Document:

Exhibit
10.3

 

REVOLVING CREDIT,
TERM LOAN

 

AND

 

SECURITY AGREEMENT

 

PNC BANK, NATIONAL
ASSOCIATION

(AS LENDER AND AS
AGENT)

 

WITH

 

WM COFFMAN LLC

(BORROWER)

 

JUNE 8, 2009

 

 

TABLE OF CONTENT

 

	
  ARTICLE I DEFINITIONS

  	
  1

  
	
  1.1.

  	
  Accounting
  Terms

  	
  1

  
	
  1.2.

  	
  General
  Terms

  	
  1

  
	
  1.3.

  	
  Uniform
  Commercial Code Terms

  	
  26

  
	
  1.4.

  	
  Certain
  Matters of Construction

  	
  27

  
	
   

  	
   

  
	
  ARTICLE II ADVANCES, PAYMENTS

  	
  28

  
	
  2.1.

  	
  Revolving
  Advances

  	
  28

  
	
  2.2.

  	
  Procedure
  for Revolving Advances Borrowing

  	
  29

  
	
  2.3.

  	
  Disbursement
  of Advance Proceeds

  	
  31

  
	
  2.4.

  	
  Term
  Loan

  	
  31

  
	
  2.5.

  	
  Repayment
  of Advances

  	
  32

  
	
  2.6.

  	
  Repayment
  of Excess Advances

  	
  32

  
	
  2.7.

  	
  Statement
  of Account

  	
  33

  
	
  2.8.

  	
  Letters
  of Credit

  	
  33

  
	
  2.9.

  	
  Issuance
  of Letters of Credit

  	
  33

  
	
  2.10.

  	
  Requirements
  For Issuance of Letters of Credit

  	
  34

  
	
  2.11.

  	
  Disbursements,
  Reimbursement

  	
  34

  
	
  2.12.

  	
  Repayment
  of Participation Advances

  	
  36

  
	
  2.13.

  	
  Documentation

  	
  36

  
	
  2.14.

  	
  Determination
  to Honor Drawing Request

  	
  36

  
	
  2.15.

  	
  Nature
  of Participation and Reimbursement Obligations

  	
  36

  
	
  2.16.

  	
  Indemnity

  	
  38

  
	
  2.17.

  	
  Liability
  for Acts and Omissions

  	
  38

  
	
  2.18.

  	
  Additional
  Payments

  	
  40

  
	
  2.19.

  	
  Manner
  of Borrowing and Payment

  	
  40

  
	
  2.20.

  	
  Mandatory
  Prepayments

  	
  42

  
	
  2.21.

  	
  Use of
  Proceeds

  	
  42

  
	
  2.22.

  	
  Defaulting
  Lender

  	
  42

  
	
   

  	
   

  
	
  ARTICLE III INTEREST AND FEES

  	
  43

  
	
  3.1.

  	
  Interest

  	
  43

  
	
  3.2.

  	
  Letter
  of Credit Fees

  	
  44

  
	
  3.3.

  	
  Closing
  Fee and Facility Fee

  	
  45

  
	
  3.4.

  	
  Collateral
  Fees

  	
  45

  
	
  3.5.

  	
  Computation
  of Interest and Fees

  	
  45

  
	
  3.6.

  	
  Maximum
  Charges

  	
  46

  
	
  3.7.

  	
  Increased
  Costs

  	
  46

  
	
  3.8.

  	
  Basis
  For Determining Interest Rate Inadequate or Unfair

  	
  47

  
	
  3.9.

  	
  Capital
  Adequacy

  	
  48

  
	
  3.10.

  	
  Gross
  Up for Taxes

  	
  48

  
	
  3.11.

  	
  Withholding
  Tax Exemption

  	
  49

  
	
  3.12.

  	
  Treatment of Certain Refunds

  	
  49

  

 

i

 

	
  ARTICLE
  IV COLLATERAL: GENERAL TERMS

  	
  50

  
	
  4.1.

  	
  Security
  Interest in the Collateral

  	
  50

  
	
  4.2.

  	
  Perfection
  of Security Interest

  	
  50

  
	
  4.3.

  	
  Disposition
  of Collateral

  	
  51

  
	
  4.4.

  	
  Preservation
  of Collateral

  	
  51

  
	
  4.5.

  	
  Ownership
  of Collateral

  	
  52

  
	
  4.6.

  	
  Defense
  of Agent’s and Lenders’ Interests

  	
  52

  
	
  4.7.

  	
  Books
  and Records

  	
  53

  
	
  4.8.

  	
  Financial
  Disclosure

  	
  53

  
	
  4.9.

  	
  Compliance
  with Laws

  	
  53

  
	
  4.10.

  	
  Inspection
  of Premises; Appraisals

  	
  54

  
	
  4.11.

  	
  Insurance

  	
  54

  
	
  4.12.

  	
  Failure
  to Pay Insurance

  	
  55

  
	
  4.13.

  	
  Payment
  of Taxes

  	
  55

  
	
  4.14.

  	
  Payment
  of Leasehold Obligations

  	
  55

  
	
  4.15.

  	
  Receivables

  	
  56

  
	
  4.16.

  	
  Inventory

  	
  58

  
	
  4.17.

  	
  Maintenance
  of Equipment

  	
  58

  
	
  4.18.

  	
  Exculpation
  of Liability

  	
  59

  
	
  4.19.

  	
  Environmental
  Matters

  	
  59

  
	
  4.20.

  	
  Financing
  Statements

  	
  61

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V REPRESENTATIONS AND WARRANTIES

  	
  61

  
	
  5.1.

  	
  Authority

  	
  61

  
	
  5.2.

  	
  Formation
  and Qualification

  	
  62

  
	
  5.3.

  	
  Survival
  of Representations and Warranties

  	
  62

  
	
  5.4.

  	
  Tax Returns

  	
  63

  
	
  5.5.

  	
  Financial
  Statements

  	
  63

  
	
  5.6.

  	
  Entity
  Name and Locations

  	
  64

  
	
  5.7.

  	
  O.S.H.A.
  and Environmental Compliance

  	
  64

  
	
  5.8.

  	
  Solvency;
  No Litigation, Violation, Indebtedness or Default

  	
  65

  
	
  5.9.

  	
  Patents,
  Trademarks, Copyrights and Licenses

  	
  66

  
	
  5.10.

  	
  Licenses
  and Permits

  	
  66

  
	
  5.11.

  	
  Default
  of Indebtedness

  	
  67

  
	
  5.12.

  	
  No
  Default

  	
  67

  
	
  5.13.

  	
  No
  Burdensome Restrictions

  	
  67

  
	
  5.14.

  	
  No
  Labor Disputes

  	
  67

  
	
  5.15.

  	
  Margin
  Regulations

  	
  67

  
	
  5.16.

  	
  Investment
  Company Act

  	
  67

  
	
  5.17.

  	
  Disclosure

  	
  68

  
	
  5.18.

  	
  Delivery
  of Acquisition Agreement and Subordinated Loan Documentation

  	
  68

  
	
  5.19.

  	
  Swaps

  	
  68

  
	
  5.20.

  	
  Conflicting
  Agreements

  	
  68

  
	
  5.21.

  	
  Application
  of Certain Laws and Regulations

  	
  68

  
	
  5.22.

  	
  Business
  and Property of Borrower

  	
  69

  
	
  5.24.

  	
  Anti-Terrorism
  Laws

  	
  69

  
	
  5.25.

  	
  Trading
  with the Enemy

  	
  70

  

 

ii

 

	
  5.26.

  	
  Federal
  Securities Laws

  	
  70

  
	
  5.27.

  	
  Commercial
  Tort Claims

  	
  70

  
	
  5.28.

  	
  Partnership
  and Limited Liability Company Interests

  	
  70

  
	
  5.29.

  	
  Material Contracts

  	
  70

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI AFFIRMATIVE COVENANTS

  	
  70

  
	
  6.1.

  	
  Payment
  of Fees

  	
  70

  
	
  6.2.

  	
  Conduct
  of Business and Maintenance of Existence and Assets

  	
  71

  
	
  6.3.

  	
  Violations

  	
  71

  
	
  6.4.

  	
  Government
  Receivables

  	
  71

  
	
  6.5.

  	
  Financial
  Covenants

  	
  71

  
	
  6.6.

  	
  Execution
  of Supplemental Instruments

  	
  72

  
	
  6.7.

  	
  Payment
  of Indebtedness

  	
  72

  
	
  6.8.

  	
  Standards
  of Financial Statements

  	
  72

  
	
  6.9.

  	
  Federal
  Securities Laws

  	
  72

  
	
  6.10.

  	
  Exercise
  of Rights

  	
  72

  
	
  6.11.

  	
  Real Property

  	
  73

  
	
  6.12.

  	
  Opening
  Balance Sheet

  	
  73

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII NEGATIVE COVENANTS

  	
  73

  
	
  7.1

  	
  Merger,
  Consolidation, Acquisition and Sale of Assets

  	
  73

  
	
  7.2.

  	
  Creation
  of Liens

  	
  73

  
	
  7.3.

  	
  Guarantees

  	
  74

  
	
  7.4

  	
  Investments

  	
  74

  
	
  7.5.

  	
  Loans

  	
  74

  
	
  7.6.

  	
  Capital
  Expenditures

  	
  74

  
	
  7.8.

  	
  Indebtedness

  	
  75

  
	
  7.10.

  	
  Transactions
  with Affiliates

  	
  76

  
	
  7.11.

  	
  Leases

  	
  77

  
	
  7.12.

  	
  Subsidiaries

  	
  77

  
	
  7.13.

  	
  Fiscal
  Year and Accounting Changes

  	
  77

  
	
  7.14.

  	
  Pledge
  of Credit

  	
  77

  
	
  7.15.

  	
  Amendment
  of Organizational Documents

  	
  77

  
	
  7.16.

  	
  Compliance
  with ERISA

  	
  77

  
	
  7.17.

  	
  Prepayment
  of Indebtedness

  	
  78

  
	
  7.18.

  	
  Anti-Terrorism
  Laws

  	
  78

  
	
  7.19.

  	
  Trading
  with the Enemy Act

  	
  79

  
	
  7.20.

  	
  Subordinated
  Notes

  	
  79

  
	
  7.21.

  	
  Other
  Agreements

  	
  79

  
	
  7.22

  	
  Additional
  Negative Pledges

  	
  79

  
	
  7.23.

  	
  Additional
  Bank Accounts

  	
  79

  
	
  7.24.

  	
  Remuneration

  	
  79

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII CONDITIONS PRECEDENT

  	
  80

  
	
  8.1.

  	
  Conditions
  to Initial Advances

  	
  80

  
	
  8.2.

  	
  Conditions to Each Advance

  	
  85

  

 

iii

 

	
  ARTICLE
  IX INFORMATION AS TO BORROWER

  	
  86

  
	
  9.1.

