Document:

Exhibit 4.1

 

FOURTH SUPPLEMENTAL INDENTURE

 

This FOURTH SUPPLEMENTAL INDENTURE, dated as of November 16,
2010 (the “Supplemental Indenture”), is entered into by and among Telephone and
Data Systems, Inc., a corporation duly organized and existing under the
laws of the State of Delaware (the “Company”), and The Bank of New York Mellon
Trust Company, N.A. (formerly known as The Bank of New York Trust Company,
N.A., as successor to BNY Midwest Trust Company), a  national banking association, as trustee (the
“Trustee”).

 

W I T N E S S E T H:

 

WHEREAS, the Company and the Trustee are parties to an
Indenture, dated as of November 1, 2001 (the “Indenture”), relating to the
issuance from time to time by the Company of its Securities on terms to be
specified at the time of issuance;

 

WHEREAS, Section 9.01(e) of the Indenture
provides that a supplemental indenture may be entered into by the Company and
the Trustee, without the consent of any holders of Securities, to establish the
form or terms of Securities of any series as permitted by Section 2.01 of
the Indenture;

 

WHEREAS, pursuant to Section 9.01(e) of the
Indenture, this Supplemental Indenture does not require the consent of any
holders of Securities;

 

WHEREAS, the Company desires to enter into this
Supplemental Indenture to provide for the establishment of a series of
Securities to be known as the 6.875% Senior Notes due 2059 (the “Notes”), the
form, substance, terms, provisions and conditions of which shall be set forth
in the Indenture and this Supplemental Indenture; and

 

WHEREAS, all acts and requirements necessary to make
this Supplemental Indenture a valid and legally binding agreement of the
Company and the Trustee, and a valid and legally binding amendment of and
supplement to the Indenture, have been done.

 

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE
WITNESSETH:

 

For and in consideration of the premises and the
issuance of the Notes provided for herein, the Company and the Trustee mutually
covenant and agree for the equal and proportionate benefit of the respective
holders of the Notes as follows:

 

ARTICLE ONE

 

RELATION TO INDENTURE; DEFINITIONS; RULES OF
CONSTRUCTION

 

SECTION 1.1 
Relation to Indenture. 
This Supplemental Indenture constitutes an integral part of the
Indenture.

 

 

SECTION 1.2 
Definitions.  For all
purposes of this Supplemental Indenture, the following terms shall have the
respective meanings set forth in this Section 1.2.

 

“Assets” means the gross dollar amount of assets, as
defined by generally accepted accounting principles, less accumulated
depreciation and amortization.

 

“Capitalized Rent” means the present value (discounted
semi-annually at a discount rate equal to the weighted average rate of interest
borne by the Securities then Outstanding) of the total net amount of rent
payable for the remaining term of any lease of property by the Company
(including any period for which any lease has been extended); provided, however,
that no such rental obligation shall be deemed to be Capitalized Rent unless
the lease resulted from a Sale and Leaseback Transaction.  The total net amount of rent payable under
any lease for any period shall be the total amount of the rent payable by the
lessee with respect to such period but shall not include amounts required to be
paid on account of maintenance and repairs, insurance, taxes assessments, water
rates, sewer rates and similar charges.

 

“Capital Stock” means and includes any and all shares,
interests, participations or other equivalents (however designated) of
ownership in a corporation or other Person.

 

“Consolidated Assets” means the Assets of the Company
and its Subsidiaries determined on a consolidated basis as of the end of the
Company’s then most recently reported fiscal year or quarter, as the case may
be, including minority interests in Subsidiaries.

 

“Control” means ownership of voting power sufficient
to elect a majority of the directors or other members of the governing body of
any Person.

 

“Debt” means, with respect to a Person, all
obligations of such Person for borrowed money and all such obligations of any
other Person for borrowed money guaranteed by such Person.

 

“Depositary” 
means,  with respect to the Notes,
The Depository Trust Company,  New York,
New York, another clearing agency, or any successor  registered as a clearing agency under the
Securities Exchange Act of 1934, as amended, or other applicable statute or
regulation, which, in each case, shall be designated by the Company pursuant to
either Section 2.01 or 2.11 to the Indenture.

 

“Funded Debt” means any Debt maturing by its terms
more than one year from its date of issuance (notwithstanding that any portion
of such Debt is included in current liabilities).

 

“Lien” means any mortgage, pledge, security interest,
lien, charge or other encumbrance.

 

“property” means any directly-held interest of a
Person in any kind of property or asset whether real, personal or mixed and
whether tangible or intangible, and includes capital stock or other ownership
interests or participations in or indebtedness of  a subsidiary or other Person.

 

“Sale and Leaseback Transaction” means any arrangement
with any Person other than a Tax Consolidated Subsidiary providing for the
leasing (as lessee) by the Company of any property (except for temporary leases
for a term, including any renewal thereof, of not more than 

 

2

 

three years (providing that any such temporary lease
may be for a term of up to five years if (a) the Board of Directors of the
Company reasonably finds such term to be in the best interest of the Company
and (b) the primary purpose of the transaction (of which such lease is
part) is not to provide funds to or financing for the Company)), which property
has been or is to be sold or transferred by the Company (i) to any
subsidiary of the Company in contemplation of or in connection with such
arrangement or (ii) to such other Person.

 

“Secured Debt” means Debt of the Company secured by
any Lien on property (including Capital Stock or indebtedness of subsidiaries
of the Company) owned by the Company.

 

“Subsidiary” or “subsidiary” means a Person which is
consolidated with TDS in accordance with generally accepted accounting
principles.

 

“Tax Consolidated Subsidiary” means a subsidiary of
the Company in respect of which, at the time a Sale and Leaseback Transaction
is entered into by the Company, the Company would be entitled to file a
consolidated federal income tax return.

 

“USCC” means United States Cellular Corporation.

 

SECTION 1.3 
Rules of Construction.  
For all purposes of this Supplemental Indenture:

 

(a)           capitalized
terms used herein without definition shall have the meanings specified in the
Indenture;

 

(b)           all
references herein to Articles, Sections and Exhibits, unless otherwise
specified, refer to the corresponding Articles, Sections and Exhibits of this
Supplemental Indenture;

 

(c)           the
terms “herein,” “hereof,” “hereunder” and other words of similar import refer
to this Supplemental Indenture; and

 

(d)           in
the event of a conflict with the definition of terms in the Indenture, the definitions
in this Supplemental Indenture shall control.

 

ARTICLE TWO

 

THE SECURITIES

 

There is hereby established a series of Securities
pursuant to the Indenture with the following terms:

 

SECTION 2.1 
Title of the Securities. 
The series of Securities shall be designated the 6.875% Senior Notes due
2059.

 

3

 

SECTION 2.2  Limitation on Aggregate Principal Amount.  The Notes will be initially issued in an
aggregate principal amount of up to $230,000,000 (except for Notes
authenticated and delivered upon registration of transfer of, in exchange for
or in lieu of other Notes).  The Company
may, at its option, at any time and without the consent of the then existing
holders of the Notes, issue additional Notes in one or more transactions after
the date of the initial issuance of the Notes with terms (other than the
issuance date, first interest payment date and issue price) identical to the
Notes initially issued. Any additional Notes issued will be deemed to be part
of the same series as the Notes initially issued and holders of any such
additional Notes shall have the right to vote with holders of all other
previously issued Notes. No additional Notes may be issued if an Event of
Default under the Indenture has occurred and is continuing with respect to the
Notes.

 

SECTION 2.3  Form and Dating.

 

(a)           General.  The Notes and the Trustee’s certificate of
authentication shall be substantially in the form of Exhibit A
hereto.  The Notes may have notations,
legends or endorsements required by law, stock exchange rule or
usage.  Each Note shall be dated the date
of its authentication.  The Notes shall
be in denominations of $25.00 and integral multiples thereof.

 

The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Supplemental
Indenture, and the Company and the Trustee, by their execution and delivery of
this Supplemental Indenture, expressly agree to such terms and provisions and
to be bound thereby.  However, to the
extent any provision of any Notes conflicts with the express provisions of this
Supplemental Indenture, the provisions of this Supplemental Indenture shall
govern and be controlling.

 

(b)           Book-Entry
Provisions.  The Notes shall be
issued initially in global form and the Company hereby designates The
Depository Trust Company as the initial Depositary for the Global
Securities.  Except as provided in Section 2.11
of the Indenture, owners of beneficial interests in Global Securities will not
be entitled to receive physical delivery of certificated Notes.

 

SECTION 2.4 
Optional Redemption.  The
Notes may be redeemed at the option of the Company, in whole or in part, at any
time on and after November 15, 2015 at a redemption price equal to 100% of
the principal amount of the Notes being redeemed on the redemption date, plus
accrued and unpaid interest thereon to the redemption date.  The Company shall mail notice of any
redemption at least 30 days but not more than 60 days before the redemption
date to each registered holder of the Notes to be redeemed. Once notice of
redemption is mailed, the Notes called for redemption will become due and
payable on the redemption date and at the applicable redemption price, plus
accrued and unpaid interest to the redemption date.

