicly announced by Lender, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank, (b) the
Federal Funds Effective Rate in effect on such day plus one-half (1/2%)
percent, (c) the Adjusted Eurodollar Rate for a one month Interest Period
on such day plus one (1%) percent and (d) three and one quarter
(3.25%) percent per annum  The term “Federal
Funds Effective Rate” shall mean, for any period, a fluctuating interest rate
per annum equal, for each day during such period, to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by Lender from three Federal Funds brokers of recognized
standing selected by it.

 

1.106                     “Prime Rate
Loans” shall mean any Loans or portion thereof on which interest is payable
based on the Prime Rate in accordance with the terms thereof.

 

1.107                     “Property
Loss Event” means (a) any loss of or damage to any assets or property of
any Borrower or Guarantor that results in a claim to proceeds of insurance or (b) any
condemnation or other taking of any assets or property of any Borrower or
Guarantor.

 

26

 

1.108                     “Provision
for Taxes” shall mean an amount equal to all taxes imposed on or measured by,
or determined by reference to, net income, whether Federal, State, Provincial,
county or local, and whether foreign or domestic, that are paid or payable by
any Person in respect of any period in accordance with GAAP.

 

1.109                     “Purchase
Agreements” shall mean, collectively, the following (as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced): (a) the Asset Purchase Agreement, (b) each of the
Operational Agreements (as defined in the Asset Purchase Agreement as in effect
on the date hereof), (c) the Option Agreement, and (d) all other
agreements of transfer as are referred to therein and all side letters with
respect thereto, and all agreements, documents and instruments executed and/or
delivered in connection with any of the foregoing; in each case sometimes being
referred to herein individually as a “Purchase Agreement”.

 

1.110                     “Purchased
Assets” shall mean all of the assets and properties acquired by Farmer from
Sellers pursuant to the Purchase Agreements.

 

1.111                     “Real
Property” shall mean all now owned and hereafter acquired real property of each
Borrower and Guarantor, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.

 

1.112                     “Receivables”
shall mean all of the following now owned or hereafter arising or acquired
property of each Borrower and Guarantor: (a) all Accounts; (b) all
interest, fees, late charges, penalties, collection fees and other amounts due
or to become due or otherwise payable in connection with any Account; (c) all
payment intangibles of such Borrower or Guarantor; (d)  letters of credit,
indemnities, guarantees, security or other deposits and proceeds thereof issued
payable to any Borrower or Guarantor or otherwise in favor of or delivered to
any Borrower or Guarantor in connection with any Account; or (e) all other
accounts, contract rights, chattel paper, instruments, notes, general
intangibles and other forms of obligations owing to any Borrower or Guarantor,
whether from the sale and lease of goods or other property, licensing of any
property (including Intellectual Property or other general intangibles),
rendition of services or from loans or advances by any Borrower or Guarantor or
to or for the benefit of any third person (including loans or advances to any
Affiliates or Subsidiaries of any Borrower or Guarantor) or otherwise associated
with any Accounts, Inventory or general intangibles of any Borrower or
Guarantor (including, without limitation, choses in action, causes of action,
tax refunds, tax refund claims, any funds which may become payable to any
Borrower or Guarantor in connection with the termination of any Plan or other
employee benefit plan and any other amounts payable to any Borrower or
Guarantor from any Plan or other employee benefit plan, rights and claims
against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, casualty or any similar types of insurance and
any proceeds thereof and proceeds of insurance covering the lives of employees
on which any Borrower or Guarantor is a beneficiary).

 

27

 

1.113                     “Records”
shall mean, as to each Borrower and Guarantor, all of such Borrower’s and
Guarantor’s present and future books of account of every kind or nature,
purchase and sale agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit files and
other data relating to the Collateral or any account debtor, together with the
tapes, disks, diskettes and other data and software storage media and devices,
file cabinets or containers in or on which the foregoing are stored (including
any rights of any Borrower or Guarantor with respect to the foregoing
maintained with or by any other person).

 

1.114                     “Reserves”
shall mean as of any date of determination, such amounts as Lender may from
time to time establish and revise in good faith reducing the amount of Loans
and Letters of Credit that would otherwise be available to any Borrower under
the lending formula(s) provided for herein: (a) to reflect events,
conditions, contingencies or risks which, as determined by Lender in good
faith, adversely affect, or would have a reasonable likelihood of adversely
affecting, either (i) the Collateral or any other property which is
security for the Obligations or its value or (ii) the assets, business or
prospects of any Borrower or Guarantor or (iii) the security interests and
other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender’s good faith
belief that any collateral report or financial information furnished by or on
behalf of any Borrower or Guarantor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect
outstanding Letter of Credit Obligations as provided in Section 2.2 hereof
or (d) in respect of any state of facts which Lender determines in good
faith constitutes a Default or an Event of Default. Without limiting the
generality of the foregoing, Reserves may, at Lender’s option, be established
to reflect: (a) dilution with respect to the Accounts (based on the ratio
of the aggregate amount of non-cash reductions in Accounts for any period to
the aggregate dollar amount of the sales of such Borrower for such period) as
calculated by Lender for any period is or is reasonably anticipated to be
greater than five (5%) percent; (b) returns, rebates, discounts, claims,
credits and allowances of any nature that are not paid pursuant to the
reduction of Accounts; (c) sales, excise or similar taxes included in the
amount of any Accounts reported to Lender; (d) a change in the turnover,
age or mix of the categories of Inventory that adversely affects the aggregate
value of all Inventory; (e) amounts due or to become due in respect of
employee payroll and benefits, including, incentives and retention bonuses; (f) amounts
due or to become due to owners and lessors of premises where any Collateral is
located, other than for those locations where Lender has received a Collateral
Access Agreement that Lender has accepted in writing; (g) amounts due or
to become due to owners and licensors of trademarks and other Intellectual
Property used by any Borrower or Guarantor; (h) reserves for in-transit
Inventory, including freight, taxes, duty and other amounts which Lender estimates
must be paid in connection with such Inventory upon arrival and for delivery to
one of such Borrower’s locations for Eligible Inventory within the United
States of America, and (i) obligations, liabilities or indebtedness
(contingent or otherwise) of any Borrower or Guarantor to Lender or any
Affiliate of Lender arising under or in connection with any Bank Products to
the extent that such obligations, liabilities or indebtedness constitute
Obligations as such term is defined herein or otherwise receive the benefit of
the security interest of Lender in any Collateral.  The amount 

 

28

 

of any Reserve
established by Lender shall have a reasonable relationship to the event,
condition or other matter which is the basis for such reserve as determined by
Lender in good faith and to the extent that such Reserve is in respect of
amounts that may be payable to third parties Lender may, at its option, deduct
such Reserve from the Maximum Credit, at any time that such limit is less than
the amount of the Borrowing Base.

 

1.115                     “Revolving
Loans” shall mean the loans now or hereafter made by or on behalf of Lender for
the account of any Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.

 

1.116                     “Sanctioned
Entity” shall mean (a) an agency of the government of, (b) an
organization directly or indirectly controlled by, or (c) a person
resident in, a country that is subject to a sanctions program identified on the
list maintained and published by OFAC and available at
http://www.treas.gov/offices/enforcement/ofac/programs, or as otherwise
published from time to time as such program may be applicable to such agency,
organization or person.

 

1.117                     “Sanctioned
Person” shall mean a person named on the list of Specially Designated Nationals
or Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/enforcement/ofac/sdn/index.html, or as otherwise
published from time to time.

 

1.118                     “Sara Lee DSD
Business” shall mean the DSD Business (as such term is defined in the Asset
Purchase Agreement as in effect on the date hereof).

 

1.119                     “Sara Lee DSD
Business Accounts” shall mean Accounts created by any Borrower after the date
of this Agreement in respect of the Sara Lee DSD Business.

 

1.120                     “Security
Provisions” shall mean the following provisions of the Financing Agreements (as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced): (a) Section 1(a) of
the Guarantee, dated even date herewith, by Guarantors in favor of Lender; (b) Section 2
of each Pledge and Security Agreement, dated even date herewith, by Farmer in
favor of Lender; (c) Section 2 of the Pledge and Security Agreement,
dated even date herewith, by Coffee Holding in favor of Lender; (d) Section 2
of the Collateral Assignment of Acquisition Agreements, dated of even date
herewith, by Farmer in favor of Lender; and (e) such other sections of
such other Financing Agreements as Lender may from time to time designate as a
Security Provision in a writing delivered by Lender to Administrative Borrower.

 

1.121                     “Sellers”
shall mean collectively, the following (together with their respective
successors and assigns): (a) Sara Lee Corporation, a Maryland corporation
and (b) Saramar, LLC, a Delaware limited liability company; each sometimes
being referred to herein individually as a “Seller”.

 

1.122                     “Solvent”
shall mean, at any time with respect to any Person, that at such time

 

29

 

such Person (a) is
able to pay its debts as they mature and has (and has a reasonable basis to
believe it will continue to have) sufficient capital (and not unreasonably
small capital) to carry on its business consistent with its practices as of the
date hereof, and (b) the assets and properties of such Person at a fair
valuation (and including as assets for this purpose at a fair valuation all
rights of subrogation, contribution or indemnification arising pursuant to any
guarantees given by such Person) are greater than the Indebtedness of such
Person, and including subordinated and contingent liabilities computed at the
amount which, such person has a reasonable basis to believe, represents an
amount which can reasonably be expected to become an actual or matured
liability (and including as to contingent liabilities arising pursuant to any
guarantee the face amount of such liability as reduced to reflect the
probability of it becoming a matured liability).

 

1.123                     “Specified Investment
Account” shall mean account number 10135600 maintained by Finance at Wells
Fargo Bank, N.A.

 

1.124                     “Subsidiary”
or “subsidiary” shall mean, with respect to any Person, any corporation,
limited liability company, limited liability partnership or other limited or
general partnership, trust, association or other business entity of which an
aggregate of at least a majority of the outstanding Capital Stock or other
interests entitled to vote in the election of the board of directors of such
corporation (irrespective of whether, at the time, Capital Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more subsidiaries of such Person.

 

1.125                     “UCC” shall
mean the Uniform Commercial Code as in effect in the State of California, and
any successor statute, as in effect from time to time (except that terms used
herein which are defined in the Uniform Commercial Code as in effect in the
State of California on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as Lender
may otherwise determine).

 

1.126                     “Value” shall
mean, as determined by Lender in good faith, with respect to Inventory, the
lower of (a) cost computed on a first-in first-out basis in accordance
with GAAP or (b) market value, provided, that, (i) for
purposes of the calculation of the Borrowing Base, (A) the Value of the
Inventory shall not include:  (1) the
portion of the value of Inventory equal to the profit earned by any Affiliate
on the sale thereof to any Borrower or (2)  write-ups or write-downs
in value with respect to currency exchange rates and (B) notwithstanding
anything to the contrary contained herein, the cost of the Inventory shall be
computed in the same manner and consistent with the most recent appraisal of
the Inventory received and accepted by Lender prior to the date hereof, if any
and (ii) Lender may from time to time, in its discretion, value the
portion of the Inventory consisting of “green coffee” to market based on the
market value thereof as determined by the New York Board of Trade or any other
mutually agreed upon source.

 

1.127                     “Voting Stock”
shall mean with respect to any Person, (a) one (1) or more classes of
Capital Stock of such Person having general voting powers to elect at least a
majority of the 

 

30

 

board of
directors, managers or trustees of such Person, irrespective of whether at the
time Capital Stock of any other class or classes have or might have voting
power by reason of the happening of any contingency, and (b) any Capital
Stock of such Person convertible or exchangeable without restriction at the
option of the holder thereof into Capital Stock of such Person described in
clause (a) of this definition.

 

1.128                     “Weighted Average
Life to Maturity” shall mean, when applied to any Indebtedness at any date, the
number of years obtained by dividing (a) the then outstanding principal
amount of such Indebtedness into (b) the total of the product obtained by
multiplying (i) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (ii) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.

 

SECTION  2.                  CREDIT
FACILITIES

 

2.1                               Loans.

 

(a)                                  Subject
to and upon the terms and conditions contained herein, Lender agrees to make
Revolving Loans to each Borrower from time to time in amounts requested by such
Borrower (or Administrative Borrower on behalf of such Borrower) up to the
amount outstanding at any time equal to the lesser of: (i) the
Borrowing Base at such time or (ii) the Maximum Credit at such time.

 

(b)                                 Except
in Lender’s discretion or as otherwise provided herein, (i) the aggregate
amount of the Loans and the Letter of Credit Obligations outstanding at any
time shall not exceed the Maximum Credit, (ii) the aggregate principal
amount of the Revolving Loans and Letter of Credit Obligations outstanding at
any time shall not exceed the Borrowing Base, and (iii) the aggregate
principal amount of the Revolving Loans outstanding based on the Eligible
Inventory shall not exceed the Inventory Loan Limit.

 

(c)                                  In
the event that (i) the aggregate amount of the Loans and the Letter of
Credit Obligations outstanding at any time exceed the Maximum Credit, or (ii) except
as otherwise provided herein, the aggregate principal amount of the Revolving
Loans and Letter of Credit Obligations outstanding exceed the Borrowing Base,
or (iii) the aggregate principal amount of Revolving Loans and Letter of
Credit Obligations based on the Eligible Inventory exceed the Inventory Loan
Limit, such event shall not limit, waive or otherwise affect any rights of
Lender in such circumstances or on any future occasions and Borrowers shall,
upon demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.

 

31

 

2.2                               Letters of Credit.

 

(a)                                  Subject
to and upon the terms and conditions contained herein and in the Letter of
Credit Documents, at the request of a Borrower (or Administrative Borrower on
behalf of such Borrower), Lender agrees to issue for the account of such
Borrower one or more Letters of Credit, containing
terms and conditions acceptable to Lender.

 

(b)                                 The
Borrower requesting such Letter of Credit (or Administrative Borrower on behalf
of such Borrower) shall give Lender three (3) Business Days’ prior written
notice of such Borrower’s request for the issuance of a Letter of Credit.  Such notice shall be irrevocable and shall
specify the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day and in no event shall be a
date less than ten (10) days prior to the end of the then current term of
this Agreement) of issuance of such requested Letter of Credit, whether such
Letter of Credit may be drawn in a single or in partial draws, the date on
which such requested Letter of Credit is to expire (which date shall be a
Business Day and shall not be more than one year from the date of issuance),
the purpose for which such Letter of Credit is to be issued, and the beneficiary
of the requested Letter of Credit.  The
Borrower requesting the Letter of Credit (or Administrative Borrower on behalf
of such Borrower) shall attach to such notice the proposed terms of the Letter
of Credit.  The renewal or extension of
any Letter of Credit shall, for purposes hereof, be treated in all respects the
same as the issuance of a new Letter of Credit hereunder.

 

(c)                                  In
addition to being subject to the satisfaction of the applicable conditions
precedent contained in Section 4 hereof and the other terms and conditions
contained herein, no Letter of Credit shall be available unless each of the
following conditions precedent have been satisfied in a manner satisfactory to
Lender:  (i) the Borrower requesting
such Letter of Credit (or Administrative Borrower on behalf of such Borrower)
shall have delivered to the Lender at such times and in such manner Lender may
require, an application, in form and substance satisfactory to Lender, for the
issuance of the Letter of Credit and such other Letter of Credit Documents as
may be required pursuant to the terms thereof, and the form and terms of the
proposed Letter of Credit shall be satisfactory to Lender, (ii) as of the
date of issuance, no order of any court, arbitrator or other Governmental
Authority shall purport by its terms to enjoin or restrain money center banks
generally from issuing letters of credit of the type and in the amount of the
proposed Letter of Credit, and no law, rule or regulation applicable to
money center banks generally and no request or directive (whether or not having
the force of law) from any Governmental Authority with jurisdiction over money
center banks generally shall prohibit, or request that Lender refrain from, the
issuance of letters of credit generally or the issuance of such Letter of
Credit, (iii) after giving effect to the issuance of such Letter of
Credit, the Letter of Credit Obligations shall not exceed the Letter of Credit
Limit, and (iv) the Excess Availability, prior to giving effect to any
Reserves with respect to such Letter of Credit, on the date of the proposed
issuance of any Letter of Credit shall be equal to or greater than: (A) if
the proposed Letter of Credit is for the purpose of purchasing Eligible
Inventory and the documents of title with respect thereto are consigned to
Lender, the sum of (1) the percentage equal to one hundred (100%) percent minus
the then applicable percentage with respect to Eligible Inventory set forth in
the definition of the term Borrowing Base multiplied by the Value of such Eligible
Inventory, 

 

32

 

plus (2) freight,
taxes, duty and other amounts which Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to one of such Borrower’s
locations for Eligible Inventory within the United States of America and (B) if
the proposed Letter of Credit is for any other purpose or the documents of
title are not consigned to Lender in connection with a Letter of Credit for the
purpose of purchasing Inventory, an amount equal to one hundred (100%) percent
of the Letter of Credit Obligations with respect thereto.  Effective on the issuance of each Letter of
Credit, a Reserve shall be established in the applicable amount set forth in Section 2.2(c)(iv)(A) or
Section 2.2(c)(iv)(B).

 

(d)                                 Except
in Lender’s discretion,  the amount of
all outstanding Letter of Credit Obligations shall not at any time exceed the
Letter of Credit Limit.

 

(e)                                  Each
Borrower shall reimburse immediately Lender for any draw under any Letter of
Credit issued for the account of such Borrower and pay Lender the amount of all
other charges and fees payable to Lender in connection with any Letter of
Credit issued for the account of such Borrower immediately when due,
irrespective of any claim, setoff, defense or other right which such Borrower
may have at any time against Lender or any other Person.  Each drawing under any Letter of Credit or
other amount payable in connection therewith when due shall constitute a
request by the Borrower for whose account such Letter of Credit was issued to
Lender for a Prime Rate Loan in the amount of such drawing or other amount then
due. The date of such Loan shall be the date of the drawing or as to other
amounts, the due date therefor.  Any
payments made to reimburse Lender in connection with any Letter of Credit shall
constitute additional Revolving Loans to such Borrower pursuant to this Section 2.

 

(f)                                    Borrowers
and Guarantors shall indemnify and hold Lender harmless from and against any
and all losses, claims, damages, liabilities, costs and expenses which Lender
may suffer or incur in connection with any Letter of Credit and any documents,
drafts or acceptances relating thereto, including any losses, claims, damages,
liabilities, costs and expenses due to any action taken by Lender or
correspondent with respect to any Letter of Credit, except for such losses,
claims, damages, liabilities, costs or expenses that are a direct result of the
gross negligence or willful misconduct of Lender as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.  Each Borrower and Guarantor assumes all risks
with respect to the acts or omissions of the drawer under or beneficiary of any
Letter of Credit and for such purposes the drawer or beneficiary shall be
deemed such Borrower’s agent.  Each
Borrower and Guarantor assumes all risks for, and agrees to pay, all foreign,
Federal, State and local taxes, duties and levies relating to any goods subject
to any Letter of Credit or any documents, drafts or acceptances
thereunder.  Each Borrower and Guarantor
hereby releases and holds Lender harmless from and against any acts, waivers,
errors, delays or omissions, with respect to or relating to any Letter of
Credit, except for the gross negligence or willful misconduct of Lender as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction.  The provisions of this Section 2.2(f) shall
survive the payment of Obligations and the termination of this Agreement.

 

33

 

(g)                                 In
connection with Inventory purchased pursuant to any Letter of Credit, Borrowers
shall, at Lender’s request, instruct all suppliers, carriers, forwarders,
customs brokers, warehouses or others receiving or holding cash, checks,
Inventory, documents or instruments in which Lender holds a security interest
that upon Lender’s request, such items are to be delivered to Lender and/or
subject to Lender’s order, and if they shall come into such Borrower’s
possession, to deliver them, upon Lender’s request, to Lender in their original
form.  Except as otherwise provided
herein, Lender shall not exercise such right to request such items so long as
no Default or Event of Default shall exist or have occurred and be
continuing.  Except as Lender may
otherwise specify, Borrowers shall designate Lender as the consignee on all
bills of lading and other negotiable and non-negotiable documents.

 

(h)                                 Each
Borrower and Guarantor hereby irrevocably authorizes and directs Lender to name
such Borrower or Guarantor as the account party therein and to deliver to
Lender all instruments, documents and other writings and property received by
issuer pursuant to the Letter of Credit and to accept and rely upon Lender’s
instructions and agreements with respect to all matters arising in connection
with the Letter of Credit or the Letter of Credit Documents with respect
thereto.  Nothing contained herein shall
be deemed or construed to grant any Borrower or Guarantor any right or
authority to pledge the credit of Lender in any manner.  Borrowers and Guarantors shall be bound by
any reasonable interpretation made in good faith by Lender under or in
connection with any Letter of Credit or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of any Borrower or Guarantor.

 

(i)                                     So
long as no Event of Default exists or has occurred and is continuing, a
Borrower may (i) approve or resolve any questions of non-compliance of
documents, (ii) give any instructions as to acceptance or rejection of any
documents or goods, (iii) execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders, and (iv) with Lender’s
consent, grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and agree to any
amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letters of Credit,
or documents, drafts or acceptances thereunder or any letters of credit
included in the Collateral.

 

(j)                                     At
any time an Event of Default exists or has occurred and is continuing, Lender
shall have the right and authority to, and Borrowers shall not, without the
prior written consent of Lender, (i)approve or resolve any questions of
non-compliance of documents, (ii) give any instructions as to acceptance
or rejection of any documents or goods, (iii) execute any and all
applications for steamship or airway guaranties, indemnities or delivery
orders, (iv) grant any extensions of the maturity of, time of payments
for, or time of presentation of, any drafts, acceptances, or documents, and (v) agree
to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, or documents, drafts or acceptances thereunder or any
letters of

 

34

 

credit included in the
Collateral.  Lender may take such actions
either in its own name or in any Borrower’s name.

 

(k)                                  The
obligations of Borrowers to pay each Letter of Credit Obligations shall be
absolute, unconditional and irrevocable and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances,
whatsoever.

 

SECTION  3.        INTEREST
AND FEES

 

3.1                                 Interest.

 

(a)                                  Borrowers
shall pay to Lender interest on the outstanding principal amount of the Loans
at the Interest Rate.  All interest
accruing hereunder on and after the date of any Event of Default for so long as
the same is continuing or on or after the date of termination hereof shall be
payable on demand.

 

(b)                               Each Borrower (or
Administrative Borrower on behalf of such Borrower) may from time to time
request Eurodollar Rate Loans or may request that Prime Rate Loans be converted
to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue
for an additional Interest Period.  Such
request from a Borrower (or Administrative Borrower on behalf of such Borrower)
shall specify the amount of the Eurodollar Rate Loans or the amount of the
Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount of the
Eurodollar Rate Loans to be continued (subject to the limits set forth below)
and the Interest Period to be applicable to such Eurodollar Rate Loans (and if
it does not specify an Interest Period, the Interest Period shall be deemed to
be a one (1) month period).  Subject
to the terms and conditions contained herein, three (3) Business Days
after receipt by Lender of such a request from a Borrower (or Administrative
Borrower on behalf of such Borrower) which may be telephonic (and followed by a
confirmation in writing if requested by Lender), such Eurodollar Rate Loans
shall be made or Prime Rate Loans shall be converted to Eurodollar Rate Loans
or such Eurodollar Rate Loans shall continue, as the case may be, provided,
that, (i) no Default or Event of Default shall exist or have
occurred and be continuing, (ii) no Borrower or Administrative Borrower
shall have sent any notice of termination of this Agreement, (iii) such
Borrower (or Administrative Borrower on behalf of such Borrower) shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Administrative Borrower from time to time for requests
by Borrowers for Eurodollar Rate Loans, (iv) no more than ten (10) Interest
Periods may be in effect at any one time, (v) the aggregate amount of the
Eurodollar Rate Loans must be in an amount not less than $1,000,000 or an
integral multiple of $500,000 in excess thereof, and (vi) Lender shall
have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender and can be readily determined as of the date of the request
for such Eurodollar Rate Loan by Borrower. 
Any request by or on behalf of a Borrower for Eurodollar Rate Loans or
to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any
existing Eurodollar Rate Loans shall be irrevocable.  Notwithstanding anything to the contrary
contained herein, Lender shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable 

 

35

 

Eurodollar Rate market to fund any Eurodollar
Rate Loans, but the provisions hereof shall be deemed to apply as if Lender had
purchased such deposits to fund the Eurodollar Rate Loans.

 

(c)                                  Any
Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the
last day of the applicable Interest Period, unless Lender has received and
approved a request to continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof and Borrowers
are entitled to such Eurodollar Rate Loan under the terms hereof.  Any Eurodollar Rate Loans shall, at Lender’s
option, upon notice by Lender to Administrative Borrower, be subsequently
converted to Prime Rate Loans in the event that this Agreement shall terminate
or not be renewed.  Borrowers shall pay
to Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of any Borrower) any amounts required to compensate Lender or
Participant for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

 

(d)                                 Interest
shall be payable by Borrowers to Lender monthly in arrears not later than the first
day of each calendar month and shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed, other than for Prime Rate
Loans which shall be calculated on the basis of three hundred sixty-five (365)
or three hundred sixty-six (366) day year, as applicable, and actual days
elapsed.  The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or
decrease by an amount equal to each increase or decrease in the Prime Rate
effective on the date any change in such Prime Rate is effective.  In no event shall charges constituting
interest payable by Borrowers to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.

 

3.2                                 Unused Line Fee.  Borrowers shall pay to Lender, monthly an
unused line fee at a rate equal to three-eighths (.375%) of one percent per
annum calculated upon the amount by which the Maximum Credit exceeds the
average daily principal balance of the outstanding Revolving Loans and Letters
of Credit during the immediately preceding month (or part thereof) so long as
any Obligations are outstanding and this Agreement has not been
terminated.  Such fees shall be payable
on the first Business Day of each month in arrears and calculated based on a
three hundred sixty (360) day year and actual days elapsed.

 

3.3                                 Letter of Credit Fees.

 

(a)                                  Borrowers
shall pay to Lender, monthly a fee at the LC Fee Rate determined as provided
below (on a per annum basis), on the average daily outstanding balance of the
Letters of Credit for the immediately preceding month (or part thereof), payable
in arrears as of the first day of each month, computed for each day from the
date of issuance to the date of expiration. 
Such percentages shall be increased or decreased, as the case may be, to
the applicable percentage (on a per annum basis) set forth below based on the
Monthly Average 

 

36

 

Excess Availability for the immediately
preceding calendar month is at or within the amounts indicated for such
percentage as of the last day of the immediately preceding calendar month:

 

	
  Tier

  	
   

  	
  Monthly Average Excess Availability

  	
   

  	
  LC Fee Rate

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Greater than
  $20,000,000

  	
   

  	
  2.25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Less than or
  equal to $20,000,000 and greater than $12,500,000

  	
   

  	
  2.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Less than or
  equal to $12,500,000

  	
   

  	
  2.75

  	
  %

  

 

provided, that,
(i) the applicable percentage shall be calculated and established once
each calendar month (commencing with the month beginning April 1, 2009)
based on the Monthly Average Excess Availability and shall remain in effect
until adjusted after the end of the next calendar month, (ii) each
adjustment of the applicable percentage shall be effective as of the first day
of each such calendar month based on the Monthly Average Excess Availability
for the immediately preceding calendar month, and (iii) notwithstanding
anything to the contrary contained herein, the applicable percentages through August 31,
2009 shall be the amount for Tier 2 set forth above and (iv) Borrowers
shall, at Lender’s option, pay such fees at a rate two (2%) percent greater
than the highest rate above on such average daily maximum amount for: (A) the
period from and after the date of termination or non-renewal hereof until
Lenders have received full and final payment of all Obligations
(notwithstanding entry of a judgment against any Borrower or Guarantor) and (B) the
period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing. 
Such letter of credit fees shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed and the obligation of
Borrowers to pay such fee shall survive the termination or non-renewal of this
Agreement.