  	
  Disclosure
  of Material Matters

  	
  86

  
	
  9.2

  	
  Schedules

  	
  86

  
	
  9.3.

  	
  Environmental
  Reports

  	
  87

  
	
  9.4.

  	
  Litigation

  	
  87

  
	
  9.5.

  	
  Material
  Occurrences

  	
  87

  
	
  9.6.

  	
  Government
  Receivables

  	
  87

  
	
  9.7.

  	
  Annual
  Financial Statements

  	
  88

  
	
  9.8

  	
  Quarterly
  Financial Statements

  	
  88

  
	
  9.9.

  	
  Monthly
  Financial Statements

  	
  88

  
	
  9.10.

  	
  Other
  Reports

  	
  88

  
	
  9.11.

  	
  Additional
  Information

  	
  89

  
	
  9.12.

  	
  Projected
  Operating Budget

  	
  89

  
	
  9.13.

  	
  Variances
  From Operating Budget

  	
  89

  
	
  9.14.

  	
  Notice
  of Suits, Adverse Events

  	
  89

  
	
  9.15.

  	
  ERISA
  Notices and Requests

  	
  89

  
	
  9.16.

  	
  Additional
  Documents

  	
  90

  
	
   

  	
   

  
	
  ARTICLE
  X EVENTS OF DEFAULT

  	
  90

  
	
  10.1.

  	
  Nonpayment

  	
  90

  
	
  10.2.

  	
  Breach
  of Representation

  	
  91

  
	
  10.3.

  	
  Financial
  Information

  	
  91

  
	
  10.4.

  	
  Judicial
  Actions

  	
  91

  
	
  10.5.

  	
  Noncompliance

  	
  91

  
	
  10.6.

  	
  Judgments

  	
  91

  
	
  10.7.

  	
  Bankruptcy

  	
  92

  
	
  10.8.

  	
  Inability
  to Pay

  	
  92

  
	
  10.9.

  	
  Affiliate
  Bankruptcy

  	
  92

  
	
  10.10.

  	
  Material
  Adverse Effect

  	
  92

  
	
  10.11.

  	
  Lien
  Priority

  	
  92

  
	
  10.12.

  	
  Subordinated
  Loan Default

  	
  92

  
	
  10.13.

  	
  Cross
  Default

  	
  93

  
	
  10.14.

  	
  Change
  of Ownership

  	
  93

  
	
  10.15.

  	
  Invalidity

  	
  93

  
	
  10.16.

  	
  Licenses

  	
  93

  
	
  10.17.

  	
  Seizures

  	
  93

  
	
  10.18.

  	
  Operations

  	
  94

  
	
  10.19.

  	
  Pension
  Plans

  	
  94

  
	
   

  	
   

  
	
  ARTICLE
  XI LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

  	
  94

  
	
  11.1.

  	
  Rights
  and Remedies

  	
  94

  
	
  11.2.

  	
  Agent’s
  Discretion

  	
  96

  
	
  11.3.

  	
  Setoff

  	
  96

  
	
  11.4.

  	
  Rights
  and Remedies not Exclusive

  	
  96

  
	
  11.5.

  	
  Allocation of Payments After Event of Default

  	
  96

  

 

iv

 

	
  ARTICLE
  XII WAIVERS AND JUDICIAL PROCEEDINGS

  	
  97

  
	
  12.1.

  	
  Waiver
  of Notice

  	
  97

  
	
  12.2.

  	
  Delay

  	
  98

  
	
  12.3.

  	
  Jury
  Waiver

  	
  98

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIII EFFECTIVE DATE AND TERMINATION

  	
  98

  
	
  13.1.

  	
  Term

  	
  98

  
	
  13.2.

  	
  Termination

  	
  99

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIV REGARDING AGENT

  	
  99

  
	
  14.1.

  	
  Appointment

  	
  99

  
	
  14.2.

  	
  Nature
  of Duties

  	
  100

  
	
  14.3.

  	
  Lack
  of Reliance on Agent and Resignation

  	
  100

  
	
  14.4.

  	
  Certain
  Rights of Agent

  	
  101

  
	
  14.5.

  	
  Reliance

  	
  101

  
	
  14.6.

  	
  Notice
  of Default

  	
  101

  
	
  14.7.

  	
  Indemnification

  	
  102

  
	
  14.8.

  	
  Agent
  in its Individual Capacity

  	
  102

  
	
  14.9.

  	
  Delivery
  of Documents

  	
  102

  
	
  14.10.

  	
  Borrower’s
  Undertaking to Agent

  	
  102

  
	
  14.11.

  	
  No
  Reliance on Agent’s Customer Identification Program

  	
  103

  
	
  14.12.

  	
  Other
  Agreements

  	
  103

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XV MISCELLANEOUS

  	
  103

  
	
  15.1.

  	
  Governing
  Law

  	
  103

  
	
  15.2.

  	
  Entire
  Understanding

  	
  104

  
	
  15.3.

  	
  Successors
  and Assigns; Participations; New Lenders

  	
  106

  
	
  15.4.

  	
  Application
  of Payments

  	
  108

  
	
  15.5.

  	
  Indemnity

  	
  109

  
	
  15.6

  	
  Notice

  	
  109

  
	
  15.7.

  	
  Survival

  	
  111

  
	
  15.8.

  	
  Severability

  	
  111

  
	
  15.9.

  	
  Expenses

  	
  111

  
	
  15.10.

  	
  Injunctive
  Relief

  	
  112

  
	
  15.11.

  	
  Damages

  	
  112

  
	
  15.12.

  	
  Captions

  	
  112

  
	
  15.13.

  	
  Counterparts;
  Facsimile Signatures

  	
  112

  
	
  15.14.

  	
  Construction

  	
  112

  
	
  15.15.

  	
  Confidentiality;
  Sharing Information

  	
  113

  
	
  15.16.

  	
  Publicity

  	
  113

  
	
  15.17.

  	
  Certifications
  From Banks and Participants; USA PATRIOT Act

  	
  113

  
	
  15.18.

  	
  Draws
  Under the NY Commercial Bank Letters of Credit

  	
  114

  

 

v

 

List of Exhibits
and Schedules

 

	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.2

  	
   

  	
  Borrowing Base
  Certificate

  
	
  Exhibit 1.2(a)

  	
   

  	
  Compliance Certificate

  
	
  Exhibit 2.1(a)

  	
   

  	
  Revolving Credit Note

  
	
  Exhibit 2.4

  	
   

  	
  Term Note

  
	
  Exhibit 5.5(b)

  	
   

  	
  Financial Projections

  
	
  Exhibit 7.8(h)(i)

  	
   

  	
  Form of Third
  Party Subordinated Note

  
	
  Exhibit 7.8(h)(ii)

  	
   

  	
  Form of Third
  Party Subordination Agreement

  
	
  Exhibit 8.1(i)

  	
   

  	
  Financial Condition
  Certificate

  
	
  Exhibit 15.3

  	
   

  	
  Commitment Transfer
  Supplement

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1.2(a)

  	
   

  	
  Original Owners

  
	
  Schedule 1.2 (b)

  	
   

  	
  Permitted Encumbrances

  
	
  Schedule 1.2(c)

  	
   

  	
  Accounts Payable
  Payments

  
	
  Schedule 4.5 

  	
   

  	
  Equipment and Inventory
  Locations; Place of Business; Chief Executive Office; Locations of Real
  Property

  
	
  Schedule 4.15(h)

  	
   

  	
  Deposit and Investment
  Accounts

  
	
  Schedule 5.1

  	
   

  	
  Consents

  
	
  Schedule 5.2(a)

  	
   

  	
  States of Formation,
  Qualification and Good Standing

  
	
  Schedule 5.2(b)

  	
   

  	
  Subsidiaries; Ownership

  
	
  Schedule 5.4

  	
   

  	
  Federal Tax
  Identification Number

  
	
  Schedule 5.6

  	
   

  	
  Other Names; Mergers,
  Acquisitions, Etc.

  
	
  Schedule 5.7

  	
   

  	
  Environmental

  
	
  Schedule 5.8(b)

  	
   

  	
  Litigation

  
	
  Schedule 5.8(d)

  	
   

  	
  Plans

  
	
  Schedule 5.9 

  	
   

  	
  Intellectual Property;
  Source Code Escrow Agreements; Challenges to Use 

  
	
  Schedule 5.10

  	
   

  	
  Failure to Comply with
  Laws or Obtain Licenses and Permits

  
	
  Schedule 5.14

  	
   

  	
  Labor Disputes

  
	
  Schedule 5.29

  	
   

  	
  Material Contracts

  
	
  Schedule 7.4

  	
   

  	
  Investments

  
	
  Schedule 7.8

  	
   

  	
  Indebtedness

  

 

vi

 

REVOLVING CREDIT,
TERM LOAN

AND

SECURITY AGREEMENT

 

Revolving Credit, the
Term Loan and Security Agreement dated as of June 8, 2009 among WM COFFMAN
LLC, a limited liability company formed under the laws of the State of Delaware
(“Borrower”), the financial institutions which are now or which
hereafter become a party hereto (collectively, the “Lenders” and
individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”),
as agent for Lenders (PNC, in such capacity, the “Agent”).

 

IN CONSIDERATION of the mutual
covenants and undertakings herein contained, Borrower, Lenders and Agent hereby
agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1.         Accounting Terms.

 

All
accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data (including financial
ratios and other financial calculations) required to be submitted pursuant to
this Agreement shall be prepared in conformity with GAAP, applied on a
consistent basis, as in effect from time to time, except as otherwise
specifically prescribed herein.  If at
any time any change in GAAP would affect the computation of any financial ratio
or requirement set forth in this Agreement or any Other Document, and Borrower
or the Required Lenders shall so request, Agent, Lenders and Borrower shall
negotiate in good faith to amend such ratio or requirement to preserve the
original intent thereof in light of such change in GAAP (subject to the
approval of the Required Lenders); provided  that, until so
amended, (i) such ratio or requirement shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) Borrower shall
provide to Agent and the Lenders financial statements and other documents
required under this Agreement or any Other Document or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP.

 

1.2.         General Terms.

 

For purposes of this
Agreement the following terms shall have the following meanings:

 

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

 

“Acquisition Agreement”
shall mean the Asset Purchase Agreement including all exhibits and schedules
thereto dated as of June 8, 2009 between Seller and Borrower as buyer.

 

1

 

“Advance Rates”
shall mean, collectively, the Receivables Advance Rate and the Inventory
Advance Rate.

 

“Advances” shall
mean and include the Revolving Advances, Letters of Credit, as well as the Term
Loans.

 

“Affiliate” of any
Person shall mean (a) any other Person which, directly or indirectly, is
in control of, is controlled by, or is under common control with such Person,
or (b) any Person who is a director, managing member, general partner or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. 
For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (x) to vote 5% or more of the Equity Interests
having ordinary voting power for the election of directors of such Person or
other Persons performing similar functions for any such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by ownership of Equity Interests, contract or otherwise.  Seller and its Affiliates shall not be deemed
Affiliates hereunder.