 

4

 

ARTICLE  THREE

 

ADDITIONAL COVENANTS OF THE COMPANY

 

SECTION 3.1 
Limitations on Secured Debt. 
So long as any of the Notes remain Outstanding, the Company will not
create or incur any Secured Debt without in any such case effectively providing
concurrently with the creation or incurrence of any such Secured Debt that the
Notes then Outstanding (together with, if the Company shall so determine, any
other Debt of or guaranteed by the Company ranking equally with the Notes and
then existing or thereafter created) shall be secured equally and ratably with
(or, at the option of the Company, prior to) such Secured Debt, unless
immediately after the incurrence of such Secured Debt (and after giving effect to
the application of the proceeds, if any, therefrom), the aggregate principal
amount of all Secured Debt, together with the aggregate amount of Capitalized
Rent in respect of Sale and Leaseback Transactions (other than Sale and
Leaseback Transactions described in clauses (a) to (g), inclusive, of Section 3.2),
would not exceed 20% of the Consolidated Assets; provided, however,
that the foregoing restrictions shall not apply to, and there shall be excluded
in computing Secured Debt for the purpose of such restrictions, Secured Debt
secured by:

 

(a)           Liens
on property existing at the time of acquisition of such property by the
Company, or Liens to secure the payment of all or any part of the purchase
price of property acquired or constructed by the Company (including any
improvements to existing property) created at the time of or within 270 days
following the acquisition of such property by the Company, or Liens to secure
any Secured Debt incurred by the Company prior to, at the time of or within 270
days following the acquisition of such property, which Secured Debt is incurred
for the purpose of financing all or any part of the purchase price thereof; provided,
however, that in the case of any such acquisition, the Lien shall not
apply to any property theretofore owned by the Company (including property
transferred by the Company to any subsidiary of the Company in contemplation of
or in connection with the creation of such Lien) or to any property of the
Company other than the property so acquired (other than, in the case of
construction or improvement, any theretofore unimproved real property or
portion thereof on which the property so constructed, or improvement, is
located);

 

(b)           Liens
on property of a person (i) existing at the time such Person is merged into
or consolidated with the Company or at the time of a sale, lease or other
disposition of the properties of a Person as an entirety or substantially as an
entirety to the Company, (ii) resulting from such merger, consolidation,
sale, lease or disposition by virtue of any Lien on property granted by the
Company prior to and unrelated to such merger, consolidation, sale, lease or
disposition (and not in contemplation thereof or in connection therewith) which
applies to after-acquired property of the Company or (iii) resulting from
such merger, consolidation, sale, lease or disposition pursuant to a Lien or
contractual provision granted or entered into by such Person prior to such
merger, consolidation, sale, lease or disposition (and not at the request of the
Company); provided, however, that any such Lien referred to in
clause (i) shall not apply to any property of the Company other than the
property subject thereto, at the time such Person or properties were acquired
and any such Lien referred to in clause (ii) or (iii) shall not apply
to any property of the Company other than the property so acquired;

 

5

 

(c)           Liens
existing on the date of this Supplemental Indenture;

 

(d)           Liens
in favor of a government or governmental entity to secure partial progress,
advance or other payments, or other obligations, pursuant to any contract or
statute or to secure any Debt incurred for the purpose of financing all or any
part of the cost of acquiring, constructing or improving the property subject
to such Liens (including, without limitation, Liens incurred in connection with
pollution control, industrial revenue, private activity bond or similar
financing);

 

(e)           Liens
arising by reason of deposits with, or the giving of any form of security to,
any governmental agency or any body created or approved by law or governmental
regulation, which Lien is required by law or governmental regulation as a
condition to the transaction of any business or the exercise of any privilege,
franchise, license or permit;

 

(f)            Liens
for taxes, assessments or governmental charges or levies not yet delinquent or
governmental charges or levies already delinquent, the validity of which charge
or levy is being contested in good faith and for which any reserves required in
accordance with generally accepted accounting principles have been established;

 

(g)           Liens
(including judgment liens) arising in connection with legal proceedings so long
as such proceedings are being contested in good faith and, in the case of
judgment liens, execution thereon is stayed and for which any reserves required
in accordance with generally accepted accounting principles have been
established;

 

(h)           Liens
on any equity interests owned by the Company or by any of its subsidiaries in
any person or persons that are not directly, or indirectly through one or more
intermediaries, Controlled by the Company or by any of its subsidiaries;

 

(i)            Liens
upon or in any property or assets now owned or from time to time hereafter
acquired by USCC or any of its subsidiaries related in any way to the ownership
by USCC or by any of its subsidiaries of wireless telecommunications towers,
including, but not limited to, tower structures, land on which towers are
located, other real estate associated with such towers, leases for towers or
for tower sites, subleases, licenses, collocation arrangements, easements and
all other real property and other tangible or intangible assets related
thereto;

 

(j)            Liens
on any property used primarily as or for any of the following: data centers,
colocation, managed services, hosted services or cloud services.;

 

(k)           Liens
securing indebtedness of the Company or of any of its Subsidiaries to the Rural
Electrification Administration, Rural Utility Service, Rural Telephone Bank or
the Rural Telephone Finance Cooperative or successors thereto;

 

(l)            Liens
incurred and deposits made in the ordinary course of business to secure surety
and appeal bonds, leases, return-on-money bonds and other similar obligations,
exclusive of obligations for the payment of borrowed money; and

 

6

 

(m)          any
extension, renewal or replacement (or successive extensions, renewals or
replacements) in whole or in part of any Lien referred to in the foregoing
clauses (a) to (l), inclusive; provided, however, that the
principal amount of Secured Debt secured thereby shall not exceed the principal
amount of Secured Debt secured thereby at the time of such extension, renewal
or replacement, and that such extension, renewal or replacement shall be
limited to all or a part of the property which secured the Lien so extended,
renewed or replaced (plus improvements to such property).

 

3.2  Limitation
on Sale and Leaseback.  The Company
will not enter into any Sale and Leaseback Transaction unless immediately
thereafter (and after giving effect to the application of the proceeds, if any,
therefrom), the aggregate amount of Capitalized Rent in respect of Sale and
Leaseback Transactions, together with the aggregate principal amount of all
Secured Debt (other than Secured Debt described in clauses (a) to (m),
inclusive, of Section 3.1), would not exceed 20% of Consolidated Assets; provided,
however, that the foregoing restrictions shall not apply to, and there
shall be excluded in computing the aggregate amount of Capitalized Rent for the
purpose of such restrictions, the following Sale and Leaseback Transactions:

 

(a)           Sale
and Leaseback Transaction entered into to finance the payment of all or any
part of the purchase price of property acquired or constructed by the Company
(including any improvements to existing property) or entered into prior to, at
the time of or within 270 days after the acquisition or construction of such
property, which Sale and Leaseback Transaction is entered into for the purpose
of financing all or part of the purchase or construction price thereof; provided,
however, that in the case of any such acquisition, such Sale and
Leaseback Transaction shall not involve any property transferred by the Company
to a subsidiary of the Company in contemplation of or in connection with such
Sale and Leaseback Transaction or involve any property of the Company other
than the property so acquired (other than, in the case of construction or
improvement, any theretofore unimproved real property or portion thereof on
which the property so constructed, or the improvement, is located);

 

(b)           Sale
and Leaseback Transaction involving property of a Person existing at the time
such Person is merged into or consolidated with the Company or at the time of a
sale, lease or other disposition of the properties of a Person as an entirety
or substantially as an entirety to the Company;

 

(c)           Sale
and Leaseback Transaction in which the lessor is a government or governmental
entity and which Sale and Leaseback Transaction is entered into to secure
partial progress, advance or other payments, or other obligations, pursuant to
any contract or statute or to secure any Debt incurred for the purpose of
financing all or any part of the cost of constructing or improving the property
subject to such Sale and Leaseback Transaction (including, without limitation,
Sale and Leaseback Transactions incurred in connection with pollution control,
industrial revenue, private activity bond or similar financing);

 

(d)           Sale
and Leaseback Transaction involving any property or assets now owned or from
time to time hereafter acquired by USCC or any of its subsidiaries related in
any way to the ownership by USCC or by any of its subsidiaries of wireless 

 

7

 

telecommunications towers, including, but not limited
to, tower structures, land on which towers are located, other real estate
associated with such towers, leases for towers or for tower sites, subleases,
licenses, collocation arrangements, easements and all other real property and
other tangible or intangible assets related thereto;

 

(e)           Sale
and Leaseback Transactions involving any property used primarily as or for any
of the following: data centers, colocation, managed services, hosted services
or cloud services;

 

(f)            Sale
and Leaseback Transaction the net proceeds of which are at least equal to the
fair value (as determined by the Board of Directors of the Company) of the
property leased pursuant to such Sale and Leaseback Transaction, so long as
within 270 days of the effective date of such Sale and Leaseback Transaction,
the Company applies (or irrevocably commits to an escrow account for the
purpose or purposes hereinafter mentioned) an amount equal to the net proceeds
of such Sale and Leaseback Transaction to either (x) the purchase of other
property having a fair value at least equal to the fair value of the property
leased in such Sale and Leaseback Transaction and having a similar utility and
function, or (y) the retirement or repayment (other than any mandatory
retirement or repayment at maturity) of (i) the Notes, (ii) other
Funded Debt of the Company which ranks prior to or in a parity with the Notes
or (iii) indebtedness of any subsidiary of the Company maturing by its
terms more than one year from its date of issuance (notwithstanding that any
portion of such indebtedness is included in current liabilities) or preferred
stock of any subsidiary of the Company (other than any such indebtedness owed
to or preferred stock owned by the Company or any subsidiary of the Company); provided,
however, that in lieu of applying an amount equivalent to all or any
part of such net proceeds to such retirement or repayment (or committing such
an amount to any escrow account for such purpose), the Company may deliver to
the Trustee Outstanding Notes and thereby reduce the amount to be applied
pursuant to (y) of this clause (f) by an amount equivalent to the
aggregate principal amount of the Notes so delivered; and

 

(g)           Sale
and Leaseback Transaction involving the extension, renewal or replacement (or
successive extensions, renewals or replacements) in whole or in part of a lease
pursuant to a Sale and Leaseback Transaction referred to in the foregoing
clauses (a) to (f), inclusive; provided, however, that such
lease extension, renewal or replacement shall be limited to all or any part of
the same property leased under the lease so extended, renewed or replaced (plus
improvements to such property).