 

(b)                               In addition to the
letter of credit fees provided above, Borrowers shall pay to Lender the letter
of credit fronting and negotiation fees agreed to by Borrowers and Lender from
time to time and the customary charges from time to time of Lender with respect
to the issuance, amendment, transfer, administration, cancellation and
conversion of, and drawings under, such Letters of Credit.

 

3.4                                 Additional
Fees.  Borrowers shall pay to Lender
the other fees and amounts set forth in the Fee Letter in the amounts and at
the times specified therein.

 

3.5                                 Changes in Laws and Increased Costs of Loans.

 

(a)                                  If
after the date hereof, either (i) any change in, or in the interpretation
of, any law or regulation is introduced, including, without limitation, with
respect to reserve requirements, applicable to Lender or any banking or
financial institution from whom Lender 

 

37

 

borrows funds or obtains credit
(a “Funding Bank”), or (ii) a Funding Bank or Lender complies with any
future guideline or request from any central bank or other Governmental
Authority or (iii) a Funding Bank or Lender determines that the adoption
of any applicable law, rule or regulation regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof has or would have the
effect described below, or a Funding Bank or Lender complies with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, and in the case
of any event set forth in this clause (iii), such adoption, change or
compliance has or would have the direct or indirect effect of reducing the rate
of return on Lender’s capital as a consequence of its obligations hereunder to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Funding Bank’s or Lender’s
policies with respect to capital adequacy) by an amount deemed by Lender in
good faith to be material, and the result of any of the foregoing events
described in clauses (i), (ii) or (iii) is or results in an increase
in the cost to Lender of funding or maintaining the Loans or the Letters of
Credit, then Borrowers and Guarantors shall from time to time upon demand by
Lender pay to Lender additional amounts sufficient to indemnify Lender against
such increased cost on an after-tax basis (after taking into account applicable
deductions and credits in respect of the amount indemnified).  A certificate as to the amount of such
increased cost and showing in reasonable detail the computation thereof shall
be submitted to Administrative Borrower by Lender and shall be conclusive,
absent manifest error.

 

(b)                                 If
prior to the first day of any Interest Period, (i) Lender shall have
determined in good faith (which determination shall be conclusive and binding
upon Borrowers and Guarantors) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining
the Adjusted Eurodollar Rate for such Interest Period, (ii) Lender
reasonably determines that the Adjusted Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly reflect the
cost to Lender of making or maintaining Eurodollar Rate Loans during such
Interest Period, or (iii) Dollar deposits in the principal amounts of the
Eurodollar Rate Loans to which such Interest Period is to be applicable are not
generally available in the London interbank market, Lender shall give telecopy
or telephonic notice thereof to Administrative Borrower as soon as practicable
thereafter, and will also give prompt written notice to Administrative Borrower
when such conditions no longer exist.  If
such notice is given (A) any Eurodollar Rate Loans requested to be made on
the first day of such Interest Period shall be made as Prime Rate Loans, (B) any
Loans that were to have been converted on the first day of such Interest Period
to or continued as Eurodollar Rate Loans shall be converted to or continued as
Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan shall be
converted, on the last day of the then-current Interest Period thereof, to
Prime Rate Loans.  Until such notice has
been withdrawn by Lender, no further Eurodollar Rate Loans shall be made or
continued as such, nor shall any Borrower (or Administrative Borrower on behalf
of any Borrower) have the right to convert Prime Rate Loans to Eurodollar Rate
Loans.

 

38

 

(c)                                  Notwithstanding
any other provision herein, if the adoption of or any change in any law,
treaty, rule or regulation or final, non-appealable determination of an
arbitrator or a court or other Governmental Authority or in the interpretation
or application thereof occurring after the date hereof shall make it unlawful
for Lender to make or maintain Eurodollar Rate Loans as contemplated by this
Agreement, (i) Lender shall promptly give written notice of such
circumstances to Administrative Borrower (which notice shall be withdrawn
whenever such circumstances no longer exist), (ii) the commitment of
Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans
as such and convert Prime Rate Loans to Eurodollar Rate Loans shall forthwith
be canceled and, until such time as it shall no longer be unlawful for Lender
to make or maintain Eurodollar Rate Loans, Lender shall then have a commitment
only to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and (iii) Loans
then outstanding as Eurodollar Rate Loans, if any, shall be converted
automatically to Prime Rate Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law.  If any such
conversion of a Eurodollar Rate Loan occurs on a day which is not the last day
of the then current Interest Period with respect thereto, Borrowers and
Guarantors shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 3.3(d) below.

 

(d)                               Borrowers and Guarantors
shall indemnify Lender and hold Lender harmless from any loss or expense which
Lender may sustain or incur as a consequence of (i) default by any
Borrower in making a borrowing of, conversion into or extension of Eurodollar
Rate Loans after such Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (ii) default by any
Borrower in making any prepayment of a Eurodollar Rate Loan after such Borrower
(or Administrative Borrower on behalf of such Borrower) has given a notice
thereof in accordance with the provisions of this Agreement, and (iii) the
making of a prepayment of Eurodollar Rate Loans on a day which is not the last
day of an Interest Period with respect thereto. 
With respect to Eurodollar Rate Loans, such indemnification may include
an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
extended, for the period from the date of such prepayment or of such failure to
borrow, convert or extend to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or extend, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Rate Loans provided for herein
over (B) the amount of interest (as determined by such Lender) which would
have accrued to Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank Eurodollar market.  This covenant shall survive the termination
or non-renewal of this Agreement and the payment of the Obligations.

 

SECTION  4.        CONDITIONS
PRECEDENT

 

4.1                                 Conditions Precedent to Initial Loans and
Letters of Credit.  The obligation of
Lender to make the initial Loans or to issue the initial Letters of Credit
hereunder is subject to 

 

39

 

the satisfaction of, or waiver of, immediately prior to or concurrently
with the making of such Loan or the issuance of such Letter of Credit of each
of the following conditions precedent:

 

(a)                                  all
requisite corporate and limited liability company action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received
all information and copies of all documents, including records of requisite
corporate and limited liability company action and proceedings which Lender may
have reasonably requested in connection therewith, such documents where
requested by Lender or its counsel to be certified by appropriate corporate
officers or limited liability company managers or Governmental Authority (and
including a copy of the certificate of incorporation or formation of each
Borrower and Guarantor certified by the Secretary of State (or equivalent
Governmental Authority) which shall set forth the same complete corporate or
limited liability company name of such Borrower or Guarantor as is set forth
herein and such document as shall set forth the organizational identification
number of each Borrower or Guarantor, if one is issued in its jurisdiction of
incorporation or formation);

 

(b)                                 Lender
shall have received, in form and substance reasonably satisfactory to Lender, a
pro-forma balance sheet of Parent and its Subsidiaries dated January 23,
2009 reflecting the initial transactions contemplated hereunder and under the
Purchase Agreements, including, but not limited to (i) the consummation of
the acquisition of the Purchased Assets by Farmer from Sellers and the other
transactions contemplated by the Purchase Agreements and (ii) the Loans
and Letters of Credit provided by Lender to Borrowers on the date hereof and
the use of the proceeds of the initial Loans as provided herein, accompanied by
a certificate, dated of even date herewith, of the chief financial officer of
Parent stating that such pro-forma balance sheet was prepared in good faith by
Parent and based on assumptions that are reasonable in light of all facts and
circumstances known to Parent at such time;

 

(c)                                  no
material adverse change shall have occurred in the assets, business or
prospects of Borrowers since the date of Lender’s latest field examination (not
including for this purpose the field review referred to in clause (d) below)
and no change or event shall have occurred which would impair in any material
respect the ability of any Borrower or Guarantor to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce the Obligations or realize upon the Collateral;

 

(d)                                 Lender
shall have completed a field review of the Records and such other information
with respect to the Collateral as Lender may reasonably require to determine
the amount of Loans available to Borrowers (including, without limitation,
current perpetual inventory records and/or roll-forwards of Accounts and
Inventory through the date of closing and test counts of the Inventory in a
manner satisfactory to Lender, together with such supporting documentation as
may be necessary or appropriate, and other documents and information that will
enable Lender to accurately identify and verify the Collateral), the results of
which each case shall be satisfactory to Lender, not more than three (3) Business
Days prior to the date hereof or such earlier date as Lender may agree;

 

40

 

(e)                                  Lender
shall have received, in form and substance satisfactory to Lender, evidence
that the Purchase Agreements have been duly executed and delivered by and to
the appropriate parties thereto and the transactions contemplated under the
terms of the Purchase Agreements have been consummated prior to or contemporaneously
with the execution of this Agreement;

 

(f)                                    Lender
shall have received, in form and substance satisfactory to Lender, true and
complete copies of the Purchase Agreements duly executed by the parties
thereto;

 

(g)                                 Lender
shall have received, in form and substance satisfactory to Lender, evidence
that Borrowers have paid an amount of not less than $12,000,000 from its own
funds to the cash portion of the purchase price of the Purchased Assets payable
pursuant to the Purchase Agreements;

 

(h)                                 Lender
shall have received, in form and substance reasonably satisfactory to Lender,
the agreement of the Sellers consenting to the collateral assignment by
Borrowers to Lender of all of Borrowers’ rights and remedies and claims for
damages or other relief under the Purchase Agreements and granting Lender such
other rights as Lender may require, duly authorized, executed and delivered by
Sellers;

 

(i)                                     Lender
shall (i) be satisfied that, immediately after giving effect to the
transactions contemplated to occur under this Agreement and the consummation of
the transactions contemplated by the Purchase Agreements on or before the date
hereof, each Borrower is and Borrowers and Guarantors (taken as a whole) are
Solvent and (ii) have received an officer’s certificate prepared by the
chief financial officer of Parent as to the financial condition, solvency and
related matters of Borrowers and Guarantors after giving effect to the initial
borrowings under the Financing Agreements and the consummation of the
transactions contemplated by the Purchase Agreements, in form and substance
reasonably satisfactory to Lender;

 

(j)                                     Lender
shall have received, in form and substance reasonably satisfactory to Lender,
all consents, waivers, acknowledgments and other agreements from third persons
which Lender may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement, the other Financing
Agreements and the Acquisition, including, without limitation, Collateral
Access Agreements;

 

(k)                                  the
Excess Availability as determined by Lender in good faith, as of the date
hereof, shall be not less than $20,000,000 after giving effect to the initial
Loans made or to be made and Letters of Credit issued or to be issued in
connection with the initial transactions hereunder;

 

(l)                                     Lender
shall have received, in form and substance reasonably satisfactory to Lender,
Deposit Account Control Agreements and Investment Property Control Agreements 

 

41

 

by and among Lender, each
Borrower and Guarantor, as the case may be and each bank, securities
intermediary or other Person where such Borrower (or Guarantor) has a deposit
account, investment account or other account, in each case, duly authorized,
executed and delivered by such bank, securities intermediary or other Person
and Borrower or Guarantor, as the case may be (or Lender shall be the bank’s
customer with respect to such deposit account as Lender may specify);

 

(m)                               Lender
shall have received evidence, in form and substance reasonably satisfactory to
Lender, that Lender has a valid perfected first priority security interest in
all of the Collateral (other than, with respect to perfection only, the
Excluded Property);

 

(n)                                 Lender
shall have received and reviewed lien and judgment search results for the
jurisdiction of organization of each Borrower and Guarantor, the jurisdiction
of the chief executive office of each Borrower and Guarantor and all
jurisdictions in which assets of Borrowers and Guarantors are located, which
search results shall be in form and substance reasonably satisfactory to
Lender;

 

(o)                                 Lender
shall have received originals of the stock certificates and membership interest
certificates representing all of the issued and outstanding shares of the
Capital Stock of each Borrower and Guarantor (other than Parent) and owned by
any Borrower or Guarantor, in each case together with stock powers duly
executed in blank with respect thereto;

 

(p)                                 Lender
shall have received a borrowing request and a Borrowing Base Certificate
setting forth the Revolving Loans and Letters of Credit available to Borrowers
as of the date of this Agreement as completed in a manner reasonably
satisfactory to Lender and duly authorized, executed and delivered on behalf of
Borrowers;

 

(q)                                 Lender
shall have received evidence of insurance and loss payee endorsements required
hereunder and under the other Financing Agreements, in form and substance
reasonably satisfactory to Lender, and certificates of insurance policies
and/or endorsements naming Lender as loss payee;

 

(r)                                    Lender
shall have received, in form and substance reasonably satisfactory to Lender,
such opinion letters of counsel to Borrowers and Guarantors with respect to the
Purchase Agreements, the Financing Agreements and the security interests and
liens of Lender with respect to the Collateral and such other matters as Lender
may reasonably request;

 

(s)                                  Lender
shall have received evidence, in form and substance satisfactory to Lender,
that the ESOP is an “employee stock ownership plan” (as defined in Section 4975(e)(7) of
the Code and Section 407(d)(6) of ERISA) and is qualified under Section 401(a) of
the Code; and

 

42

 

(t)                                    the
other Financing Agreements and all instruments and documents hereunder and
thereunder shall have been duly executed and delivered to Lender, in form and
substance reasonably satisfactory to Lender.

 

4.2                                 Conditions Precedent to All Loans and Letters
of Credit.  The obligation of Lender
to make the Loans, including the initial Loans, or to issue any Letter of
Credit, including the initial Letters of Credit, is subject to the further
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of each such Loan or the issuance of such Letter of Credit of each of
the following conditions precedent:

 

(a)                                  all
representations and warranties contained herein and in the other Financing
Agreements that are qualified as to materiality or Material Adverse Effect
shall be true and correct and the representations and warranties that are not
so qualified shall be true and correct in all material respects, in each case
with the same effect as though such representations and warranties had been
made on and as of the date of the making of each such Loan or providing each
such Letter of Credit and after giving effect thereto, except to the extent
that such representations and warranties expressly relate solely to an earlier
date (in which case such representations and warranties shall have been true
and correct to the extent required hereunder or under the other Financing
Agreements on and as of such earlier date);

 

(b)                                 no
law, regulation, order, judgment or decree of any Governmental Authority shall
exist, and no action, suit, investigation, litigation or proceeding shall be
pending or threatened in any court or before any arbitrator or Governmental
Authority, which (i) purports to enjoin, prohibit, restrain or otherwise
affect (A) the making of the Loans or providing the Letter of Credit, or (B) the
consummation of the transactions contemplated pursuant to the terms hereof or
the other Financing Agreements or (ii) has or has a reasonable likelihood
of having a Material Adverse Effect; and

 

(c)                                  no
Default or Event of Default shall exist or have occurred and be continuing on
and as of the date of the making of such Loan or providing each such Letter of
Credit and after giving effect thereto.

 

SECTION  5.        GRANT AND
PERFECTION OF SECURITY INTEREST

 

5.1                                 Grant of Security Interest.  To secure payment and performance of all
Obligations, each Borrower and Guarantor hereby grants to Lender, a continuing
security interest in, a lien upon, and a right of set off against, and hereby
assigns to Lender, as security, all personal and real property and fixtures,
and interests in property and fixtures, of each Borrower and Guarantor, whether
now owned or hereafter acquired or existing, and wherever located (together
with all other collateral security for the Obligations at any time granted to
or held or acquired by Lender, collectively, the “Collateral”), including:

 

(a)                                  all
Accounts;

 

43

 

(b)                                 all
general intangibles, including, without limitation, all Intellectual Property;

 

(c)                                  all
goods, including, without limitation, Inventory and Equipment;

 

(d)                                 all
Real Property and fixtures;

 

(e)                                  all
chattel paper, including, without limitation, all tangible and electronic
chattel paper;

 

(f)                                    all
instruments, including, without limitation, all promissory notes;

 

(g)                                 all
documents;

 

(h)                                 all
deposit accounts;

 

(i)                                     all
letters of credit, banker’s acceptances and similar instruments and including
all letter-of-credit rights;

 

(j)                                     all
supporting obligations and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (i) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party, (iii) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Receivables or other Collateral, including
returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;

 

(k)                                  all
(i) investment property (including securities, whether certificated or
uncertificated, securities accounts, security entitlements, commodity contracts
or commodity accounts) other than the Preferred Stock Portfolio and (ii) monies,
credit balances, deposits and other property of any Borrower or Guarantor now
or hereafter held or received by or in transit to Lender or its Affiliates or
at any other depository or other institution from or for the account of any
Borrower or Guarantor, whether for safekeeping, pledge, custody, transmission,
collection or otherwise;

 

(l)                                     all
commercial tort claims, including, without limitation, those identified in the
Information Certificate;

 

(m)                               to
the extent not otherwise described above, all Receivables;

 

(n)                                 all
Records; and

 

44

 

(o)           all products and
proceeds of the foregoing, in any form, including insurance proceeds and all
claims against third parties for loss or damage to or destruction of or other
involuntary conversion of any kind or nature of any or all of the other Collateral.

 

5.2           Perfection of Security Interests.

 

(a)           Each Borrower and
Guarantor irrevocably and unconditionally authorizes Lender (or its agent) to
file at any time and from time to time such financing statements with respect
to the Collateral naming Lender or its designee as the secured party and such
Borrower or Guarantor as debtor, as Lender may require, and including any other
information with respect to such Borrower or Guarantor or otherwise required by
part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as
Lender may determine, together with any amendment and continuations with
respect thereto, which authorization shall apply to all financing statements
filed on, prior to or after the date hereof. 
Each Borrower and Guarantor hereby ratifies and approves all financing
statements naming Lender or its designee as secured party and such Borrower or
Guarantor, as the case may be, as debtor with respect to the Collateral (and
any amendments with respect to such financing statements) filed by or on behalf
of Lender prior to the date hereof and ratifies and confirms the authorization
of Lender to file such financing statements (and amendments, if any).  Each Borrower and Guarantor hereby authorizes
Lender to adopt on behalf of such Borrower and Guarantor any symbol required
for authenticating any electronic filing. 
In the event that the description of the collateral in any financing
statement naming Lender or its designee as the secured party and any Borrower
or Guarantor as debtor includes assets and properties of such Borrower or
Guarantor that do not at any time constitute Collateral, whether hereunder,
under any of the other Financing Agreements or otherwise, the filing of such
financing statement shall nonetheless be deemed authorized by such Borrower or
Guarantor to the extent of the Collateral included in such description and it
shall not render the financing statement ineffective as to any of the
Collateral or otherwise affect the financing statement as it applies to any of
the Collateral.  Until such time as the
Credit Facility shall have been terminated and all of the Obligations have been
paid in full in accordance with Section 12.1(a) hereof, in no event
shall any Borrower or Guarantor at any time file, or permit or cause to be
filed,  any correction statement or
termination statement with respect to any financing statement (or amendment or
continuation with respect thereto) naming Lender or its designee as secured
party and such Borrower or Guarantor as debtor.

 

(b)           Each Borrower and Guarantor
does not have any chattel paper (whether tangible or electronic) or instruments
as of the date hereof, except as set forth in the Information Certificate.  In the event that any Borrower or Guarantor
shall be entitled to or shall receive any chattel paper or instrument after the
date hereof, Borrowers and Guarantors shall promptly notify Lender thereof in
writing.  Promptly upon the receipt
thereof by or on behalf of any Borrower or Guarantor (including by any agent or
representative), such Borrower or Guarantor shall deliver, or cause to be
delivered to Lender, all tangible chattel paper and instruments that such
Borrower or Guarantor has or may at any time acquire, accompanied by such
instruments of transfer or assignment duly executed in blank as Lender may from
time to time specify, in each case except

 

45

 

as Lender may otherwise agree.  At Lender’s option, each Borrower and
Guarantor shall, or Lender may at any time on behalf of any Borrower or
Guarantor, cause the original of any such instrument or chattel paper to be
conspicuously marked in a form and manner acceptable to Lender with the
following legend referring to chattel paper or instruments as applicable: “This
chattel paper]instrument] is subject to the security interest of Wachovia Bank,
National Association and any sale, transfer, assignment or encumbrance of this
chattel paper]instrument] violates the rights of such secured party.”

 

(c)           In the event that any
Borrower or Guarantor shall at any time hold or acquire an interest in any
electronic chattel paper or any “transferable record” (as such term is defined
in Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or in Section 16 of the Uniform Electronic Transactions Act
as in effect in any relevant jurisdiction) with a value in excess of $100,000,
such Borrower or Guarantor shall promptly notify Lender thereof in
writing.  Promptly upon Lender’s request,
such Borrower or Guarantor shall take, or cause to be taken, such actions as
Lender may request to give Lender control of such electronic chattel paper
under Section 9-105 of the UCC and control of such transferable record
under Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as in effect in such jurisdiction.

 

(d)           Each Borrower and
Guarantor does not have any deposit accounts as of the date of this Agreement,
except as set forth in the Information Certificate.  Borrowers and Guarantors shall not, directly
or indirectly, after the date of this Agreement open, establish or maintain any
deposit account other than at Lender, unless each of the following conditions
is satisfied:  (i) Lender shall have
received not less than five (5) Business Days prior written notice of the
intention of any Borrower or Guarantor to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Lender
the name of the account, the owner of the account, the name and address of the
bank at which such account is to be opened or established, the individual at
such bank with whom such Borrower or Guarantor is dealing and the purpose of
the account, (ii)  the bank where such account is opened or maintained
shall be reasonably acceptable to Lender, and (iii) on or before the
opening of such deposit account, such Borrower or Guarantor shall as Lender may
specify either (A) deliver to Lender a Deposit Account Control Agreement
with respect to such deposit account duly authorized, executed and delivered by
such Borrower or Guarantor and the bank at which such deposit account is opened
and maintained or (B) arrange for Lender to become the customer of the
bank with respect to the deposit account on terms and conditions reasonably
acceptable to Lender.  The terms of this
subsection (d) shall not apply to deposit accounts specifically and
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of any Borrower’s or Guarantor’s salaried
employees or to the cash deposit referred to in Section 9.8(m) of
this Agreement.

 

(e)           No Borrower or
Guarantor owns or holds, directly or indirectly, beneficially or as record
owner or both, any investment property, as of the date hereof, or have

 

46

 

any investment account, securities account,
commodity account or other similar account with any bank or other financial
institution or other securities intermediary or commodity intermediary as of
the date hereof, in each case except as set forth in the Information
Certificate.

 

(i)            (A) in the event
that any Borrower or Guarantor shall be entitled to or shall at any time after
the date hereof hold or acquire any certificated securities (other than
Preferred Stock Portfolio), such Borrower or Guarantor shall promptly endorse,
assign and deliver the same to Lender, accompanied by such instruments of
transfer or assignment duly executed in blank as Lender may from time to time
specify and (B) if any securities (other than Preferred Stock Portfolio),
now or hereafter acquired by any Borrower or Guarantor are uncertificated and
are issued to such Borrower or Guarantor or its nominee directly by the issuer
thereof, such Borrower or Guarantor shall immediately notify Lender thereof and
shall as Lender may specify, either (1) cause the issuer to agree to
comply with instructions from Lender as to such securities, without further
consent of any Borrower or Guarantor or such nominee, or (2) arrange for
Lender  to become the registered owner of
the securities.

 

(ii)           Borrowers and
Guarantors shall not, directly or indirectly, after the date hereof open,
establish or maintain any investment account, securities account, commodity
account or any other similar account (other than a deposit account or the
Specified Investment Account) with any securities intermediary or commodity
intermediary unless each of the following conditions is satisfied: (A) 
Lender shall have received not less than five (5) Business Days prior
written notice of the intention of Borrower or Guarantor to open or establish
such account which notice shall specify in reasonable detail and specificity
acceptable to Lender the name of the account, the owner of the account, the
name and address of the securities intermediary or commodity intermediary at
which such account is to be opened or established, the individual at such
intermediary with whom such Borrower or Guarantor is dealing and the purpose of
the account, (B) the securities intermediary or commodity intermediary (as
the case may be) where such account is opened or maintained shall be reasonably
acceptable to Lender, and (C) on or before the opening of such investment
account, securities account or other similar account with a securities
intermediary or commodity intermediary, such Borrower or Guarantor shall as
Lender may specify either (1) execute and deliver, and cause to be
executed and delivered to Lender, an Investment Property Control Agreement with
respect thereto duly authorized, executed and delivered by such Borrower or
Guarantor and such securities intermediary or commodity intermediary or (2) arrange
for Lender to become the entitlement holder with respect to such investment
property on terms and conditions reasonably acceptable to Lender.

 

(f)            Borrowers and
Guarantors are not the beneficiary or otherwise entitled to any right to
payment under any letter of credit, banker’s acceptance or similar instrument
as of the date hereof, except as set forth in the Information Certificate.  In the event that any Borrower or Guarantor
shall be entitled to or shall receive any right to payment under any letter of
credit, banker’s acceptance or any similar instrument with a principal amount
in excess of $250,000, individually, and $500,000, in the aggregate, whether as
beneficiary thereof or otherwise after

 

47

 

the date hereof, such Borrower or Guarantor
shall promptly notify Lender thereof in writing.  Such Borrower or Guarantor shall immediately,
as Lender may specify, either (i) deliver, or cause to be delivered to
Lender, with respect to any such letter of credit, banker’s acceptance or
similar instrument, the written agreement of the issuer and any other nominated
person obligated to make any payment in respect thereof (including any
confirming or negotiating bank), in form and substance reasonably satisfactory
to Lender, consenting to the assignment of the proceeds of the letter of credit
to Lender by such Borrower or Guarantor and agreeing to make all payments
thereon directly to Lender or as Lender may otherwise direct or (ii) cause
Lender to become, at Borrowers’ expense, the transferee beneficiary of the
letter of credit, banker’s acceptance or similar instrument (as the case may
be).

 

(g)           Borrowers and
Guarantors do not have any commercial tort claims as of the date hereof, except
as set forth in the Information Certificate. 
In the event that any Borrower or Guarantor shall at any time after the
date hereof have any commercial tort claims for an amount in excess of
$250,000, individually, and $500,000, in the aggregate, such Borrower or
Guarantor shall promptly notify Lender thereof in writing, which notice shall (i) set
forth in reasonable detail the basis for and nature of such commercial tort
claim and (ii) include the express grant by such Borrower or Guarantor to
Lender of a security interest in such commercial tort claim (and the proceeds
thereof).  In the event that such notice
does not include such grant of a security interest, the sending thereof by such
Borrower or Guarantor to Lender shall be deemed to constitute such grant to
Lender. Upon the sending of such notice, any commercial tort claim described
therein shall constitute part of the Collateral and shall be deemed included
therein.  Without limiting the
authorization of Lender provided in Section 5.2(a) hereof or
otherwise arising by the execution by such Borrower or Guarantor of this
Agreement or any of the other Financing Agreements, Lender is hereby
irrevocably authorized from time to time and at any time to file such financing
statements naming Lender or its designee as secured party and such Borrower or
Guarantor as debtor, or any amendments to any financing statements, covering
any such commercial tort claim as Collateral. In addition, each Borrower and
Guarantor shall promptly upon Lender’s request, execute and deliver, or cause
to be executed and delivered, to Lender such other agreements, documents and
instruments as Lender may reasonably require in connection with such commercial
tort claim.