 

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

 

“Agreement” shall
mean this Revolving Credit, the Term Loan and Security Agreement, as the same
may be amended, restated, supplemented or otherwise modified from time to time.

 

“Alternate Base Rate”
shall mean, for any day, a rate per annum equal to the highest of (i) the
Base Rate in effect on such day, (ii) the Federal Funds Open Rate in
effect on such day plus 1/2 of 1%, (iii) the Daily LIBOR plus 1%, and (iv) three
hundred fifty basis points (3.50%).

 

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

 

“Applicable Law”
shall mean all laws, rules and regulations applicable to the Person,
conduct, transaction, covenant, Other Document or contract in question,
including all applicable common law and equitable principles; all provisions of
all applicable state, federal and foreign constitutions, statutes, rules,
regulations and orders of any Governmental Body, and all orders, judgments and
decrees of all courts and arbitrators.

 

“Applicable Margin”
shall mean for (i) Revolving Advances that are Eurodollar Rate Loans,
3.50%, (ii) Revolving Advances that are Domestic Rate Loans, 2.50%, (iii) Term
Loans that are Eurodollar Rate Loans, 4.50%, and (iv) Term Loans that are
Domestic Rate Loans, 3.50%.

 

2

 

“Appraisal” shall
mean an appraisal performed by an appraiser selected by or acceptable to Agent,
in form and substance reasonably satisfactory to Agent.

 

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

 

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

 

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

 

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

 

“Blocked Person”
shall have the meaning set forth in Section 5.24(b) hereof.

 

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

 

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

 

“Borrowing Base
Certificate” shall mean a certificate in substantially the form of Exhibit 1.2
duly executed by the President, Chief Executive Officer, Chief Financial
Officer or Controller of the Borrower and delivered to Agent, appropriately
completed, by which such officer shall certify to Agent the Formula Amount and
calculation thereof as of the date of such certificate.

 

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

 

“Capital Expenditures”
shall mean expenditures made or liabilities incurred for the acquisition of any
fixed assets or improvements, replacements, substitutions or additions thereto
which have a useful life of more than one year, including the total principal
portion of Capitalized Lease Obligations, which, in accordance with GAAP, would
be classified as capital expenditures.

 

“Capital Stock”
shall mean (i) in the case of a corporation, capital stock, (ii) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock, (iii) in the case of a partnership, partnership interests (whether
general or limited), (iv) in the case of a limited liability company,
membership interests and (v) any other equity interest or participation
that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.

 

3

 

“Capitalized Lease
Obligation” shall mean any Indebtedness of Borrower represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

“Carousel Guaranty”
shall mean the Carousel Guaranty dated as of the Closing Date in the maximum
amount of $250,000.

 

“Cash Management
Products” shall mean any one or more of the following types of services or
facilities extended to Borrower by Agent, any Lender or any Affiliate of Agent
or a Lender in reliance on Agent’s or such Lender’s agreement to indemnify such
Affiliate:  (i) Automated Clearing
House (ACH) transactions and other similar money transfer services; (ii) cash
management, including controlled disbursement and lockbox services; (iii) establishing
and maintaining deposit accounts; and (iv) credit cards or stored value
cards.

 

“Cash Taxes” shall
mean, for any period, the federal, state and local taxes of a Person based on
income and business activity payable in actual cash during such period.

 

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

 

“Change of Control”
shall mean (a) the occurrence of any event (whether in one or more
transactions) which results in a transfer of control of Borrower to a Person
who is not an Original Owner or (b) any merger or consolidation of or with
Borrower or sale of all or substantially all of the property or assets of
Borrower.  For purposes of this definition,
“control of Borrower” shall mean the power, direct or indirect (x) to vote
50% or more of the Equity Interests having ordinary voting power for the
election of directors (or the individuals performing similar functions) of
Borrower or (y) to direct or cause the direction of the management and
policies of Borrower by contract or otherwise.

 

“Change of Ownership”
shall mean (a) 50% or more of the Equity Interests of Borrower  is no longer owned or controlled by
(including for the purposes of the calculation of percentage ownership, any
Equity Interests into which any Equity Interests of Borrower held by any of the
Original Owners are convertible or for which any such Equity Interests of
Borrower or of any other Person may be exchanged and any Equity Interests
issuable to such Original Owners upon exercise of any warrants, options or
similar rights which may at the time of calculation be held by such Original
Owners) a Person who is an Original Owner or (b) any merger, consolidation
or sale of substantially all of the property or assets of Borrower.

 

“Charges” shall
mean all taxes, charges, fees, imposts, levies or other assessments, including
all net income, gross income, gross receipts, sales, use, ad valorem, value
added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation and property taxes, custom duties, fees,
assessments, liens, claims and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts, imposed by
any taxing or other 

 

4

 

authority, domestic or
foreign (including the Pension Benefit Guaranty Corporation or any
environmental agency or superfund), upon the Collateral, Borrower or any of its
Affiliates.

 

“Closing Date”
shall mean June 8, 2009 or such other date as may be agreed to by the
parties hereto.

 

“Code” shall mean
the Internal Revenue Code of 1986, as the same may be amended or supplemented
from time to time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.

 

“Collateral”
shall mean and include:

 

(a)           all
Receivables;

 

(b)           all
Equipment;

 

(c)           all
General Intangibles;

 

(d)           all
Inventory;

 

(e)           all
Investment Property;

 

(f)            all
of Borrower’s right, title and interest in and to, whether now owned or
hereafter acquired and wherever located, (i) its respective goods and
other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of Borrower’s rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to
Borrower from any Customer relating to the Receivables; (iv) other
property, including warranty claims, relating to any goods securing the
Obligations; (v) all of Borrower’s contract rights, rights of payment
which have been earned under a contract right, instruments (including
promissory notes), documents, chattel paper (including electronic chattel
paper), warehouse receipts, deposit accounts, letters of credit and money; (vi) each
commercial tort claim in existence as of the date hereof and in which a
security interest is hereafter granted to Agent by Borrower pursuant to the
provision of Section 4.1 or otherwise; (viii) all letter of credit
rights (whether or not the respective letter of credit is evidenced by a
writing); (ix) all supporting obligations; and (x) any other goods,
personal property or real property now owned or hereafter acquired in which
Borrower has expressly granted a security interest or may in the future grant a
security interest to Agent hereunder, or in any amendment or supplement hereto
or thereto, or under any other agreement between Agent and Borrower;

 

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

 

5

 

(h)           all
of Borrower’s cash and cash equivalents; and

 

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

 

Any security interest
granted in the Collateral and the Term “Collateral” shall not include any
rights under any leases, contract or agreement (including, without limitation,
any license in intellectual property) to the extent that the granting of a
security interest therein is specifically prohibited in writing or would
constitute an event of default or could grant a party a termination right under
any agreement governing such right unless such prohibition is not enforceable or
is otherwise illegal; provided, however, Agent shall be provided copies of any
such leases, contracts or agreements.

 

“Commitment Percentage”
shall mean for any Lender party to this Agreement on the Closing Date, the
percentage set forth below such Lender’s name on the signature page hereof
as same may be adjusted upon any assignment by a Lender pursuant to Section 15.3
(c) or (d) hereof, and for any Lender that becomes a party to this
Agreement pursuant to a Commitment Transfer Supplement or Modified Commitment
Transfer Supplement, the percentage set forth on Schedule 1 to such
Commitment Transfer Supplement or Modified Commitment Transfer Supplement, as
applicable.

 

“Commitment Transfer
Supplement” shall mean a document in the form of Exhibit 15.3 hereto,
properly completed and otherwise in form and substance satisfactory to Agent by
which the Purchasing Lender purchases and assumes a portion of the obligation
of Lenders to make Advances under this Agreement.

 

“Compliance
Certificate” shall mean a compliance certificate substantially in the form
attached hereto as Exhibit 1.2 (a) to be signed by the President,
Chief Executive Officer, Chief Financial Officer or Controller of Borrower,
which shall state that, based on an examination sufficient to permit such
officer to make an informed statement, (i) no Default or Event of Default
exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrower with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrower’s compliance
with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5,
7.6, 7.7, 7.8 and 7.11; and (ii) that to the best of such officer’s
knowledge, Borrower is in compliance in all material respects with all federal,
state and local Environmental Laws, or if such is not the case, specifying all
areas of non-compliance and the proposed action Borrower will implement in
order to achieve full compliance.

 

“Consents” shall
mean all filings and all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Bodies and other
third parties, 

 

6

 

domestic or foreign,
necessary to carry on Borrower’s business or necessary (including to avoid a
conflict or breach under any agreement, instrument, other document, license,
permit or other authorization) for the execution, delivery or performance of
this Agreement, the Other Documents, the Subordinated Loan Documentation, or
the Acquisition Agreement, including any Consents required under all applicable
federal, state or other Applicable Law.

 

“Consigned Inventory”
shall mean Inventory of Borrower that is in the possession of another Person on
a consignment, sale or return, or other basis that does not constitute a final
sale and acceptance of such Inventory.

 

“Consulting Agreements”
shall mean the Consulting Agreements dated as of the Closing Date between (i) Borrower
and Visador Holding Corporation and (ii) Borrower and Nationwide
Industries, Inc.

 

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

 

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

 

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

 

“Customs” shall
have the meaning set forth in Section 2.11(b) hereof.

 

“Daily LIBOR”
shall mean, for any day, the rate per annum determined by Agent by dividing (x) the
Published Rate by (y) a number equal to 1.00 minus the percentage
prescribed by the Federal Reserve for determining the maximum reserve
requirements with respect to any Eurocurrency funding by banks on such day.

 

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

 

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

 

“Defaulting Lender”
shall have the meaning set forth in Section 2.22(a) hereof.

 

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

 

“Designated Lender”
shall have the meaning set forth in Section 15.2(b) hereof.

 

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

 

7

 

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

 

“Domestic Subsidiaries”
shall mean, with respect to any Person, any Subsidiary of such Person which is
incorporated or organized under the laws of any state of the United States or
the District of Columbia.

 

“Drawing Date”
shall have the meaning set forth in Section 2.11(b) hereof.

 

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

 

“EBITDA” shall
mean for any period, for Borrower, the sum of (i) Net Income for such
period, plus (ii) all Interest Expense for such period, plus
(iii) all charges against income of Borrower for such period for federal,
state, local and foreign taxes (and any franchise, single business or unitary
taxes imposed in lieu of income taxes) expensed, plus (iv) depreciation
expenses for such period, plus (v) amortization expenses for such
period, plus (vi) any extraordinary, unusual or non-recurring
non-cash expenses, losses or charges (including non-cash losses on sales of
assets outside of the Ordinary Course of Business) during such period, plus
(vii) accrued but unpaid Management Fees during the applicable period, minus
(viii) any extraordinary, unusual or non-recurring non-cash income, gains
or charges (including gains on the sale of assets outside of the Ordinary
Course of Business) during such period, in each case, only to the extent
included in the statement of net income for such period.