 

ARTICLE FOUR

 

ADDITIONAL REMEDIES OF THE TRUSTEE

AND SECURITYHOLDERS ON EVENTS OF DEFAULT

 

SECTION 4.1 
Additional Events of Default. 
In addition to the “Events of Default” provided for in Section 6.01
of the Indenture, the following shall also constitute “Events of Default” with respect
to the Notes as contemplated by Section 6.01(a)(6) of the Indenture:

 

8

 

(i)  a default occurs under any instrument
(including the Indenture) under which there is at the time outstanding, or by
which there may be secured or evidenced, any indebtedness of the Company for
money borrowed by the Company (other than non-recourse indebtedness) which
results in acceleration (whether by declaration or automatically) of, or the
non payment at maturity (after giving effect to any applicable grace period)
of, such indebtedness in an aggregate amount exceeding 2% of Consolidated
Assets, in which case the Company shall immediately give notice to the Trustee
of such acceleration or non-payment and (ii) there shall have been a
failure to cure such default or to discharge all such defaulted indebtedness
within ten days after notice thereof to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 33% in principal amount of
the Notes then Outstanding (excluding, if such defaulted indebtedness includes
the Notes, such Notes) and such acceleration shall not be rescinded or
annulled; provided, however, that it shall not constitute an
Event of Default under the Indenture as long as the Company is contesting any
such default or acceleration in good faith and by appropriate proceedings.

 

ARTICLE FIVE

 

MISCELLANEOUS PROVISIONS

 

SECTION 5.1 
Ratification.  The
Indenture, as supplemented and amended by this Supplemental Indenture, is in
all respects hereby adopted, ratified and confirmed.

 

SECTION 5.2 
Governing Law.  This
Supplemental Indenture shall be governed by, and construed and enforced in
accordance with, the laws of the jurisdiction which govern the Indenture and
its construction.

 

SECTION 5.3 
Counterparts and Method of Execution. This Supplemental Indenture
may be executed in several counterparts, all of which together shall constitute
one agreement binding on all parties hereto, notwithstanding that all parties
have not signed the same counterpart.

 

SECTION 5.4 
Section Titles.  Section titles
are for descriptive purposes only and shall not control or alter the meaning of
this Supplemental Indenture as set forth in the text.

 

SECTION 5.5 
Trustee.  The Trustee makes
no representations and is not responsible for the sufficiency, validity or
legality of this Supplemental Indenture. 
The statements herein are deemed to be those of the Company and not of
the Trustee.

 

*              *              *

 

9

 

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

 

	
   

  	
  TELEPHONE AND DATA SYSTEMS, INC.,

  
	
   

  	
  a Delaware corporation  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ LeRoy T. Carlson, Jr.

  
	
   

  	
  Name:

  	
  LeRoy T. Carlson, Jr.

  
	
   

  	
  Title: 

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth R. Meyers

  
	
   

  	
  Name:

  	
  Kenneth R. Meyers

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as
  Trustee, a national banking association  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Mary
  Callahan  

  
	
   

  	
  Name:

  	
   Mary Callahan  

  
	
   

  	
  Title: 

  	
  Assistant Vice President

  
	
   

  	
   

  
								

 

SIGNATURE PAGE TO FOURTH

SUPPLEMENTAL INDENTURE

 

 

EXHIBIT A TO FOURTH SUPPLEMENTAL INDENTURE

 

Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation (“DTC”),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or
in such other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein. Except as otherwise provided in Section 2.11 of the Indenture,
this Security may be transferred, in whole but not in part, only to another
nominee of the Depositary or to a successor Depositary or to a nominee of such
successor Depositary.

 

	
  No.             

  	
   

  	
  CUSIP: 879433 845

  

ISIN: US8794338454

 

TELEPHONE
AND DATA SYSTEMS, INC.

 

6.875%
SENIOR NOTES DUE 2059

 

	
  Principal Amount:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Stated Maturity Date:

  	
   

  	
  November 15, 2059

  
	
   

  	
   

  	
   

  
	
  Original Issue Date:

  	
   

  	
  November 23, 2010

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  6.875% per annum

  

 

TELEPHONE AND DATA SYSTEMS, INC., a corporation
duly organized and existing under the laws of the State of Delaware (herein
referred to as the “Company,” which term includes any successor corporation
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to CEDE & CO. or registered assigns, the Principal
Amount specified above on the Stated Maturity Date specified above, and to pay
interest on said Principal Amount from November 23, 2010 at the Interest
Rate specified above on February 15, 2011 and thereafter quarterly on May 15,
August 15, November 15 and February 15 of each year (each an “Interest
Payment Date”), until the Principal Amount will have been paid or duly provided
for.

 

On an Interest Payment Date, interest will be paid to
the persons in whose names the Notes (as defined below) were registered as of
the Record Date (the “Record Date”). 
With respect to any Interest Payment Date, while the Notes remain in the
form of a Global Security, the Record Date will be one Business Day prior to
the relevant Interest Payment Date.

 

 

The amount of interest payable for any period will be
computed on the basis of twelve 30-day months and a 360-day year. The amount of
interest payable for any period shorter than a full quarterly interest period
will be computed on the basis of the number of days elapsed in a 90-day quarter
of three 30-day months. If any Interest Payment Date falls on a Saturday,
Sunday, legal holiday or a day on which banking institutions in the City of New
York are authorized by law to close, then payment of interest will be made on
the next succeeding Business Day and no additional interest will accrue because
of the delayed payment, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, with the same force and effect as if made on such date.

 

Payment of the principal of this Note and the interest
thereon will be made at the office or agency of the Company in the Borough of
Manhattan, City and State of New York, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.

 

The Notes are issuable only in registered form without
coupons in denominations of $25.00 and any integral multiple thereof.

 

The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on and after November 15, 2015,
upon not less than 30 nor more than 60 days notice, at a redemption price equal
to 100% of the principal amount redeemed plus accrued and unpaid interest to
the redemption date.

 

In case of any partial redemption, selection of the
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate, although no Note of $25.00 in principal amount at
maturity or less shall be redeemed in part. 
If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof
to be redeemed.  A new Note in principal
amount at maturity equal to the unredeemed portion thereof will be issued in
the name of the holder thereof upon cancellation of the original Note.

 

This Note is one of a duly authorized series of
Securities of the Company (herein sometimes referred to as the “Notes”),
issuable in one or more series under and pursuant to an Indenture dated as of November 1,
2001 duly executed and delivered between the Company and The Bank of New York
Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust
Company, N.A., as successor to BNY Midwest Trust Company), as Trustee (herein
referred to as the “Trustee”), and have been designated pursuant to the Fourth
Supplemental Indenture thereto dated November 16, 2010 (such Indenture, as
originally executed and delivered and as thereafter supplemented and amended
being herein after referred to as the “Indenture”).  Reference is made to the Indenture and all
indentures supplemental thereto for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Notes.  By
the terms of the Indenture, Securities are issuable in series which may vary as
to amount, date of maturity, rate of interest and in other respects as in the
Indenture provided.  This Note is one of
the series of Securities designated on the face hereof.

 

2

 

Notes may be exchanged upon presentation thereof at
the office or agency of the Company designated for such purpose, for other
Notes of authorized denominations, and for a like aggregate principal amount,
upon payment of a sum sufficient to cover any tax or other governmental charge
in relation thereto, all as provided in the Indenture.  In respect of any Notes so surrendered for
exchange, the Company will execute, the Trustee will authenticate and such
office or agency will deliver in exchange therefor the Note or Notes of the
same series which the Securityholder making the exchange will be entitled to
receive, bearing numbers not contemporaneously outstanding.

 

The Company will keep, or cause to be kept, at its
office or agency designated for such purpose in the Borough of Manhattan, the
City and State of New York, or such other location designated by the Company a
register or registers (herein referred to as the “Note Register”) in which,
subject to such reasonable regulations as it may prescribe, the Company will
register the Notes and the transfers of Notes. 
The registrar for the purpose of registering Notes and transfer of Notes
will initially be the Trustee or such other person as may be subsequently
appointed as authorized by Board Resolution or Company Order (the “Note
Registrar”).

 

Upon surrender for transfer of any Note at the office
or agency of the Company designated for such purpose in the Borough of
Manhattan, the City and State of New York, or other location as aforesaid, the
Company will execute, the Trustee will authenticate and such office or agency
will deliver in the name of the transferee or transferees a new Note or Notes
presented for a like aggregate principal amount.

 

All Notes presented or surrendered for exchange or
registration of transfer will be accompanied (if so required by the Company or
the Note Registrar) by a written instrument or instruments of transfer, in form
satisfactory to the Company or the Note Registrar, duly executed by the
registered holder or by his duly authorized attorney in writing.

 

Except as provided in the Indenture, no service charge
will be assessed for any exchange or registration of transfer of Notes, or
issue of new Notes in case of partial redemption, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge in
relation thereto as provided in the Indenture.