 

(h)           Borrowers and
Guarantors do not have any goods, documents of title or other Collateral in the
custody, control or possession of a third party as of the date hereof, except (i) as
set forth in the Information Certificate, (ii) Coffee Brewing Equipment
and(iii) for goods located in the United States of America in transit to a
location of a Borrower or Guarantor permitted herein in the ordinary course of
business of such Borrower or Guarantor in the possession of the carrier
transporting such goods.  In the event
that any goods, documents of title or other Collateral (other than Coffee
Brewing Equipment) are at any time after the date hereof in the custody, control
or possession of any other person not referred to in the Information
Certificate or such carriers with a Value in excess of $250,000, individually,
and $500,000, in the aggregate, Borrowers and Guarantors shall promptly notify
Lender thereof in writing.  Promptly upon
Lender’s request, Borrowers and Guarantors shall deliver to Lender a Collateral
Access

 

48

 

Agreement duly authorized, executed and
delivered by such person and the Borrower or Guarantor that is the owner of
such Collateral.

 

(i)            Borrowers and
Guarantors shall take any other actions reasonably requested by Lender from
time to time to cause the attachment, perfection and first priority of, and the
ability of Lender to enforce, the security interest of Lender in any and all of
the Collateral, including, without limitation, (i) executing, delivering
and, where appropriate, filing financing statements and amendments relating
thereto under the UCC or other applicable law, to the extent, if any, that any
Borrower’s or Guarantor’s signature thereon is required therefor, (ii) causing
Lender’s name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, the security interest of Lender
in such Collateral, (iii) complying with any provision of any statute,
regulation or treaty of the United States of America as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, the security interest of Lender
in such Collateral, (iv) obtaining the consents and approvals of any
Governmental Authority or third party, including, without limitation, any
consent of any licensor, lessor or other person obligated on Collateral, and
taking all actions required by any earlier versions of the UCC or by other law,
as applicable in any relevant jurisdiction.

 

5.3           Special Provisions
Regarding Collateral.  Borrowers and
Guarantors hereby agree that any time that a Default or an Event of Default has
occurred and is continuing, at the request of Lender, Borrowers and Guarantors
shall take any and all actions requested by Lender from time to time to cause
the attachment, perfection and first priority of, and the ability of Lender to
enforce, the security interest of Lender in any and all of the Collateral,
including, the Excluded Property.

 

SECTION  6.        COLLECTION
AND ADMINISTRATION

 

6.1           Borrowers’ Loan Accounts.  Lender shall maintain one or more loan account(s) on
its books in which shall be recorded (a) all Loans, Letters of Credit and
other Obligations and the Collateral, (b) all payments made by or on
behalf of any Borrower or Guarantor and (c) all other appropriate debits
and credits as provided in this Agreement, including fees, charges, costs,
expenses and interest.  All entries in
the loan account(s) shall be made in accordance with Lender’s customary
practices as in effect from time to time.

 

6.2           Statements.  Lender shall render to Administrative Borrower
each month a statement setting forth the balance in the Borrowers’ loan account(s) maintained
by Lender for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. 
Each such statement shall be subject to subsequent adjustment by Lender
but shall, absent manifest errors or omissions, be considered correct and
deemed accepted by Borrowers and Guarantors and conclusively binding upon
Borrowers and Guarantors as an account stated except to the extent that Lender
receives a written notice from Administrative Borrower of any specific
exceptions of Administrative Borrower thereto within thirty (30) days

 

49

 

after the date such statement has been received by Administrative
Borrower.  Until such time as Lender
shall have rendered to Administrative Borrower a written statement as provided
above, the balance in any Borrower’s loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrowers and Guarantors.

 

6.3           Collection of Accounts.

 

(a)           Borrowers and
Guarantors shall establish and maintain, at their expense, deposit accounts and
cash management services of a type and on terms, as Lender may reasonably
specify at Lender no later than one hundred twenty (120) days after the date of
this Agreement and, unless and until any or all of the deposit accounts and
cash management services of Borrowers and Guarantors are transferred to Lender,
then with the banks set forth on Schedule 8.10 to the Information
Certificate.  The banks set forth on
Schedule 8.10 of the Information Certificate constitute all of the banks with
which Borrowers and Guarantors have deposit account and cash management
arrangements as of the date of this Agreement and describes the nature of the
use of such deposit account by such Borrower or Guarantor (collectively,
together with any accounts of Borrowers and Guarantors at Lender, the “Cash
Management Accounts” and individually a “Cash Management Account”).  Without limiting any other rights of Lender,
in the event that such deposit accounts and cash management services of
Borrowers and Guarantors are not established and operating at Lender within
such one hundred twenty (120) day period, Borrowers and Guarantors shall deliver,
or cause to be delivered to Lender, a Deposit Account Control Agreement duly
authorized, executed and delivered by each bank where a Cash Management Account
or Concentration Account is maintained.

 

(b)           Borrowers shall, and
shall cause Guarantors to, deposit or cause to be deposited all proceeds of
Collateral, including all proceeds from sales of Inventory, all amounts payable
to each Borrower and Guarantor and all other proceeds of Collateral, from each
location of such Borrower and Guarantor on each Business Day into the Cash
Management Account of such Borrower and Guarantor used for such purpose.  All such funds deposited into the Cash
Management Accounts shall be sent by wire transfer or other electronic funds
transfer each day to the Concentration Accounts.

 

(c)           Without limiting any
other rights or remedies of Lender, Lender may, at its option, instruct the
depository banks at which the Concentration Accounts are maintained to transfer
all available funds received or deposited into the Concentration Accounts to
the Lender Payment Account at any time after the occurrence of a Cash Dominion
Event.  At all times that Lender shall
have notified any depository bank to transfer funds from a Concentration
Account to the Lender Payment Account, all payments made to such Concentration
Accounts, whether in respect of the Receivables, as proceeds of Inventory or
other Collateral or otherwise shall be treated as payments to Lender in respect
of the Obligations and therefore shall constitute the property of Lender to the
extent of the then outstanding Obligations.

 

(d)           Without limiting any
other rights or remedies of Lender, Lender may, at its option, send a “notice
of exclusive control” or similar notice and otherwise instruct the

 

50

 

securities intermediary or other Person party
to an Investment Property Control Agreement that no funds in any investment
account or other account subject to such agreement may be transferred except to
the Concentration Accounts or otherwise paid to the Lender Payment Account at
any time on or after a Cash Dominion Event and for so long as the same is
continuing or at any time on or after Lender receives a notice of the intention
of the securities intermediary or other party thereto to terminate such
Investment Property Control Agreement.

 

(e)           For purposes of
calculating the amount of the Loans and Letters of Credit  available to Borrowers, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations on the Business Day of receipt by Lender of immediately available
funds in the Lender Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender’s usual and customary
practices as in effect from time to time and within sufficient time to credit
such Borrower’s loan account on such day, and if not, then on the next Business
Day.  For the purposes of calculating
interest on the Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations one (1) Business
Day following the date of receipt by Lender of immediately available funds in
the Lender Payment Account provided such payments or other funds and notice
thereof are received in accordance with Lender’s usual and customary practices
as in effect from time to time and within sufficient time to credit such
Borrower’s loan account on such day, and if not, then on the next Business
Day.  In the event that at any time or
from time to time there are no Revolving Loans outstanding, Lender shall be
entitled to an administrative fee in an amount calculated based on the Interest
Rate for Prime Rate Loans (on a per annum basis) multiplied by the amount of
the funds received in the Concentration Accounts for such day as calculated by
Lender in accordance with its customary practice.

 

(f)            Each Borrower and
Guarantor and their respective employees, agents and Subsidiaries shall, acting
as trustee for Lender, receive, as the property of Lender, any monies, checks,
notes, drafts or any other payment relating to and/or proceeds of Accounts or
other Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Concentration Accounts, or remit the same or cause the same to
be remitted, in kind, to Lender.  In no
event shall the same be commingled with any Borrower’s or Guarantor’s own
funds.  Borrowers agree to reimburse
Lender on demand for any amounts owed or paid to any bank or other financial
institution at which a Concentration Account or any other deposit account or
investment account is established or any other bank, financial institution or
other person involved in the transfer of funds to or from the Concentration
Accounts arising out of Lender’s payments to or indemnification of such bank,
financial institution or other person. 
The obligations of Borrowers to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the termination of this Agreement.

 

6.4           Payments.

 

(a)           All Obligations shall
be payable to the Lender Payment Account as provided in Section 6.3 or
such other place as Lender may designate from time to time.  Subject to the other terms and conditions
contained herein, Lender shall apply payments received or

 

51

 

collected from any Borrower or Guarantor or
for the account of any Borrower or Guarantor (including the monetary proceeds
of collections or of realization upon any Collateral) as follows: first,
to pay any fees, indemnities or expense reimbursements then due to Lender from
any Borrower or Guarantor; second, to pay interest due in respect of any
Loans or Letter of Credit Obligations; third, to pay principal due in
respect of the Loans and to pay Obligations then due arising under or pursuant
to any Hedge Agreements of any Borrower or Guarantor with Lender or any
Affiliate of Lender (up to the amount of any then effective Reserve established
in respect of such Obligations), on a pro  rata basis; fourth,
to pay or prepay any other Obligations whether or not then due, in such order
and manner as Lender determines and at any time an Event of Default exists or
has occurred and is continuing, to provide cash collateral for any Letter of Credit
Obligations or other contingent Obligations (but not including for this purpose
any Obligations arising under or pursuant to any Bank Products); and fifth,
to pay or prepay any Obligations arising under or pursuant to any Bank Products
(other than to the extent provided for above) on a pro  rata
basis.  Notwithstanding anything to the
contrary contained in this Agreement, (i) unless so directed by
Administrative Borrower, or unless a Default or an Event of Default shall exist
or have occurred and be continuing, Lender shall not apply any payments which
it receives to any Eurodollar Rate Loans, except (A) on the expiration
date of the Interest Period applicable to any such Eurodollar Rate Loans or (B) in
the event that there are no outstanding Prime Rate Loans and (ii) to the
extent Borrower uses any proceeds of the Loans or Letters of Credit to acquire
rights in or the use of any Collateral or to repay any Indebtedness used to
acquire rights in or the use of any Collateral, payments in respect of the Obligations
shall be deemed applied first to the Obligations arising from Loans and Letters
of Credit that were not used for such purposes and second to the Obligations
arising from Loans and Letters of Credit the proceeds of which were used to
acquire rights in or the use of any Collateral in the chronological order in
which Borrower acquired such rights in or the use of such Collateral.

 

(b)           At Lender’s option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of any Borrower maintained by Lender.  If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Obligations,
Lender is required to surrender or return such payment or proceeds to any
Person for any reason, then the Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender.  Borrowers and
Guarantors shall be liable to pay to Lender, and do hereby indemnify and hold
Lender harmless for the amount of any payments or proceeds surrendered or returned.  This Section 6.4(b) shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds.  This Section 6.4
shall survive the payment of the Obligations and the termination of this
Agreement.

 

6.5           Taxes.

 

(a)           Any and all payments by or on account of any
of the Obligations shall be made free and clear of and without deduction or
withholding for or on account of, any setoff,

 

52

 

counterclaim, defense, duties, taxes, levies,
imposts, fees, deductions, charges, withholdings, liabilities, restrictions or
conditions of any kind, excluding (i) taxes measured by Lender’s net
income, and franchise taxes imposed on Lender, by the jurisdiction (or any
political subdivision thereof) under the laws of which Lender is organized and (ii) any
United States withholding taxes payable with respect to payments under the
Financing Agreements under laws (including any statute, treaty or regulation)
in effect on the date hereof applicable to Lender, but not excluding any United
States withholding taxes payable as a result of any change in such laws
occurring after the date of this Agreement (all such non-excluded taxes,
levies, imposts, fees, deductions, charges, withholdings and liabilities being
hereinafter referred to as “Taxes”).

 

(b)          If any Taxes shall be required by law to be
deducted from or in respect of any sum payable in respect of the Obligations to
Lender (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 6.5), Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii) the
relevant Borrower or Guarantor shall make such deductions, (iii) the
relevant Borrower or Guarantor shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law
and (iv) the relevant Borrower or Guarantor shall deliver to Lender
evidence of such payment.

 

(c)           In addition, each Borrower and Guarantor
agrees to pay any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies of the United States of
America or any political subdivision thereof or any applicable foreign
jurisdiction, and all liabilities with respect thereto, in each case arising
from any payment made hereunder or under any of the other Financing Agreements
or from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any of the other Financing Agreements (collectively, “Other
Taxes”).

 

(d)          Each Borrower and Guarantor shall indemnify
Lender for the full amount of Taxes and Other Taxes (including any Taxes and
Other Taxes imposed by any jurisdiction on amounts payable under this Section 6.5)
paid by Lender and any liability (including for penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted.  This indemnification shall be made within
thirty (30) days from the date Lender makes written demand therefor.  A certificate as to the amount of such
payment or liability delivered to Administrative Borrower by Lender shall be
conclusive absent manifest error.

 

(e)            As
soon as practicable after any payment of Taxes or Other Taxes by any Borrower
or Guarantor, such Borrower or Guarantor shall furnish to Lender, at its
address referred to herein, the original or a certified copy of a receipt
evidencing payment thereof.

 

(f)            Without
prejudice to the survival of any other agreements of any Borrower or Guarantor
hereunder or under any of the other Financing Agreements, the agreements and
obligations of such Borrower or Guarantor contained in this Section 6.5
shall survive the termination of this Agreement and the payment in full of the
Obligations.

 

53

 

6.6           Authorization to Make Loans and Provide
Letters of Credit.  Lender is
authorized to make the Loans and provide the Letters of Credit based upon
telephonic or other instructions received from anyone purporting to be an
officer of Administrative Borrower or any Borrower or other authorized person
or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations.  All requests for Loans or Letters of Credit
hereunder shall specify the date on which the requested extension of credit is
to be made or provided (which day shall be a Business Day) and the amount of
the requested Loan.  Requests received
after 11:00 a.m. Los Angeles time on any day shall be deemed to have been
made as of the opening of business on the immediately following Business
Day.  All Loans and Letters of Credit
under this Agreement shall be conclusively presumed to have been made to, and
at the request of and for the benefit of, any Borrower or Guarantor when
deposited to the credit of any Borrower or Guarantor or otherwise disbursed or
established in accordance with the instructions of any Borrower or Guarantor or
in accordance with the terms and conditions of this Agreement.

 

6.7           Use of Proceeds.  Borrowers shall use the initial proceeds of
the Loans and Letters of Credit hereunder only for:  (a) payments to each of the persons
listed in the disbursement direction letter furnished by Borrowers to Lender on
or about the date hereof and (b) costs, expenses and fees in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, the other Financing Agreements and the Purchase Agreements.  All other Loans made or Letters of Credit
provided to or for the benefit of any Borrower pursuant to the provisions
hereof shall be used by such Borrower only for general operating, working
capital and other proper corporate purposes of such Borrower not otherwise prohibited
by the terms hereof.  None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a “purpose credit” within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.

 

6.8           Appointment of Administrative Borrower as
Agent for Requesting Loans and Receipts of Loans and Statements.

 

(a)           Each Borrower hereby
irrevocably appoints and constitutes Administrative Borrower as its agent and
attorney-in-fact to request and receive Loans and Letters of Credit pursuant to
this Agreement and the other Financing Agreements from Lender in the name or on
behalf of such Borrower.  Lender may
disburse the Loans to such bank account of Administrative Borrower or a
Borrower or otherwise make such Loans to a Borrower and provide such Letters of
Credit to a Borrower as Administrative Borrower may designate or direct,
without notice to any other Borrower or Guarantor.  Notwithstanding anything to the contrary
contained herein, Lender may at any time and from time to time require that
Loans to or for the account of any Borrower be disbursed directly to an
operating account of such Borrower.

 

(b)           Administrative Borrower
hereby accepts the appointment by Borrowers to act as the agent and
attorney-in-fact of Borrowers pursuant to this Section 6.8. Administrative

 

54

 

Borrower shall ensure that the
disbursement of any Loans to each Borrower requested by or paid to or for the
account of  Parent, or the issuance of
any Letter of Credit for a Borrower hereunder, shall be paid to or for the
account of such Borrower.

 

(c)                                  Each
Borrower and other Guarantor hereby irrevocably appoints and constitutes
Administrative Borrower as its agent to receive statements on account and all
other notices from Lender with respect to the Obligations or otherwise under or
in connection with this Agreement and the other Financing Agreements.

 

(d)                                 Any
notice, election, representation, warranty, agreement or undertaking by or on
behalf of any other Borrower or any Guarantor by Administrative Borrower shall
be deemed for all purposes to have been made by such Borrower or Guarantor, as
the case may be, and shall be binding upon and enforceable against such
Borrower or Guarantor to the same extent as if made directly by such Borrower
or Guarantor.

 

(e)                                  No
purported termination of the appointment of Administrative Borrower as agent as
aforesaid shall be effective, except after ten (10) days’ prior written
notice to Lender.

 

6.9                                 Bank
Products.  Any Borrower or Guarantor
may (but no such Person is required to) request that Lender or any Affiliate of
Lender provide or arrange for such Person to obtain Bank Products from Lender
or such Affiliate, and Lender or such Affiliate may, in its sole discretion,
provide or arrange for such Borrower or Guarantor to obtain the requested Bank
Products.  Borrower acknowledges and
agrees that the obtaining of Bank Products from Lender or its Affiliates (a) is
in the sole discretion of Lender or such Affiliate, and (b) is subject to
all rules and regulations of Lender or such Affiliate with respect
thereto.

 

SECTION  7.        COLLATERAL
REPORTING AND COVENANTS

 

7.1                                 Collateral Reporting.

 

(a)                                  Borrowers
shall provide Lender with the following documents in a form reasonably
satisfactory to Lender:

 

(i)                                     as
soon as possible after the end of each week (but in any event within three (3) Business
Days after the end thereof), on a weekly basis, or more frequently as Lender
may request if an Event of Default shall exist or have occurred and is
continuing: (A) schedules of sales made, credits issued and cash received,
(B) perpetual inventory reports, (C) report of quantity of green
coffee included in Inventory, and (D) a Borrowing Base Certificate setting
forth the calculation of the Borrowing Base as of the last Business Day of the
immediately preceding week, duly completed and executed by the chief financial
officer, vice president of finance, treasurer or controller of Borrowers,
together with all schedules required pursuant to the terms of the Borrowing
Base Certificate duly completed;

 

55

 

(ii)                                  as
soon as possible after the end of each month (but in any event within ten (10) days
after the end thereof), on a monthly basis or more frequently as Lender may
request if an Event of Default shall exist or have occurred and is continuing, (A) agings
of accounts receivable together with a reconciliation to the previous month’s
aging and general ledger), (B) agings of accounts payable (and including
information indicating the amounts owing to owners and lessors of leased
premises, warehouses, processors and other third parties from time to time in
possession of any Collateral); (C) schedules of sales made, credits issued
and cash received, (D) inventory reports by location and category (and
including the amounts of Inventory and the value thereof at, any leased
locations and at premises of warehouses, processors or other third parties), (E) report
of quantity of green coffee included in Inventory, and (F) a Borrowing
Base Certificate setting forth the calculation of the Borrowing Base as of the
last Business Day of the immediately preceding month, duly completed and
executed by the chief financial officer, vice president of finance, treasurer
or controller of Borrowers, together with all schedules required pursuant to
the terms of the Borrowing Base Certificate duly completed

 

(iii)                               upon
Lender’s request, (A) copies of customer statements, purchase orders,
sales invoices, credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery documents,
and (C) copies of purchase orders, invoices and delivery documents for
Inventory and Equipment acquired by any Borrower or Guarantor;

 

(iv)                              such
other reports as to the Collateral as Lender shall reasonably request from time
to time.

 

(b)                                 Nothing
contained in any Borrowing Base Certificate shall be deemed to limit, impair or
otherwise affect the rights of Lender contained herein and in the event of any
conflict or inconsistency between the calculation of the Borrowing Base as set
forth in any Borrowing Base Certificate and as determined by Lender in good
faith, the determination of Lender shall govern and, absent manifest error, be
conclusive and binding upon Borrowers and Guarantors. Without limiting the
foregoing, Borrowers shall furnish to Lender any information which Lender may
reasonably request regarding the determination and calculation of any of the
amounts set forth in any Borrowing Base Certificate.  Subject to the limitations set forth herein,
the Borrowing Base may be adjusted based on the information received by Lender
pursuant to this Agreement.  If any
Borrower’s or Guarantor’s records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent, such
Borrower and Guarantor hereby irrevocably authorizes such service, contractor,
shipper or agent to deliver such records, reports, and related documents to
Lender and to follow Lender’s instructions with respect to further services at
any time that an Event of Default exists or has occurred and is continuing.

 

56

 

7.2                                 Accounts Covenants.

 

(a)                                  Borrowers
shall notify Lender promptly of: (i) any material delay in any Borrower’s
performance of any of its material obligations to any account debtor (to the
extent the Accounts owed by any such account debtor to such Borrower exceeds
$250,000), or the assertion of any material claims, offsets, defenses or
counterclaims by any account debtor, or any material disputes with account
debtors, or any settlement, adjustment or compromise thereof, (ii) all
material adverse information known to any Borrower or Guarantor relating to the
financial condition of any account debtor (to the extent the Accounts owed by
any such account debtor to such Borrower exceeds $250,000) and (iii) any
event or circumstance which, to the best of any Borrower’s or Guarantor’s
knowledge, would cause Lender to consider any then existing Accounts as no
longer constituting Eligible Accounts (to the extent the Accounts owed by any
such account debtor to such Borrower exceeds $250,000).  No credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account debtor
without Lender’s consent, except as reported to Lender in accordance with this
Agreement and except for credits, discounts, allowances or extensions made or
given in the ordinary course of a Borrower’s or Guarantor’s business in
accordance with practices and policies previously disclosed in writing to
Lender and except as set forth in the schedules delivered to Lender pursuant to
Section 7.1(a) above.  So long
as no Event of Default exists or has occurred and is continuing, Borrowers and
Guarantors shall settle, adjust or compromise any claim, offset, counterclaim
or dispute with any account debtor.  At
any time that an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle, adjust or
compromise any claim, offset, counterclaim or dispute with account debtors or
grant any credits, discounts or allowances.

 

(b)                                 With
respect to each Account: (i) the amounts shown on any invoice delivered to
Lender or schedule thereof delivered to Lender shall be true and complete, (ii) no
payments shall be made thereon except payments remitted in accordance with Section 6.4
hereof, (iii) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Lender in accordance with the terms of this Agreement, (iv) none
of the transactions giving rise thereto will violate any applicable foreign,
Federal, State or local laws or regulations, all documentation relating thereto
will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws limiting creditors’ rights generally
and by general equitable principles.

 

(c)                                  Lender
shall have the right at any time or times, in Lender’s name or in the name of a
nominee of Lender, to verify the validity, amount or any other matter relating
to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.

 

7.3                                 Inventory Covenants.  With respect to the Inventory: (a) each
Borrower and Guarantor shall at all times maintain inventory records reasonably
satisfactory to Lender, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, such Borrower’s
or Guarantor’s cost therefor and daily withdrawals

 

57

 

therefrom and additions thereto; (b) Borrowers
and Guarantors shall conduct a physical count of the Inventory either through
periodic cycle counts or wall to wall counts so that at least ninety-five (95%)
of all Inventory is subject to such counts at least once each year during the
term hereof but at any time or times as Lender may request on or after an Event
of Default and for so long as the same is continuing, and promptly following
such physical inventory (whether through periodic cycle counts or wall to wall
counts) shall supply Lender with a report in the form and with such specificity
as may be reasonably satisfactory to Lender concerning such physical count; (c) Borrowers
and Guarantors shall not remove any Inventory from the locations set forth or
permitted herein, without the prior written consent of Lender, except for sales
of Inventory in the ordinary course of its business and except to move
Inventory directly from one location set forth or permitted herein to another
such location and except for Inventory shipped from the manufacturer thereof to
such Borrower or Guarantor which is in transit to the locations set forth or
permitted herein; (d) upon Lender’s request, Borrowers shall, (i) at
their expense, no more than two (2) times in any twelve (12) month period,
(ii) at their expense one (1) additional time at any time that Excess
Availability is less than $10,000,000, (iii) at Lender’s expense, two (2) further
additional times, as Lender may request in such twelve (12) month period and (iv) at
any time or times at Borrowers’ expense as Lender may request if a Default or
Event of Default shall exist or have occurred and be continuing, deliver or
cause to be delivered to Lender written appraisals as to the Inventory in form,
scope and methodology reasonably acceptable to Lender and by an appraiser
reasonably acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (e) Borrowers and Guarantors shall produce,
use, store and maintain the Inventory with all reasonable care and caution and
in accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) none of the Inventory or other Collateral constitutes farm products or
the proceeds thereof; (g) each Borrower and Guarantor assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (h) Borrowers and Guarantors
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate any Borrower or Guarantor to
repurchase such Inventory, except for the right to return given to customers of
Borrowers in the ordinary course of the business of Borrowers in accordance
with the then current return policy of Borrowers; (i) Borrowers and
Guarantors shall keep the Inventory in good and marketable condition (subject
to Borrowers’ normal reserves for damaged and defective Inventory); and (j) Borrowers
and Guarantors shall not, without prior written notice to Lender or the
specific identification of such Inventory in a report with respect thereto
provided by Administrative Borrower to Lender pursuant to Section 7.1(a) hereof,
acquire or accept any Inventory on consignment or approval.

 

7.4                                 Equipment and Real Property Covenants.  With respect to the Equipment and Real
Property:  (a) Borrowers and
Guarantors shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (b) Borrowers and
Guarantors shall use the Equipment and Real Property with all reasonable care
and caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws; (c) the

 

58

 

Equipment (other than cars owned by any Borrower and in use by
employees of such Borrower) is and shall be used in the business of Borrowers
and Guarantors and not for personal, family, household or farming use; (d) Borrowers
and Guarantors shall not remove any Equipment from the locations set forth or
permitted herein, except to the extent expressly permitted under this Agreement
or to the extent necessary to have any Equipment repaired or maintained in the
ordinary course of its business or to move Equipment directly from one location
set forth or permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of such Borrower or
Guarantor in the ordinary course of business; (e) the Equipment is now and
shall remain personal property and Borrowers and Guarantors shall not permit
any of the Equipment to be or become a part of or, except for removable trade
fixtures, affixed to real property; and (f) each Borrower and Guarantor
assumes all responsibility and liability arising from the use of the Equipment
and Real Property.