 

“Eligible Inventory”
shall mean and include Inventory excluding work in process valued at the lower
of cost or market value, determined on a first-in-first-out basis, which is
not, in Agent’s opinion, obsolete, slow moving or unmerchantable and which
Agent, in its sole discretion, shall not deem ineligible Inventory, based on
such considerations as Agent may from time to time deem appropriate including
whether the Inventory is subject to a perfected, first priority security
interest in favor of Agent and no other Lien (other than a Permitted
Encumbrance).  In addition, Inventory
shall not be Eligible Inventory if it (i) does not conform to all
standards imposed by any Governmental Body which has regulatory authority over
such goods or the use or sale thereof; (ii) is in transit; (iii) is
located outside the continental United States or at a location that is not
otherwise in compliance with this Agreement; (iv) constitutes Consigned
Inventory; (v) is the subject of an Intellectual Property Claim; (vi) is
subject to a License Agreement or other agreement that limits, conditions or
restricts Borrower’s or Agent’s right to sell or otherwise dispose of such
Inventory, unless Agent is a party to a Licensor/Agent Agreement with the
Licensor under such License Agreement; or (vii) is situated at a location
not owned by Borrower unless the owner or occupier of such location has
executed in favor of Agent a Lien Waiver Agreement, in any case above, Agent
may deem such Inventory as Eligible Inventory.

 

“Eligible Receivables”
shall mean and include with respect to Borrower, each Receivable of Borrower
arising in the Ordinary Course of Business and which Agent, in its sole credit
judgment, shall deem to be an Eligible Receivable, based on such considerations
as Agent may from time to time deem appropriate.  A Receivable shall not be deemed eligible
unless such Receivable is subject to Agent’s first priority perfected security
interest and no other Lien (other 

 

8

 

than Permitted
Encumbrances), and is evidenced by an invoice or other documentary evidence
satisfactory to Agent.  In addition, no
Receivable shall be an Eligible Receivable if:

 

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

 

(b)           it
is due or unpaid more than sixty (60) days after the original due date not to
exceed one hundred twenty (120) days after the original invoice date;

 

(c)           fifty
percent (50%) or more of the Receivables from such Customer are not deemed
Eligible Receivables hereunder;

 

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

 

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

 

(f)            the
sale is to a Customer outside the continental United States of America or
Canada, unless the sale is on letter of credit, guaranty, acceptance terms or
covered by credit insurance, in each case acceptable to Agent in its sole
credit judgment exercised in good faith;

 

(g)           the
sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return basis or is
evidenced by chattel paper (excluding the Stock Building Supply accounts
receivable except as noted in (k) below);

 

(h)           Agent
believes, in its Permitted Discretion, that collection of such Receivable is
insecure or that such Receivable may not be paid by reason of the Customer’s
financial inability to pay;

 

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

 

9

 

(j)            the
goods giving rise to such Receivable have not been invoiced in the Ordinary
Course of Business and title to the goods has not passed to the Customer;

 

(k)           the
Receivables of the Customer exceed a credit limit determined by Agent, in its
Permitted Discretion, to the extent such Receivable exceeds such limit (for
purposes hereof, Stock Building Supply accounts receivable cannot exceed 20% of
all Eligible Receivables (excluding the stock ETA accounts receivable) and BMC
West Corporation accounts receivable cannot exceed 20% of all Eligible
Receivables);

 

(l)            the
Receivable is subject to any offset, deduction, defense, dispute, or
counterclaim (but only as to that portion of the Receivable subject to such
offset, deduction, defense, dispute or counterclaim), the Customer is also a
creditor or supplier of Borrower (but only as to that portion of the Receivable
that does not exceed the amount owed by Borrower to such creditor or supplier)
or the Receivable is contingent in any respect or for any reason;

 

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

 

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

 

(o)           such
Receivable is not payable to Borrower;

 

(p)           such
Receivable is not payable in Dollars; or

 

(q)           such
Receivable is not otherwise satisfactory to Agent as determined by Agent in its
Permitted Discretion.

 

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

 

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

 

“Equipment” shall
mean and include all of Borrower’s goods (other than Inventory) whether now
owned or hereafter acquired and wherever located including all equipment,
machinery, apparatus, fittings, furniture, furnishings, fixtures, parts,
accessories and all replacements and substitutions therefor or accessions
thereto.

 

10

 

“Equity Interests”
of any Person shall mean any and all shares, rights to purchase, options,
warrants, general, limited or limited liability partnership interests, member
interests, participation or other equivalents of or interest in (regardless of
how designated) equity of such Person, whether voting or nonvoting, including
common stock, preferred stock, convertible securities or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

 

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

 

“Eurodollar Rate”
shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto the greater of (A) 250 basis points (2.50%) or (B) the
interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined by Agent by dividing (i) the rate which appears on the
Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that
displays rates at which US dollar deposits are offered by leading banks in the
London interbank deposit market), or the rate which is quoted by another source
selected by Agent which has been approved by the British Bankers’ Association
as an authorized information vendor for the purpose of displaying rates at
which US dollar deposits are offered by leading banks in the London interbank
deposit market (an “Alternative Source”), at approximately 11:00 a.m.,
London time two (2) Business Days prior to the first day of such Interest
Period (or if there shall at any time, for any reason, no longer exist a
Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a
comparable replacement rate determined by the Agent at such time (which
determination shall be conclusive absent manifest error)) for an amount
comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00
minus the Reserve Percentage.

 

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

 

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

 

“Event of Default”
shall have the meaning set forth in Article X hereof.

 

“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

 

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

 

11

 

“Extended Terms
Agreement Advance Rate” shall mean up to 50%, subject to the provisions of Section 2.1(b) hereof,
of Receivables generated from a Stock Building Supply Agreement or “ETA” that
would be deemed Eligible Receivables except for their payment terms.

 

“ETA” shall mean
the Stock Building Extended Terms Agreement.

 

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

 

“Federal Fund Open
Rate” for any day shall mean the rate per annum (based on a year of 360
days and actual days elapsed) which is the daily federal funds open rate as
quoted by ICAP North America, Inc. (or any successor) as set forth on the
Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such
other substitute Bloomberg Screen that displays such rate), or as set forth on
such other recognized electronic source used for the purpose of displaying such
rate as selected by the Agent (an “Alternate Source”) (or if such rate for such
day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or
on any Alternate Source, or if there shall at any time, for any reason, no
longer exist a Bloomberg Screen BTMM (or any substitute screen) or any
Alternate Source, a comparable replacement rate determined by Agent at such
time (which determination shall be conclusive absent manifest error); provided
however, that if such day is not a Business Day, the Federal Funds Open Rate
for such day shall be the “open” rate on the immediately preceding Business
Day.  If and when the Federal Funds Open
Rate changes, the rate of interest with respect to any advance to which the
Federal Funds Open Rate applies will change automatically without notice to the
Borrower, effective on the date of any such change.

 

“Fixed Charge Coverage
Ratio” shall mean and include, with respect to the applicable fiscal
period, the ratio of (a) EBITDA minus Capital Expenditures of
Borrower made during such fiscal period which are not funded by borrowed money
or equity investments for such Capital Expenditures (other than proceeds of
Revolving Advances) minus Cash Taxes paid by Borrower during such fiscal
period minus any cash dividends or distributions made by Borrower during
such fiscal period to (b) the sum of all Funded Debt Payments made during
such period.

 

“Foreign Subsidiary”
of any Person, shall mean any Subsidiary of such Person that is not organized
or incorporated in the United States or any State or territory thereof.

 

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

 

12

 

“Funded Debt Payments”
shall mean and include for any period all cash actually expended by Borrower to
make (a) interest payments on any Advances hereunder, plus (b) scheduled
principal payments on the Term Loans, plus, (c) to the extent added
back in the calculation of EBITDA, payments for all fees, commissions and
charges set forth herein and with respect to any Advances, plus (d) payments
on Capitalized Lease Obligations, plus (e) payments with respect to the
Subordinated Loans and any other Indebtedness for borrowed money.

 

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

 

“General Intangibles”
shall mean and include all of Borrower’s general intangibles, whether now owned
or hereafter acquired, including all payment intangibles, all choses in action,
causes of action, corporate or other business records, inventions, designs,
patents, patent applications, equipment formulations, manufacturing procedures,
quality control procedures, trademarks, trademark applications, service marks,
trade secrets, goodwill, copyrights, design rights, software, computer
information, source codes, codes, records and updates, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Receivables by a Customer
(other than to the extent covered by Receivables) all rights of indemnification
and all other intangible property of every kind and nature (other than
Receivables).

 

“Governmental Acts”
shall have the meaning set forth in Section 2.16.

 

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

 

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

 

“Guarantor Security
Agreement” shall mean any Security Agreement executed by any Guarantor in
favor of Agent securing the Guaranty of such Guarantor, in form and substance
satisfactory to Agent.

 

“Guaranty” shall
mean any guaranty of the obligations of Borrower executed by a Guarantor in
favor of Agent for its benefit and for the ratable benefit of Lenders, in form
and substance satisfactory to Agent.

 

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

 

“Hazardous Substance”
shall mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in CERCLA, the Hazardous Materials 

 

13

 

Transportation Act, as
amended (49 U.S.C. Sections 1801, et seq.), RCRA or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.

 

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

 

“Hedge Liabilities”
shall have the meaning provided in the definition of “Lender-Provided Interest
Rate Hedge”.

 

“Increased Tax Burden”
shall mean the additional federal, state or local taxes assumed to be payable
by a member of Borrower as a result of Borrower’s status as a limited liability
company as evidenced and substantiated by the tax returns filed by Borrower as
a limited liability company, if so required, with such taxes being calculated
for all members at the highest marginal rate applicable to any member.

 

“Indebtedness” of
a Person at a particular date shall mean all obligations of such Person which
in accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise and except for trade
accounts payable in the Ordinary Course of Business which are not more than
sixty (60) days past the due date) and in any event, without limitation by
reason of enumeration, shall include all indebtedness, debt and other similar
monetary obligations of such Person whether direct or guaranteed, and all
premiums, if any, due at the required prepayment dates of such indebtedness, and
all indebtedness secured by a Lien on assets owned by such Person, whether or
not such indebtedness actually shall have been created, assumed or incurred by
such Person.  Any indebtedness of such
Person resulting from the acquisition by such Person of any assets subject to
any Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby, whether
or not actually so created, assumed or incurred.

 

“Intellectual Property”
shall mean property constituting under any Applicable Law a patent, patent
application, copyright, trademark, service mark, trade name, mask work, trade
secret or license or other right to use any of the foregoing.