 

The Company will neither be required (i) to
issue, exchange or register the transfer of any Notes during a period beginning
at the opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the outstanding Notes and ending at the close of
business on the day of such mailing, nor (ii) to register the transfer of
or exchange any Notes or portions thereof called for redemption.

 

As long as this Note is represented in global form
(the “Global Security”) registered in the name of The Depository Trust Company
or its nominee, except as provided in the Indenture and subject to certain
limitations therein set forth, no Global Security shall be exchangeable or
transferable.

 

So long as any Notes remain outstanding, the Company
agrees to maintain an office or agency with respect to each such series, which
will be in the Borough of Manhattan, the City and State of New York or at such
other location or locations as may be designated as provided in the 

 

3

 

Indenture, where (i) Notes may be presented for
payment, (ii) Notes may be presented as for registration of transfer and
exchange, and (iii) notices and demands to or upon the Company in respect
of the Notes and this Indenture may be given or served, such designation to
continue with respect to such office or agency until the Company will, by
written notice signed by an Authorized Officer and delivered to the Trustee,
designate some other office or agency for such purposes or any of them.  The Company may also from time to time
designate one or more other offices or agencies for the foregoing purposes
within or outside the Borough of Manhattan, City of New York, and may from time
to time rescind such designations.

 

The Trustee or its agent at its offices in New York,
New York will initially act as Notes Registrar and paying agent for the Notes.

 

The Notes are not subject to any sinking fund.

 

If an Event of Default (as defined in the Indenture)
with respect to the Notes shall occur and be continuing, the principal plus any
accrued interest may be declared due and payable in the manner and with the
effect and subject to the conditions provided in the Indenture.

 

The Indenture contains provisions for defeasance at
any time of the entire indebtedness of this Note upon compliance by the Company
with certain conditions set forth therein.

 

Prior to the due presentment for registration of
transfer of any Notes, the Company, the Trustee, any paying agent and any Note
Registrar may deem and treat the person in whose name such Note will be
registered upon the books of the Company as the absolute owner of such Note
(whether or not such Note will be overdue and notwithstanding any notice of
ownership or writing thereon made by anyone other than the Note Registrar) for
the purpose of receiving payment of or on account of the principal of and
premium, if any, and (subject to the Indenture) interest on such Note and for
all other purposes; and neither the Company nor the Trustee nor any paying
agent nor any Note Registrar will be affected by any notice to the contrary.

 

The Company and the Trustee may execute supplemental
indentures without the consent of any holder of Notes for certain purposes as
specified in the Indenture and with the consent of the holders of not less than
a majority in aggregate principal amount of the Securities for certain other
purposes as specified in the Indenture.

 

No recourse will be had for the payment of the
principal of or the interest on this Note, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture,
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.

 

THIS NOTE WILL BE DEEMED TO BE A CONTRACT UNDER THE
LAWS OF THE STATE OF ILLINOIS, AND FOR ALL PURPOSES WILL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE, EXCEPT AS MAY OTHERWISE BE
REQUIRED BY MANDATORY PROVISIONS OF  LAW.

 

4

 

All terms used in this Note which are defined in the
Indenture will have the meanings assigned to them in the Indenture.

 

5

 

This Note will not be entitled to any benefit under
the Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon will have been signed by
or on behalf of the Trustee.

 

IN WITNESS WHEREOF, the Company has caused this
Instrument to be executed.

 

	
   

  	
  TELEPHONE AND DATA SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  LeRoy T. Carlson, Jr.

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Kenneth R. Meyers

  
	
   

  	
   

  	
  Executive Vice President and Chief Financial Officer

  

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is one of the Securities of the series designated
in accordance with, and referred to in, the within-mentioned Indenture.

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
  THE BANK OF NEW YORK MELLON

  	
   

  
	
  TRUST COMPANY, N.A., as Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Authorized Signatory

  	
   

  
				

 

SIGNATURE PAGE TO 

GLOBAL SECURITY FOR

6.875% SENIOR NOTES DUE 2059

OF TELEPHONE AND DATA SYSTEMS, INC.

 

6

 

ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

I or we assign and transfer this Note to 

	
   

  	
   

  	
   

  
	
  Insert assignee’s Social Security or tax I.D. no.

  
	
   

  
	
   

  
	
  (Print or type assignee’s name, address and zip
  code)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  and all rights thereunder and irrevocably appoint

  
	
   

  
	
   

  
	
   

  
	
  agent to transfer this Note on the books of the
  Company.  The agent may substitute
  another to act for him.

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Notice: 
  The signature to this assignment must correspond with the name as it
  appears on the first page of the within Note.

  
						

 

7Exhibit
10.1

 

BUSINESS FINANCING AGREEMENT

 

	
  Borrower:

  	
   

  	
  CXR
  LARUS CORPORATION

  894 Faulstich Court

  San Jose, CA 
  95112

  	
   

  	
  Lender:

  	
   

  	
  BRIDGE
  BANK, National Association

  55 Almaden Boulevard, Suite 100

  San Jose, CA 95113

  

 

This
BUSINESS FINANCING AGREEMENT, dated as of October 22, 2010, is made and entered
into between BRIDGE BANK, NATIONAL ASSOCIATION (“Lender”)
and CXR LARUS CORPORATION, a Delaware(“Borrower”)
on the following terms and conditions:

 

1.                                      FINANCED
RECEIVABLES.

 

1.1                               Funding
Requests.  Borrower
may request that Lender finance Receivables by delivering to Lender a Funding
Request for the Receivables for which a request for financing is made. Lender
shall be entitled to rely on all the information provided by Borrower to Lender
on or with the Funding Request.  The
Lender may honor Funding Requests, instructions or repayments given by the
Borrower (if an individual) or by an Authorized Person.

 

1.2                               Acceptance
of Receivables.  Upon
acceptance by Lender of any Receivable described in a Funding Request, Lender
shall make an Advance to Borrower in an amount up to the Advance Rate
multiplied by the Receivable Amount of such Receivable. Upon Lender’s
acceptance of the Receivable and payment to Borrower of the Advance, the
Receivable shall become a “Financed Receivable.”  It shall be a condition to each Advance that
(a) all of the representations and warranties set forth in Section 5 are
true and correct on the date of such Advance as though made at and as of each
such date and (b) no Default has occurred and is continuing, or would
result from such Advance.  Lender has no
obligation to finance any Receivable and may exercise its sole discretion in
determining whether any Receivable is an Eligible Receivable before financing such
Receivable.  In no event shall the Lender
be obligated to make any Advance that results in an Overadvance or while any
Overadvance is outstanding.

 

1.3                               Rights
in Respect of Financed Receivables.  Effective upon Lender’s payment of an
Advance, Lender shall have the exclusive right to receive all Collections on
the Financed Receivable.  Lender shall
have, with respect to any goods related to the Financed Receivable, all the
rights and remedies of an unpaid seller under the California Uniform Commercial
Code and other applicable law, including the rights of replevin, claim and
delivery, reclamation and stoppage in transit.

 

1.4                               Reserve.  The Reserve is a book balance maintained on
the records of Lender and shall not be a segregated fund and is not the
property of Borrower.

 

1.5                               Due
Diligence.  Lender may
audit Borrower’s Receivables and any and all records pertaining to the
Collateral, at Lender’s sole discretion and at Borrowers expense.  Lender may at any time and from time to time
contact Account Debtors and other persons obligated or knowledgeable in respect
of Receivables to confirm the Receivable Amount of such Receivables, to
determine whether Receivables constitute Eligible Receivables, and for any
other purpose in connection with this Agreement.  If any of the Collateral or Borrower’s books
or records pertaining to the Collateral are in the possession of a third party,
Borrower authorizes that third party to permit Lender or its agents to have
access to perform inspections or audits thereof and to respond to Lender’s
requests for information concerning such Collateral and records.

 

2.                                      COLLECTIONS,
CHARGES AND REMITTANCES.

 

2.1                               Collections.  Subject to the Lender’s timely receipt of
accurate application instructions from the Borrower with respect to the source
and application of Collections, Lender shall credit to Collections with respect
to Financed Receivables received by Lender to Borrower’s Account Balance within
three business days of the date good funds are received.  If no Default has occurred and is continuing,
Lender agrees to credit the Refundable Reserve with the amount of Collections
it receives with respect to Receivables other than Financed Receivables; provided
that upon the occurrence and during the continuance of any Default, Lender may
apply all Collections to the Obligations in such order and manner as Lender may
determine.  Lender has no duty to do any
act other than to turnover such amounts as required above.  If an item of Collections is not honored or
Lender does not receive good funds for any reason, the amount shall be included
in the Account Balance as if the Collections had not been received and Finance
Charges shall accrue thereon.

 

1

 

2.2                               Financed
Receivables Activity Report.  Within 15 days after the end of each Monthly
Period, Lender shall send to Borrower a report covering the transactions for
that Monthly Period, including the amount of all Financed Receivables, all
Collections, Adjustments, Finance Charges, and other fees and charges.  The accounting shall be deemed correct and
conclusive unless Borrower makes written objection to Lender within 30 days
after the Lender sends the accounting to Borrower.

 

2.3                               Reconciliations.  Unless a Default has occurred and is
continuing, Lender shall refund to Borrower after each Month End, the
Refundable Reserve, if positive, calculated for such Month End, subject to
Lender’s rights under Section 3.3 and Lender’s rights of offset and
recoupment.  If the Refundable Reserve is
negative, Borrower shall immediately pay such amount in the same manner as set
forth in Section 3.3 for Overadvances.