 

7.5                                 Power of Attorney.  Each Borrower and Guarantor hereby
irrevocably designates and appoints Lender (and all persons designated by
Lender) as such Borrower’s and Guarantor’s true and lawful attorney-in-fact,
and authorizes Lender, in such Borrower’s, Guarantor’s or Lender’s name, to: (a) at
any time an Event of Default exists or has occurred and is continuing (i) demand
payment on Receivables or other Collateral, (ii) enforce payment of Receivables
by legal proceedings or otherwise, (iii) exercise all of such Borrower’s
or Guarantor’s rights and remedies to collect any Receivable or other
Collateral, (iv) sell or assign any Receivable upon such terms, for such
amount and at such time or times as Lender deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release
any Receivable, (vii) prepare, file and sign such Borrower’s or Guarantor’s
name on any proof of claim in bankruptcy or other similar document against an
account debtor or other obligor in respect of any Receivables or other
Collateral, (viii) notify the post office authorities to change the
address for delivery of remittances from account debtors or other obligors in
respect of Receivables or other proceeds of Collateral to an address designated
by Lender, and open and dispose of all mail addressed to such Borrower or
Guarantor and handle and store all mail relating to the Collateral; and (ix) do
all acts and things which are reasonably necessary, in Lender’s determination,
to fulfill such Borrower’s or Guarantor’s obligations under this Agreement and
the other Financing Agreements and (b) at any time after the occurrence of
a Cash Dominion Event to (i) take control in any manner of any item of payment
in respect of Receivables or constituting Collateral or otherwise received in
or for deposit in the Concentration Accounts or otherwise received by Lender, (ii) have
access to any lockbox or postal box into which remittances from account debtors
or other obligors in respect of Receivables or other proceeds of Collateral are
sent or received, if after the occurrence of a Cash Dominion Event, (iii) endorse
such Borrower’s or Guarantor’s name upon any items of payment in respect of
Receivables or constituting Collateral or otherwise received by Lender and
deposit the same in Lender’s account for application to the Obligations, (iv) endorse
such Borrower’s or Guarantor’s name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any
Receivable or any goods pertaining thereto or any other Collateral, including
any warehouse or other receipts, or bills of lading and other negotiable or
non-negotiable documents, (v) clear Inventory the purchase of which was
financed with a Letter of Credit through U.S. Customs or foreign export 

 

59

 

control authorities in such Borrower’s or
Guarantor’s name, Lender’s name or the name of Lender’s designee, and to sign
and deliver to customs officials powers of attorney in such Borrower’s or
Guarantor’s name for such purpose, and to complete in such Borrower’s or
Guarantor’s or Lender’s name, any order, sale or transaction, obtain the
necessary documents in connection therewith and collect the proceeds thereof,
and (vi) sign such Borrower’s or Guarantor’s name on any verification of
Receivables and notices thereof to account debtors or any secondary obligors or
other obligors in respect thereof.  Each
Borrower and Guarantor hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender’s own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.

 

7.6                                 Right to Cure.  Lender may, at its option, upon notice to
Administrative Borrower, (a) cure any default by any Borrower or Guarantor
under any material agreement with a third party that affects the Collateral,
its value or the ability of Lender to collect, sell or otherwise dispose of the
Collateral or the rights and remedies of Lender therein or the ability of any
Borrower or Guarantor to perform its obligations hereunder or under any of the
other Financing Agreements, (b) pay or bond on appeal any judgment entered
against any Borrower or Guarantor, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral, and (d) pay any amount, incur any expense or perform
any act which, in Lender’s reasonable judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto.  Lender may add any
amounts so expended to the Obligations and charge any Borrower’s account
therefor, such amounts to be repayable by Borrowers on demand.  Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of any Borrower or Guarantor.  Any payment made or other action taken by
Lender under this Section shall be without prejudice to any right to
assert an Event of Default hereunder and to proceed accordingly.

 

7.7                                 Access to Premises.  From time to time as requested by Lender, at
the cost and expense of Borrowers, (a) Lender or its designee shall have
complete access to all of each Borrower’s and Guarantor’s premises during
normal business hours and after notice to Parent, or at any time and without
notice to Administrative Borrower if an Event of Default exists or has occurred
and is continuing, for the purposes of inspecting, verifying and auditing the
Collateral and all of each Borrower’s and Guarantor’s books and records,
including the Records, and (b) each Borrower and Guarantor shall promptly
furnish to Lender such copies of such books and records or extracts therefrom
as Lender may reasonably request, and (c) Lender or Lender’s designee may
use during normal business hours such of any Borrower’s and Guarantor’s
personnel, equipment, supplies and premises as may be reasonably necessary for
the foregoing and if an Event of Default exists or has occurred and is
continuing for the collection of Receivables and realization of other
Collateral.  Lender may conduct up to
four (4) field examinations with respect to the Collateral in each
consecutive twelve (12) month period after the date of this Agreement at the
expense of Borrowers and such other field examinations as

 

60

 

Lender may reasonably require at its expense
and at any time upon the occurrence and during the continuance of an any Event
of Default at the expense of Borrowers.

 

SECTION  8.        REPRESENTATIONS
AND WARRANTIES

 

Each Borrower
and Guarantor hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement):

 

8.1                                 Corporate or Limited Liability Company
Existence, Power and Authority.  Each
Borrower and Guarantor is a corporation or limited liability company duly
organized and in good standing under the laws of its jurisdiction of
organization and is duly qualified as a foreign corporation or limited
liability company and in good standing in all states or other jurisdictions
where the nature and extent of the business transacted by it or the ownership
of assets makes such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect.  The execution, delivery and performance of
this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder (a) are all within each Borrower’s
and Guarantor’s corporate or limited liability powers, as applicable, (b) 
have been duly authorized, (c) are not in contravention of law or the
terms of any Borrower’s or Guarantor’s certificate of incorporation, by-laws,
or other organizational documentation, (d) are not in contravention of the
terms of or any indenture, agreement or undertaking to which any Borrower or
Guarantor is a party or by which any Borrower or Guarantor or its property are
bound and (e) will not result in the creation or imposition of, or require
or give rise to any obligation to grant, any lien, security interest, charge or
other encumbrance upon any property of any Borrower or Guarantor, except for
security interests and liens expressly permitted by Section 9.8
hereof.  This Agreement and the other
Financing Agreements to which any Borrower or Guarantor is a party constitute
legal, valid and binding obligations of such Borrower and Guarantor enforceable
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar law
limiting creditors’ rights generally and by general equitable principles.

 

8.2                                 Name; State of Organization; Chief Executive
Office; Collateral Locations.

 

(a)                                  The
exact legal name of each Borrower and Guarantor is as set forth on the
signature page of this Agreement and in the Information Certificate.  No Borrower or Guarantor has, during the five
years prior to the date of this Agreement, been known by or used any other
corporate or fictitious name or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or acquired any
of its property or assets out of the ordinary course of business, except for
the Acquisition and as set forth in the Information Certificate.

 

(b)                                 Each
Borrower and Guarantor is an organization of the type and organized in the
jurisdiction set forth in the Information Certificate.  The Information Certificate accurately sets
forth the organizational identification number of each Borrower and Guarantor
or accurately 

 

61

 

states that such Borrower or Guarantor has
none and accurately sets forth the federal employer identification number of
each Borrower and Guarantor.

 

(c)                                  The chief executive
office and mailing address of each Borrower and Guarantor and each Borrower’s
and Guarantor’s Records concerning Accounts are located only at the address
identified as such in Schedule 8.2 to the Information Certificate and its only
other places of business and the only other locations of Collateral, if any,
are the addresses set forth in Schedule 8.2 to the Information Certificate,
subject to the rights of any Borrower or Guarantor to establish new locations
in accordance with Section 9.2 below and other than Collateral in transit
to any such locations.  The Information
Certificate correctly identifies any of such locations which are not owned by a
Borrower or Guarantor and sets forth the owners and/or operators thereof.

 

8.3                                 Financial Statements; No Material Adverse
Change.  All financial statements
relating to any Borrower or Guarantor which have been or may hereafter be
delivered by any Borrower or Guarantor to Lender have been prepared in
accordance with GAAP (except as to any interim financial statements, to the
extent such statements are subject to normal year-end adjustments and do not
include any notes) and fairly present in all material respects the financial
condition and the results of operation of such Borrower and Guarantor as at the
dates and for the periods set forth therein. 
Except as disclosed in any interim financial statements furnished by
Borrowers and Guarantors to Lender prior to the date of this Agreement, there
has been no act, condition or event which has had or is reasonably likely to
have a Material Adverse Effect since the date of the most recent audited
financial statements of any Borrower or Guarantor furnished by any Borrower or
Guarantor to Lender prior to the date of this Agreement.  The projections dated December 31, 2008
for each month from the date hereof through and including June 30, 2010
that have been delivered to Lender or any projections hereafter delivered to
Lender have been prepared in light of the past operations of the businesses of
Borrowers and Guarantors and are based upon estimates and assumptions stated
therein, all of which Borrowers and Guarantors have determined to be reasonable
and fair in light of the then current conditions and current facts and reflect
the good faith and reasonable estimates of Borrowers and Guarantors of the
future financial performance of Parent and its Subsidiaries and of the other
information projected therein for the periods set forth therein.  The execution and delivery of the Purchase
Agreements and the consummation of the transactions contemplated thereby do not
and will not result in (a) any violation by any Borrower or Guarantor of
any provisions of the Worker Adjustment and Retraining Notification Act or (b) any
liability to any Borrower or Guarantor under such Act which would be reasonably
expected to have a Material Adverse Effect.

 

8.4                                 Priority of Liens; Title to Properties.  The security interests and liens granted to
Lender under this Agreement and the other Financing Agreements constitute valid
and perfected first priority liens and security interests in and upon the
Collateral subject only to the liens indicated on Schedule 8.4 to the
Information Certificate and the other liens permitted under Section 9.8
hereof.  Each Borrower and Guarantor has
good and marketable fee simple title to or valid leasehold interests in all of
its Real Property and good, valid and merchantable title to all of 

 

62

 

its other properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 to the Information Certificate or permitted under Section 9.8
hereof.

 

8.5                                 Tax Returns.  Each Borrower and Guarantor has filed, or
caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it.  All information in such tax returns, reports
and declarations is complete and accurate in all material respects.  Each Borrower and Guarantor has paid or
caused to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Guarantor and with respect to which adequate
reserves have been set aside on its books. 
Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not
yet due and payable and whether or not disputed.

 

8.6                                 Litigation.  Except as set forth on Schedule 8.6 to the
Information Certificate, (a) there is no investigation by any Governmental
Authority pending, or to the best of any Borrower’s or Guarantor’s knowledge
threatened, against or affecting any Borrower or Guarantor, its or their assets
or business or the Purchased Assets and (b) there is no action, suit,
proceeding or claim by any Person pending, or to the best of any Borrower’s or
Guarantor’s knowledge threatened, against any Borrower or Guarantor or its or
their assets or goodwill or the Purchased Assets, or against or affecting any
transactions contemplated by this Agreement or the Purchase Agreements, in each
case, which if adversely determined against such Borrower or Guarantor has or
could reasonably be expected to have a Material Adverse Effect.

 

8.7                                 Compliance with Other Agreements and
Applicable Laws.

 

(a)                                  Borrowers
and Guarantors are not in default in any respect under, or in violation in any
respect of the terms of, any material agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound, except where such default or violation would not be reasonably expected
to have a Material Adverse Effect.  Borrowers
and Guarantors are in compliance with the requirements of all applicable laws,
rules, regulations and orders of any Governmental Authority relating to their
respective businesses, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, and all Environmental
Laws, in each case except where the failure to so comply would not be
reasonably expected to have a Material Adverse Effect.

 

(b)                                 Borrowers
and Guarantors have obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any Governmental Authority
required for the lawful conduct of its business (the “Permits”), except to the
extent the failure to so obtain would not reasonably be expected to have a
Material Adverse Effect.  All of the

 

63

 

Permits are valid and subsisting and in full
force and effect.  There are no actions,
claims or proceedings pending or to the best of any Borrower’s or Guarantor’s
knowledge, threatened that seek the revocation, cancellation, suspension or
modification of any of the Permits.

 

8.8                                 Environmental Compliance.

 

(a)                                  Except
as set forth on Schedule 8.8 to the Information Certificate, Borrowers,
Guarantors and any Subsidiary of any Borrower or Guarantor have not generated,
used, stored, treated, transported, manufactured, handled, produced or disposed
of any Hazardous Materials, on or off its premises (whether or not owned by it)
in any manner which at any time violates in any material respect any applicable
Environmental Law or Permit, and the operations of Borrowers, Guarantors and any
Subsidiary of any Borrower or Guarantor complies in all material respects with
all Environmental Laws and all Permits, except for such non-compliance which
could not be reasonably expected to result in a Material Adverse Effect.

 

(b)                                 Except
as set forth on Schedule 8.8 to the Information Certificate, there has been no
investigation by any Governmental Authority or any proceeding, complaint,
order, directive, claim, citation or notice by any Governmental Authority or
any other person nor is any pending or to the best of any Borrower’s or
Guarantor’s knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any Environmental Law by any Borrower or
Guarantor and any Subsidiary of any Borrower or Guarantor or the release, spill
or discharge, threatened or actual, of any Hazardous Material or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials or any other environmental,
health or safety matter, which in any case could reasonably be expected to
result in a Material Adverse Effect.

 

(c)                                  Except
as set forth on Schedule 8.8 to the Information Certificate, Borrowers,
Guarantors and their Subsidiaries have no material liability (contingent or
otherwise) in connection with a release, spill or discharge, threatened or
actual, of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials which in any case could reasonably be expected to result in a
Material Adverse Effect.

 

(d)                                 Borrowers,
Guarantors and their Subsidiaries have all Permits required to be obtained or
filed in connection with the operations of Borrowers and Guarantors under any
Environmental Law, except where the failure to maintain or have such Permits
could not reasonably be expected to result in a Material Adverse Effect, and
all of such licenses, certificates, approvals or similar authorizations and
other Permits are valid and in full force and effect.

 

8.9                                 Employee Benefits.

 

(a)                                  Each
Plan is in compliance in all material respects with the applicable provisions
of ERISA, the Code and other Federal or State law.  Each Plan which is intended to

 

64

 

qualify under Section 401(a) of
the Code has received a favorable determination letter from the Internal
Revenue Service and to the best of any Borrower’s or Guarantor’s knowledge,
nothing has occurred which would cause the loss of such qualification.  Each Borrower and its ERISA Affiliates have
made all required contributions to any Plan subject to Section 412 or Section 430
of the Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 or Section 430 of the
Code has been made with respect to any Plan.

 

(b)                                 There
are no pending, or to the best of any Borrower’s or Guarantor’s knowledge,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan. 
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan, which could be reasonably
expected to subject any Borrower or Guarantor to liability in excess of
$250,000.

 

(c)                                  (i) 
No ERISA Event has occurred or is reasonably expected to occur; (ii) based
on the latest valuation of each Pension Plan and on the actuarial methods and
assumptions employed for such valuation (determined in accordance with the
assumptions used for funding such Pension Plan pursuant to Section 412 or
430 of the Code), each Plan is in compliance with the minimum funding
requirements of Section 412 and 430 of the Code; (iii) each Borrower
and Guarantor, and their ERISA Affiliates, have not incurred and do not
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Plan (other than premiums due and not delinquent under Section 4007
of ERISA); (iv) each Borrower and Guarantor, and their ERISA Affiliates,
have not incurred and do not reasonably expect to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Section 4201 or 4243 of ERISA
with respect to a Multiemployer Plan; and (v) each Borrower and Guarantor,
and their ERISA Affiliates, have not engaged in a transaction that would be
subject to Section 4069 or 4212(c) of ERISA.

 

8.10                           Bank Accounts.  All of the deposit accounts, investment
accounts or other accounts in the name of or used by any Borrower or Guarantor
maintained at any bank or other financial institution are set forth on Schedule
8.10 to the Information Certificate, subject to the right of each Borrower and
Guarantor to establish new accounts in accordance with Section 5.2 hereof.

 

8.11                           Intellectual Property.  Each Borrower and Guarantor owns or licenses
or otherwise has the right to use all Intellectual Property necessary for the
operation of its business as presently conducted or proposed to be conducted.  As of the date hereof, Borrowers and
Guarantors do not have any Intellectual Property registered, or subject to
pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States of America, any State thereof,
any political subdivision thereof or in any other country, other than those
described in Schedule 8.11 to the Information Certificate and has not granted
any licenses with respect thereto other than as set forth in Schedule 8.11 to
the Information Certificate.  No event
has occurred which permits or would permit after notice or passage of time or
both, the revocation, suspension or termination of such rights.  To the best of any Borrower’s and Guarantor’s
knowledge, no slogan or other advertising device, product, process, method,

 

65

 

substance or other Intellectual Property or
goods bearing or using any Intellectual Property presently contemplated to be
sold by or employed by any Borrower or Guarantor infringes any patent,
trademark, servicemark, tradename, copyright, license or other Intellectual
Property owned by any other Person presently and no claim or litigation is
pending or threatened against or affecting any Borrower or Guarantor contesting
its right to sell or use any such Intellectual Property.  Schedule 8.11 to the Information Certificate
sets forth all of the agreements or other arrangements of each Borrower and
Guarantor pursuant to which such Borrower or Guarantor has a license (other
than commercially available off-the-shelf software) or other right to use any
trademarks, logos, designs, representations or other Intellectual Property
owned by another person as in effect on the date hereof and the dates of the
expiration of such agreements or other arrangements of such Borrower or
Guarantor as in effect on the date hereof (collectively, together with such
agreements or other arrangements as may be entered into by any Borrower or
Guarantor after the date hereof, collectively, the “License Agreements” and
individually, a “License Agreement”).  No
trademark, servicemark, copyright or other Intellectual Property at any time
used by any Borrower or Guarantor which is owned by another person, or owned by
such Borrower or Guarantor subject to any security interest, lien, collateral
assignment, pledge or other encumbrance in favor of any person other than
Lender, is affixed to any Eligible Inventory, except (a)  to the extent
permitted under the term of the license agreements listed on Schedule 8.11 to
the Information Certificate and (b) to the extent the sale of Inventory to
which such Intellectual Property is affixed is permitted to be sold by such
Borrower or Guarantor under applicable law (including the United States
Copyright Act of 1976).

 

8.12                           Subsidiaries; Affiliates; Capitalization; Solvency.

 

(a)                                  Each
Borrower and Guarantor does not have any direct or indirect Subsidiaries or
Affiliates and is not engaged in any joint venture or partnership except as set
forth in Schedule 8.12 to the Information Certificate.

 

(b)                               Each Borrower and Guarantor
is the record and beneficial owner of all of the issued and outstanding shares
of Capital Stock of each of the Subsidiaries listed on Schedule 8.12 to the
Information Certificate as being owned by such Borrower or Guarantor and there
are no proxies, irrevocable or otherwise, with respect to such shares and no
equity securities of any of the Subsidiaries are or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any kind or nature and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is or may become bound
to issue additional shares of it Capital Stock or securities convertible into
or exchangeable for such shares.

 

(c)                                  The
issued and outstanding shares of Capital Stock of each Borrower and Guarantor
are directly and beneficially owned and held by the persons indicated in the
Information Certificate, and in each case all of such shares have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Lender prior to the date hereof.

 

66

 

(d)                                 Each
Borrower and Guarantor is Solvent and will continue to be Solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder and under the Purchase Agreements.

 

(e)                                  The
Inactive Subsidiary does not have any material liabilities, is not engaged in
any business or commercial activities, does not own any assets with a book
value of more than $100,000 in the aggregate and is not obligated or liable,
directly or indirectly, contingently or otherwise, in respect of any material
Indebtedness or other material obligations.

 

8.13                           Labor Disputes.

 

(a)                                  Set
forth on Schedule 8.13 to the Information Certificate is a list (including
dates of termination) of all collective bargaining or similar agreements
between or applicable to each Borrower and Guarantor and any union, labor
organization or other bargaining agent in respect of the employees of any
Borrower or Guarantor on the date hereof.

 

(b)                                 There
is (i) no material unfair labor practice complaint pending against any
Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
knowledge, threatened against it, before the National Labor Relations Board,
and no significant grievance or significant arbitration proceeding arising out
of or under any collective bargaining agreement is pending on the date hereof
against any Borrower or Guarantor or, to best of any Borrower’s or Guarantor’s
knowledge, threatened against it, and (ii) no material strike, labor
dispute, slowdown or stoppage is pending against any Borrower or Guarantor
or, to the best of any Borrower’s or Guarantor’s knowledge, threatened against
any Borrower or Guarantor.

 

8.14                           Restrictions on Subsidiaries.  Except
for restrictions contained in this Agreement or any other agreement with
respect to Indebtedness of any Borrower or Guarantor permitted hereunder as in
effect on the date hereof, there are no contractual or consensual restrictions
on any Borrower or Guarantor or any of its Subsidiaries which prohibit or
otherwise restrict (a) the transfer of cash or other assets (i) between
any Borrower or Guarantor and any of its or their Subsidiaries or (ii) between
any Subsidiaries of any Borrower or Guarantor or (b) the ability of any
Borrower or Guarantor or any of its or their Subsidiaries to incur Indebtedness
or grant security interests to Lender in the Collateral.

 

8.15                           Material Contracts.  Schedule
8.15 to the Information Certificate sets forth all Material Contracts to which
any Borrower or Guarantor is a party or is bound as of the date hereof.  Borrowers and Guarantors have delivered true,
correct and complete copies of such Material Contracts to Lender on or before
the date hereof.  Borrowers and
Guarantors are not in breach or in default in any material respect of or under
any Material Contract and have not received any notice of the intention of any
other party thereto to terminate any Material Contract.

 

8.16                           Payable Practices.  Each
Borrower and Guarantor have not made any material change in the historical
accounts payable practices from those in effect immediately prior to the date
hereof.

 

67

 

8.17                           OFAC.  None of Borrower, any Subsidiary of Borrower
or any Affiliate of Borrower: (a) is a Sanctioned Person, (b) has
more than ten (10%) percent of its assets in Sanctioned Entities, or (c) derives
more than ten (10%) percent of its operating income from investments in, or
transactions with Sanctioned Persons or Sanctioned Entities.  The proceeds of any Loan will not be used and
have not been used to fund any operations in, finance any investments or
activities in, or make any payments to, a Sanctioned Person or a Sanctioned
Entity.

 

8.18                           Acquisition
of Purchased Assets.

 

(a)                                  The Purchase
Agreements and the transactions contemplated thereunder have been duly
executed, delivered and performed in accordance with their terms by the
respective parties thereto in all respects, including the fulfillment (not
merely the waiver, except as may be disclosed to Lender and consented to in
writing by Lender) of all conditions precedent set forth therein and giving
effect to the terms of the Purchase Agreements and the assignments to be
executed and delivered by Sellers (or any of their respective affiliates or
subsidiaries) thereunder, Borrowers acquired and have good and marketable title
to the Purchased Assets, free and clear of all claims, liens, pledges and
encumbrances of any kind, except as permitted hereunder.

 

(b)                               All actions and
proceedings, required by the Purchase Agreements, applicable law or regulation
(including, but not limited to, compliance with the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976, as amended) have been taken and the
transactions required thereunder have been duly and validly taken and
consummated.

 

(c)                                  No court of competent
jurisdiction has issued any injunction, restraining order or other order which
prohibits consummation of the transactions described in the Purchase Agreements
and no governmental or other action or proceeding has been threatened or
commenced, seeking any injunction, restraining order or other order which seeks
to void or otherwise modify the transactions described in the Purchase
Agreements.

 

(d)                               Borrowers have
delivered, or caused to be delivered, to Lender, true, correct and complete
copies of the Purchase Agreements.

 

8.19                           ESOP/ESOT.

 

(a)                                  The ESOP is an “employee
stock ownership plan” (as defined in Section 4975(e)(7) of the Code
and Section 407(d)(6) of ERISA) and is qualified under Section 401(a) of
the Code.  The ESOP has been established,
and is operated in compliance with, all applicable Laws, including the Code and
ERISA.

 

(b)                               The ESOT has been duly
constituted in accordance with the ESOT Trust Agreement and pursuant to the
ESOP; is duly and validly existing under the Laws of the State of California as
a trust (it being understood that the ESOT is not a business trust), is duly
qualified

 

68

 

under Section 401(a) of the Code
and is tax-exempt under Section 501(a) of the Code.  The ESOT has been established, and is
operated in compliance in all material respects with all applicable laws, rules and
regulations of any applicable Governmental Authority, including the Code and
ERISA.

 

(c)                                  The execution,
delivery and performance by the ESOT of the ESOP Documents and continued
holding of ESOP Shares by the ESOT and the administration of the ESOP and the
ESOT pursuant to the ESOP Documents: (i) are within the ESOP’s and ESOT’s
powers and have been duly authorized by all necessary action; (ii) require
no action by or in respect of, or filing with, any Governmental Authority
(other than those duly obtained prior to the date hereof and that are in full
force and effect and routine filings subsequent to the date hereof pursuant to
reporting requirements of ERISA); (iii) do not contravene, or constitute a
default under, any provision of laws, rules and regulations of any
applicable Governmental Authority or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the ESOP or ESOT; (iv) does
not result in the creation or imposition of any lien, security interest, claim,
charge or other encumbrance on any asset of the ESOP or ESOT (other than as
contemplated by the ESOP Documents); and (v) does not result in any tax
under Section 4975 of the Code.

 

(d)                               No Borrower or Guarantor
shall amend, modify, change, agree to any amendment, modification or other
change to (or make any payment consistent with any amendment or other change
to) or waive any of its rights under any of the ESOP Documents in any manner
which would adversely affect, or could reasonably be expected to adversely
affect, the Obligations or the Collateral.

 

(e)                                  As of December 31,
2008, the outstanding principal amount of the ESOP Indebtedness was
$40,038,907.

 

8.20                           ESOP Loan Documents.

 

(a)                                  To the best of
Borrowers’ and Guarantors’ knowledge, the loan evidenced by the ESOP Loan
Documents constitutes an “exempt loan” within the meaning of Section 4975(d)(3) of
the Code and complies with all requirements applicable to exempt loans under 26
C.F.R. §54.4975-7(b)(1)(iii) and 29 C.F.R. §2550.408(b)-3(a)(3).

 

(b)                               To the best of Borrowers’
and Guarantors’ knowledge, the execution, delivery and performance of the ESOP
Loan Documents and the ESOP Documents by the parties thereto, and the
consummation of the transactions contemplated thereby, will not constitute a “prohibited
transaction” or otherwise constitute a violation of, or give rise to any
liability under any laws, rules and regulations of any applicable
Governmental Authority (including without limitation, ERISA and the Code).

 

8.21                           Accuracy and Completeness of Information.  All information furnished by or on behalf of
any Borrower or Guarantor in writing to Lender in connection with this
Agreement or

 

69

 

any of the other Financing Agreements or any transaction contemplated
hereby or thereby, including all information on the Information Certificate is
true and correct in all material respects on the date as of which such
information is dated or certified and does not omit any material fact necessary
in order to make such information not misleading (it being understood that any
forward-looking statement or projection shall be judged in light of the
circumstances then known to, or which were reasonably believed by a person
making such statement or projection and having the information reasonably
available to a Person so situated).  No
event or circumstance has occurred which has had or could reasonably be
expected to have a Material Adverse Effect, which has not been fully and
accurately disclosed to Lender in writing prior to the date hereof.

 

8.22                           Survival of Warranties; Cumulative.  All representations and warranties contained
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement and shall be deemed to have been made
again to Lender on the date of each additional borrowing or other credit
accommodation hereunder and shall be conclusively presumed to have been relied
on by Lender regardless of any investigation made or information possessed by
Lender.  The representations and
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which any Borrower or Guarantor shall now or
hereafter give, or cause to be given, to Lender.

 

SECTION  9.        AFFIRMATIVE
AND NEGATIVE COVENANTS

 

9.1                                 Maintenance of Existence.

 

(a)                                  Each
Borrower and Guarantor shall at all times preserve, renew and keep in full
force and effect its corporate or limited liability company, as applicable,
existence and rights and franchises with respect thereto and maintain in full
force and effect all licenses, trademarks, tradenames, approvals,
authorizations, leases, contracts and Permits necessary to carry on the
business as presently or proposed to be conducted, except as to any Guarantor
other than Parent as permitted in Section 9.7 hereof.