 

“Intellectual Property
Claim” shall mean the assertion by any Person of a claim (whether asserted
in writing, by action, suit or proceeding or otherwise) that Borrower’s
ownership, use, marketing, sale or distribution of any Inventory, Equipment,
Intellectual Property or other property or asset is violative of any ownership
of or right to use any Intellectual Property of such Person.

 

“Interest Expense”
shall mean for any period interest expense, net of cash interest income, of
Borrower for such period, as determined in accordance with GAAP.

 

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

 

14

 

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

 

“Interest Rate Hedge”
shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap,
adjustable strike corridor or similar agreements entered into by the Borrower
or its Subsidiaries in order to provide protection to, or minimize the impact
upon, the Borrower, any Guarantor and/or their respective Subsidiaries of
increasing floating rates of interest applicable to Indebtedness.

 

“Inventory” shall
mean and include all of Borrower’s now owned or hereafter acquired goods,
merchandise and other personal property, wherever located, to be furnished
under any consignment arrangement, contract of service or held for sale or
lease, all raw materials, cut stock, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in Borrower’s business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.

 

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

 

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

 

“Issuer” shall
mean PNC in its capacity as issuer of Letters of Credit hereunder, or any
successor issuer of Letters of Credit hereunder.

 

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

 

“Lender-Provided
Interest Rate Hedge” shall mean an Interest Rate Hedge which is provided by
any Person (or affiliate of such Person) that was a  Lender at the time it entered into such
Interest Rate Hedge, whether or not such Person has ceased to be a Lender under
this Agreement and with respect to which Agent confirms meets the following
requirements: such Interest Rate Hedge (i) is documented in a standard
International Swap Dealer Association Agreement, (ii) provides for the
method of calculating the reimbursable amount of the provider’s credit exposure
in a reasonable and customary manner, and (iii) is entered into for
hedging (rather than speculative) purposes. 
The liabilities of Borrower to the provider of any Lender-Provided
Interest Rate Hedge (the “Hedge Liabilities”) shall be “Obligations”
hereunder and otherwise treated as Obligations for purposes of each of the
Other Documents.  The Liens securing the
Hedge Liabilities shall be pari passu with the Liens securing all other
Obligations under this Agreement and the Other Documents.

 

“Letter of Credit
Borrowing” shall have the meaning set forth in Section 2.11(d).

 

15

 

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

 

“Letter of Credit Fees”
shall have the meaning set forth in Section 3.2.

 

“Letter of Credit
Sublimit” shall mean $200,000.

 

“Letters of Credit”
shall mean any letter of credit used hereunder. 
A Letter of Credit may be a standby and/or a trade letter of credit.

 

“License Agreement”
shall mean any agreement between Borrower and a Licensor pursuant to which
Borrower is authorized to use any Intellectual Property in connection with the
manufacturing, marketing, sale or other distribution of any Inventory of
Borrower or otherwise in connection with Borrower’s business operations.

 

“Licensor” shall
mean any Person from whom Borrower obtains the right to use (whether on an
exclusive or non-exclusive basis) any Intellectual Property in connection with
Borrower’s manufacture, marketing, sale or other distribution of any Inventory
or otherwise in connection with Borrower’s business operations.

 

“Licensor/Agent
Agreement” shall mean an agreement between Agent and a Licensor, in form
and content reasonably satisfactory to Agent, by which Agent is given the
unqualified right, vis-à-vis such Licensor, to enforce Agent’s Liens with
respect to and to dispose of Borrower’s Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of Borrower’s default
under any License Agreement with such Licensor.

 

“Lien” shall mean
any mortgage, deed of trust, pledge, hypothecation, assignment, security
interest, lien (whether statutory or otherwise), Charge, claim or encumbrance,
or preference, priority or other security agreement or preferential arrangement
held or asserted in respect of any asset of any kind or nature whatsoever
including any conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction.

 

“Lien Waiver Agreement”
shall mean an agreement which is reasonably satisfactory to Agent and executed
in favor of Agent by a Person who owns or occupies premises at which any Collateral
may be located from time to time and by which such Person shall waive any Lien
that such Person may ever have with respect to any of the Collateral and shall
authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises or to use such premises to store or
dispose of such Collateral.

 

16

 

“Management Fees”
shall mean all fees (including agency fees), charges and other amounts
(including, without limitation, salaries, bonuses, pensions and profit sharing)
due or to become due to Countrywide Hardware, Inc. and Visador Holding
Corporation, but excluding for all purposes amounts paid under the Consulting
Agreements.

 

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

 

“Material Contract”
shall mean any contract, agreement, permit or license, written or oral, of a
Borrower the failure to comply with which could reasonably be expected to have
a Material Adverse Effect.

 

“Maximum Face Amount”
shall mean, with respect to any outstanding Letter of Credit, the face amount
of such Letter of Credit including all automatic increases provided for in such
Letter of Credit, whether or not any such automatic increase has become
effective.

 

“Maximum Loan Amount”
shall mean $12,000,000 less repayments of the Term Loan.

 

“Maximum Revolving
Advance Amount” shall mean $10,866,000.

 

“Maximum Undrawn
Amount” shall mean with respect to any outstanding Letter of Credit, the
amount of such Letter of Credit that is or may become available to be drawn,
including all automatic increases provided for in such Letter of Credit,
whether or not any such automatic increase has become effective.

 

“Modified Commitment
Transfer Supplement” shall have the meaning set forth in Section 15.3(d).

 

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

 

“Multiple Employer
Plan” shall mean a Plan which has two or more contributing sponsors
(including the Borrower or any member of the Controlled Group) at least two of
whom are not under common control, as such a plan is described in Section 4064
of ERISA.

 

“NY Commercial Bank A
Letter of Credit” shall mean the letter of credit issued by New York
Commercial Bank or another bank issuer of a substitute letter of credit
reasonably satisfactory to Agent and its counsel for the benefit of Agent in
the amount of $145,000 with an expiry date of June 30, 2010 and otherwise
acceptable to Agent.

 

“NY Commercial Bank B
Letter of Credit” shall mean the letter of credit issued by New York Commercial
Bank or another bank issuer of a substitute letter of credit reasonably 

 

17

 

satisfactory to Agent and
its counsel for the benefit of Agent in the amount of $145,000 with an expiry
date of September 30, 2010 and otherwise acceptable to Agent.

 

“NY Commercial Bank
Letters of Credit” shall mean the New York Commercial Bank A Letter of
Credit and the New York Commercial Bank B Letter of Credit.

 

“Net Income” shall
mean for any period, the net income (or loss) of Borrower, determined in
accordance with GAAP; provided, that there shall be excluded (a) the
income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of Borrower or is merged into or consolidated with the Borrower, (b) the
net income (or deficit) of any Person (other than a Subsidiary of Borrower) in
which the Borrower has an ownership interest, except to the extent that any
such income is actually received by Borrower in the form of dividends or
similar distributions and (c) the undistributed earnings of Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is at the time prohibited by the terms of any
agreement to which such Person is a party or by which it or any of its property
is bound, any of such Person’s organizational documents or other final
determination of legal proceedings binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Net Worth” shall
mean, at a particular date, (a) the aggregate amount of all assets of
Borrower as may be properly classified as such in accordance with GAAP
consistently applied, less (b) the aggregate amount of all liabilities of
Borrower as may be properly classified as such in accordance with GAAP
consistently applied.

 

“Note” shall mean
the Term Note and the Revolving Credit Note.

 

“Obligations”
shall mean and include the Advances, any other loans and advances or extensions
of credit made or to be made by any Lender to Borrower, or to others for
Borrower’s account, in each case pursuant to the terms and provisions of this
Agreement, together with interest thereon (including interest which accrues
after the commencement of any bankruptcy or similar case, whether or not such
post-petition interest is allowed in such case) and, including, without
limitation, any reimbursement obligation or indemnity of Borrower on account of
Letters of Credit and all other obligations in respect of Letters of Credit and
all indebtedness, fees, liabilities and obligations that may at any time be
owing by Borrower to any Lender (or an Affiliate of a Lender) or Agent, in each
case pursuant to this Agreement or any Other Document, whether now in existence
or incurred by Borrower from time to time hereafter, whether unsecured or
secured by pledge of, Lien upon or security interest in any of Borrower’s
assets or property or the assets or property of any other Person, whether
arising out of overdrafts or deposit or other accounts or electronic funds transfers
(whether through automated clearing houses or otherwise) or out of Agent or any
Lender’s non-receipt of or inability to collect funds or otherwise not being
made whole in connection with depository transfer check or other similar
arrangements, whether such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect and whether Borrower is
liable to such Lender (or an Affiliate of a Lender) for such indebtedness as
principal, surety, endorser, guarantor or otherwise.  Obligations shall also include any other
indebtedness owing to any Lender (or an Affiliate of a Lender) by Borrower
under this Agreement and the Other Documents, all liabilities and obligations
arising 

 

18

 

under Lender-Provided
Interest Rate Hedges owing from Borrower to any Lender, or any Affiliate of a
Lender (or any Person that was a Lender or an affiliate of a Lender at the time
such Lender-Provided Interest Rate Hedge was entered into), permitted
hereunder, and all liabilities and obligations now or hereafter arising from or
in connection with any Cash Management Products.

 

“Ordinary Course of
Business” shall mean the ordinary course of Borrower’s business as such
segments of same were previously conducted by former owners of same.

 

“Original Owners”
shall mean owners on the Closing Date of Equity Interests in Borrower as set
forth on Schedule 1.2(a).

 

“Other Documents”
shall mean the Note, any Guaranty, any Guarantor Security Agreement, any Lender-Provided
Interest Rate Hedge, any Letter of Credit Document and any and all other
agreements, instruments and documents, including guaranties, pledges, powers of
attorney, consents, interest or currency swap agreements or other similar
agreements and all other writings heretofore, now or hereafter executed by
Borrower or any Guarantor and/or delivered to Agent or any Lender in respect of
the transactions contemplated by this Agreement.

 

“Out-of-Formula Loans”
shall have the meaning set forth in Section 15.2(b).

 

“P&F” shall
mean P&F Industries, Inc., a Delaware corporation.

 

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

 

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

 

“Participation Advance”
shall have the meaning set forth in Section 2.11(d).

 

“Participation
Commitment” shall mean each Lender’s obligation to buy a participation of
the Letters of Credit issued hereunder.

 

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

 

“PBGC” shall mean
the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of
Title IV of ERISA or any successor.

 

“Pension Benefit Plan”
shall mean at any time any employee pension benefit plan (including a Multiple
Employer Plan, but not a Multiemployer Plan) which is covered by Title 

 

19

 

IV of ERISA or is subject
to the minimum funding standards under Section 412 of the Code and either (i) is
maintained by any member of the Controlled Group for employees of any member of
the Controlled Group; or (ii) has at any time within the preceding five
years been maintained by any entity which was at such time a member of the
Controlled Group for employees of any entity which was at such time a member of
the Controlled Group.