 

2.4                               Adjustments.  In the event of a breach of Sections 5 or 6,
or in the event any Adjustment or dispute is asserted by any Account Debtor,
Borrower shall promptly advise Lender and shall, subject to the Lender’s
approval, resolve such disputes and advise Lender of any Adjustments; provided
that in no case will the aggregate Adjustments made with respect to any
Financed Receivable exceed 2% of its original Receivable Amount unless Borrower
has obtained the prior written consent of Lender.  Unless the Advance for the disputed Financed
Receivable is repaid in full, Lender shall have the right, at any time, to take
possession of any rejected, returned, or recovered personal property. If such
possession is not taken by Lender, Borrower is to resell it for Lender’s
account at Borrower’s expense with the proceeds made payable to Lender. While
Borrower retains possession of any returned goods, Borrower shall segregate
said goods and mark them as property of Lender.

 

2.5                               Remittances;
Lockbox Account Collection Services.  Borrower shall (i) immediately notify,
transfer and deliver to Lender all Collections Borrower receives,
(ii) deliver to Lender a detailed cash receipts journal daily until the
lockbox is operational, and (iii) immediately enter into a collection services
agreement acceptable to Lender (the “Lockbox Agreement”).
Borrower shall use the lockbox address as the remit to and payment address for
all of Borrower’s Collections and it will be considered an immediate Event of
Default if this does not occur or the lockbox is not operational within 60 days
of the date of this Agreement.  All
Collections received to the lockbox or otherwise received by Lender will be
deposited to a non-interest bearing cash collateral account maintained with
Lender and Borrower will not have access to that account.

 

3.                                      RECOURSE
AND OVERADVANCES.

 

3.1                               Recourse.  Advances and the other Obligations shall be
with full recourse against Borrower. If any Advance is not repaid in full
within 90 days from the earlier of (a) invoice date, or (b) the date
on which such Advance is made, Borrower shall immediately pay the outstanding
amount thereof to Lender.

 

3.2                               Overadvances.  Upon any occurrence of an Overadvance,
Borrower shall immediately pay down the Advances so that, after giving effect
to such payments, no Overadvance exists.

 

3.3                               Borrower’s
Payment.  When any Overadvance or other
amount owing to Lender becomes due, Lender shall inform Borrower of the manner
of payment which may be any one or more of the following in Lender’s sole
discretion: (a) in cash immediately upon demand therefore; (b) by
delivery of substitute invoices and a Funding Request acceptable to Lender
which shall thereupon become Financed Receivables; (c) by deduction from
or offset against the Refundable Reserve that would otherwise be due and
payable to Borrower; (d) by deduction from or offset against the amount
that otherwise would be forwarded to Borrower in respect of any further
Advances that may be made by Lender; or (e) by any combination of the
foregoing as Lender may from time to time choose.

 

4.                                      FEES
AND FINANCE CHARGES.

 

4.1                               Finance
Charges.  Lender may, but is not
required to, deduct the amount of accrued Finance Charge from Collections
received by Lender.  On each Month End
Borrower shall pay to Lender any accrued and unpaid Finance Charge as of such
Month End.  Lender may deduct the accrued
Finance Charges in calculating the Refundable Reserve.

 

4.2                               Fees.

 

(a)                                       Processing
Fee.  At the time each Advance is
made, Borrower shall pay to Lender the Processing Fee with respect to such
Advance.

 

2

 

(b)                                       Termination
Fee.  In the event this Agreement is
terminated prior to the first anniversary of the date of this Agreement,
Borrower shall pay the Termination Fee to Lender, provided however, the
Termination Fee will be waived if the termination of this Agreement is in
connection with Borrower’s entry into another financing agreement with Lender
or an affiliate of Lender.

 

(c)                                        Facility
Fee.  Borrower shall pay the
Facility Fee to Lender promptly upon the execution of this Agreement and
annually thereafter.

 

(d)                                       Recovery
Fee.  If Borrower fails to remit any
Collections to Lender as provided in Section 2.5, Borrower shall in each case
pay to Lender the Recovery Fee for such Collections.

 

5.                                      REPRESENTATIONS
AND WARRANTIES.  Borrower
represents and warrants:

 

5.1                               With respect to
each Financed Receivable:

 

(a)                              It is the owner
with legal right to sell, transfer and assign it;

 

(b)                              The correct
Receivable Amount is on the Funding Request and is not disputed;

 

(c)                               Such Financed
Receivable is an Eligible Receivable;

 

(d)                              Lender has the
right to endorse and/ or require Borrower to endorse all payments received on
Financed Receivables and all proceeds of Collateral; and

 

(e)                               No
representation, warranty or other statement of Borrower in any certificate or
written statement given to Lender contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statement
contained in the certificates or statement not misleading.

 

5.2                               Borrower is
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified.

 

5.3                               The execution,
delivery and performance of this Agreement has been duly authorized, and does
not conflict with Borrower’s organizational documents, nor constitute an Event
of Default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound.

 

5.4                               Borrower has
good title to the Collateral and all inventory is in all material respects of
good and marketable quality, free from material defects.

 

5.5                               Borrower’s
name, form of organization, chief executive office, and the place where the
records concerning all Financed Receivables and Collateral are kept is set
forth at the beginning of this Agreement, Borrower is located at its address
for notices set forth in this Agreement.

 

5.6                               If Borrower
owns, holds or has any interest in, any copyrights (whether registered, or
unregistered), patents or trademarks, and licenses of any of the foregoing,
such interest has been specifically disclosed and identified to Lender in
writing.

 

6.                                      MISCELLANEOUS
PROVISIONS.  Borrower
will:

 

6.1                               Maintain its
corporate existence and good standing in its jurisdictions of incorporation and
maintain its qualification to do business in each jurisdiction necessary to
Borrower’s business or operations.

 

6.2                               Give Lender at
least 30 days prior written notice of changes to its name, organization, chief
executive office or location of records.

 

6.3                               Pay all its
taxes including gross payroll, withholding and sales taxes when due and will
deliver satisfactory evidence of payment to Lender if requested.

 

3

 

6.4                               If requested,
provide to Lender a written report within 10 days, if payment of any Financed
Receivable does not occur by its due date and include the reasons for the
delay.

 

6.5                               If applicable,
give Lender copies of all Forms 10-K, 10-Q and 8-K (or equivalents) within 5
days of filing with the Securities and Exchange Commission, while any Financed
Receivable is outstanding.

 

6.6                               Execute any
further instruments and take further action as Lender requests to perfect or
continue Lender’s security interest in the Collateral or to affect the purposes
of this Agreement.

 

6.7                               Provide Lender
with a Compliance Certificate no later than 30 days following each quarter end
or as requested by Lender.

 

6.8                               Immediately
notify, transfer and deliver to Lender all Collections Borrower receives.

 

6.9                               Not create,
incur, assume, or be liable for any indebtedness, other than Permitted
Indebtedness.

 

6.10                        Immediately
notify Lender if Borrower hereafter obtains any interest in any copyrights,
patents, trademarks or licenses that are significant in value or are material
to the conduct of its business or the value of any Financed Receivable.

 

6.11                        At all times
when any Advances are outstanding or upon request, provide to Lender no later
than 30 days after the end of each month the following with respect to Borrower’s
financial condition and results of operations for such month and the period
then ending: balance sheet, income statement; statement of cash flows, accounts
receivable and payable aging, deferred revenue report, a customer deposit
listing and such other matters as Lender may request.

 

6.12                        Provide to
Lender within 180 days of the fiscal year end, the annual financial statements
of Borrower, certified and dated by an authorized financial officer.  These financial statements must be reviewed
by a Certified Public Accountant acceptable to Lender.  The statements shall be prepared on a
consolidated basis.

 

6.13                        Provide to
Lender within 180 days of the fiscal year end, a copy of Borrower’s tax
returns.  These tax returns must be
reviewed by a Certified Public Accountant acceptable to Lender.

 

6.14                        Maintain its
primary depository and operating accounts with Lender and, in the case of any
deposit accounts not maintained with Lender, grant to Lender a first priority
perfected security interest in and “control” (within the meaning of Section
9104 of the California Uniform Commercial Code) of such deposit account
pursuant to documentation acceptable to Lender.

 

6.15                        Provide to
Lender promptly upon the execution hereof, the following documents which shall
be in form satisfactory to Lender: a guaranty by Parent of Borrower’s obligations
to Lender hereunder together with a certificate of the Secretary of Parent with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement.

 

6.16                        Promptly
provide to Lender such additional information and documents regarding the
finances, properties, business or books and records of Borrower or any
guarantor or any other obligor as Lender may request.

 

6.17                        Borrower will
not pay any dividends or make any other distribution or payment to Parent or
any Affiliate without Lender’s prior written consent.  The difference between the amount Borrower
owes to Parent and the amount Parent owes to Borrower shall not be less than
$4,000,000 at any time, and any payment that would reduce this difference to
less than $4,000,000 will require Lender’s approval and written consent.