 

(b)                                 No
Borrower or Guarantor shall change its name unless each of the following
conditions is satisfied: (i) Lender shall have received not less than
thirty (30) days prior written notice from Administrative Borrower of such
proposed change in its corporate or limited liability company name, which
notice shall accurately set forth the new corporate or limited liability
company name; provided, that, such notice shall not be required
with respect to the change in the name of Realty to FBC Realty, LLC so long as
such name change occurs within two (2) Business Days after the date of
this Agreement; and (ii) Lender shall have received a copy of the
amendment to the Certificate of Incorporation or Certificate of Formation, as
applicable, of such Borrower or Guarantor providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation or
organization of such Borrower or Guarantor as soon as it is available.

 

(c)                                  No
Borrower or Guarantor shall change its chief executive office or its mailing
address or organizational identification number (or if it does not have one,
shall not

 

70

 

acquire one) unless Lender shall have
received not less than thirty (30) days’ prior written notice from
Administrative Borrower of such proposed change, which notice shall set forth
such information with respect thereto as Lender may require and Lender shall
have received such agreements as Lender may reasonably require in connection
therewith.  No Borrower or Guarantor
shall change its type of organization, jurisdiction of organization or other
legal structure.

 

(d)                                 Borrowers
and Guarantors shall not, and shall not permit any Subsidiary to amend, modify
or otherwise change its certificate of incorporation, articles of association,
certificate of formation, limited liability agreement, limited partnership
agreement or other organizational documents, as applicable, except for
amendments, modifications or other changes that do not affect the rights and
privileges of any Borrower or Guarantor, or its Subsidiaries in any material
respect and do not adversely affect the ability of any Borrower, any Guarantor
or such Subsidiary to amend, modify, renew or supplement the terms of this
Agreement or any of the other Financing Agreements, or otherwise adversely
affect the interests of Lender in any material respect and so long as at the
time of any such amendment, modification or change, no Default or Event of
Default shall exist or have occurred and be continuing.

 

(e)                                  No
Borrower or Guarantor shall amend, modify, change, agree to any amendment,
modification or other change to (or make any payment consistent with any
amendment or other change to) or waive any of its rights under any of the
Purchase Agreements in any manner which would adversely affect, or could
reasonably be expected to adversely affect, the Obligations or the Collateral.

 

9.2                                 New Collateral Locations.  Each Borrower and Guarantor may only open any
new location within the continental United States of America provided such
Borrower or Guarantor (a) gives Lender prior written notice of the
intended opening of any such new location and (b) executes and delivers,
or causes to be executed and delivered, to Lender such agreements, documents,
and instruments as Lender may deem reasonably necessary or desirable to protect
its interests in the Collateral at such location.

 

9.3                                 Compliance with Laws, Regulations, Etc.

 

(a)                                  Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
approvals, orders and other Permits applicable to it and duly observe all
requirements of any foreign, Federal, State or local Governmental Authority.

 

(b)                                 Borrowers
and Guarantors shall give written notice to Lender immediately upon any
Borrower’s or Guarantor’s receipt of any notice of, or any Borrower’s or
Guarantor’s otherwise obtaining knowledge of, (i) the occurrence of any
event involving the release, spill or discharge, threatened or actual, of any
Hazardous Material or (ii) any investigation, proceeding, complaint,
order, directive, claims, citation or notice with respect to: (A) any
material non-compliance with or violation of any Environmental Law by any
Borrower or Guarantor or (B)

 

71

 

the release, spill or discharge, threatened
or actual, of any Hazardous Material other than in the ordinary course of
business and other than as permitted under any applicable Environmental Law.
Copies of all environmental surveys, audits, assessments, feasibility studies
and results of remedial investigations shall be promptly furnished, or caused
to be furnished, by such Borrower or Guarantor to Lender.  Each Borrower and Guarantor shall take prompt
action to respond to any material non-compliance with any of the Environmental
Laws and shall regularly report to Lender on such response.

 

(c)                                  Without
limiting the generality of the foregoing, whenever Lender reasonably determines
that there is material non-compliance, or any condition which requires any
action by or on behalf of any Borrower or Guarantor in order to avoid any
non-compliance, with any Environmental Law, Borrowers shall, at Lender’s
request and Borrowers’ expense: (i) cause an independent environmental
engineer reasonably acceptable to Lender to conduct such tests of the site
where non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report
as to such non-compliance setting forth the results of such tests, a proposed
plan for responding to any environmental problems described therein, and an
estimate of the costs thereof and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of such non-compliance, or such
Borrower’s or Guarantor’s response thereto or the estimated costs thereof,
shall change in any material respect.

 

(d)                                 Each
Borrower and Guarantor shall indemnify and hold harmless Lender and its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys’ fees and expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including the costs of
any required or necessary repair, cleanup or other remedial work with respect
to any property of any Borrower or Guarantor and the preparation and
implementation of any closure, remedial or other required plans.  All representations, warranties, covenants
and indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination  of this
Agreement.

 

9.4                                 Payment of Taxes and Claims.  Each Borrower and Guarantor shall, and shall
cause any Subsidiary to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to such
Borrower, Guarantor or Subsidiary, as the case may be, and with respect to
which adequate reserves have been set aside on its books.  Each Borrower and Guarantor shall be liable
for any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and each Borrower and Guarantor agrees to
indemnify and hold Lender harmless with respect to the foregoing, and to repay
to Lender on demand the amount thereof, and until paid by such Borrower or
Guarantor such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require any
Borrower or

 

72

 

Guarantor to pay any income or franchise taxes attributable to the
income of Lender from any amounts charged or paid hereunder to Lender.  The foregoing indemnity shall survive the
payment of the Obligations and the termination of this Agreement.

 

9.5                                 Insurance.

 

(a)                                  Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times,
maintain with financially sound and reputable insurers insurance with respect
to the Collateral against loss or damage and all other insurance of the kinds
and in the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated.  Said policies of insurance
shall be reasonably satisfactory to Lender as to form, amount and insurer.  Borrowers and Guarantors shall furnish
certificates, policies or endorsements to Lender as Lender shall reasonably
require as proof of such insurance, and, if any Borrower or Guarantor fails to
do so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrowers.  All policies shall
provide for at least thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender may act as attorney for
each Borrower and Guarantor in obtaining, and at any time an Event of Default
exists or has occurred and is continuing, adjusting, settling, amending and
canceling such insurance.  Borrowers and
Guarantors shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance policies
and Borrowers and Guarantors shall obtain non-contributory lender’s loss
payable endorsements to all insurance policies in form and substance reasonably
satisfactory to Lender.  Such lender’s
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by any Borrower,
Guarantor or any of its or their Affiliates. Without limiting any other rights
of Lender, any insurance proceeds received by Lender at any time may be applied
to payment of the Obligations, whether or not then due, in any order and in
such manner as Lender may determine. 
Upon application of such proceeds to the Revolving Loans, Revolving Loans
may be available subject and pursuant to the terms hereof to be used for the
costs of repair or replacement of the Collateral lost or damages resulting in
the payment of such insurance proceeds.

 

(b)                                 In
the event of a Property Loss Event with respect to Real Property or Equipment
(except as otherwise provided below), if any of the Equipment or any portion of
any building, structure or other improvement on any Real Property is lost,
physically damaged or destroyed, upon the written request of Administrative
Borrower, Lender shall release the Net Cash Proceeds from insurance received by
Lender based on a claim by any Borrower or Guarantor as a result of such loss,
damage or destruction to the extent necessary for the repair, refurbishing or
replacement of such Equipment or building, structure or improvement; provided,
that, all of the following conditions are satisfied: (i) if any
Default or Event of Default shall exist or have occurred and be continuing
(except for any Default or Event of Default arising as a result of and
continuing solely as a result of such Property Loss Event), any such proceeds
may be applied to the Obligations (ii) if such insurance proceeds
aggregate $1,000,000 or more,

 

73

 

Administrative Borrower shall obtain the
prior written consent of Lender in order to apply such insurance proceeds in
the manner set forth in this clause (b), (iii) such proceeds shall be used
only to repair, refurbish or replace such Equipment or building, structure or
improvement and all related expenses and costs in connection therewith within
one hundred eighty (180) days after receipt by such Borrower or Guarantor of
such proceeds, (iv) Lender shall have a first priority perfected lien
(subject to liens permitted under this Agreement ) on such replacement (or
repaired or restored) property or assets (other than, with respect to
perfection only, the Excluded Property), (v) the aggregate amount of such
proceeds in excess of the amount necessary to repair, refurbish or replace such
replacement (or repaired or restored) property or assets shall be applied to
the Obligations in such order and manner as Lender determines, (vi) Lender
shall have received within fifteen (15) days after Lender notifies
Administrative Borrower that Lender has received any proceeds of insurance (or
if any Borrower or Guarantor receives any such proceeds, then within fifteen
(15) days after such Borrower or Guarantor receives such proceeds, which shall
be delivered to Lender), a certificate duly executed by an authorized officer of
Administrative Borrower addressed to Lender stating that such proceeds shall be
used to repair, refurbish or replace such Equipment or building, structure or
improvement, (vii) if all or any portion of such proceeds are not so used
or being used within such one hundred eighty (180) day period, Lender shall
apply such unused proceeds to the Obligations, and (viii) as to a Property
Loss Event with respect to assets of any Borrower or Guarantor, until such time
as the proceeds are so used, such proceeds will be held in a deposit account or
investment account at Lender and released upon receipt of written request of
Administrative Borrower that such proceeds are to be so used with such evidence
thereof as Lender may require and so long as no Default or Event of Default
exists or has occurred and is continuing.

 

9.6                                 Financial Statements and Other Information.

 

(a)                                  Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, keep proper
books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business
of such Borrower, Guarantor and its Subsidiaries in accordance with GAAP.  Borrowers and Guarantors shall promptly
furnish to Lender all such financial and other information as Lender shall
reasonably request relating to the Collateral and the assets, business and
operations of Borrowers and Guarantors, and to notify the auditors and
accountants of Borrowers and Guarantors that Lender is authorized to obtain
such information directly from them (other than materials protected by the
attorney-client privilege and materials which the Borrowers and Guarantor may
not disclose without violation of a confidentiality obligation binding upon
it).  Without limiting the foregoing,
Borrowers shall furnish or cause to be furnished to Lender, the following:

 

(i)                                     within
thirty (30) days after the end of each fiscal month (other than any such fiscal
month if such fiscal month is also the last fiscal month of a fiscal quarter),
monthly unaudited consolidated financial statements and unaudited consolidating
financial statements (including in each case balance sheets, statements of
income and loss and statements of cash flow), all in reasonable detail, fairly
presenting in all material respects the financial

 

74

 

position and the results of the
operations of Parent and its Subsidiaries as of the end of and through such
fiscal month, certified to be correct by the chief financial officer of
Administrative Borrower, subject to normal year-end adjustments and no footnotes
and accompanied by a summary narrative of material changes and operating
performance and a compliance certificate substantially in the form of Exhibit C
hereto, along with a schedule in form reasonably satisfactory to Lender of the
calculations used in determining, as of the end of such month, whether
Borrowers and Guarantors were in compliance with the covenants set forth in
Sections 9.18 and 9.19 of this Agreement for such month;

 

(ii)                                  within
forty-five days after the end of each fiscal month which is also the last
fiscal month of a fiscal quarter, monthly unaudited consolidated financial
statements and unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of cash
flow), all in reasonable detail, fairly presenting in all material respects the
financial position and the results of the operations of Parent and its
Subsidiaries as of the end of and through such fiscal month, certified to be
correct by the chief financial officer of Administrative Borrower, subject to
normal year-end adjustments and accompanied by a summary narrative of material
changes and operating performance and a compliance certificate substantially in
the form of Exhibit C hereto, along with a schedule in form reasonably
satisfactory to Lender of the calculations used in determining, as of the end
of such month, whether Borrowers and Guarantors were in compliance with the
covenants set forth in Sections 9.18 and 9.19 of this Agreement for such month;

 

(iii)                               within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and unaudited consolidating financial statements of Parent
and its Subsidiaries (including in each case balance sheets, statements of
income and loss, statements of cash flow, and statements of stockholders’
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting in all material respects the financial position and the results of
the operations of Parent and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants with respect to the audited consolidated financial
statements, which accountants shall be an independent accounting firm selected
by Administrative Borrower and reasonably acceptable to Lender, that such
audited consolidated financial statements have been prepared in accordance with
GAAP, and present fairly in all material respects the results of operations and
financial condition of Parent and its Subsidiaries as of the end of and for the
fiscal year then ended;

 

(iv)                              at
such time as available, but in no event later than thirty (30) days prior to
the end of each fiscal year (commencing with the fiscal year of Borrowers
ending June 30, 2009), projected consolidated financial statements
(including in each case, forecasted balance sheets and statements of income and
loss, statements of cash flow, and statements of stockholders’ equity) of
Parent and its Subsidiaries for the next fiscal year, all in reasonable detail,
and in a format consistent with the projections delivered by Borrowers to
Lender prior to the date hereof, together with such supporting information as
Lender may reasonably request.

 

75

 

Such projected financial
statements shall be prepared on a monthly basis for the next succeeding fiscal
year. Such projections shall represent the reasonable best estimate by
Borrowers and Guarantors of the future financial performance of Parent and its
Subsidiaries for the periods set forth therein and shall have been prepared on
the basis of the assumptions set forth therein which Borrowers and Guarantors
believe are fair and reasonable as of the date of preparation in light of
current and reasonably foreseeable business conditions (it being understood
that actual results may differ from those set forth in such projected financial
statements).  Each fiscal year Borrowers
shall provide to Lender a semi-annual update with respect to such projections
or at any time a Default or Event of Default exists or has occurred and is
continuing, more frequently as Lender may reasonably require; provided, that,
such Borrowers shall only be required to deliver such semi-annual update to the
extent that such update would show a significant variance from such projections
for the remainder of such fiscal year; and

 

(v)                                 within
twenty (20) days after the end of each fiscal month (or more frequently as
Lender reasonably requests), a certificate substantially in the form of Exhibit D
hereto, along with (A) a schedule in form reasonably satisfactory to
Lender of the calculations used in determining, as of the end of such month (or
shorter period), the sum of the dollar value of the Preferred Stock Portfolio
and the Cash Investment Accounts and (B) the most recent statement
received by Borrowers and Guarantors setting forth the balance of the Specified
Investment Account.

 

(b)                                 Borrowers
and Guarantors shall promptly notify Lender in writing of the details of (i) any
loss, damage, investigation, action, suit, proceeding or claim relating to
Collateral having a value of more than $250,000 or which if adversely
determined could reasonably be expected to result in a Material Adverse Effect,
(ii) any Material Contract being terminated or amended or any new Material
Contract entered into (in which event Borrowers and Guarantors shall provide
Lender with a copy of such Material Contract), (iii) any order, judgment
or decree in excess of $250,000 shall have been entered against any Borrower or
Guarantor any of its or their properties or assets, (iv) any notification
of a material violation of laws or regulations received by any Borrower or
Guarantor, (v) any ERISA Event, (vi) the occurrence of any Default or
Event of Default, and (vii) the payment or receipt by any Borrower or
Guarantor of any purchase price adjustment or indemnity payment pursuant to the
Purchase Agreements.

 

(c)                                  Promptly
after the sending or filing thereof, Borrowers shall notify Lender that any of
the following have been sent or filed, and to the extent any of the following
are not then publicly available by electronic means to Lender shall send to
Lender copies of (i) all reports which Parent or any of its Subsidiaries
sends to its security holders generally, (ii) all reports and registration
statements which Parent or any of its Subsidiaries files with the Securities
Exchange Commission, any national or foreign securities exchange or the
National Association of Securities Dealers, Inc., and such other reports
as Lender may hereafter specifically identify to Administrative Borrower that
Lender will require be provided to Lender, (iii) all press releases and (iv) all
other statements concerning material changes or developments

 

76

 

in the business of a Borrower
or Guarantor made available by any Borrower or Guarantor to the public.

 

(d)                                 Borrowers
and Guarantors shall furnish or cause to be furnished to Lender such budgets,
forecasts, projections and other information respecting the Collateral and the
business of Borrowers and Guarantors, as Lender may, from time to time,
reasonably request.  Lender is hereby
authorized to deliver a copy of any financial statement or any other information
relating to the business of Borrowers and Guarantors to any court or other
Governmental Authority or to any Lender or Participant or prospective Lender or
Participant or any Affiliate of any Lender or Participant.  Each Borrower and Guarantor hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrowers’ expense, copies of the financial statements of any Borrower and
Guarantor and any reports or management letters prepared by such accountants or
auditors on behalf of any Borrower or Guarantor and to disclose to Lender such
information as they may have regarding the business of any Borrower and
Guarantor.  Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are delivered to Lender,
except as otherwise designated by Administrative Borrower to Lender in writing.

 

(e)                                  Borrowers
and Guarantors shall deliver, or cause to be delivered, to Lender, within
ninety (90) days from the date hereof, an opening balance sheet of Borrowers
and Guarantors after giving effect to the transactions contemplated by this
Agreement and the Purchase Agreements.

 

9.7                                 Sale of Assets, Consolidation, Merger,
Dissolution, Etc.  Each Borrower and
Guarantor shall not, and shall not permit any Subsidiary to, directly or
indirectly,

 

(a)                                  merge
into or with or consolidate with any other Person or permit any other Person to
merge into or with or consolidate with it except  that any
wholly-owned Subsidiary of Parent (other than any Borrower) may merge with and
into or consolidate with any other wholly-owned Subsidiary of Parent (other
than any Borrower), provided, that, each of the following
conditions is satisfied as determined by Lender in good faith:  (i) Lender shall have received not less
than ten (10) Business Days’ prior written notice of the intention of such
Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail reasonably satisfactory to Lender, the persons that are
merging or consolidating, which person will be the surviving entity, the
locations of the assets of the persons that are merging or consolidating, and
the material agreements and documents relating to such merger or consolidation,
(ii) Lender shall have received such other information with respect to
such merger or consolidation as Lender may reasonably request, (iii) as of
the effective date of the merger or consolidation and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing, (iv) Lender shall have received, true, correct and complete
copies of all agreements, documents and instruments relating to such merger or
consolidation, including, but not limited to, the certificate or certificates
of merger to be filed with each appropriate Secretary of State (with a copy as
filed promptly after such filing), (v) the surviving entity shall
expressly confirm, ratify and assume the Obligations and the Financing
Agreements to which it 

 

77

 

is a party in writing, in form
and substance reasonably satisfactory to Lender, and Borrowers and Guarantors
shall execute and deliver such other agreements, documents and instruments as
Lender may reasonably request in connection therewith;

 

(b)                                 sell,
issue, assign, lease, license, transfer, abandon or otherwise dispose of any
Capital Stock or Indebtedness to any other Person or any of its assets to any
other Person, except  for

 

(i)                                     sales
of Inventory in the ordinary course of business,

 

(ii)                                  the
sale or other disposition of Equipment (including worn-out or obsolete
Equipment or Equipment no longer used or useful in the business of any Borrower
or Guarantor) so long as such sales or other dispositions do not involve
Equipment having an aggregate fair market value in excess of $1,000,000 for all
such Equipment disposed of in any fiscal year of Borrowers or as Lender may
otherwise agree, and

 

(iii)                               the
issuance and sale by any Borrower or Guarantor of Capital Stock of such
Borrower or Guarantor after the date hereof; provided, that, (A) Lender
shall have received not less than ten (10) Business Days’ prior written
notice of such issuance and sale by such Borrower or Guarantor, which notice
shall specify the parties to whom such shares are to be sold, the terms of such
sale, the total amount which it is anticipated will be realized from the
issuance and sale of such stock and the Net Cash Proceeds which it is
anticipated will be received by such Borrower or Guarantor from such sale, (B) such
Borrower or Guarantor shall not be required to pay any cash dividends or
repurchase or redeem such Capital Stock or make any other payments in respect
thereof, except as otherwise permitted in Section 9.11 hereof, (C) the
terms of such Capital Stock, and the terms and conditions of the purchase and
sale thereof, shall not include any terms that include any limitation on the
right of any Borrower to request or receive Loans or Letters of Credit or the
right of any Borrower and Guarantor to amend or modify any of the terms and
conditions of this Agreement or any of the other Financing Agreements or
otherwise in any way relate to or affect the arrangements of Borrowers and
Guarantors with Lender or are more restrictive or burdensome to any Borrower or
Guarantor than the terms of any Capital Stock in effect on the date hereof, (D) except
as Lender may otherwise agree in writing, if as of the date of such issuance
and sale or after giving effect thereto, a Cash Dominion Event has occurred and
is continuing, all of the proceeds of the sale and issuance of such Capital
Stock shall be paid to Lender for application to the Obligations in such order
and manner as Lender may determine or at Lender’s option, to be held as cash
collateral for the Obligations and (E) as of the date of such issuance and
sale and after giving effect thereto, no Default or Event of Default shall
exist or have occurred and be continuing,

 

(iv)                              the
issuance of Capital Stock of any Borrower or Guarantor consisting of common
stock pursuant to an employee stock ownership plan, employee stock option or
grant or similar equity plan or 401(k) plans of such Borrower or Guarantor
for the benefit of its employees, directors and consultants, provided, that, in
no event shall such Borrower or Guarantor be required to issue, or shall such Borrower
or Guarantor issue, Capital 

 

78

 

Stock pursuant to such stock
plans or 401(k) plans which would result in a Change of Control or other
Event of Default,

 

(v)                                 sales
or other dispositions of Excluded Property, provided, that, as to
any such sale or other disposition, each of the following conditions is
satisfied: (A) the consideration to be received by Borrowers and
Guarantors shall be paid or payable in cash and shall be paid contemporaneously
with consummation of the transaction; (B) the consideration paid or
payable shall be in an amount not less than the fair market value of the
Excluded Property disposed of; (C) such transaction does not involve the
sale or other disposition of any Equity Interest in any Subsidiary or of any
Inventory or Receivables; (D) the Net Cash Proceeds from any such sale or
other disposition, shall be applied to the Obligations (without permanent
reduction of the Maximum Credit as a result thereof); (E) the aggregate
fair market value of all such Excluded Property sold or otherwise disposed of
shall not exceed $5,000,000 in the aggregate during the term of this Agreement;
and (F) as of the date of any such sale or other disposition, and in each
case after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing,

 

(vi)                              sales
or other dispositions of investment property from the Preferred Stock
Portfolio; provided, that, all of the proceeds of from such sales
or other dispositions shall be (A) reinvested in other investment property
consisting of shares of preferred stock of public companies (other than
Borrower), with such shares to be maintained in the Specified Investment
Account or (B) used for general operating, working capital and other
proper corporate purposes of such Borrower not otherwise prohibited by the
terms hereof, and

 

(vii)                           the
transfer of cash for the payment of Indebtedness to the extent such payments
are permitted under this Agreement and for the payment of other payables in the
ordinary course of the business of Borrowers and Guarantors.

 

(c)                                  wind
up, liquidate or dissolve except  that any Guarantor may wind up,
liquidate and dissolve, provided, that, each of the following
conditions is satisfied, (i) the winding up, liquidation and dissolution
of such Guarantor shall not violate any law or any order or decree of any court
or other Governmental Authority in any material respect and shall not conflict
with or result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, or any other agreement or instrument to which any
Borrower or Guarantor is a party or may be bound, (ii) such winding up,
liquidation or dissolution shall be done in accordance with the requirements of
all applicable laws and regulations, (iii) effective upon such winding up,
liquidation or dissolution, all of the assets and properties of such Guarantor
shall be duly and validly transferred and assigned to a Borrower, free and
clear of any liens, restrictions or encumbrances other than the security
interest and liens of Lender (and Lender shall have received such evidence
thereof as Lender may reasonably require) or as permitted under Section 9.8
of this Agreement and Lender shall have received such deeds, assignments
or other agreements as Lender may reasonably request to evidence and confirm
the transfer of such assets of such Guarantor to a Borrower, (iv) Lender
shall have received all documents and agreements that any Borrower or Guarantor
has filed with any Governmental Authority or as are otherwise 

 

79

 

required to effectuate such
winding up, liquidation or dissolution, (v) no Borrower or Guarantor shall
assume any Indebtedness, obligations or liabilities as a result of such winding
up, liquidation or dissolution, or otherwise become liable in respect of any
obligations or liabilities of the entity that is winding up, liquidating or
dissolving, unless such Indebtedness is otherwise expressly permitted
hereunder, (vi) Lender shall have received not less than ten (10) Business
Days prior written notice of the intention of such Guarantor to wind up,
liquidate or dissolve, and (vii) as of the date of such winding up,
liquidation or dissolution and after giving effect thereto, no Default or Event
of Default shall exist or have occurred and be continuing; or

 

(d)                                 agree
to do any of the foregoing (unless such agreement has been consented to in
writing by Lender, or includes as a condition to the effectiveness of such
agreement that Lender’s consent thereto shall be obtained or that as of the
consummation of the transactions contemplated thereby all of the Obligations
shall be fully and finally paid and satisfied and this Agreement shall be
terminated in accordance with the terms hereof).

 

9.8                                 Encumbrances.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, create, incur, assume or suffer to exist
any security interest, mortgage, pledge, lien, charge or other encumbrance of
any nature whatsoever on any of its assets or properties, including the
Collateral and the Preferred Stock Portfolio, or file or permit the filing of,
or permit to remain in effect, any financing statement or other similar notice
of any security interest or lien with respect to any such assets or properties,
except:

 

(a)                                  the
security interests and liens of Lender (for itself and any Affiliate that
provides Bank Products);

 

(b)                                 liens
securing the payment of taxes, assessments or other governmental charges or
levies either not yet overdue or the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to such
Borrower, or Guarantor or Subsidiary, as the case may be and with respect to
which adequate reserves have been set aside on its books;

 

(c)                                  non-consensual
statutory liens (other than liens securing the payment of taxes) arising in the
ordinary course of such Borrower’s, Guarantor’s or Subsidiary’s business to the
extent: (i) such liens secure Indebtedness which is not overdue or (ii) such
liens secure Indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower, Guarantor or such
Subsidiary, in each case prior to the commencement of foreclosure or other
similar proceedings and with respect to which adequate reserves have been set
aside on its books;

 

(d)                                 zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of Real Property which do not interfere in any material respect with
the use of such Real Property or ordinary conduct of the business of such
Borrower, Guarantor or such 

 

80

 

Subsidiary as presently
conducted thereon or materially impair the value of the Real Property which may
be subject thereto;

 

(e)                                  purchase
money security interests or other security interests in Equipment (including
Capital Leases) and purchase money mortgages or other mortgages on Real
Property to secure Indebtedness permitted under Section 9.9(b) hereof
so long as such security interests and mortgages do not apply to any property
of any Borrower, any Guarantor or any Subsidiary other than the Equipment or
Real Property so acquired (and the proceeds thereof), and the Indebtedness
secured thereby does not exceed the cost of the Equipment or Real Property so
acquired, constructed, remodeled or improved, as the case may be, and such security
interests are granted within 180 days of the date of such acquisition or
completion of construction, remodeling or improvement of such Equipment or Real
Property, as the case may be;

 

(f)                                    pledges
and deposits of cash by any Borrower or Guarantor after the date hereof in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security benefits consistent
with the current practices of such Borrower or Guarantor as of the date hereof;

 

(g)                                 pledges
and deposits of cash by any Borrower or Guarantor after the date hereof to
secure the performance of tenders, bids, leases, trade contracts (other than
for the repayment of Indebtedness), statutory obligations and other similar
obligations in each case in the ordinary course of business consistent with the
current practices of such Borrower or Guarantor as of the date hereof; provided,
that, in connection with any performance bonds issued by a surety or
other person, the issuer of such bond shall have waived in writing any rights
in or to, or other interest in, any of the Collateral in an agreement, in form
and substance reasonably satisfactory to Lender;

 

(h)                                 liens
arising from (i) operating leases and the precautionary UCC financing
statement filings in respect thereof and (ii) equipment or other materials
which are not owned by any Borrower or Guarantor located on the premises of
such Borrower or Guarantor (but not in connection with, or as part of, the
financing thereof) from time to time in the ordinary course of business and
consistent with current practices of such Borrower or Guarantor and the
precautionary UCC financing statement filings in respect thereof;

 

(i)                                     judgments
and other similar liens arising in connection with court proceedings that do
not constitute an Event of Default, provided, that, (i) such
liens are being contested in good faith and by appropriate proceedings
diligently pursued, (ii) adequate reserves or other appropriate provision,
if any, as are required by GAAP have been made therefor, (iii) a stay of
enforcement of any such liens is in effect and (iv) Lender may establish a
Reserve with respect thereto; and

 

(j)                                     pledges
and deposits of cash after the date hereof to secure obligations under appeal
bonds or as otherwise required in connection with court proceedings (including,
without limitation, surety bonds, security for costs of litigation where
required by law and letters 

 

81

 

of credit) or any other
instruments serving a similar purpose; provided, that, (i) as
of the date of the pledge and deposit of such cash, and after giving effect
thereto, the aggregate amount of the Excess Availability shall be not less than
$10,000,000 and (ii) any judgment in connection with which such appeal
bond or other instruments are required shall not constitute an Event of
Default;

 

(k)                                  liens
in favor of customs and revenue authorities arising as a matter of law to
secure payment of custom duties in connection with the importation of goods so long as such liens attach only to the imported goods;

 

(l)                                     liens
to secure Indebtedness of Borrowers and Guarantors permitted under Section 9.9(h) hereof;
provided, that, (i) such liens shall only encumber the Real
Property owned by Borrowers as of the date hereof, fixtures thereon, licenses,
permits and other general intangibles directly related thereto, and proceeds
thereof, and (ii) as of the date of incurring such liens and after giving
effect thereto, no Default or Event of Default shall exist or have occurred and
be continuing;

 

(m)                               the
pledge and deposit by Borrowers of cash in favor Wells Fargo Bank, N.A. to
secure Indebtedness permitted under Section 9.9(g) of this Agreement;
and

 

(n)                                 the
security interests and liens set forth on Schedule 8.4 to the Information
Certificate.