 

“Permitted Discretion”
shall mean a determination made in good faith and in the exercise of reasonable
(from the perspective of a secured asset based lender) business judgment.

 

“Permitted
Encumbrances” shall mean:

 

(a)           Liens in favor of
Agent for the benefit of Agent and Lenders;

 

(b)           Liens for Charges
not delinquent or being Properly Contested, but only if the Lien shall have no
effect on the priority of the Liens in favor of Agent or the value of the
assets in which Agent has such a Lien and a stay of enforcement of any such
Lien shall be in effect;

 

(c)           Liens disclosed
in the financial statements referred to in Section 5.5;

 

(d)           deposits or
pledges to secure obligations under worker’s compensation, social security or
similar laws, or under unemployment insurance;

 

(e)           deposits or
pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and
other obligations of like nature arising in the Ordinary Course of Business;

 

(f)            Liens arising by
virtue of the rendition, entry or issuance against Borrower, or any property of
Borrower, of any judgment, writ, order, or decree for so long as each such Lien
(i) is in existence for less than twenty (20) consecutive days after it
first arises or is being Properly Contested and (ii) is at all times
junior in priority to any Liens in favor of Agent;

 

(g)           mechanics’,
workers’, materialmen’s, carriers’, repairmen’s or other like Liens arising in
the Ordinary Course of Business with respect to obligations which are not due
or which are being Properly Contested;

 

(h)           Liens securing
Permitted Purchase Money Indebtedness, provided that (i) such Liens shall
be created substantially simultaneously with the acquisition of the asset
acquired with such Indebtedness, (ii) such Liens do not at any time
encumber any property other than the property financed by such Indebtedness, (iii) the
amount of Indebtedness secured thereby is not increased and (iv) the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed 100% of the original purchase price of such property;

 

(i)            easements,
rights-of-way, restrictions and other similar encumbrances or Liens incurred in
the Ordinary Course of Business which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from the value of the
property subject 

 

20

 

thereto or materially
interfere with the ordinary conduct of the business on the property subject to
such encumbrances; and

 

(j)            Liens disclosed
on Schedule 1.2(b); and

 

(k)           Liens securing
permitted Capitalized Lease Obligations provided that (i) such Liens shall
be created substantially simultaneously with the acquisition of the asset
acquired with such Indebtedness, (ii) such Liens do not at any time
encumber any property other than the property financed by such Indebtedness, (iii) the
amount of Indebtedness secured thereby is not increased and (iv) the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed 100% of the original purchase price of such property.

 

“Permitted Purchase
Money Indebtedness” shall mean Purchase Money Indebtedness of Borrower
which is incurred after the date of this Agreement and which is secured by no
Lien or only by a Purchase Money Lien; provided that (a) the aggregate
principal amount of such Purchase Money Indebtedness outstanding at any time
shall not exceed $750,000 (including any such Indebtedness on
Schedule 7.8), (b) such Indebtedness when incurred shall not exceed
the purchase price of the asset(s) financed, and (c) no such
Indebtedness shall be refinanced for a principal amount in excess of the
principal balance outstanding thereon at the time of such refinancing.

 

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

 

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

 

“PNC” shall have
the meaning set forth in the preamble to this Agreement and shall extend to all
of its successors and assigns.

 

“Pro Forma Balance
Sheet” shall have the meaning set forth in Section 5.5(a) hereof.

 

“Pro Forma Financial
Statements” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Projections”
shall have the meaning set forth in Section 5.5(b) hereof.

 

“Properly Contested”
shall mean, in the case of any Indebtedness, Lien or Charge, as applicable, of
any Person (including any charges) that is not paid as and when due or payable
by reason of such Person’s bona fide dispute concerning its liability to pay
same or concerning the amount thereof, (i) such Indebtedness, Lien or Charge,
as applicable, is being properly contested 

 

21

 

in good faith by
appropriate proceedings promptly instituted and diligently conducted; (ii) such
Person has established appropriate reserves as shall be required in conformity
with GAAP; (iii) the non-payment of such Indebtedness will not have a
Material Adverse Effect and will not result in the forfeiture of any assets of
such Person; (iv) no Lien is imposed upon any of such Person’s assets with
respect to such Indebtedness unless such Lien is at all times junior and
subordinate in priority to the Liens in favor of the Agent (except only with
respect to property taxes that have priority as a matter of applicable state
law) and enforcement of such Lien is stayed during the period prior to the
final resolution or disposition of such dispute; (v) if such Indebtedness,
Lien or Charge, as applicable, results from, or is determined by the entry,
rendition or issuance against a Person or any of its assets of a judgment,
writ, order or decree, enforcement of such judgment, writ, order or decree is
stayed pending a timely appeal or other judicial review; and (vi) if such
contest is abandoned, settled or determined adversely (in whole or in part) to
such Person, such Person forthwith pays such Indebtedness and all penalties,
interest and other amounts due in connection therewith.

 

“Published Rate”
shall mean the rate of interest published each Business Day in The Wall Street
Journal “Money Rates” listing under the caption “London Interbank Offered Rates”
for a one month period (or, if no such rate is published therein for any
reason, then the Published Rate shall be the Eurodollar rate for a one month
period as published (which may include electronic methods of “publication”) in
another publication or source determined by Agent.

 

“Purchase Money
Indebtedness” shall mean and include (i) Indebtedness (other than the
Obligations) of Borrower for the payment of all or any part of the purchase
price of any Equipment, (ii) any Indebtedness (other than the Obligations)
of Borrower incurred at the time of or within thirty (30) days prior to or one
hundred twenty (120) days after the acquisition of any Equipment for the
purpose of financing all or any part of the purchase price thereof (whether by
means of a loan agreement, capitalized lease or otherwise), and (iii) any
renewals, extensions or refinancings (but not any increases in the principal
amounts) thereof outstanding at the time.

 

“Purchase Money Lien”
shall mean a Lien upon Equipment which secures Purchase Money Indebtedness, but
only if such Lien shall at all times be confined solely to the fixed assets
acquired through the incurrence of the Purchase Money Indebtedness secured by
such Lien and shall not encumber any other property of Borrower, and such Lien
constitutes a purchase money security interest under the Uniform Commercial
Code.

 

“Purchasing CLO”
shall have the meaning set forth in Section 15.3(d) hereof.

 

“Purchasing Lender”
shall have the meaning set forth in Section 15.3(c) hereof.

 

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

 

“Real Property”
shall mean all real property owned and leased by Borrower and identified on
Schedule 4.55 hereto.

 

22

 

“Receivables”
shall mean and include, as to Borrower, all of Borrower’s accounts, contract
rights, instruments (including those evidencing indebtedness owed to Borrower
by its Affiliates), documents, chattel paper (including electronic chattel
paper), general intangibles relating to accounts, drafts and acceptances,
credit card receivables and all other forms of obligations owing to Borrower
arising out of or in connection with the sale or lease of Inventory or the
rendition of services, all supporting obligations, guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.

 

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

 

“Reimbursement
Obligation” shall have the meaning set forth in Section 2.11(b) hereof.

 

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

 

“Register” shall
have the meaning set forth in Section 15.3(e).

 

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

 

“Required Lenders”
shall mean Lenders holding more than fifty percent (50%) of the Advances and if
no Advances are outstanding shall mean Lenders holding more than fifty percent
(50%) of the Commitment Percentage.

 

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

 

“Revolving Advances”
shall mean Advances made other than Letters of Credit and the Term Loans.

 

“Revolving Credit Note”
shall mean the promissory notes referred to in Section 2.1(a) hereof.

 

“SEC” shall mean
the Securities and Exchange Commission or any successor thereto.

 

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

 

“Securities Act”
shall mean the Securities Act of 1933, as amended.

 

“Seller” shall
mean Coffman Stairs, LLC, a Delaware limited liability company.

 

23

 

“Settlement Date”
shall mean the Closing Date and thereafter Wednesday or Thursday of each week
or more frequently if Agent deems appropriate unless such day is not a Business
Day in which case it shall be the next succeeding Business Day.

 

“Subordinated Debt
Payments” shall mean and include all cash actually expended to make
payments of principal and interest on the Subordinated Notes.

 

“Subordinated Lenders”
shall mean P&F Industries, Inc., a Delaware corporation, and Seller.

 

“Subordinated Loans”
shall mean the loan evidenced by the Subordinated Notes.

 

“Subordinated Loan
Documentation” shall mean the Subordinated Notes and any other documents
between Borrower and each Subordinated Lender.

 

“Subordinated Notes”
shall mean (i) the subordinated promissory notes issued by Borrower in
favor of Pacific Stair Products, Inc. dated as of the Closing Date in the
aggregate principal sum of $733,964.88, (ii) the subordinated promissory
notes issued by Borrower in favor of Woodmark International, L.P. dated as of
the Closing Date in the aggregate principal sum of $6,605,683.90 and (iii) the
subordinated promissory note issued by Borrower in favor of Seller dated as of
the Closing Date in the principal sum of $3,971,901.64.

 

“Subordination
Agreements” shall mean the Subordination Agreements dated June 8, 2009
among Agent, Borrower and each of the Subordinated Lenders.

 

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

 

“Subsidiary
Stock” shall mean:

 

(a)           one
hundred percent 100% of the issued and outstanding Equity Interests of any
Domestic Subsidiary of Borrower and 65% of each class of the issued and
outstanding Equity Interests entitled to vote (within the meaning of Treas.
Reg. Section 1.956-2(c)(2)) (“Voting Equity”) and 100% of each
class of the issued and outstanding Equity Interests not entitled to vote
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (“Non-Voting
Equity”) of each Foreign Subsidiary (but only to the extent that the pledge
of such Non-Voting Equity would not cause the Obligations to be treated as “United
States property” of such Foreign Subsidiary within the meaning of Treas. Reg. Section 1.956-2),
in each case together with the certificates (or other agreements or
instruments), if any, representing such Equity Interests, and all options and
other rights, contractual or otherwise, with respect thereto (collectively, the
“Pledged Capital Stock”), including, but not limited to, the following:

 

24

 

(y)           subject to the percentage
restrictions described above, all shares, securities, membership interests or
other equity interests representing a dividend on any of the Pledged Capital
Stock, or representing a distribution or return of capital upon or in respect
of the Pledged Capital Stock, or resulting from a stock split, revision,
reclassification or other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in respect of, the
Pledged Capital Stock; and

 

(z)            without affecting the obligations of
Borrower under any provision prohibiting such action hereunder, in the event of
any consolidation or merger involving the issuer of any Pledged Capital Stock
and in which such issuer is not the surviving entity, all shares of each class
of the Equity Interests of the successor entity formed by or resulting from
such consolidation or merger;

 

(b)           Subject
to the percentage restrictions described above, any and all other Capital Stock
owned by Borrower in any Domestic Subsidiary or any Foreign Subsidiary; and

 

(c)           All
proceeds and products of the foregoing, however and whenever acquired and in
whatever form.