 

7.                                      SECURITY
INTEREST.  To secure
the prompt payment and performance to Lender of all of the Obligations,
Borrower hereby grants to Lender a continuing security interest in the
Collateral.  Borrower is not authorized
to sell, assign, transfer or otherwise convey any Collateral without Lender’s
prior written consent, except for the sale of finished inventory in the
Borrower’s usual course of business. 
Borrower agrees to sign any instruments and documents requested by
Lender to evidence, perfect, or protect the interests of Lender in the
Collateral.  Borrower agrees to deliver
to Lender the originals of all instruments, chattel paper and documents
evidencing or related to Financed Receivables and Collateral.  Borrower shall not grant or permit any lien or
security in the Collateral or any interest therein other than Permitted Liens.

 

4

 

8.                                      POWER
OF ATTORNEY.  Borrower
irrevocably appoints Lender and its successors and as true and lawful attorney
in fact, and authorizes Lender (a) to, whether or not there has been an Event
of Default, (i) demand, collect, receive, sue, and give releases to any Account
Debtor for the monies due or which may become due upon or with respect to the
Receivables and to compromise, prosecute, or defend any action, claim, case or
proceeding relating to the Receivables, including the filing of a claim or the
voting of such claims in any bankruptcy case, all in Lender’s name or Borrower’s
name, as Lender may choose; (ii) prepare, file and sign Borrower’s name on any
notice, claim, assignment, demand, draft, or notice of or satisfaction of lien
or mechanics’ lien or similar document; (iii) notify all Account Debtors with
respect to the Receivables to pay Lender directly; (iv) receive and open all
mail addressed to Borrower for the purpose of collecting the Receivables; (v)
endorse Borrower’s name on any checks or other forms of payment on the
Receivables; (vi) execute on behalf of Borrower any and all instruments,
documents, financing statements and the like to perfect Lender’s interests in
the Receivables and Collateral; (vii) debit any Borrower’s deposit accounts
maintained with Lender for any and all Obligations due under this Agreement;
and (viii) do all acts and things necessary or expedient, in furtherance of any
such purposes, and (b) to, upon the occurrence and during the continuance of an
Event of Default, sell, assign, transfer, pledge, compromise, or discharge the
whole or any part of the Receivables. 
Upon the occurrence and continuation of an Event of Default, all of the
power of attorney rights granted by Borrower to Lender hereunder shall be
applicable with respect to all Receivables and all Collateral.

 

9.                                      DEFAULT
AND REMEDIES.

 

9.1                               Events
of Default.  The
occurrence of any one or more of the following shall constitute an Event of
Default hereunder.

 

(a)                                 Failure
to Pay.  Borrower
fails to make a payment under this Agreement.

 

(b)                                 Lien
Priority.  Lender
fails to have an enforceable first lien (except for any prior liens to which
Lender has consented in writing) on or security interest in the Collateral.

 

(c)                                  False
Information.  Borrower
(or any guarantor) has given Lender any materially false or misleading
information or representations or has failed to disclose any material fact
relating to the subject matter of this Agreement.

 

(d)                                 Death.  Borrower or any guarantor dies or becomes
legally incompetent, or if Borrower is a partnership, any general partner dies
or becomes legally incompetent.

 

(e)                                  Bankruptcy.  Borrower (or any guarantor) files a
bankruptcy petition, a bankruptcy petition is filed against Borrower (or any
guarantor) or Borrower (or any guarantor) makes a general assignment for the
benefit of creditors.

 

(f)                                   Receivers.  A receiver or similar official is appointed
for a substantial portion of Borrower’s (or any guarantor’s) business, or the
business is terminated.

 

(g)                                  Judgments.  Any judgments or arbitration awards are
entered against Borrower (or any guarantor), or Borrower (or any guarantor)
enters into any settlement agreements with respect to any litigation or
arbitration and the aggregate amount of all such judgments, awards, and
agreements exceeds $50,000.

 

(h)                                 Material
Adverse Change.  A material
adverse change occurs, or is reasonably likely to occur, in Borrower’s (or any
guarantor’s) business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.

 

(i)                                     Cross-default.  Any default occurs under any agreement in
connection with any credit Borrower (or any guarantor) or any of Borrower’s
related entities or affiliates has obtained from anyone else or which Borrower
(or any guarantor) or any of Borrower’s related entities or affiliates has
guaranteed (other than trade amounts payable incurred in the ordinary course of
business and not more than 60 days past due).

 

(j)                                    Default
under Related Documents.  Any default occurs under any guaranty,
subordination agreement, security agreement, deed of trust, mortgage, or other
document required by or delivered in connection with this Agreement or any such
document is no longer in effect.

 

(k)                                 Other
Agreements.  Borrower
(or any guarantor) or any of Borrower’s related entities or affiliates fails to
meet the conditions of, or fails to perform any obligation under any other
agreement Borrower (or any guarantor) or any of Borrower’s related entities or
affiliates has with Lender or any affiliate of Lender.

 

5

 

(l)                                     Change
of Control.  The holders
of the capital ownership of the Borrower as of the date hereof cease to own and
control, directly and indirectly, at least 90% of the capital ownership of the
Borrower.

 

(m)                             Other
Breach Under Agreement.  Borrower fails to meet the conditions of, or
fails to perform any obligation under, any term of this Agreement not
specifically referred to above.

 

9.2                               Remedies. Upon the
occurrence of an Event of Default, (1) without implying any obligation to
do so, Lender may cease making Advances or extending any other financial
accommodations to Borrower; (2) all or a portion of the Obligations shall
be, at the option of and upon demand by Lender, or with respect to an Event of
Default described in Section 9.1(e), automatically and without notice or
demand, due and payable in full; and (3) Lender shall have and may
exercise all the rights and remedies under this Agreement and under applicable
law, including the rights and remedies of a secured party under the California
Uniform Commercial Code, all the power of attorney rights described in Section
8 with respect to all Collateral, and the right to collect, dispose of, sell,
lease, use, and realize upon all Financed Receivables and all Collateral in any
commercial reasonable manner.

 

10.                               ACCRUAL
OF INTEREST.  All interest
and finance charges hereunder calculated at an annual rate shall be based on a
year of 360 days, which results in a higher effective rate of interest than if
a year of 365 or 366 days were used.  If
any amount due under Section 4.2, amounts due under Section 11, and any other
Obligations not otherwise bearing interest hereunder is not paid when due, such
amount shall bear interest at a per annum rate equal to the Finance Charge
Percentage until the earlier of (i) payment in good funds or (ii) entry
of a trial judgment thereof, at which time the principal amount of any money
judgment remaining unsatisfied shall accrue interest at the highest rate
allowed by applicable law.

 

11.                               FEES,
COSTS AND EXPENSES; INDEMNIFICATION. The Borrower will pay to
Lender upon demand all fees, costs and expenses (including fees of attorneys
and professionals and their costs and expenses) that Lender incurs or may from
time to time impose in connection with any of the following:
(a) preparing, negotiating, administering, and enforcing this Agreement or
any other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any
litigation or dispute (whether instituted by Lender, Borrower or any other person)
in any way relating to the Financed Receivables, the Collateral, this Agreement
or any other agreement executed in connection herewith or therewith,
(c) enforcing any rights against Borrower or any guarantor, or any Account
Debtor, (d) protecting or enforcing its interest in the Financed
Receivables or the Collateral, (e) collecting the Financed Receivables and
the Obligations, or (f) the representation of Lender in connection with
any bankruptcy case or insolvency proceeding involving Borrower, any Financed
Receivable, the Collateral, any Account Debtor, or any guarantor. Borrower
shall indemnify and hold Lender harmless from and against any and all claims,
actions, damages, costs, expenses, and liabilities of any nature whatsoever
arising in connection with any of the foregoing.

 

12.                               INTEGRATION,
SEVERABILITY WAIVER, AND CHOICE OF LAW FORUM AND VENUE.  This Agreement and any related security or
other agreements required by this Agreement, collectively: (a) represent
the sum of the understandings and agreements between Lender and Borrower
concerning this credit; (b) replace any prior oral or written agreements
between Lender and Borrower concerning this credit; and (c) are intended
by Lender and Borrower as the final, complete and exclusive statement of the terms
agreed to by them. In the event of any conflict between this Agreement and any
other agreements required by this Agreement, this Agreement will prevail. If
any provision of this Agreement is deemed invalid by reason of law, this
Agreement will be construed as not containing such provision and the remainder
of the Agreement shall remain in full force and effect. Lender retains all of
its rights, even if it makes an Advance after a default. If Lender waives a
default, it may enforce a later default. Any consent or waiver under, or
amendment of, this Agreement must be in writing, and no such consent, waiver,
or amendment shall imply any obligation by Lender to make any subsequent
consent, waiver, or amendment.  THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA.  THE
PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER RELATED DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY
IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA,
CALIFORNIA, OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH
LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS JURISDICTION
OVER THE SUBJECT MATTER AND PARTIES IN CONTROVERSY.  EACH PARTY HERETO WAIVES ANY RIGHT TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SUBSECTION (b) AND
STIPULATES THAT THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA
CLARA, CALIFORNIA SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH
PARTY FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, OR ANY OTHER RELATED
DOCUMENTS.  SERVICE OF PROCESS SUFFICIENT
FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST THE BORROWER MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS
SPECIFIED FOR NOTICES PURSUANT TO SECTION 13.