 

9.9                                 Indebtedness.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, incur, create, assume, become or be liable
in any manner with respect to, or permit to exist, any Indebtedness, or
guarantee, assume, endorse, or otherwise become responsible for (directly or
indirectly), the Indebtedness, performance, obligations or dividends of any
other Person, except:

 

(a)                                  the
Obligations;

 

(b)                                 Indebtedness
(including Capital Leases) arising after the date hereof to the extent secured
by security interests in Equipment (including Capital Leases) and mortgages on
Real Property to finance the acquisition, construction, remodeling or
improvement thereof not to exceed $3,000,000 in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to
any property of any Borrower, any Guarantor or any Subsidiary other than the
Equipment or Real Property so acquired (and the proceeds thereof), and the
Indebtedness secured thereby does not exceed the cost of the Equipment or Real
Property so acquired, constructed, remodeled or improved, as the case may be,
and such security interests are granted within 180 days of the date of such
acquisition or completion of construction, remodeling or improvement of such
Equipment or Real Property as the case may be;

 

(c)                                  guarantees
by any Borrower or Guarantor of the Obligations of the other Borrowers or
Guarantors in favor of Lender;

 

82

 

(d)                                 the
Indebtedness of any Borrower or Guarantor to any other Borrower or Guarantor
arising after the date hereof pursuant to loans by any Borrower or Guarantor
permitted under Section 9.10 (g) hereof;

 

(e)                                  Indebtedness
of any Borrower entered into in the ordinary course of business pursuant to a
Hedge Agreement; provided, that, (i) such arrangements are
not for speculative purposes, and (ii) such Indebtedness shall be
unsecured, except to the extent such Indebtedness constitutes part of the
Obligations arising under or pursuant to Hedge Agreements with Lender or any
Affiliate of Lender that are secured under the terms hereof;

 

(f)                                    unsecured
Indebtedness of any Borrower or Guarantor arising after the date hereof to any
third person (but not to any other Borrower or Guarantor), provided, that,
each of the following conditions is satisfied as reasonably determined by
Lender: (i) such Indebtedness shall be on terms and conditions reasonably
acceptable to Lender and shall be subject and subordinate in right of payment
to the right of Lender to receive the prior indefeasible payment and
satisfaction in full payment of all of the Obligations pursuant to the terms of
an intercreditor agreement between Lender and such third party, in form and
substance reasonably satisfactory to Lender, (ii) Lender shall have
received not less than ten (10) days prior written notice of the intention
of such Borrower or Guarantor to incur such Indebtedness, which notice shall
set forth in reasonable detail satisfactory to Lender the amount of such Indebtedness,
the person or persons to whom such Indebtedness will be owed, the interest
rate, the schedule of repayments and maturity date with respect thereto and
such other information as Lender may reasonably request with respect thereto, (iii) 
Lender shall have received true, correct and complete copies of all agreements,
documents and instruments evidencing or otherwise related to such Indebtedness,
(iv) except as Lender may otherwise agree in writing, all of the proceeds
of the loans or other accommodations giving rise to such Indebtedness shall be
paid to Lender for application to the Obligations in such order and manner as
Lender may determine or at Lender’s option, to be held as cash collateral for
the Obligations, (v) in no event shall the person or person to whom such
Indebtedness will be owed be entitled to receive any cash payments in respect
of the principal amount of, or any interest payable with respect thereto, prior
to the final payment in full of the Obligations (and cash collateralization of
contingent obligations pursuant to the terms hereof) and termination of the
Financing Agreements (other than any interest payable in kind), (vi) as of
the date of incurring such Indebtedness and after giving effect thereto, no
Default or Event of Default shall exist or have occurred, (vii) such
Borrower and Guarantor shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, except, that, such
Borrower or Guarantor may, after prior written notice to Lender, amend, modify,
alter or change the terms thereof so as to extend the maturity thereof, or
defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments permitted herein), or set aside or
otherwise deposit or invest any sums for such purpose, and (viii) Borrowers
and Guarantors shall furnish to Lender all notices or demands in 

 

83

 

connection with such
Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;

 

(g)                                 Indebtedness
of Borrowers consisting of the reimbursement obligations to Wells Fargo Bank,
N.A. as the issuer in respect of the Existing Letter of Credit; provided,
that, (i) in no event shall the aggregate amount of all such
Indebtedness (contingent or otherwise) at any time exceed $2,500,000 (plus
accrued interest) less the aggregate amount of all repayments thereof or
reductions in the amount of such Existing Letter of Credit, plus the
fees and interest with respect thereto in accordance with the terms of the
agreements governing such Indebtedness as in effect on the date of this
Agreement, (ii) in no event shall the Existing Letter of Credit be renewed
on the expiration date thereof; (iii) such Indebtedness shall be unsecured
except by a pledge of cash in an amount not to exceed $2,500,000; and (iv) Administrative
Borrower shall furnish to Lender all material written notices or demands in
connection with such Indebtedness either received by any Borrower or Guarantor
or on its behalf, promptly after the receipt thereof, or sent by any Borrower
or Guarantor or on its behalf, concurrently with the sending thereof, as the
case may be;

 

(h)                                 Indebtedness
of any Borrower or Guarantor arising after the date hereof to any Person that
is not an Affiliate of Borrowers and Guarantors secured by a lien on Real
Property owned by Borrowers as of the date hereof, fixtures thereon, licenses,
permits and other general intangibles directly related thereto and proceeds
thereof; provided, that, each of the following conditions is
satisfied: (i) Lender shall have received not less than ten (10) Business
Days prior written notice of the intention of such Borrower or Guarantor to
incur such Indebtedness, which notice shall set forth in reasonable detail the
amount of such Indebtedness, the schedule of repayments and maturity date with
respect thereto and such other information as Lender may reasonably request, (ii) the
aggregate outstanding principal amount of such Indebtedness shall not exceed
$2,000,000 at any time, (iii) such Indebtedness shall have a Weighted
Average Life to Maturity and a final maturity equal to or greater than
Indebtedness having a one hundred twenty (120) month straight line amortization
with a final maturity at the end of one hundred twenty (120) months, (iv) except
as Lender may otherwise agree, Lender shall have received a Collateral Access
Agreement with respect to such Real Property, duly executed and delivered by
the mortgagee which has a lien on any such Real Property (v) promptly upon
Lender’s request, Lender shall have received true, correct and complete copies
of all material agreements, documents and instruments evidencing or otherwise
related to such Indebtedness, and (vi) as of the date of incurring such
Indebtedness and after giving effect thereto, no Default or Event of Default
shall exist or have occurred and be continuing;

 

(i)                                     unsecured
guarantees by and Borrower or Guarantor in respect of leases and Capital Leases
that are entered into by any Borrower’s Subsidiaries in the ordinary course of
business or unsecured guarantees by any Borrower in respect of obligations of
any Borrower’s Subsidiaries incurred in the ordinary course of business; and

 

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(j)                                     the
Indebtedness of any Borrower or Guarantor arising after the date hereof
permitted under Section 9.10(g) hereof;

 

(k)                                  trade
debt and accrued expenses incurred in the ordinary course of business on normal
trade terms and not overdue by more than ninety (90) days;

 

(l)                                     the
Indebtedness set forth on Schedule 9.9 to the Information Certificate; provided,
that, (i) Borrowers and Guarantors may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such Indebtedness as in effect on the date hereof, (ii) Borrowers
and Guarantors shall not, directly or indirectly, (A) amend, modify, alter
or change the terms of such Indebtedness or any agreement, document or
instrument related thereto as in effect on the date hereof except, that,
Borrowers and Guarantors may, after prior written notice to Lender, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof,
or defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrowers
and Guarantors shall furnish to Lender all notices or demands in connection
with such Indebtedness either received by any Borrower or Guarantor or on its
behalf, promptly after the receipt thereof, or sent by any Borrower or
Guarantor or on its behalf, concurrently with the sending thereof, as the case
may be.

 

9.10                           Loans, Investments, Etc.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness
or all or a substantial part of the assets or property of any person, or form
or acquire any Subsidiaries, or agree to do any of the foregoing, except:

 

(a)                                  the
endorsement of instruments for collection or deposit in the ordinary course of
business;

 

(b)                                 investments
in cash or Cash Equivalents; provided, that, the terms and
conditions of Section 5.2 hereof shall have been satisfied with respect to
the deposit account, investment account or other account in which such cash or
Cash Equivalents are held;

 

(c)                                  the
existing equity investments of each Borrower and Guarantor as of the date
hereof in its Subsidiaries, provided, that, no Borrower or
Guarantor shall have any further obligations or liabilities to make any capital
contributions or other additional investments or other payments to or in or for
the benefit of any of such Subsidiaries;

 

(d)                                 loans
and advances by any Borrower or Guarantor to employees of such Borrower or
Guarantor not to exceed the principal amount of $1,000,000 in the aggregate at
any time outstanding for:  (i) reasonably
and necessary work-related travel or other ordinary business

 

85

 

expenses to be incurred by such
employee in connection with their work for such Borrower or Guarantor and (ii) reasonable
and necessary relocation expenses of such employees (including home mortgage
financing for relocated employees);

 

(e)                                  stock
or obligations issued to any Borrower or Guarantor by any Person (or the
representative of such Person) in respect of Indebtedness of such Person owing
to such Borrower or Guarantor in connection with the insolvency, bankruptcy,
receivership or reorganization of such Person or a composition or readjustment
of the debts of such Person; provided, that, the original of any
such stock or instrument evidencing such obligations shall be promptly
delivered to Lender, upon Lender’s request, together with such stock power,
assignment or endorsement by such Borrower or Guarantor as Lender may request;

 

(f)                                    obligations
of account debtors to any Borrower or Guarantor arising from Accounts which are
past due evidenced by a promissory note made by such account debtor payable to
such Borrower or Guarantor; provided, that, promptly upon the
receipt of the original of any such promissory note by such Borrower or
Guarantor, such promissory note shall be endorsed to the order of Lender by
such Borrower or Guarantor and promptly delivered to Lender as so endorsed;

 

(g)                                 loans
by a Borrower or Guarantor to another Borrower or Guarantor after the date
hereof, provided, that,

 

(i)                                     as
to all of such loans, (A) within thirty (30) days after the end of each
fiscal month, Borrowers shall provide to Lender a report in form and substance
reasonably satisfactory to Lender of the outstanding amount of such loans as of
the last day of the immediately preceding month and indicating any loans made
and payments received during the immediately preceding month, (B) the
Indebtedness arising pursuant to any such loan shall not be evidenced by a
promissory note or other instrument, unless the single original of such note or
other instrument is promptly delivered to Lender upon its request to hold as
part of the Collateral, with such endorsement and/or assignment by the payee of
such note or other instrument as Lender may require, (C) as of the date of
any such loan and after giving effect thereto, the Borrower or Guarantor making
such loan shall be Solvent, and (D) as of the date of any such loan and
after giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing, and

 

(ii)                                  as
to loans by a Guarantor to a Borrower, (A) the Indebtedness arising
pursuant to such loan shall be subject to, and subordinate in right of payment
to, the right of Lender to receive the prior final payment and satisfaction in
full of all of the Obligations on terms and conditions acceptable to Lender, (B) promptly
upon Lender’s request, Lender shall have received a subordination agreement, in
form and substance satisfactory to Lender, providing for the terms of the
subordination in right of payment of such Indebtedness of such Borrower to the
prior final payment and satisfaction in full of all of the Obligations, duly
authorized, executed and delivered by such Guarantor and such Borrower, and (C) such

 

86

 

Borrower shall not, directly or
indirectly make, or be required to make, any payments in respect of such
Indebtedness prior to the end of the then current term of this Agreement;

 

(h)                                 the
purchase by a Borrower or Guarantor after the date hereof of all or any portion
of the Option Property (as such term is defined in the Option Agreement), provided,
that:

 

(i)                 the aggregate consideration paid for
or in connection with the Option Property shall not exceed $1,000,000,

 

(ii)              no Default or Event of Default shall
exist or have occurred as of the date of such purchase and after giving effect
to such purchase,

 

(iii)           Excess Availability shall have been not less
than $12,500,000 for the two consecutive month period immediately prior to the
date of any such purchase and not less than $12,500,000 immediately before and
after giving effect to all payments in connection with such purchase, and

 

(iv)          Lender shall have received true, correct and
complete copies of all agreements, documents and instruments relating to such
purchase, which documents shall be reasonably satisfactory to Lender;

 

(i)                                     the
purchase by a Borrower or Guarantor after the date hereof of all or
substantially all of the assets of any Person or a business or division of such
Person (whether pursuant to a merger or other transaction) or of all or a
majority of the Capital Stock (such assets or Person being referred to herein
as the “Acquired Business”) and in one or a series of transaction that
satisfies each of the following conditions as determined by Lender:

 

(i)                 Lender shall have received not less
than ten (10) Business Days’ prior written notice of the proposed
acquisition and such information with respect thereto as Lender may reasonably
request, including (A) the proposed date and amount of the acquisition, (B) a
list and description of the assets or shares to be acquired, (C) the total
purchase price for the assets or shares to be purchased (and the terms of
payment of such purchase price), (D) a summary of the due diligence
undertaken by Borrowers in connection with such acquisition, and (E) financial
statements of the Acquired Business reasonably satisfactory to Lender,

 

(ii)              the
Acquired Business shall be an operating company that engages in a line of
business substantially similar to a business that Borrowers are engaged in on
date hereof,

 

(iii)           the aggregate consideration paid for or in
connection with all acquisitions under this clause (i) shall not exceed
$5,500,000 during the term of this Agreement,

 

(iv)          Lender shall have received: (A) the most
recent annual and interim financial statements with respect to the Acquired
Business and related statements of income and

 

87

 

cash flows showing positive cash flows for
the immediately preceding fiscal year of such Acquired Business, (B) detailed
forecasts of cash flows for the Acquired Business forecasting positive future
cash flows, (C) detailed projections for Parent and its Subsidiaries
through the Maturity Date giving pro forma effect to such acquisition, based on
assumptions reasonably satisfactory to Lender and demonstrating pro forma
compliance with all financial covenants set forth in this Agreement, prepared
in good faith an in a manner and using such methodology as is consistent with
the most recent financial statements delivered to Lender pursuant to Section 9.6(a)(i) and
in form and substance reasonably satisfactory to Lender and (D) current,
updated projections of the amount of the Borrowing Base and Excess Availability
for the twelve (12) month period after the date of such acquisition, in a form
reasonably satisfactory to Lender, representing Borrowers’ reasonable best
estimate of the future Borrowing Base and Excess Availability for the period
set forth therein as of the date not more than ten (10) days prior to the
date of such acquisition, which projections shall have been prepared on the
basis of the assumptions set forth therein which Borrowers believe are fair and
reasonable as of the date of preparation in light of current and reasonably
foreseeable business conditions and which projections shall show amounts of
Excess Availability reasonably satisfactory to Lender,

 

(v)             if Lender so elects, Lender shall have
received an appraisal of the inventory of the Acquired Business and such other
assets of the Acquired Business as Lender may specify, in each case in form and
containing assumptions and appraisal methods satisfactory to Lender by an
appraiser reasonably acceptable to Lender, on which Lender is expressly
permitted to rely,

 

(vi)          if Lender so elects, Lender shall have
completed a field examination with respect to the business and assets of the
Acquired Business in accordance with Lender’s customary procedures and
practices and as otherwise reasonably required by the nature and circumstances
of the business of the Acquired Business, the scope and results of which shall
be reasonably satisfactory to Lender and any accounts and inventory of the
Acquired Business shall only be Eligible Accounts and Eligible Inventory,
respectively, to the extent Lender has completed such field examination with
respect thereto and the criteria for Eligible Accounts and Eligible Inventory
set forth herein are satisfied with respect thereto in accordance with this
Agreement (or such other or additional criteria as Lender may, at its option,
reasonably establish with respect thereto in accordance with this Agreement and
subject to such Reserves as Lender may reasonably establish in connection with
the Acquired Business),

 

(vii)       in the case of the acquisition of Capital Stock
of any Person or the formation of any Subsidiary in connection with such
acquisition, (A) the Borrower or Guarantor forming such Subsidiary shall,
except as Lender may otherwise agree, (1) execute and deliver to Lender, a
pledge and security agreement, in form and substance reasonably satisfactory to
Lender, granting to Lender a first pledge of and lien on all of the issued and
outstanding shares of Capital Stock of any such Subsidiary, (2) deliver
the original stock certificates evidencing such shares of Capital Stock (or
such other evidence as may be issued in the case of a limited liability
company), together with stock powers with respect thereto duly executed in
blank (or

 

88

 

the equivalent thereof in the case of a
limited liability company in which such interests are certificated, or
otherwise take such actions as Lender shall reasonably require with respect to
Lender’s security interests therein) and (B) as to any such Subsidiary,
except as Lender may otherwise agree, the Borrower or Guarantor forming such
Subsidiary shall cause any such Subsidiary to execute and deliver to Lender,
the following (each in form and substance reasonably satisfactory to Lender), (1) an
absolute and unconditional guarantee of payment of the Obligations, (2) a
security agreement granting to Lender a first security interest and lien
(except as otherwise consented to in writing by Lender) upon all of the assets
of any such Subsidiary, and (3) such other agreements, documents and
instruments as Lender may reasonably 
require in connection with the documents referred to above in order to
make such Subsidiary a party to this Agreement as a “Borrower” or as a “Guarantor”
as Lender may determine, including, but not limited to, supplements and
amendments hereto, authorization to file UCC financing statements, Collateral
Access Agreements and other consents, waivers, acknowledgments and other
agreements from third persons which Lender may reasonably deem necessary or
desirable in order to permit, protect and perfect its security interests in and
liens upon the assets purchased, corporate resolutions and other organization
and authorizing documents of such Person, and favorable opinions of counsel to
such Person,

 

(viii)    in the case of an acquisition of assets (other than
Capital Stock), Lender shall have received, in form and substance reasonably
satisfactory to Lender, (A) evidence that Lender has valid and perfected
security interests in and liens upon all purchased assets to the extent such
assets constitute Collateral hereunder, (B) such other agreements,
documents and instruments as Lender may reasonably require in connection with
such assets, including, but not limited to, supplements and amendments hereto,
authorization to file UCC financing statements, Collateral Access Agreements
and other consents, waivers, acknowledgments and other agreements from third
persons which Lender may reasonably deem necessary or desirable in order to
permit, protect and perfect its security interests in and liens upon the assets
purchased, corporate resolutions and other organization and authorizing
documents of such Person, and favorable opinions of counsel to such Person, and
(C) the agreement of the seller consenting to the collateral assignment by
the Borrower purchasing such assets of all rights and remedies and claims for
damages of such Borrower relating to the Collateral (including, without
limitation, any bulk sales indemnification) under the agreements, documents and
instruments relating to such acquisition,

 

(ix)            in the case of the acquisition of the
Capital Stock of another Person, the board of directors (or other comparable
governing body) of such other Person shall have duly approved such acquisition
and such Person shall not have announced that it will oppose such acquisition
or shall not have commenced any action which alleges that such acquisition will
violate applicable law,

 

(x)               Lender shall have received a Compliance
Certificate completed on a pro forma basis giving effect to the acquisition and
showing that Borrowers and Guarantors are

 

89

 

in compliance with all of the covenants set
forth in Section 9 notwithstanding the amount of the Excess Availability,

 

(xi)            no Default or Event of Default shall exist
or have occurred as of the date of the acquisition or any payment in respect
thereof and after giving effect to the acquisition or such payment,

 

(xii)                             Excess Availability shall have
been not less than $12,500,000 for the two consecutive month period immediately
prior to the date of any such acquisition and not less than $12,500,000
immediately before and after giving effect to all payments in connection with
such acquisition, and

 

(xiii)      Lender shall have received true, correct and
complete copies of all agreements, documents and instruments relating to such
acquisition, which documents shall be reasonably satisfactory to Lender; and

 

(j)            credit
and advances, including marketing incentives, trade promotions and similar
incentives and promotions provided by Borrowers to customers of Borrowers in
the ordinary course of business and consistent with the current practices
(including the current practices of the Sara Lee DSD Business) of such Borrower
as of the date hereof;

 

(k)                                the loans and advances
set forth on Schedule 9.10 to the Information Certificate; provided, that,
as to such loans and advances, (i) Borrowers and Guarantors shall not,
directly or indirectly, amend, modify, alter or change the terms of such loans
and advances or any agreement, document or instrument related thereto and (ii) Borrowers
and Guarantors shall furnish to Lender all notices or demands in connection
with such loans and advances either received by any Borrower or Guarantor or on
its behalf, promptly after the receipt thereof, or sent by any Borrower or
Guarantor or on its behalf, concurrently with the sending thereof, as the case
may be.

 

9.11                           Dividends and Redemptions.  Each Borrower and Guarantor shall not,
directly or indirectly, declare or pay any dividends on account of any shares
of class of any Capital Stock of such Borrower or Guarantor now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares
of any class of Capital Stock (or set aside or otherwise deposit or invest any
sums for such purpose) for any consideration or apply or set apart any sum, or
make any other distribution (by reduction of capital or otherwise) in respect
of any such shares or agree to do any of the foregoing, except that:

 

(a)                                  any
Borrower or Guarantor may declare and pay such dividends or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
for consideration in the form of shares of common stock (so long as after
giving effect thereto no Change of Control or other Default or Event of Default
shall exist or have occurred and be continuing);

 

90

 

(b)                                 Borrowers
and Guarantors may pay dividends to the extent permitted in Section 9.12
below;

 

(c)                                  any
Subsidiary of a Borrower or Guarantor may pay dividends to a Borrower;

 

(d)                                 Parent
may repurchase Capital Stock for the purpose of funding required distribution
obligations of Parent to employees pursuant to any employee stock ownership
plan of Parent upon the termination, retirement, death of any such employee or
diversification distribution pursuant to and in accordance with the ESOP as in effect
on the date of this Agreement and Section 410(28) of the Code, in
accordance with the provisions of such plan; provided, that, as
to any such repurchase, each of the following conditions is satisfied: (i) such
repurchase shall be paid with funds legally available therefor, (ii) such
repurchase shall not violate any law or regulation or the terms of any
indenture, agreement or undertaking to which any Borrower or Guarantor is a
party or by which any Borrower or Guarantor or its or their property are bound,
(iii) Excess Availability shall be not less than $12,500,000 as of the
date of the payment and after giving effect to such payment, and (iv) Parent
shall deliver to Lender a certificate from an authorized officer of Parent
certifying that as of the date of the payment for such repurchase and after
giving effect thereto, Borrowers and Guarantors are and will be in compliance
with all representations, warranties and covenants as set forth in this
Agreement;

 

(e)                                  Farmer
may pay dividends and pay other distributions in respect of Capital Stock of
Farmer, provided, that, (i) Administrative Borrower shall
have provided to Lender not less than ten (10) Business Days’ prior
written notice of the intention of Farmer to pay such dividends or other
distributions (specifying the amount to be paid by Farmer), (ii) Excess
Availability shall have been not less than $12,500,000 for the two (2) consecutive
month period immediately prior to the date of any payment in respect of such
dividends or other distributions, and Excess Availability shall be not less
than $12,500,000 immediately after giving effect to any such payment or
distribution, (iii) Lender shall have received, not more than twenty (20)
Business Days prior to such payment and not less than five (5) Business Days
prior to such payment, current, updated projections of the amount of the
Borrowing Base and Excess Availability for the one month period after the date
of any payment in respect of such dividends, other distributions, in a form
reasonably satisfactory to Lender, representing Borrowers’ reasonable best
estimate of the future Borrowing Base and Excess Availability for the period
set forth therein as of the date not more than ten (10) days prior to the
date of the payment in respect of such dividend or other distributions, which
projections shall have been prepared on the basis of the assumptions set forth
therein which Borrowers believe are fair and reasonable as of the date of
preparation in light of current and reasonably foreseeable business conditions,
(iv) the amount of the Excess Availability as set forth in the projections
delivered pursuant to clause (iii) above for such one month period shall
be not less than $12,500,000, (v) the aggregate amount of all such
payments in any fiscal year shall not exceed $7,000,000, (vi) the
aggregate amount of all such payments in any fiscal quarter shall not exceed
$1,750,000 and (vii) as of the date of any

 

91

 

such payment and after giving
effect thereto, no Default or Event of Default exists or has occurred and is
continuing; and

 

(f)                                    Parent
may make distributions or pay dividends to the ESOT in connection with the ESOP
in the amounts of regularly scheduled payments to be made thereunder, in
accordance with the terms thereof in effect on the date hereof; provided,
that, as to any such distribution or dividend, all proceeds received by
the ESOT are used by the ESOT to repay the ESOP Indebtedness.