 

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

 

“Term Loan” shall
mean the Advances made pursuant to Section 2.4 hereof.

 

“Term Note” shall
mean the promissory note described in Section 2.4 hereof.

 

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

 

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

 

25

 

enacted relating to toxic
substances.  “Toxic Substance” includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.

 

“Trading with the
Enemy Act” shall mean the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any
enabling legislation or executive order relating thereto.

 

“Transactions”
shall have the meaning set forth in Section 5.5 hereof.

 

“Transferee” shall
have the meaning set forth in Section 15.3(d) hereof.

 

“Undrawn Availability”
at a particular date shall mean an amount equal to (a) the lesser of (i) the
Formula Amount or (ii) the Maximum Revolving Advance Amount, minus (b) the
sum of (i) the outstanding amount of Advances (other than the Term Loans)
plus (ii) all amounts due and owing to Borrower’s trade creditors which
are outstanding more than sixty (60) days after their due date, except those
set forth on Schedule 1.2(c), plus (iii) fees and expenses for which
Borrower is liable but which have not been paid or charged to Borrower’s
Account.

 

“Uniform Commercial
Code” shall have the meaning set forth in Section 1.3 hereof.

 

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

 

“Voting Stock”
shall mean, with respect to any Person, Capital Stock issued by such Person the
holders of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar functions) of
such Person, even though the right so to vote has been suspended by the
happening of such a contingency.

 

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

 

1.3.         Uniform Commercial Code Terms.

 

All terms used herein and
defined in the Uniform Commercial Code as adopted in the State of North
Carolina from time to time (the “Uniform Commercial Code”) shall have the
meaning given therein unless otherwise defined herein.  Without limiting the foregoing, the terms “accounts”,
“chattel paper”, “instruments”, “general intangibles”, “payment intangibles”, “supporting
obligations”, “securities”, “investment property”, “documents”, “deposit
accounts”, “software”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”,
as and when used in the description of Collateral shall have the meanings given
to such terms in Articles 8 or 9 of the Uniform Commercial Code.  To the extent the definition of any category
or type of collateral is expanded by any amendment, modification or revision to
the Uniform Commercial Code, such expanded definition will apply automatically
as of the date of such amendment, modification or revision.

 

26

 

1.4.         Certain Matters of Construction.

 

The terms “herein”, “hereof”
and “hereunder” and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision.  All references herein to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement.  Any pronoun used shall be deemed to cover all
genders.  Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice
versa.  All references to statutes and
related regulations shall include any amendments of same and any successor statutes
and regulations.  Unless otherwise
provided, all references to any instruments or agreements to which Agent is a
party, including references to any of the Other Documents, shall include any
and all modifications or amendments thereto and any and all extensions or
renewals thereof.  All references herein
to the time of day shall mean the time in New York, New York.  Unless otherwise provided, all financial
calculations shall be performed with Inventory valued on a first-in, first-out
basis.  Whenever the words “including” or
“include” shall be used, such words shall be understood to mean “including,
without limitation” or “include, without limitation”.  A Default or Event of Default shall be deemed
to exist at all times during the period commencing on the date that such
Default or Event of Default occurs to the date on which such Default or Event
of Default is waived in writing pursuant to this Agreement or, in the case of a
Default, is cured within any period of cure expressly provided for in this
Agreement; and an Event of Default shall “continue” or be “continuing” until
such Event of Default has been waived in writing by the Required Lenders.  Any Lien referred to in this Agreement or any
of the Other Documents as having been created in favor of Agent, any agreement
entered into by Agent pursuant to this Agreement or any of the Other Documents,
any payment made by or to or funds received by Agent pursuant to or as
contemplated by this Agreement or any of the Other Documents, or any act taken
or omitted to be taken by Agent, shall, unless otherwise expressly provided, be
created, entered into, made or received, or taken or omitted, for the benefit
or account of Agent and Lenders. 
Wherever the phrase “to the best of Borrower’s knowledge” or words of
similar import relating to the knowledge or the awareness of Borrower are used
in this Agreement or Other Documents, such phrase shall mean and refer to (i) the
actual knowledge of a senior officer of Borrower or (ii) the knowledge
that a senior officer would have obtained if he had engaged in good faith and
diligent performance of his/her duties, including the making of such reasonably
specific inquiries as may be necessary of the employees or agents of Borrower
and a good faith attempt to ascertain the existence or accuracy of the matter
to which such phrase relates.  All
covenants hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or otherwise within the limitations of,
another covenant shall not avoid the occurrence of a default if such action is
taken or condition exists.  In addition,
all representations and warranties hereunder shall be given independent effect
so that if a particular representation or warranty proves to be incorrect or is
breached, the fact that another representation or warranty concerning the same
or similar subject matter is correct or is not breached will not affect the
incorrectness of a breach of a representation or warranty hereunder.

 

27

 

ARTICLE II

 

ADVANCES, PAYMENTS

 

2.1.         Revolving Advances.

 

(a)           Amount
of Revolving Advances

 

Subject to the terms and
conditions set forth in this Agreement including Section 2.1(b), each
Lender, severally and not jointly, will make Revolving Advances to Borrower in
aggregate amounts such that such Lender’s Commitment Percentage of all
outstanding Revolving Advances plus such Lender’s Commitment Percentage of all
outstanding Letters of Credit shall not exceed its Commitment Percentage of the
lesser of (x) the Maximum Revolving Advance Amount less the aggregate
Maximum Undrawn Amount of all outstanding Letters of Credit or (y) an
amount equal to the sum of:

 

(i)            up
to (A) 85%, subject to the provisions of Section 2.1(b) hereof,
of Eligible Receivables, plus (B) up to the lesser of (i) the
Extended Terms Agreement Advance Rate or (ii) $250,000 (collectively, the “Receivables
Advance Rate”), plus

 

(ii)           up
to the lesser of (A) 65%, subject to the provisions of Section 2.1(b) hereof,
of the value of the Eligible Inventory, (B) 85% of the appraised net
orderly liquidation value of Eligible Inventory (as evidenced by an Inventory
appraisal satisfactory to Agent in its sole discretion exercised in good faith)
or (C) $7,000,000 in the aggregate at any one time (“Inventory Advance
Rate”), minus

 

(iii)          the
aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus

 

(iv)          a
reserve of $500,000 established the day following the Closing Date to be
released no earlier than fifteen (15) months from the Closing Date upon such
time as Borrower requests that the reserve be released and Agent consents to
such releases, minus

 

(v)           such
reserves as Agent may reasonably deem proper and necessary in its Permitted
Discretion from time to time.

 

The amount derived from
the sum of (w) Sections 2.1(a)(y)(i) and (ii) minus (z) Sections 2.1
(a)(y)(iii), (iv) and (v) at any time and from time to time shall be
referred to as the “Formula Amount”. 
The Revolving Advances shall be evidenced by one or more secured
promissory notes (collectively, the “Revolving Credit Note”)
substantially in the form attached hereto as Exhibit 2.1(a).

 

(b)           Discretionary
Rights.

 

The Advance Rates may be
increased or decreased by Agent at any time and from time to time in its
Permitted Discretion.  Borrower consents
to any such increases or decreases and 

 

28

 

acknowledges that
decreasing the Advance Rates or increasing or imposing reserves may limit or restrict
Advances requested by Borrower.  In the
absence of a Default or an Event of Default, Agent shall give Borrower five (5) days
prior written notice of its intention to decrease the Advance Rates.  The rights of Agent under this
subsection are subject to the provisions of Section 15.2(b).

 

2.2.         Procedure for Revolving Advances
Borrowing.

 

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

 

(b)           Notwithstanding
the provisions of subsection (a) above, in the event Borrower desires
to obtain a Eurodollar Rate Loan, Borrower shall give Agent written notice by
no later than 11:00 a.m. on the day which is three (3) Business Days
prior to the date such Eurodollar Rate Loan is to be borrowed, specifying (i) the
date of the proposed borrowing (which shall be a Business Day), (ii) the
type of borrowing and the amount on the date of such Advance to be borrowed,
which amount shall be in an aggregate principal amount that is not less than
$500,000 and in integral multiples of $250,000, in excess thereof, and (iii) the
duration of the first Interest Period therefor. 
Interest Periods for Eurodollar Rate Loans shall be for one, two, three
or six months; provided, if an Interest Period would end on a day that is not a
Business Day, it shall end on the next succeeding Business Day unless such day
falls in the next succeeding calendar month in which case the Interest Period
shall end on the next preceding Business Day. 
No Eurodollar Rate Loan shall be made available to Borrower during the
continuance of a Default or an Event of Default.  After giving effect to each requested
Eurodollar Rate Loan, including those which are converted from a Domestic Rate
Loan under Section 2.2(d), there shall not be outstanding more than five (5) Eurodollar
Rate Loans, in the aggregate.

 

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

 

Borrower shall elect the
initial Interest Period applicable to a Eurodollar Rate Loan by its notice of
borrowing given to Agent pursuant to Section 2.2(b) or by its notice
of conversion given to Agent pursuant to Section 2.2(d), as the case may
be.  Borrower shall elect the duration of
each succeeding Interest Period by giving irrevocable written notice to Agent
of such duration not later than 11:00 a.m. (New York time) on the day
which is three (3) Business Days prior to the last day of the then current
Interest Period applicable to such Eurodollar Rate Loan.  If Agent does not receive timely notice of
the Interest Period elected by Borrower, Borrower shall be 

 

29

 

deemed to have elected to
convert to a Domestic Rate Loan subject to Section 2.2(d) herein
below.

 

(d)           On the last
Business Day of the then current Interest Period applicable to any outstanding
Eurodollar Rate Loan, or on any Business Day with respect to Domestic Rate Loans,
convert any such loan into a loan of another type in the same aggregate
principal amount provided that any conversion of a Eurodollar Rate Loan shall
be made only on the last Business Day of the then current Interest Period
applicable to such Eurodollar Rate Loan and any conversion to a Eurodollar Rate
Loan may be done if no Event of Default has occurred and is continuing.  If Borrower desires to convert a loan,
Borrower shall give Agent written notice by no later than 11:00 a.m. (New
York time) (i) on the day which is three (3) Business Days’ prior to
the date on which such conversion is to occur with respect to a conversion from
a Domestic Rate Loan to a Eurodollar Rate Loan, or (ii) on the day which
is one (1) Business Day prior to the date on which such conversion is to
occur with respect to a conversion from a Eurodollar Rate Loan to a Domestic
Rate Loan, specifying, in each case, the date of such conversion, the loans to
be converted and if the conversion is from a Domestic Rate Loan to any other type
of loan, the duration of the first Interest Period therefor.