 

6

 

13.                               NOTICES;
TELEPHONIC AND TELEFAX
AUTHORIZATIONS.  All notices
shall be given to Lender and Borrower at the addresses or faxes (or e-mail, if
applicable) set forth on the signature page of this agreement and shall be
deemed to have been delivered when actually received at the designated
address.  Lender may honor telephone,
fax, e-mail or telefax instructions for Advances or repayments given, or
purported to be given, by any one of the Authorized Persons.  Borrower will indemnify and hold Lender
harmless from all liability, loss, and costs in connection with any act
resulting from telephone or telefax instructions Lender reasonably believes are
made by any Authorized Person.  This
paragraph will survive this Agreement’s termination, and will benefit Lender
and its officers, employees, and agents.

 

14.                               DEFINITIONS
AND CONSTRUCTION.

 

14.1                        Definitions.  In this Agreement:

 

“Account Balance” means at any time
the aggregate of the Receivable Amounts of all Financed Receivables at such
time, as reflected on the records maintained by Lender.

 

“Account Debtor” has the meaning in
the California Uniform Commercial Code and includes any person liable on any
Receivable, including without limitation, any guarantor of any Receivable and
any issuer of a letter of credit or banker’s acceptance assuring payment
thereof.

 

“Adjustments” means all discounts,
allowances, disputes, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Financed Receivable.

 

“Advance” means as to any
Receivable, the advance made by Lender to Borrower in respect of such
Receivable pursuant to Section 1.2.

 

“Advance Rate” means 80% or such
greater or lesser percentage as Lender may from time to time establish in its
sole discretion upon notice to Borrower.

 

“Affiliate” means, as to any person
or entity, any other person or entity directly or indirectly controlling or
controlled by, or under direct or indirect common control with, such person or
entity.

 

“Agreement” means this Business
Financing Agreement.

 

“Authorized Person” means any of
Borrower (if an individual) or any one of the individuals authorized to sign on
behalf of Borrower.

 

“Cash Reserve” means for any
Financed Receivable which has been paid in full during a Monthly Period, the
amount by which the amount(s) paid on such Financed Receivable exceeds the
Advance made on such Financed Receivable.

 

“Collateral” means all of Borrower’s
rights and interest in any and all personal property, whether now existing or
hereafter acquired or created and wherever located, and all products and
proceeds thereof and accessions thereto, including but not limited to the
following (collectively, the “Collateral”): 
(a) all accounts (including health care insurance receivables),
chattel paper (including tangible and electronic chattel paper), inventory
(including all goods held for sale or lease or to be furnished under a contract
for service, and including returns and repossessions), equipment (including all
accessions and additions thereto), instruments (including promissory notes),
investment property (including securities and securities entitlements),
documents (including negotiable documents), deposit accounts, letter of credit
rights, money, any commercial tort claim of Borrower which is now or hereafter
identified by Borrower or Lender, general intangibles (including payment
intangibles and software), goods (including fixtures) and all of Borrower’s
books and records with respect to any of the foregoing, and the computers and
equipment containing said books and records; and (b) any and all cash
proceeds and/or noncash proceeds thereof, including without limitation,
insurance proceeds, and all supporting obligations and the security therefore
or for any right to payment.

 

“Collections” means all payments
from or on behalf of an Account Debtor with respect to Receivables.

 

“Compliance Certificate” means a
certificate in the form attached as Exhibit A to this Agreement by
an Authorized Person that, among other things, the representations and
warranties set forth in this Agreement are true and correct as of the date such
certificate is delivered.

 

7

 

“Credit Limit” means $800,000, which
is intended to be the maximum amount of Advances at any time outstanding.

 

“Default” means any Event of Default
or any event that with notice, lapse of time or otherwise would constitute an
Event of Default.

 

“Eligible Receivable” means a
Receivable that satisfies all of the following:

 

(a)                                  The Receivable
has been created by Borrower in the ordinary course of Borrower’s business and
without any obligation on the part of Borrower to render any further
performance.

 

(b)                                 There are no
conditions which must be satisfied before Borrower is entitled to receive
payment of the Receivable, and the Receivable does not arise from COD sales,
consignments or guaranteed sales.

 

(c)                                  The Account
Debtor upon the Receivable does not claim any defense to payment of the
Receivable, whether well founded or otherwise.

 

(d)                                 The Receivable
is not the obligation of an Account Debtor who has asserted or may be
reasonably expected to assert any counterclaims or offsets against Borrower
(including offsets for any “contra accounts” owed by Borrower to the Account
Debtor for goods purchased by Borrower or for services performed for Borrower).

 

(e)                                  The Receivable
represents a genuine obligation of the Account Debtor and to the extent any
credit balances exist in favor of the Account Debtor, such credit balances shall
be deducted in calculating the Receivable Amount.

 

(f)                                    Borrower has
sent an invoice to the Account Debtor in the amount of the Receivable.

 

(g)                                 Borrower is not
prohibited by the laws of the state where the Account Debtor is located from
bringing an action in the courts of that state to enforce the Account Debtor’s
obligation to pay the Receivable. Borrower has taken all appropriate actions to
ensure access to the courts of the state where Account Debtor is located,
including, where necessary; the filing of a Notice of Business Activities
Report or other similar filing with the applicable state agency or the
qualification by Borrower as a foreign corporation authorized to transact
business in such state.

 

(h)                                 The Receivable
is owned by Borrower free of any title defects or any liens or interests of
others except the security interest in favor of Lender, and Lender has a
perfected, first priority security interest in such Receivable.

 

(i)                                     The Account
Debtor on the Receivable is not any of the following:  (i) an employee, affiliate, parent or
subsidiary of Borrower, or an entity which has common officers or directors
with Borrower, (ii) the U.S. government or any agency or department of the
U.S. government unless Lender agrees in writing to accept the Receivable,
Borrower complies with the procedures in the Federal Assignment of Claims Act
of 1940 (41 U.S.C.§15) with respect to the Receivable, and the underlying
contract expressly provides that neither the U.S. government nor any agency or
department thereof shall have the right of set-off against Borrower; or
(iii) any person or entity located in a foreign country unless
(A) the Receivable is supported by an irrevocable letter of credit issued
by a bank acceptable to Lender, and if requested by Lender, the original
of such letter of credit and/or any usance drafts drawn under such letter of
credit and accepted by the issuing or confirming bank have been delivered to
Lender or (b) the Receivable is supported by foreign credit insurance
acceptable to Lender.

 

(j)                                     The Receivable
is not in default (a Receivable will be considered in default if any of the
following occur:  (i) the Receivable
is not paid within 90 days from its invoice date; (ii) the Account Debtor
obligated upon the Receivable suspends business, makes a general assignment for
the benefit of creditors, or fails to pay its debts generally as they come due;
or (iii) any petition is filed by or against the Account Debtor obligated
upon the Receivable under any bankruptcy law or any other law or laws for the
relief of debtors).

 

(k)                                  The Receivable
does not arise from the sale of goods which remain in Borrower’s possession or
under Borrower’s control.

 

(l)                                     The Receivable
is not evidenced by a promissory note or chattel paper, nor is the Account
Debtor obligated to Borrower under any other obligation which is evidenced by a
promissory note.

 

8

 

(m)                               The Receivable
is otherwise acceptable to Lender.

 

“Event of Default” has the meaning
set forth in Section 9.1.

 

“Facility Fee” means a payment of an
annual fee equal to 1.00 percentage point of the Formula Account Balance due
upon the date of this Agreement and each anniversary thereof until this
Agreement is terminated pursuant to Section 17 hereof.

 

“Finance Charge” means for each
Monthly Period an interest amount equal to the Finance Charge Percentage of the
average daily Account Balance outstanding during such Monthly Period.

 

“Finance Charge Percentage” means a
rate per year equal to the Prime Rate plus 3.25 percentage points plus an
additional 5.00 percentage points during any period that an Event of Default
has occurred and is continuing.

 

“Financed Receivable” means a
Receivable for which Lender makes an Advance pursuant to a Funding Request.

 

“Formula Account Balance” means the
dollar amount resulting from dividing the Credit Limit by the Advance Rate in
effect at the time of calculation.

 

“Funding Request” means a writing
signed by an Authorized Representative which accurately identifies the
Receivables which Lender, at its election, is being requested to finance, and
includes for each such Receivable the correct amount owed by the Account
Debtor, the name and address of the Account Debtor, the invoice number, the
invoice date and the account code in the form of the invoice schedule attached
as Exhibit B hereto, together with copies of invoices and such
other supporting documentation as the Lender may from time to time request.

 

“Lender” means Bridge Bank, National
Association, and its successors and assigns.

 

“Month End” means the last calendar
day of each Monthly Period.

 

“Monthly Period” means each calendar
month.

 

“Obligations”
means all liabilities and obligations of Borrower to Lender of any kind or
nature, present or future, arising under or in connection with this Agreement
or under any other document, instrument or agreement, whether or not evidenced
by any note, guarantee or other instrument, whether arising on account or by
overdraft, whether direct or indirect (including those acquired by assignment)
absolute or contingent, primary or secondary, due or to become due, now owing
or hereafter arising, and however acquired; including, without limitation, all
Advances, Finance Charges, fees, interest, expenses, professional fees and
attorneys’ fees.

 

“Overadvance” means at any time an
amount equal to the greater of the following amounts (if any):  (a) the amount by which the total amount
of the Advances exceeds the Credit Limit and (b) the amount equal to the
sum of (i) the total outstanding amounts of all Advances made with respect
to Receivables which were not, or have ceased to be, Eligible Receivables and
(ii) the amount by which the total outstanding amount of all Advances
(other than those under clause (i) above)) exceeds the product of
(x) the Advance Rate and (y) the total outstanding Receivable Amounts
of the Eligible Receivables in respect of which such Advances were made.