 

9.12                           Transactions with Affiliates.  Each Borrower and Guarantor shall not,
directly or indirectly:

 

(a)                                  purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
any officer, director or other Affiliate of such Borrower or Guarantor, except:

 

(i)                 in the ordinary course of and pursuant
to the reasonable requirements of such Borrower’s or Guarantor’s business (as
the case may be) and upon fair and reasonable terms no less favorable to such
Borrower or Guarantor than such Borrower or Guarantor would obtain in a
comparable arm’s length transaction with an unaffiliated person;

 

(ii)              as permitted under Section 9.11(d) hereof;
and

 

(iii)           pursuant to the performance by any Borrower
of its obligations under the term s of any stockholders agreement (including
any rights agreement related thereto) to which it is a party as of the date
hereof and any similar agreement which such Borrower may enter into hereafter; provided,
however, that the existence of, or the performance by such Borrower of
obligations under any future amendment to any such existing agreement or under
any similar agreement entered into after the date hereof will only be permitted
by this clause (iii) to the extent that the terms of any such amendment or
new agreement, taken as a whole, are not materially disadvantageous to the
Lender; or

 

(b)                                 make
any payments (whether by dividend, loan or otherwise) of management, consulting
or other fees for management or similar services, or of any Indebtedness owing
to any officer, employee, director or any other Affiliate of such Borrower or
Guarantor, except (i) reasonable compensation to officers,
employees, directors and consultants for services rendered to such Borrower or
Guarantor in the ordinary course of business, and (ii) payments by any
such Borrower or Guarantor to Parent for actual and necessary reasonable
out-of-pocket legal and accounting, insurance, marketing, payroll and similar
types of services paid for by Parent on behalf of such Borrower or Guarantor,
in the ordinary course of their respective businesses or as the same may be
directly attributable to such Borrower or Guarantor and for the payment of
taxes by or on behalf of Parent.

 

9.13                           Compliance with ERISA.  Each Borrower and Guarantor shall, and shall
cause each of its ERISA Affiliates to:  (a) maintain
each Plan in compliance in all material respects

 

92

 

with the applicable provisions of ERISA, the Code and other Federal and
State law; (b) cause each Plan which is qualified under Section 401(a) of
the Code to maintain such qualification; (c)not terminate any Pension Plan so
as to incur any material liability to the Pension Benefit Guaranty
Corporation;  (d) not allow or
suffer to exist any prohibited transaction involving any Plan or any trust
created thereunder which would subject such Borrower, Guarantor or such ERISA
Affiliate to a material tax or other material liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA; (e) make
all required contributions to any Plan which it is obligated to pay under Section 302
or 303 of ERISA, Section 412 or 430 of the Code or the terms of such Plan;
(f) not allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such Pension Plan; (g)  not
engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; or (h) not allow or suffer to exist any occurrence of a reportable
event or any other event or condition which presents a material risk of
termination by the Pension Benefit Guaranty Corporation of any Plan that is a
single employer plan, which termination could result in any material liability
of any Borrower or Guarantor to the Pension Benefit Guaranty Corporation.

 

9.14                           End of Fiscal Years; Fiscal Quarters.  Each Borrower and Guarantor shall, for
financial reporting purposes, cause its, and each of its Subsidiaries’ (a) fiscal
years to end on June 30 of each year and (b) fiscal quarters to end
on September 30, December 31 and March 31 of each year.

 

9.15                           Change in Business.  Each Borrower and Guarantor shall not engage
in any business other than the business of such Borrower or Guarantor on the
date hereof and any business reasonably related, ancillary or complementary to
the business in which such Borrower or Guarantor is engaged on the date hereof.

 

9.16                           Limitation of Restrictions Affecting
Subsidiaries.  Each Borrower and
Guarantor shall not, directly, or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction which prohibits or limits the
ability of any Subsidiary of such Borrower or Guarantor  to (a) pay dividends or make other
distributions or pay any Indebtedness owed to such Borrower or Guarantor or any
Subsidiary of such Borrower or Guarantor; (b) make loans or advances to
such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor, (c) transfer
any of its properties or assets to such Borrower or Guarantor or any Subsidiary
of such Borrower or Guarantor; or (d) create, incur, assume or suffer to
exist any lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable
law, (ii) this Agreement, (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of such
Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor, (iv) customary
restrictions on dispositions of real property interests found in reciprocal
easement agreements of such Borrower or Guarantor or any Subsidiary of such
Borrower or Guarantor, (v) any agreement relating to permitted
Indebtedness incurred by a Subsidiary of such Borrower or Guarantor prior to
the date on which such Subsidiary was acquired by such Borrower or such
Guarantor  and outstanding on such
acquisition date, and (vi) the extension or continuation of contractual
obligations in

 

93

 

existence on the date hereof; provided, that, any such encumbrances or
restrictions contained in such extension or continuation are no less favorable
to Lender than those encumbrances and restrictions under or pursuant to the
contractual obligations so extended or continued.

 

9.17                           Capital Expenditures.  Borrowers and Guarantors shall not, and shall
not permit any of their Subsidiaries to, make Capital Expenditures (calculated
on a consolidated basis for Borrowers, Guarantors and their Subsidiaries) (a) during
the fiscal year ending June 30, 2009 in an amount in excess of $40,000,000
and (b) during any fiscal year thereafter in an aggregate amount in excess
of $35,000,000.

 

9.18                           Fixed
Charge Coverage Ratio.  The Fixed
Charge Coverage Ratio of Parent and its Subsidiaries (on a consolidated basis)
determined as of the end of the fiscal month most recently ended for which
Lender has received financial statements, for each period of twelve (12)
consecutive fiscal months ending on or about the date set forth below, shall be
not less than the amount set forth opposite such date; provided, that,
for all dates of determination set forth below prior to February 28, 2010,
the Fixed Charge Coverage Ratio shall be tested for the period commencing March 1,
2009 through and including the last day of the fiscal month most recently ended
as set forth below:

 

	
  Date

  	
   

  	
  Minimum Fixed Charge Coverage

  Ratio

  
	
   

  	
   

  	
   

  
	
  July 31, 2009

  	
   

  	
  0.30:1.00

  
	
   

  	
   

  	
   

  
	
  August 31, 2009

  	
   

  	
  0.30:1.00

  
	
   

  	
   

  	
   

  
	
  September 30, 2009

  	
   

  	
  0.30:1.00

  
	
   

  	
   

  	
   

  
	
  October 31, 2009

  	
   

  	
  0.40:1.00

  
	
   

  	
   

  	
   

  
	
  November 30, 2009

  	
   

  	
  0.40:1.00

  
	
   

  	
   

  	
   

  
	
  December 31, 2009

  	
   

  	
  0.40:1.00

  
	
   

  	
   

  	
   

  
	
  January 31, 2010

  	
   

  	
  0.55:1.00

  
	
   

  	
   

  	
   

  
	
  February 28, 2010

  	
   

  	
  0.55:1.00

  
	
   

  	
   

  	
   

  
	
  March 31, 2010

  	
   

  	
  0.55:1.00

  

 

94

 

	
  April 30, 2010

  	
   

  	
  0.70:1.00

  
	
   

  	
   

  	
   

  
	
  May 31, 2010

  	
   

  	
  0.70:1.00

  
	
   

  	
   

  	
   

  
	
  June 30, 2010

  	
   

  	
  0.70:1.00

  
	
   

  	
   

  	
   

  
	
  July 31, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  August 31, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  September 30, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  October 31, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  November 30, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  December 31, 2010

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  January 31, 2011

  	
   

  	
  0.75:1.00

  
	
   

  	
   

  	
   

  
	
  February 28, 2011 and each

  month thereafter

  	
   

  	
  1.00:1.00

  

 

9.19                           Minimum
Adjusted EBITDA.  The Adjusted EBITDA
of Parent and its Subsidiaries (on a consolidated basis), determined as of the
end of the fiscal month most recently ended for which Lender has received
financial statements pursuant to Section 9.6(a) of this Agreement,
for each period specified below, shall not be less than the amount set forth
below opposite the last date of such period:

 

	
  Date

  	
   

  	
  Minimum Adjusted EBITDA

  
	
   

  	
   

  	
   

  
	
  March 1,
  2009 through and

  including May 31, 2009

  	
   

  	
  $0

  
	
   

  	
   

  	
   

  
	
  March 1,
  2009 through and

  including June 30, 2009

  	
   

  	
  $0

  

 

95

 

9.20                           Liquidity
Trigger Event.

 

(a)                                  Upon
the occurrence of a Liquidity Trigger Event after the date of this Agreement,
Borrowers shall send or cause to be sent to Lender (not later than three (3) Business
Days thereafter) by federal funds wire transfer not less than $10,000,000 to an
interest bearing restricted money market account at Lender (the “Cash
Collateral Account”) as additional Collateral for the Obligations; provided,
that, Borrowers may fund such deposit, with the proceeds of a Revolving
Loan so long as (i) immediately prior to and after giving effect to such
borrowing, no Event of Default shall have occurred and be continuing and (ii) immediately
after giving effect to such Borrowing, Excess Availability shall be not
less than $5,000,000.

 

(b)                                 So
long as no Event of Default shall have occurred and be continuing, Lender shall
invest the Cash Collateral in accordance with the terms of the account
agreement between Lender and Borrowers with respect to the Cash Collateral
Account (the “Account Agreement”) and Borrowers shall receive a credit to the
Cash Collateral Account for all interest and other earnings on the Cash
Collateral on or about the last day of each fiscal quarter.  Upon the written request by Administrative
Borrower (which request shall not be made more frequently than one (1) time
per fiscal quarter), any interest or other earnings in respect of the Cash
Collateral shall be released to Borrowers in accordance with the terms of the
Account Agreement.

 

(c)                                  Except
for the release of interest and other earnings on the Cash Collateral as set
forth in clause (b) above, Borrowers shall have no right to be paid or to
draw upon any of the Cash Collateral unless and until the Credit Facility shall
have been terminated and all of the Obligations have been indefeasibly paid and
satisfied in full (or sooner if Lender so determines).  If and when the Credit Facility shall have
been terminated and all of the Obligations have been indefeasibly paid and
satisfied in full (or sooner if Lender so determines), any sums still held by
Lender as Cash Collateral shall be returned to Borrowers (subject to applicable
law or court order).

 

9.21                           ESOP/ESOT; ESOP Loan Documents.

 

(a)                                  The
ESOP and ESOT shall continue to be administered, operated and maintained as a
qualified plan and trust under all applicable sections of the Code and ERISA,
including (i) continuing the qualification of the ESOP and the ESOT under Section 401(a) of
the Code, (ii) causing the ESOT to maintain its tax-exempt status under Section 501(a) of
the Code, and (iii) causing the ESOP to maintain its status as an “employee
stock ownership plan” within the meaning of Section 4975(e)(7) of the
Code.

 

(b)                                 Parent
shall from time to time furnish to Lender satisfactory evidence of its contributions
to the ESOT in an amount which, together with all cash held by the ESOT that is
legally available to make regularly scheduled payments under the ESOP Loan
Agreement on the date any payment is due thereunder, is sufficient to pay when
due all amounts payable by the ESOT to Parent under the ESOP Loan Agreement as
in effect on the date hereof.

 

96

 

(c)           Parent shall from time to time
furnish to Lender satisfactory evidence of its contributions to the ESOT in an
amount which is sufficient to pay when due all amounts so payable by the ESOT
to Parent thereunder.

 

(d)           Parent shall deliver to Lender when obtained
(i) a copy of any repurchase liability study or similar report prepared by
a valuation firm, actuarial firm or other similar Person projecting the
obligations of Parent (A) to repurchase Capital Stock or other interests
in the ESOP from participants in the ESOP and (B) to satisfy its
diversification obligations under the Code; and (ii) at the time that any
such study is prepared or established, evidence of Parent’s proposed plan with
respect to funding and otherwise satisfying its repurchase and diversification
obligations.

 

9.22         Preferred Stock
Portfolio.

 

(a)           Borrowers and Guarantors shall not (i) close
the Specified Investment Account or (ii) dispose of the investment
property within the Specified Investment Account other than in accordance with Section 9.7(b)(vi) of
this Agreement, in each case without the prior written consent of Lender.

 

(b)           Borrowers and Guarantors shall not
deposit or maintain the proceeds of any Loans or any proceeds from the sale or
other disposition of any Collateral in the Specified Investment Account.

 

(c)           Borrowers and Guarantors shall not
use the proceeds of any Loans or the proceeds from the sale or other
disposition of Collateral to purchase or otherwise acquire any investment
property to be held in the Specified Investment Account.

 

(d)           Borrowers and Guarantors shall
furnish to Lender all notices or demands in connection with such the Specified
Investment Account either received by any Borrower or Guarantor or on its
behalf promptly after the receipt thereof, or sent by any Borrower or Guarantor
or on its behalf concurrently with the sending thereof, as the case may be.

 

(e)           Each Borrower and Guarantor hereby
irrevocably authorizes and directs the intermediary in respect of the Specified
Investment Account to deliver to Lender, at Borrowers’ expense, copies of the
account statements sent by such intermediary to any Borrower or Guarantor or on
its behalf.

 

9.23         License Agreements.

 

(a)           Each Borrower and Guarantor shall (i) promptly
and faithfully observe and perform all of the material terms, covenants,
conditions and provisions of the material License Agreements to which it is a
party to be observed and performed by it, at the times set forth therein, if
any, (ii) not do, permit, suffer or refrain from doing anything that could
reasonably be expected to result in a default under or breach of any of the
terms of any material 

 

97

 

License Agreement, (iii) not
cancel, surrender, modify, amend, waive or release any material License
Agreement in any material respect or any term, provision or right of the
licensee thereunder in any material respect, or consent to or permit to occur
any of the foregoing; except, that, subject to Section 9.23(b) below,
such Borrower or Guarantor may cancel, surrender or release any material
License Agreement in the ordinary course of the business of such Borrower or
Guarantor; provided, that, such Borrower or Guarantor (as the
case may be) shall give Lender not less than thirty (30) days prior written
notice of its intention to so cancel, surrender and release any such material
License Agreement, (iv) give Lender prompt written notice of any material
License Agreement entered into by such Borrower or Guarantor  after the date hereof, together with a true,
correct and complete copy thereof and such other information with respect
thereto as Lender may request, (v) give Lender prompt written notice of
any material breach of any obligation, or any default, by any party under any
material License Agreement, and deliver to Lender (promptly upon the receipt
thereof by such Borrower or Guarantor in the case of a notice to such Borrower
or Guarantor and concurrently with the sending thereof in the case of a notice
from such Borrower or Guarantor) a copy of each notice of default and every
other notice and other communication received or delivered by such Borrower or
Guarantor in connection with any material License Agreement which relates to
the right of such Borrower or Guarantor to continue to use the property subject
to such License Agreement, and (vi) furnish to Lender, promptly upon the
request of Lender, such information and evidence as Lender may reasonably
require from time to time concerning the observance, performance and compliance
by such Borrower or Guarantor or the other party or parties thereto with the
material terms, covenants or provisions of any material License Agreement.

 

(b)           Each Borrower and Guarantor will
either exercise any option to renew or extend the term of each material License
Agreement to which it is a party in such manner as will cause the term of such
material License Agreement to be effectively renewed or extended for the period
provided by such option and give prompt written notice thereof to Lender or
give Lender prior written notice that such Borrower or Guarantor does not
intend to renew or extend the term of any such material License Agreement or
that the term thereof shall otherwise be expiring, not less than sixty (60)
days prior to the date of any such non-renewal or expiration.  In the event of the failure of such Borrower
or Guarantor to extend or renew any material License Agreement to which it is a
party, Lender shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such material License
Agreement, whether in its own name and behalf, or in the name and behalf of a
designee or nominee of Lender or in the name and behalf of such Borrower or
Guarantor, as Lender shall determine at any time that an Event of Default shall
exist or have occurred and be continuing. 
Lender may, but shall not be required to, perform any or all of such
obligations of such Borrower or Guarantor under any of the License Agreements,
including, but not limited to, the payment of any or all sums due from such
Borrower or Guarantor thereunder.  Any
sums so paid by Lender shall constitute part of the Obligations.

 

9.24         Foreign Assets Control Regulations, Etc.  None of the requesting or borrowing of the
Loans or the requesting or issuance, extension or renewal of any Letters of
Credit or the use 

 

98

 

of the proceeds of any thereof will violate the Trading With the Enemy
Act (50 U.S.C. §1 et seq., as amended) (the “Trading With the Enemy Act”) or
any of the foreign assets control regulations of the United States Treasury
Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the “Foreign Assets
Control Regulations”) or any enabling legislation or executive order relating
thereto (including, but not limited to (a) Executive order 13224 of September 21,
2001 Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive
Order”) and (b) the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(Public Law 107-56).  No Borrower nor any
of their respective Subsidiaries or other Affiliates is or will become a
Sanctioned Entity or Sanctioned Person as described in the Executive Order, the
Trading with the Enemy Act or the Foreign Assets Control Regulations or  engages or will engage in any dealings or
transactions, or be otherwise associated, with any such Sanctioned Entity or
Sanctioned Person.

 

9.25         After Acquired Real
Property.

 

  If
any Borrower or Guarantor hereafter acquires any Real Property, fixtures or any
other property (other than any Real Property acquired pursuant to the Option
Agreement, as in effect on the date hereof and any improvements or additions of
fixtures or other property to Excluded Property) and such Real Property,
fixtures or other property at any location (or series of adjacent, contiguous
or related locations, and regardless of the number of parcels) has a fair market
value in an amount equal to or greater than $500,000 (or if a Default or Event
of Default exists or shall have occurred and be continuing, then regardless of
the fair market value of such assets), without limiting any other rights of
Lender, or duties or obligations of any Borrower or Guarantor, promptly upon
Lender’s request, such Borrower or Guarantor shall execute and deliver to
Lender a mortgage, deed of trust or deed to secure debt, as Lender may
determine, in form and substance reasonably satisfactory to Lender and in form
appropriate for recording in the real estate records of the jurisdiction in
which such Real Property or other property is located granting to Lender a
first and only lien and mortgage on and security interest in such Real Property,
fixtures or other property (except for and subject to encumbrances that such
Borrower or Guarantor would otherwise be permitted to incur hereunder or as
otherwise consented to in writing by Lender) and such other agreements,
documents and instruments as Lender may require in connection therewith.

 

9.26         Costs and Expenses.  Borrowers and Guarantors shall pay to Lender
on demand all reasonable costs, expenses, filing fees and taxes paid or payable
in connection with the preparation, negotiation, execution, delivery,
recording, syndication, administration, collection, liquidation, enforcement
and defense of the Obligations, Lender’s rights in the Collateral, this
Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including:  (a) all
reasonable costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage 

 

99

 

recording taxes and fees, if applicable); (b) reasonable costs and
expenses and fees for insurance premiums, environmental audits, title insurance
premiums, surveys, assessments, engineering reports and inspections, appraisal
fees and search fees, background checks, costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Concentration Accounts, together with Lender’s reasonable and
customary charges and fees with respect thereto; (c) reasonable charges,
fees or expenses charged by any bank or issuer in connection with any Letter of
Credit; (d) reasonable costs and expenses of preserving and protecting the
Collateral; (e) reasonable costs and expenses paid or incurred in
connection with obtaining payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby (including
preparations for and consultations concerning any such matters); (f) all
reasonable out-of-pocket expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations
of the Collateral and such Borrower’s or Guarantor’s operations, plus a
per diem charge at Lender’s then standard rate for Lender’s examiners in the
field and office (which rate as of the date hereof is $1,000 per person per
day); and (g) the reasonable fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.

 

9.27         Inactive Subsidiaries.

 

(a)           Except as otherwise provided in Section 9.27(b) below,
Borrowers and Guarantors will not permit the Inactive Subsidiary to (i) engage
in any business or conduct any operations, (ii) own assets with a book
value of more than $100,000 in the aggregate or (iii) incur any
obligations or liabilities in respect of any Indebtedness or otherwise.

 

(b)           In the event that a Borrower or
Guarantor intends to have the Inactive Subsidiary commence any business or
operations or own assets with a book value of more than $100,000 in the
aggregate or incur any obligations or liabilities in respect of any
Indebtedness or otherwise, (i) Borrowers and Guarantors shall give Lender
not less than ten (10) days’ prior written notice thereof with reasonable
detail and specificity and such other information with respect thereto as
Lender may request and (ii) at any time thereafter, promptly upon the
request of Lender, Borrowers and Guarantors shall cause Inactive Subsidiary to
execute and deliver to Lender, in form and substance satisfactory to Lender, a
joinder agreement to the Financing Agreements in order to, among other  things, make the Inactive Subsidiary a party
to this Agreement as a “Guarantor” and a party to any guarantee as a “Guarantor”
or pledge agreement as a “Pledgor”, and including, but not limited to,
supplements and amendments hereto and to any of the other Financing Agreements,
authorization to file UCC financing statements, Collateral Access Agreements
(to the extent required under Section 9.2 hereof), other agreements,
documents or instruments contemplated under Section 5.3 hereof and other
consents, waivers, acknowledgments and other agreements from third persons
which Lender may deem reasonably necessary or desirable in order to permit,
protect and perfect its security interests in and liens 

 

100

 

upon the assets of the Inactive
Subsidiary, corporate resolutions and other organization and authorizing
documents of such Person, and favorable opinions of counsel to such person and (iii) 
upon the satisfaction of each of the conditions set forth in this Section 9.27(b),
the Inactive Subsidiary shall cease to be deemed an Inactive Subsidiary for
purposes of this Agreement.

 

9.28         Further Assurances.  At the request of Lender at any time and from
time to time, Borrowers and Guarantors shall, at their expense, duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements.  Lender may
at any time and from time to time request a certificate from an officer of any
Borrower or Guarantor  representing that
all conditions precedent to the making of Loans and providing Letters of Credit
contained herein are satisfied.  In the
event of such request by Lender, Lender may, at Lender’s option, cease to make
any further Loans or provide any further Letters of Credit until Lender has
received such certificate and, in addition, Lender has determined that such
conditions are satisfied.

 

SECTION  10.      EVENTS OF
DEFAULT AND REMEDIES

 

10.1         Events of Default.  The occurrence or existence of any one or
more of the following events are referred to herein individually as an “Event
of Default”, and collectively as “Events of Default”:

 

(a)           (i) any Borrower fails to pay
any of the Obligations when due or (ii) any Borrower or Guarantor fails to
perform any of the covenants contained in Sections 9.3, 9.4, 9.13, 9.14, 9.15,
and 9.16 of this Agreement and such failure shall continue for ten (10) days;
provided, that, such ten (10) day period shall not apply in
the case of: (A) any failure to observe any such covenant which is not
capable of being cured at all or within such ten (10) day period or which
has been the subject of a prior failure within a six (6) month period or (B) an
intentional breach by any Borrower or Guarantor of any such covenant or (iii) any
Borrower or Guarantor fails to perform any of the terms, covenants, conditions
or provisions contained in this Agreement or any of the other Financing
Agreements other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;

 

(b)           any representation, warranty or
statement of fact made by any Borrower or Guarantor in this Agreement, the
other Financing Agreements or any other written agreement, schedule,
confirmatory assignment or otherwise shall when made or deemed made be false or
misleading in any material respect

 

(c)           any Guarantor revokes or terminates
or purports to revoke or terminate, or fails to perform any of the terms,
covenants, conditions or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;

 

101

 

(d)           one or more judgments for the payment
of money are rendered against any Borrower or Guarantor in excess of $250,000
in the aggregate (to the extent not covered by insurance where the insurer has
assumed responsibility in writing for such judgment) and shall remain
undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against any Borrower or Guarantor or any of the
Collateral having a value in excess of $250,000;

 

(e)           any Guarantor (being a natural person
or a general partner of an Guarantor which is a partnership) dies or any
Borrower or Guarantor, which is a partnership, limited liability company,
limited liability partnership or a corporation, dissolves or suspends or
discontinues doing business;

 

(f)            any Borrower or Guarantor makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a meeting of its creditors or principal creditors in
connection with a moratorium or adjustment of the Indebtedness due to them;

 

(g)           a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or in equity) is filed against any Borrower or
Guarantor or all or any part of its properties and such petition or application
is not dismissed within thirty (30) days after the date of its filing or any
Borrower or Guarantor shall file any answer admitting or not contesting such
petition or application or indicates its consent to, acquiescence in or
approval of, any such action or proceeding or the relief requested is granted
sooner;

 

(h)           a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at a law or equity) is filed by any Borrower or Guarantor or
for all or any part of its property;

 

(i)            any default in respect of any
Indebtedness of any Borrower or Guarantor (other than Indebtedness owing to
Lender hereunder) or of the ESOT to any Person, in any case in an amount in
excess of $250,000, including, under the ESOP Documents, which default continues
for more than the applicable cure period, if any, with respect thereto or any
default by any Borrower or Guarantor under any Material Contract, which default
continues for more than the applicable cure period, if any, with respect
thereto and/or is not waived in writing by the other parties thereto;

 

(j)            any material provision hereof or of
any of the other Financing Agreements shall for any reason cease to be valid,
binding and enforceable with respect to any party hereto or thereto (other than
Lender) in accordance with its terms, or any such party shall challenge the
enforceability hereof or thereof, or shall assert in writing, or take any
action or fail to take any 

 

102

 

action based on the assertion
that any provision hereof or of any of the other Financing Agreements has
ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms, or any security interest provided for herein or in any of the
other Financing Agreements shall cease to be a valid and perfected first
priority security interest in any of the Collateral purported to be subject
thereto (except as otherwise permitted herein or therein);

 

(k)           an ERISA Event shall occur which
results in or could reasonably be expected to result in liability of any
Borrower in an aggregate amount in excess of $500,000;

 

(l)            any Change of Control;

 

(m)          the indictment by any Governmental
Authority, or as Lender may reasonably and in good faith determine, the
threatened indictment by any Governmental Authority of any Borrower or
Guarantor of which any Borrower, Guarantor or Lender receives notice, in either
case, as to which there is a reasonable possibility of an adverse
determination, in the good faith determination of Lender, under any criminal
statute, or commencement or threatened commencement of criminal or civil
proceedings against such Borrower or Guarantor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
(i) any of the Collateral having a value in excess of $250,000 or (ii) any
other property of any Borrower or Guarantor which is necessary or material to
the conduct of its business;

 

(n)           there shall occur any other event,
development or condition that would constitute or have a Material Adverse
Effect;

 

(o)           from and after the date on which
Borrowers have deposited the amount required to be so deposited by Section 9.20
of the Agreement, the amount of cash in the Cash Investment Accounts is less
than $10,000,000;

 

(p)           the ESOT fails to be duly qualified
under Section 401(a) of the Code or exempt from federal income
taxation under Section 501(a) of the Code; or the ESOP shall engage
in a non-exempt prohibited transaction which has reasonably been expected to
result in liability to Parent in excess of $250,000; or

 

(q)           there shall be an event of default
(after the applicable cure period, if any) under any of the other Financing
Agreements.

 

10.2         Remedies.

 

(a)           At any time an Event of Default
exists or has occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing Agreements, the UCC
and other applicable law, all of which rights and remedies may be exercised
without notice to or consent by any Borrower or Guarantor, except as such
notice or consent is expressly provided for hereunder or required by applicable
law.  All rights, remedies 

 

103

 

and powers granted to Lender
hereunder, under any of the other Financing Agreements, the UCC or other
applicable law, are cumulative, not exclusive and enforceable, in Lender’s
discretion, alternatively, successively, or concurrently on any one or more
occasions, and shall include, without limitation, the right to apply to a court
of equity for an injunction to restrain a breach or threatened breach by any
Borrower or Guarantor of this Agreement or any of the other Financing
Agreements.  Lender may, at any time or
times, proceed directly against any Borrower or Guarantor to collect the
Obligations without prior recourse to the Collateral.