 

“Parent” means EMRISE CORPORATION, a
Delaware corporation.

 

“Permitted Indebtedness” means:

 

(a)                                  Indebtedness
under this Agreement or that is otherwise owed to the Lender.

 

(b)                                 Indebtedness
existing on the date hereof and specifically disclosed on a schedule to this
Agreement.

 

(c)                                  Purchase money
indebtedness (including capital leases) incurred to acquire capital assets in
ordinary course of business and not exceeding $25,000 in total principal amount at any time outstanding.

 

(d)                                 Other Indebtedness in an aggregate amount not to exceed $25,000 at any
time outstanding; provided that such indebtedness is junior in priority (if
secured) to the Obligations and provided that the incurrence of such
Indebtedness does not otherwise cause and Event of Default hereunder.

 

9

 

(e)                                  Indebtedness incurred in the refinancing of any indebtedness set forth in
(a) through (d) above, provided that the principal amount thereof is
not increased or the terms thereof are not modified to impose more burdensome
terms upon the Borrower.

 

(f)                                    Subordinated Debt.

 

“Permitted Liens” means:

 

(a)                                  Liens securing
any of the indebtedness described in clauses (a) through (d) of the
definition of Permitted Indebtedness.

 

(b)                                 Liens for
taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings,
provided the same have no priority over any of Lender’s security interests.

 

(c)                                  Liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
described in clause (e) of the definition of Permitted Indebtedness,
provided that any extension, renewal or replacement lien shall be limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.

 

(d)                                 Liens securing
Subordinated Debt.

 

“Prime Rate” means the greater of
3.25% per year or the variable per annum rate of interest most recently
announced by Lender as its “Prime Rate.” 
Lender may price loans to its customers at, above, or below the Prime
Rate. Any change in the Prime Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in Lender’s Prime
Rate.

 

“Processing Fee” means a fee equal
to 0.25% of the Receivable Amount of each Financed Receivable.

 

“Recovery Fee” means for each item
of Collections which the Borrower has failed to remit as required by the
Agreement, a fee equal to the lesser of $5,000 or 5% of the amount of such
item, but in no case less than $1,000.

 

“Receivable Amount” means as to any
Receivable, the Receivable Amount due from the Account Debtor after deducting
all discounts, credits, offsets, payments or other deductions of any nature
whatsoever, whether or not claimed by the Account Debtor.

 

“Receivables” means Borrower’s
rights to payment arising in the ordinary course of Borrower’s business,
including accounts, chattel paper, instruments, contract rights, documents,
general intangibles, letters of credit, drafts, and bankers acceptances.

 

“Refundable Reserve” means for any
Month End:

 

(a)                                  The sum of
(i) the total of the Cash Reserves as to all Financed Receivables as of
such Month End and (ii) the amount of Collections received by Lender
during the Monthly Period with respect to Receivables other than Financed
Receivables and not previously remitted to Borrower,

 

minus

 

(b)                                 The total for
that Monthly Period ending on such Month End of:

 

(i)                                    Processing Fee,
Facility Fee, and Recovery Fees;

 

(ii)           Finance Charges;

 

(iii)          Adjustments;

 

(iv)          Any outstanding Overadvance Amounts;

 

10

 

(v)                                all amounts
due, including professional fees and expenses, as set forth in Section 11
for which oral or written demand has been made by Lender to Borrower during
that Monthly Period to the extent Lender has agreed to accept payment thereof by
deduction from the Refundable Reserve; and

 

(vi)                             all amounts
collected by Borrower on Financed Receivables during the Monthly Period and not
remitted to Lender.

 

“Reserve” means as to any Financed
Receivable the amount by which the Receivable Amount of the Financed Receivable
exceeds the Advance on that Financed Receivable.

 

“Reserve Percentage” means 100% less
the Advance Rate.

 

“Subordinated Debt” means
indebtedness of Borrower that is expressly subordinated to the indebtedness of
Borrower owed to Lender pursuant to a subordination agreement satisfactory in
form and substance to Lender.

 

“Termination Fee” means a payment
equal to 1.00% of the Formula Account Balance.

 

14.2                        Construction:

 

(a)                                  In this
Agreement: (i) references to the plural include the singular and to the
singular include the plural; (ii) references to any gender include any
other gender; (iii) the terms “include” and “including” are not limiting;
(iv) the term “or” has the inclusive meaning represented by the phrase “and/or,”
(v) unless otherwise specified, section and subsection references are to
this Agreement, and (vi) any reference to any statute, law, or regulation
shall include all amendments thereto and revisions thereof.

 

(b)                                 Neither this
Agreement nor any uncertainty or ambiguity herein shall be construed or
resolved using any presumption against either Borrower or Lender, whether under
any rule of construction or otherwise. 
On the contrary, this Agreement has been reviewed by each party hereto
and their respective counsel.  In case of
any ambiguity or uncertainty, this Agreement shall be construed and interpreted
according to the ordinary meaning of the words used to accomplish fairly the
purposes and intentions of all parties hereto.

 

(c)                                  Titles and
section headings used in this Agreement are for convenience only and shall not
be used in interpreting this Agreement.

 

15.                               JURY
TRIAL WAIVER.  THE
UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL
ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES.  TO THE EXTENT PERMITTED BY LAW, EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT
OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
ARISING OUT OF OR RELATED TO THIS AGREEMENT  OR ANY OTHER DOCUMENT, INSTRUMENT
OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

 

16.                               JUDICIAL
REFERENCE PROVISION.

 

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

 

16.2                        With the
exception of the items specified in Section 16.3 below, any controversy,
dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between
the undersigned parties (collectively in this Section, the “Loan Documents”), will be resolved
by a reference proceeding in California in accordance with the provisions of
Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections,
which shall constitute the exclusive remedy for the resolution of any Claim,
including whether the Claim is subject to the reference proceeding. Except as
otherwise provided in the Loan Documents, venue for the reference proceeding
will be in the state or federal court in the county or district where the real
property involved in the action, if any, is located or in the state or federal
court in the county or district where venue is otherwise appropriate under
applicable law (the “Court”).

 

16.3                        The matters
that shall not be subject to a reference are the following: (i) nonjudicial
foreclosure of any security interests in real or personal property, (ii) exercise
of self-help remedies (including, without limitation, set-off), (iii)

 

11

 

appointment of a receiver
and (iv) temporary, provisional or ancillary remedies (including, without
limitation, writs of attachment, writs of possession, temporary restraining
orders or preliminary injunctions). This reference provision does not limit the
right of any party to exercise or oppose any of the rights and remedies
described in clauses (i) and (ii) or to seek or oppose from a court
of competent jurisdiction any of the items described in clauses (iii) and
(iv). The exercise of, or opposition to, any of those items does not waive the
right of any party to a reference pursuant to this reference provision as
provided herein.

 

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

 

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

 

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

 

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

 

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

 

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

 

16.10                 THE PARTIES RECOGNIZE AND
AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY.  AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY
KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES
THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR

 

12

 

CLAIM BETWEEN OR AMONG THEM
ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT  OR THE
OTHER LOAN DOCUMENTS.

 

17.                               TERM
AND TERMINATION.  Borrower
and Lender each have the right to terminate the financing of Receivables under
this Agreement at any time upon notice to the other: provided that no
such termination shall affect Lender’s security interest in the Financed
Receivables and other Collateral, and this Agreement shall continue to be
effective, and the obligations of Borrower to indemnify Lender with respect to
the expenses, damages, losses, costs and liabilities described in Section 11
shall survive until all applicable statute of limitations periods with respect
to actions that may be brought against Lender have run, and Lender’s rights and
remedies hereunder shall survive any such termination, until all transactions
entered into and Obligations incurred hereunder or in connection herewith have
been completed and satisfied in full. 
Upon any such termination, Borrower shall, upon demand by Lender,
immediately repay all Advances then outstanding.

 

18.                               OTHER
AGREEMENTS. 
(i) Any security agreements, liens and/or security interests
securing payment of any obligations of Borrower owing to Lender or its
affiliates also secure the Obligations, and are valid and subsisting and are
not adversely affected by execution of this Agreement.  An Event of Default under this Agreement
constitutes a default under other outstanding agreements between Borrower and Lender
or its affiliates; (ii) Lender reserves the right to issue press releases,
advertisements, and other promotional materials describing any successful
outcome of services provided on Borrower’s behalf. Borrower agrees that Lender
shall have the right to identify Borrower by name in those materials.

 

IN
WITNESS WHEREOF, Borrower and Lender have executed this Agreement on the day
and year above written.

 

	
  BORROWER:

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
  CXR
  LARUS CORPORATION

  	
   

  	
  BRIDGE
  BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/
  Lawrence A. Taillie

  	
   

  	
  By

  	
  /s/
  Larry La Croix

  
	
  Name:

  	
  Lawrence
  A. Taillie

  	
   

  	
  Name:

  	
  Larry
  La Croix

  
	
  Title:

  	
  President

  	
   

  	
  Title:

  	
  Senior
  Vice President

  
	
   

  	
   

  	
   

  
	
  Address
  for Notices:

  	
   

  	
  Address
  for Notices:

  
	
  894
  Faulstich Court

  	
   

  	
  55
  Almaden Blvd.

  
	
  San
  Jose, CA 95112

  	
   

  	
  San
  Jose, CA 95113

  
	
  Fax:
  (408) 573-2706

  	
   

  	
  Fax:
  (408) 423-8510

  

 

13

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