 

(b)           Without limiting the foregoing, at
any time an Event of Default exists or has occurred and is continuing, Lender
may, in its discretion: (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Lender, (provided, that, upon
the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance
of others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii) require
any Borrower or Guarantor, at Borrowers’ expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate,
setoff and realize upon any and all Collateral, (v) remove any or all of
the Collateral from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition thereof or for
any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including entering into contracts with
respect thereto, public or private sales at any exchange, broker’s board, at
any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender
having the right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right or equity of
redemption of any Borrower or Guarantor, which right or equity of redemption is
hereby expressly waived and released by Borrowers and Guarantors and/or (vii) terminate
this Agreement; provided, that, Lender shall not take any of the
foregoing actions unless an Event of Default has occurred and is continuing.  If any of the Collateral is sold or leased by
Lender upon credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment therefor is finally collected by
Lender.  If notice of disposition of
Collateral is required by law, ten (10) days prior notice by Lender to
Administrative Borrower designating the time and place of any public sale or
the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrowers and Guarantors waive any other notice.  In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, each Borrower and Guarantor waives the posting of any bond
which might otherwise be required. At any time an Event of Default exists or
has occurred and is continuing, upon Lender’s request, Borrowers will either,
as Lender shall specify, furnish cash collateral to the issuer to be used to
secure and fund Lender’s reimbursement obligations to the issuer in connection
with any Letter of Credit Obligations or furnish cash collateral to Lender for
the Letter of Credit Obligations.  Such
cash collateral shall be in the amount equal to one hundred ten (110%) percent
of the amount of the Letter of Credit 

 

104

 

Obligations plus the
amount of any fees and expenses payable in connection therewith through the end
of the latest expiration date of the Letters of Credit giving rise to such
Letter of Credit Obligations.

 

(c)           At any time or times that an Event of
Default exists or has occurred and is continuing, Lender may, in its
discretion, enforce the rights of any Borrower or Guarantor against any account
debtor, secondary obligor or other obligor in respect of any of the Accounts or
other Receivables.  Without limiting the
generality of the foregoing, Lender may, in its discretion, at such time or
times (i) notify any or all account debtors, secondary obligors or other
obligors in respect thereof that the Receivables have been assigned to Lender
and that Lender has a security interest therein and Lender may direct any or
all account debtors, secondary obligors and other obligors to make payment of
Receivables directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Receivables or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any secondary obligors or other obligors in respect thereof
without affecting any of the Obligations, (iii) demand, collect or enforce
payment of any Receivables or such other obligations, but without any duty to
do so, and Lender shall not be liable for any failure to collect or enforce the
payment thereof nor for the negligence of its agents or attorneys with respect
thereto and (iv) take whatever other action Lender may reasonably deem
necessary or desirable for the protection of its interests.  At any time that an Event of Default exists
or has occurred and is continuing, at Lender’s request, all invoices and
statements sent to any account debtor shall state that the Accounts and such
other obligations have been assigned to Lender and are payable directly and
only to Lender and Borrowers and Guarantors shall deliver to Lender such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.  In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrowers shall, upon Lender’s request, hold the returned Inventory in trust
for Lender,  segregate all returned
Inventory from all of its other property, dispose of the returned Inventory
solely according to Lender’s instructions, and not issue any credits, discounts
or allowances with respect thereto without Lender’s prior written consent.

 

(d)           To the extent that applicable law
imposes duties on Lender to exercise remedies in a commercially reasonable
manner (which duties cannot be waived under such law), each Borrower and
Guarantor acknowledges and agrees that it is not commercially unreasonable for
Lender (i) to fail to incur expenses reasonably deemed significant by
Lender to prepare Collateral for disposition or otherwise to complete raw
material or work in process into finished goods or other finished products for
disposition, (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain consents of any Governmental Authority or other third party for
the collection or disposition of Collateral to be collected or disposed of, (iii) to
fail to exercise collection remedies against account debtors, secondary
obligors or other persons obligated on Collateral or to remove liens or
encumbrances on or any adverse claims against Collateral, (iv) to exercise
collection remedies against account debtors and other persons obligated on
Collateral directly or through 

 

105

 

the use of collection agencies
and other collection specialists, (v) to advertise dispositions of
Collateral through publications or media of general circulation, whether or not
the Collateral is of a specialized nature, (vi) to contact other persons,
whether or not in the same business as any Borrower or Guarantor, for
expressions of interest in acquiring all or any portion of the Collateral, (vii) to
hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure Lenders against risks of loss, collection or disposition of Collateral
or to provide to Lender a guaranteed return from the collection or disposition
of Collateral, or (xii) to the extent deemed appropriate by Lender, to obtain
the services of other brokers, investment bankers, consultants and other
professionals to assist Lender in the collection or disposition of any of the
Collateral. Each Borrower and Guarantor acknowledges that the purpose of this Section is
to provide non-exhaustive indications of what actions or omissions by Lender
would not be commercially unreasonable in the exercise by any Lender of
remedies against the Collateral and that other actions or omissions by Lender
shall not be deemed commercially unreasonable solely on account of not being
indicated in this Section. Without limitation of the foregoing, nothing
contained in this Section shall be construed to grant any rights to any
Borrower or Guarantor or to impose any duties on Lender that would not have
been granted or imposed by this Agreement or by applicable law in the absence
of this Section.

 

(e)           For the purpose of enabling Lender to
exercise the rights and remedies hereunder, each Borrower and Guarantor hereby
grants to Lender, to the extent assignable, an irrevocable, non-exclusive
license (exercisable at any time an Event of Default shall exist or have
occurred and for so long as the same is continuing) without payment of royalty
or other compensation to any Borrower or Guarantor, to use, assign, license or
sublicense any of the trademarks, service-marks, trade names, business names,
trade styles, designs, logos and other source of business identifiers and other
Intellectual Property and general intangibles now owned or hereafter acquired
by any Borrower or Guarantor, wherever the same maybe located, including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer programs used for the compilation
or printout thereof.

 

(f)            At any time an Event of Default
exists or has occurred and is continuing, Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the Obligations, in whole or
in part and in accordance with the terms hereof, whether or not then due or may
hold such proceeds as cash collateral for the Obligations.  Borrowers and Guarantors shall remain liable
to Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys’  fees and expenses.

 

106

 

(g)           Without limiting the
foregoing, upon the occurrence of a Default or an Event of Default, Lender may,
at Lender’s option, without notice, (i) cease making Loans or arranging
for Letters of Credit or reduce the lending formulas or amounts of Loans and Letters
of Credit available to Borrowers and/or (ii) terminate any provision of
this Agreement providing for any future Loans or Letters of Credit to be made
by Lender to Borrowers and/or (iii) establish such Reserves as Lender
determines, without limitation or restriction, notwithstanding anything to the
contrary contained herein.

 

SECTION  11.      JURY TRIAL WAIVER; OTHER
WAIVERS AND CONSENTS; GOVERNING LAW

 

11.1         Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.

 

(a)           The validity, interpretation
and enforcement of this Agreement and the other Financing Agreements (except as
otherwise provided therein) and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of California but excluding
any principles of conflicts of law or other rule of law that would cause
the application of the law of any jurisdiction other than the laws of the State
of California.

 

(b)           Borrowers, Guarantors
and Lender irrevocably consent and submit to the non-exclusive jurisdiction of
the state courts of Los Angeles County, State of California or the United
States District Court for the Central District of California, whichever Lender
may elect, and waive any objection based on venue or forum  non  conveniens
with respect to any action instituted therein arising under this Agreement or
any of the other Financing Agreements or in any way connected with or related
or incidental to the dealings of the parties hereto in respect of this
Agreement or any of the other Financing Agreements or the transactions related
hereto or thereto, in each case whether now existing or hereafter arising, and
whether in contract, tort, equity or otherwise, and agree that any dispute with
respect to any such matters shall be heard only in the courts described above
(except that Lender shall have the right to bring any action or proceeding
against any Borrower or Guarantor or its or their property in the courts of any
other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against any
Borrower or Guarantor or its or their property).

 

(c)           Each Borrower and
Guarantor hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by certified mail (return
receipt requested) directed to its address set forth herein and service so made
shall be deemed to be completed five (5) days after the same shall have been
so deposited in the U.S. mails, or, at Lender’s option, by service upon any
Borrower or Guarantor (or Administrative Borrower on behalf of such Borrower or
Guarantor) in any other manner provided under the rules of any such
courts.

 

(d)           BORROWERS, GUARANTORS
AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR 

 

107

 

CAUSE OF ACTION (i) ARISING
UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  BORROWERS, GUARANTORS AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY
GUARANTOR OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

(e)           Lender shall not have
any liability to any Borrower or Guarantor (whether in tort, contract, equity
or otherwise) for losses suffered by such Borrower or Guarantor in connection
with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct.  In any such litigation,
Lender shall be entitled to the benefit of the rebuttable presumption that it
acted in good faith and with the exercise of ordinary care in the performance
by it of the terms of this Agreement. 
Each Borrower and Guarantor:  (i) certifies
that neither Lender nor any representative, agent or attorney acting for or on
behalf of Lender has represented, expressly or otherwise, that Lender would
not, in the event of litigation, seek to enforce any of the waivers provided
for in this Agreement or any of the other Financing Agreements and (ii) acknowledges
that in entering into this Agreement and the other Financing Agreements, Lender
is relying upon, among other things, the waivers and certifications set forth
in this Section 11.1 and elsewhere herein and therein.

 

11.2         Waiver of Notices.  Each Borrower and Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and chattel paper, included in
or evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein.  No notice to or
demand on any Borrower or Guarantor which Lender may elect to give shall
entitle such Borrower or Guarantor to any other or further notice or demand in
the same, similar or other circumstances.

 

11.3         Amendments and Waivers.  Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrowers.  Lender shall not, by any act,
delay, omission or 

 

108

 

otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Lender.  Any such waiver shall be enforceable only to
the extent specifically set forth therein. 
A waiver by Lender of any right, power and/or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right, power and/or
remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

 

11.4         Waiver of Counterclaims.  Each Borrower and Guarantor waives all rights
to interpose any claims, deductions, setoffs or counterclaims of any nature
(other then compulsory counterclaims) in any action or proceeding with respect
to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.

 

11.5         Indemnification.  Each Borrower and Guarantor shall, jointly
and severally, indemnify and hold Lender, and its officers, directors, agents,
employees, advisors and counsel and their respective Affiliates (each such
person being an “Indemnitee”), harmless from and against any and all losses,
claims, damages, liabilities, costs or expenses (including attorneys’ fees and
expenses) imposed on, incurred by or asserted against any of them in connection
with any litigation, investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery, enforcement,
performance or administration of this Agreement, any other Financing
Agreements, any of the Purchase Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the fees and expenses of counsel except that
Borrowers and Guarantors shall not have any obligation under this Section 11.5
to indemnify an Indemnitee with respect to a matter covered hereby resulting
from the gross negligence or willful misconduct of such Indemnitee as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction (but without limiting the obligations of Borrowers or Guarantors
as to any other Indemnitee).   To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section may be unenforceable because it violates any law or public
policy, Borrowers and Guarantors shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section.  To the
extent permitted by applicable law, no Borrower or Guarantor shall assert, and
each Borrower and Guarantor hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any of the other Financing Agreements
or any undertaking or transaction contemplated hereby.  No Indemnitee referred to above shall be
liable for any damages arising from the use by unintended recipients of any
information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or any of the other Financing Agreements or the transaction
contemplated hereby or thereby, except for damages resulting from the gross
negligence or 

 

109

 

wilful misconduct of such Indemnitee as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction (but without limiting
the exculpation as to any other Indemnitee (other than any officers, directors,
agents or employees of the Indemnitee whose gross negligence or wilful
misconduct resulted in such damages)). 
All amounts due under this Section shall be payable upon demand.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.

 

SECTION 12.       TERM
OF AGREEMENT; MISCELLANEOUS

 

12.1         Term.

 

(a)           This Agreement and the
other Financing Agreements shall become effective as of the date set forth on
the first page hereof and shall continue in full force and effect for a
term ending on the date three (3) years from the date hereof (the “Maturity
Date”), unless sooner terminated pursuant to the terms hereof.  Borrowers may terminate this Agreement at any
time upon ten (10) days prior written notice to Lender (which notice shall
be irrevocable) and Lender may, at its option, terminate this Agreement at any
time upon the occurrence and during the continuance of an Event of
Default.  Upon the Maturity Date or any
other effective date of termination of the Financing Agreements, Borrowers
shall pay to Lender all outstanding and unpaid Obligations and shall furnish
cash collateral to Lender (or at Lender’s option, a letter of credit issued for
the account of Borrowers and at Borrowers’ expense, in form and substance
reasonably satisfactory to Lender, by an issuer reasonably acceptable to Lender
and payable to Lender as beneficiary) in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or expense,
including reasonable attorneys’ fees and expenses, in connection with any
contingent Obligations, including issued and outstanding Letters of Credit and
checks or other payments provisionally credited to the Obligations and/or as to
which Lender has not yet received final and indefeasible payment (and including
any contingent liability of Lender to any bank at which deposit accounts of
Borrower are maintained under any Deposit Account Control Agreement) and for
any of the Obligations arising under or in connection with any Bank Products in
such amounts as Lender may reasonably require (unless such Obligations arising
under or in connection with any Bank Products are paid in full in cash and
terminated in a manner reasonably satisfactory to Lender).  The amount of such cash collateral (or letter
of credit, as Lender may determine) as to any Letter of Credit Obligations
shall be in the amount equal to one hundred ten (110%) percent of the amount of
the Letter of Credit Obligations plus the amount of any fees and
expenses payable in connection therewith through the end of the latest
expiration date of the date of the Letters of Credit giving rise to such Letter
of Credit Obligations.  Such payments in
respect of the Obligations and cash collateral shall be remitted by wire
transfer in Federal funds to the Lender Payment Account or such other bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrowers for such purpose.  Interest
shall be due until and including the next Business Day, if the amounts so paid
by Borrowers to the Lender Payment Account or other bank account designated by
Lender are received in such bank account later than 12:00 noon, Los Angeles
time.

 

(b)           No termination of this
Agreement or any of the other Financing Agreements shall relieve or discharge
any Borrower or Guarantor of its respective duties, obligations and covenants
under this Agreement or any of the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender’s
continuing security 

 

110

 

interest in the Collateral and
the rights and remedies of Lender hereunder, under the other Financing
Agreements and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid.  Accordingly, each Borrower and Guarantor
waives any rights it may have under the UCC to demand the filing of termination
statements with respect to the Collateral and Lender shall not be required to
send such termination statements to Borrowers or Guarantors, or to file them
with any filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations paid and satisfied
in full in immediately available funds.

 

(c)           Lender shall release
any security interest in, mortgage or lien upon, any of the Collateral (i) upon
termination of the credit facility and payment and satisfaction of all of the
Obligations and delivery of cash collateral to the extent required under Section 12.1
above, or (ii) constituting property being sold or disposed of if
Administrative Borrower or any Borrower or Guarantor certifies to Lender that
the sale or disposition is made in compliance with Section 9.7 hereof, or (iii) constituting
property in which any Borrower or Guarantor did not own an interest at the time
the security interest, mortgage or lien was granted or at any time thereafter,
or (iv) if required or permitted under the terms of any of the other Financing
Agreements, including any intercreditor agreement.  Lender shall execute such documents as may be
necessary to evidence the release of the security interest, mortgage or liens
granted to Lender upon any Collateral to the extent set forth above; provided,
that, (i) Lender shall not be required to execute any such document
on terms which, in Lender’s opinion, would expose Lender to liability or create
any obligations or entail any consequence other than the release of such
security interest, mortgage or liens without recourse or warranty and  (ii) such
release shall not in any manner discharge, affect or impair the Obligations or
any security interest, mortgage or lien upon (or obligations of Borrowers or
Guarantors in respect of) the Collateral retained by Borrowers or Guarantors.

 

12.2         Interpretative Provisions.

 

(a)           All terms used herein
which are defined in Article 1, Article 8 or Article 9 of the
UCC shall have the meanings given therein unless otherwise defined in this
Agreement.

 

(b)           All references to the
plural herein shall also mean the singular and to the singular shall also mean
the plural unless the context otherwise requires.

 

(c)           All references to any
Borrower, Guarantor and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns.

 

(d)           The words “hereof”, “herein”,
“hereunder”, “this Agreement” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.

 

111

 

(e)           The word “including”
when used in this Agreement shall mean “including, without limitation” and the
word “will” when used in this Agreement shall be construed to have the same
meaning and effect as the word “shall”.

 

(f)            An Event of Default
shall exist or continue or be continuing until such Event of Default is waived
in accordance with Section 11.3 or is cured in a manner satisfactory to
Lender, if such Event of Default is capable of being cured as determined by
Lender.

 

(g)           All references to the
terms “good faith” “or “reasonable” or “reasonably” used herein or in the other
Financing Agreements when applicable to Lender shall mean, notwithstanding
anything to the contrary contained herein or in the UCC, honesty in fact in the
conduct or transaction concerned and the observance of reasonable commercial
standards of fair dealing based on how an asset-based lender with similar
rights providing a credit facility of the type set forth herein would act in
similar circumstances at the time with the information then available to it.  Borrowers and Guarantors shall have the
burden of proving any unreasonableness or lack of good faith on the part of
Lender alleged by any Borrower or Guarantor at any time

 

(h)           Any accounting term
used in this Agreement shall have, unless otherwise specifically provided
herein, the meaning customarily given in accordance with GAAP, and all
financial computations hereunder shall be computed unless otherwise
specifically provided herein, in accordance with GAAP as consistently applied
and using the same method for inventory valuation as used in the preparation of
the financial statements of Parent most recently received by Lender prior to
the date hereof. Notwithstanding anything to the contrary contained in GAAP or
any interpretations or other pronouncements by the Financial Accounting
Standards Board or otherwise, the term “unqualified opinion” as used herein to
refer to opinions or reports provided by accountants shall mean an opinion or
report that is unqualified and also does not include any explanation, supplemental
comment or other comment concerning the ability of the applicable person to
continue as a going concern or the scope of the audit.

 

(i)            In the computation of
periods of time from a specified date to a later specified date, the word “from”
means “from and including”, the words “to” and “until” each mean “to but
excluding” and the word “through” means “to and including”.

 

(j)            Unless otherwise
expressly provided herein, (i) references herein to any agreement,
document or instrument shall be deemed to include all subsequent amendments,
modifications, supplements, extensions, renewals, restatements or replacements
with respect thereto, but only to the extent the same are not prohibited by the
terms hereof or of any other Financing Agreement, and (ii) references to
any statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, recodifying,
supplementing or interpreting the statute or regulation.

 

(k)           The captions and
headings of this Agreement are for convenience of reference only and shall not
affect the interpretation of this Agreement.

 

112

 

(l)            This Agreement and
other Financing Agreements may use several different limitations, tests or measurements
to regulate the same or similar matters. 
All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.

 

(m)          This Agreement and the
other Financing Agreements are the result of negotiations among and have been
reviewed by counsel to Lender and the other parties, and are the products of
all parties.  Accordingly, this Agreement
and the other Financing Agreements shall not be construed against Lender merely
because of Lender’s involvement in their preparation.

 

12.3         Notices.

 

(a)           All notices, requests and demands hereunder
shall be in writing and deemed to have been given or made:  if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one (1) Business
Day after sending; and if by certified mail, return receipt requested, five (5) days
after mailing.  Notices delivered through
electronic communications shall be effective to the extent set forth in Section 12.3(b) below.  All notices, requests and demands upon the
parties are to be given to the following addresses (or to such other address as
any party may designate by notice in accordance with this Section):

 

	
  If to any
  Borrower

  or Guarantor:

  	
  c/o Farmer
  Bros. Co.

  20333 South Normandie Avenue 

  Torrance, CA 90502

  Attention: Chief Executive Officer 

  Telephone No.: 310-787-5200

  Telecopy No.: 310-320-2430

  
	
   

  	
   

  
	
  with a copy
  to:

  	
  Anglin,
  Flewelling, Rasmussen, Campbell

  & Trytten LLP

  199 S. Los Robles Ave., Suite 600

  Pasadena, CA 91101

  Attention: John Anglin, Esq.

  Telephone No.: 626-535-1900

  Telecopy No.: 626-577-7764

  

 

113

 

	
  If to
  Lender:

  	
  Wachovia
  Bank, National Association

  251 South Lake Avenue

  Suite 900

  Pasadena, California 91101

  Attention: Portfolio Manager

  Telephone No.: 626-304-4900

  Telecopy No.: 626-304-4969

  

 

(b)           Notices and other
communications to Lender hereunder may be delivered or furnished by electronic
communication (including e-mail and Internet or intranet websites) pursuant to
procedures approved by Lender or as otherwise determined by Lender.  Lender or any Borrower or Guarantor may, in
its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it,
provided, that, approval of such procedures may be limited to particular
notices or communications.  Unless Lender
otherwise requires, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the sender’s receipt of an
acknowledgement from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written
acknowledgement), provided, that, if such notice or other communication is not
given during the normal business hours of the recipient, such notice shall be
deemed to have been sent at the opening of business on the next Business Day
for the recipient, and (ii) notices or communications posted to an
Internet or intranet website shall be deemed received upon the deemed receipt
by the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communications is available
and identifying the website address therefor.

 

12.4         Partial
Invalidity.  If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

 

12.5         Successors.  This Agreement, the other Financing
Agreements and any other document referred to herein or therein shall be
binding upon and inure to the benefit of and be enforceable by Lender,
Borrowers and Guarantors and their respective successors and assigns, except
that Borrowers and Guarantors may not assign their rights under this Agreement,
the other Financing Agreements and any other document referred to herein or
therein without the prior written consent of Lender.  Any such purported assignment without such
express prior written consent shall be void. Lender may, after notice to
Administrative Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letters of Credit or
any other interest herein to another financial institution or other person on
terms and conditions acceptable to Lender.

 

114

 

12.6         Confidentiality.

 

(a)           Lender shall use all reasonable efforts to
keep confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by any Borrower or any Guarantor pursuant to this
Agreement relating to financial information, production, product information,
customers or vendors which is clearly and conspicuously marked as confidential
at the time such information is furnished by such Borrower to Lender; provided,
that, nothing contained herein shall limit the disclosure of any such
information:  (i) to the extent
required by statute, rule, regulation, subpoena or court order, (ii) to
bank examiners and other regulators, auditors and/or accountants, (iii) in
connection with any litigation to which Lender is a party, (iv) to any
assignee or Participant (or prospective assignee or Participant) or to any
Affiliate of Lender so long as such assignee or participant (or prospective
assignee or Participant) or Affiliate shall have been instructed to treat such
information as confidential in accordance with this Section 12.6, or (v) to
counsel for Lender or any participant or assignee (or prospective Participant
or assignee) or Affiliate.

 

(b)          In the event that Lender receives a request
or demand to disclose any confidential information pursuant to any subpoena or
court order, Lender agrees (i) to the extent permitted by applicable law
or if permitted by applicable law, to the extent Lender determines in good
faith that it will not create any risk of liability to Lender, Lender will
promptly notify Administrative Borrower of such request so that Administrative
Borrower may seek a protective order or other appropriate relief or remedy and (ii) if
disclosure of such information is required, disclose such information and,
subject to reimbursement by Borrowers of Lender’s expenses, cooperate with
Administrative Borrower in the reasonable efforts to obtain an order or other
reliable assurance that confidential treatment will be accorded to such portion
of the disclosed information which Administrative Borrower so designates, to
the extent permitted by applicable law or if permitted by applicable law, to
the extent Lender determines in good faith that it will not create any risk of
liability to Lender.

 

(c)           In no event shall this Section 12.6 or
any other provision of this Agreement, any of the other Financing Agreements or
applicable law be deemed:  (i) to
apply to or restrict disclosure of information that has been or is made public
by any Borrower, any Guarantor or any third party without breach of this Section 12.6
or otherwise become generally available to the public other than as a result of
a disclosure in violation hereof, (ii) to apply to or restrict disclosure
of information that was or becomes available to Lender (or any Affiliate of
Lender) on a non-confidential basis from a person other than a Borrower or
Guarantor, (iii) require Lender to return any materials furnished by a
Borrower or Guarantor to Lender or (iv) prevent Lender from responding to
routine informational requests in accordance with the Code of Ethics for the
Exchange of Credit Information promulgated by The Robert Morris Associates
or other applicable industry standards relating to the exchange of credit
information.  The obligations of 

 

115

 

Lender under this Section 12.6 shall
supersede and replace the obligations of Lender under any confidentiality
letter signed prior to the date hereof or any other arrangements concerning the
confidentiality of information provided by any Borrower or Guarantor to Lender.

 

12.7         Entire
Agreement.  This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.  In the
event of any inconsistency between the terms of this Agreement and any schedule
or exhibit hereto, the terms of this Agreement shall govern.

 

12.8         USA Patriot Act.  Lender hereby notifies Borrowers
and Guarantors that pursuant to the requirements of the USA PATRIOT Act (Title
III of Pub.L. 107-56 (signed into law October 26, 2001) (the “Act”), it is
required to obtain, verify and record information that identifies each person
or corporation who opens an account and/or enters into a business relationship
with it, which information includes the name and address of Borrowers and Guarantors
and other information that will allow such Lender to identify such person in
accordance with the Act and any other applicable law.  Borrowers and Guarantors are hereby advised
that any Loans or Letters of Credit hereunder are subject to satisfactory
results of such verification.

 

12.9         Counterparts,
Etc.  This Agreement or any of the
other Financing Agreements may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same agreement. Delivery of an executed counterpart of this
Agreement or any of the other Financing Agreements by facsimile or other
electronic method of transmission shall have the same force and effect as the
delivery of an original executed counterpart of this Agreement or any of such
other Financing Agreements.  Any party
delivering an executed counterpart of any such agreement by facsimile or other
electronic method of transmission shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.

 

116

 

IN WITNESS WHEREOF, Lender,
Borrowers and Guarantors have caused these presents to be duly executed as of
the day and year first above written.

 

	
  LENDERS

  	
   

  	
  BORROWERS

  
	
   

  	
   

  	
   

  
	
  WACHOVIA
  BANK, NATIONAL ASSOCIATION

  	
   

  	
  FARMER BROS.
  CO.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Karen
  Sessions

  	
   

  	
  By: 

  	
  /s/John E
  Simmons

  
	
  Name:

  	
  Karen
  Sessions

  	
   

  	
  Name: 

  	
  John E.
  Simmons

  
	
  Title:

  	
  Director

  	
   

  	
  Title: 

  	
  Treasurer
  and CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COFFEE BEAN
  INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ John E.
  Simmons

  
	
   

  	
   

  	
  Name:

  	
  John E.
  Simmons

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GUARANTORS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COFFEE BEAN
  HOLDING CO., INC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ John E.
  Simmons

  	
   

  	
   

  
	
  Name: 

  	
  John E.
  Simmons

  	
   

  	
   

  
	
  Title: 

  	
  Treasurer
  and CFO

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  FBC FINANCE
  COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ John E.
  Simmons

  	
   

  	
   

  
	
  Name: 

  	
  John E.
  Simmons

  	
   

  	
   

  
	
  Title: 

  	
  Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SL REALTY,
  LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ John E.
  Simmons

  	
   

  	
   

  
	
  Title: 

  	
  Manager

  	
   

  	
   

  
											

 

117

 

EXHIBIT A

TO

LOAN AND
SECURITY AGREEMENT

 

Form of Borrowing Base Certificate

 

 

A-1

 

EXHIBIT C

TO

LOAN AND SECURITY AGREEMENT

 

Compliance
Certificate

 

C-1

 

EXHIBIT D

TO

LOAN AND SECURITY AGREEMENT

 

Investment Liquidity Certificate

 

 

EXHIBIT 1.56

TO

LOAN AND SECURITY AGREEMENT

 

Existing Letter of Credit

 

 

EXHIBIT 1.100

TO

LOAN AND SECURITY AGREEMENT

 

Permitted Holders

 

4

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