 

(e)           At its option and
upon written notice given prior to 11:00 a.m. (New York time) at least
three (3) Business Days’ prior to the date of such prepayment, Borrower
may prepay the Eurodollar Rate Loans in whole at any time or in part from time
to time with accrued interest on the principal being prepaid to the date of
such repayment.  Borrower shall specify
the date of prepayment of Advances which are Eurodollar Rate Loans and the
amount of such prepayment.  In the event
that any prepayment of a Eurodollar Rate Loan is required or permitted on a
date other than the last Business Day of the then current Interest Period with
respect thereto, Borrower shall indemnify Agent and Lenders therefor in
accordance with Section 2.2(f) hereof.

 

(f)            Borrower shall
indemnify Agent and Lenders and hold Agent and Lenders harmless from and
against any and all losses or expenses that Agent and Lenders may sustain or
incur as a consequence of any prepayment, conversion of or any default by
Borrower in the payment of the principal of or interest on any Eurodollar Rate
Loan or failure by Borrower to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been given,
including, but not limited to, any interest payable by Agent or Lenders to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Rate Loans hereunder.  A certificate as
to any additional amounts payable pursuant to the foregoing sentence submitted
by Agent or any Lender to Borrower shall be conclusive absent manifest error.

 

(g)           Notwithstanding
any other provision hereof, if any Applicable Law, treaty, regulation or
directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for any Lender (for purposes of this
subsection (g), the Term “Lender” shall include any Lender and the office
or branch where any Lender or any corporation or bank controlling such Lender
makes or maintains any Eurodollar Rate Loans) to make or maintain its
Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate Loans
hereunder shall forthwith be cancelled and Borrower shall, if any affected
Eurodollar Rate Loans are then outstanding, promptly upon request from Agent,
either pay all such affected Eurodollar Rate Loans or convert such affected
Eurodollar Rate Loans into loans of another type.  If any such 

 

30

 

payment or conversion of
any Eurodollar Rate Loan is made on a day that is not the last day of the
Interest Period applicable to such Eurodollar Rate Loan, Borrower shall pay
Agent, upon Agent’s request, such amount or amounts as may be necessary to
compensate Lenders for any loss or expense sustained or incurred by Lenders in
respect of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan.  A certificate as
to any additional amounts payable pursuant to the foregoing sentence submitted
by Lenders to Borrower shall be conclusive absent manifest error.

 

(h)           If any Lender
requests compensation under Section 2.2(g) hereof, then such Lender
shall use reasonable efforts to designate a different lending office for
funding or booking its Advances hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.2(g) in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender.  Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with such designation
or assignment.

 

(i)            The Borrower’s
obligations and indemnifications under this Section 2.2 shall survive the
termination of this Agreement.

 

2.3.         Disbursement of Advance Proceeds.

 

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

 

2.4.         Term
Loan.

 

Subject to the terms and
conditions of this Agreement, each Lender, severally and not jointly, will make
the Term Loan to Borrower in the sum equal to such Lender’s Commitment
Percentage of $1,134,000.  The Term Loan
shall be advanced on the Closing Date and shall be, with respect to principal,
payable as follows, subject to acceleration upon the occurrence of an Event of
Default under this Agreement or termination of this Agreement: principal shall
be repaid in equal monthly installments of $47,250 commencing on July 1,
2009 with the outstanding principal balance due in full on July 1,
2011.  The Term Loan shall be evidenced
by 

 

31

 

one or more secured
promissory notes (collectively, the “Term Note”) in substantially the form
attached hereto as Exhibit 2.4.  The
Term Loan may consist of Domestic Rate Loans or Eurodollar Rate Loans, or a
combination thereof, as Borrower may request. 
In the event that Borrower desires to obtain or extend a Eurodollar Rate
Loan or to convert a Domestic Rate Loan to a Eurodollar Rate Loan, Borrower shall
comply with the notification requirements set forth in Sections 2.2(b) and
(d) and the provisions of Sections 2.2(b) through (h) shall
apply, mutatis mutandis.

 

2.5.         Repayment of Advances.

 

(a)           The Revolving
Advances shall be due and payable in full on the last day of the Term subject
to earlier prepayment as herein provided. 
The Term Loan shall be due and payable as provided in Section 2.4
hereof and in the Term Note, subject to mandatory prepayments as herein
provided.

 

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

 

(c)           All payments of
principal, interest and other amounts payable hereunder, or under any of the
Other Documents shall be made to Agent at the Payment Office not later than
1:00 p.m. (New York time) on the due date therefor in lawful money of the
United States of America in federal funds or other funds immediately available
to Agent.  Agent shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging Borrower’s Account or by making Advances as provided in Section 2.2
hereof.

 

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

 

2.6.         Repayment of Excess Advances.

 

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

 

32

 

2.7.         Statement of Account.

 

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

 

2.8.         Letters of Credit.

 

Subject to the terms and
conditions hereof, Agent shall issue or cause the issuance of Letters of Credit
for the account of Borrower; provided, however, that Agent will not be required
to issue or cause to be issued any Letters of Credit to the extent that the
issuance thereof would then cause the sum of (i) the outstanding Revolving
Advances plus (ii) the Maximum Undrawn Amount of all outstanding Letters
of Credit to exceed the lesser of (x) the Maximum Revolving Advance Amount
or (y) the Formula Amount.  The
Maximum Undrawn Amount of all outstanding Letters of Credit shall not exceed in
the aggregate at any time the Letter of Credit Sublimit.  All disbursements or payments related to
Letters of Credit shall be deemed to be Domestic Rate Loans consisting of
Revolving Advances and shall bear interest at the Interest Rate for Domestic
Rate Loans.  Letters of Credit that have
not been drawn upon shall not bear interest.

 

2.9.         Issuance of Letters of Credit.

 

(a)           Borrower may
request Agent to issue or cause the issuance of a Letter of Credit by
delivering to Agent, at the Payment Office, prior to 11:00 a.m. (New York
time), at least five (5) Business Days’ prior to the proposed date of
issuance, Agent’s form of Letter of Credit Application (the “Letter of
Credit Application”) completed to the satisfaction of Agent; and, such
other certificates, documents and other papers and information as Agent may
reasonably request.  Borrower also has
the right to give instructions and make agreements with respect to any
application, any applicable letter of credit and security agreement, any
applicable letter of credit reimbursement agreement and/or any other applicable
agreement, any letter of credit and the disposition of documents, disposition
of any unutilized funds, and to agree with Agent upon any amendment, extension
or renewal of any Letter of Credit.

 

(b)           Each Letter of
Credit shall, among other things, (i) provide for the payment of sight
drafts, other written demands for payment, or acceptances or drafts when
presented for

 

33

 

honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date not later than twelve (12)
months after such Letter of Credit’s date of issuance and in no event later
than the last day of the term.  Each
standby Letter of Credit shall be subject either to the Uniform Customs and
Practice for Documentary Credits as most recently published by the International
Chamber of Commerce at the time a Letter of Credit is issued (“UCP”) or the
International Standby Practices (ISP98-International Chamber of Commerce
Publication Number 600) (“ISP98 Rules”), as determined by Agent, and each trade
Letter of Credit shall be subject to UCP.

 

(c)           Agent shall use
its reasonable efforts to notify Lenders of the request by Borrower for a
Letter of Credit hereunder.

 

2.10.       Requirements For Issuance of Letters
of Credit.

 

(a)           Borrower shall
authorize and direct any Issuer to name Borrower as the “Applicant” or “Account
Party” of each Letter of Credit.  If
Agent is not the Issuer of any Letter of Credit, Borrower shall authorize and
direct the Issuer to deliver to Agent all instruments, documents, and other
writings and property received by the Issuer pursuant to the Letter of Credit
and to accept and rely upon Agent’s instructions and agreements with respect to
all matters arising in connection with the Letter of Credit or the application
therefor.

 

(b)           In connection
with all Letters of Credit issued or caused to be issued by Agent under this
Agreement, Borrower hereby appoints Agent, or its designee, as its attorney,
with full power and authority if an Event of Default shall have occurred, (i) to
sign and/or endorse Borrower’s name upon any warehouse or other receipts,
letter of credit applications and acceptance, (ii) to sign Borrower’s name
on bills of lading; (iii) to clear Inventory through the United States of
America Customs Department (“Customs”) in the name of Borrower or Agent
or Agent’s designee, and to sign and deliver to Customs officials powers of
attorney in the name of Borrower for such purpose; and (iv) to complete in
Borrower’s name or Agent’s, or in the name of Agent’s designee, any order, sale
or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof.  Neither
Agent nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for Agent’s or its
attorney’s willful misconduct, gross negligence or bad faith.  This power, being coupled with an interest,
is irrevocable as long as any Letters of Credit remain outstanding.

 

2.11.       Disbursements, Reimbursement.

 

(a)           Immediately upon
the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from Agent a
participation in such Letter of Credit and each drawing thereunder in an amount
equal to such Lender’s Commitment Percentage of the Maximum Face Amount of such
Letter of Credit and the amount of such drawing, respectively.

 

(b)           In the event of
any request for a drawing under a Letter of Credit by the beneficiary or
transferee thereof, Agent will promptly notify Borrower.  Provided that it shall have received such
notice, Borrower shall reimburse (such obligation to reimburse Agent shall

 

34

 

sometimes be referred to
as a “Reimbursement Obligation”) Agent prior to 12:00 Noon, New York
time on each date that an amount is paid by Agent under any Letter of Credit
(each such date, a “Drawing Date”) in an amount equal to the amount so
paid by Agent.  In the event Borrower
fails to reimburse Agent for the full amount of any drawing under any Letter of
Credit by 12:00 Noon, New York time, on the Drawing Date, Agent will promptly
notify each Lender thereof, and Borrower shall be deemed to have requested that
a Revolving Advance maintained as a Domestic Rate Loan be made by the Lenders
to be disbursed on the Drawing Date under such Letter of Credit, subject to Section 8.2
hereof.  Any notice given by Agent
pursuant to this Section 2.11(b) may be oral if immediately confirmed
in writing; provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.

 

(c)           Each Lender shall
upon any notice pursuant to Section 2.11(b) make available to Agent
an amount in immediately available funds equal to its Commitment Percentage of
the amount of the drawing, whereupon the participating Lenders shall (subject
to Section 2.11(d)) each be deemed to have made a Revolving Advance
maintained as a Domestic Rate Loan to Borrower in that amount.  If any Lender so notified fails to make
available to Agent the amount of such Lender’s Commitment Percentage of such amount
by no later than 2:00 p.m., New York time on the Drawing Date, then
interest shall accrue on such Lender’s obligation to make such payment, from
the Drawing Date to the date on which such Lender makes such payment (i) at
a rate per annum equal to the Federal Funds Effective Rate during the first
three days following the Drawing Date and (ii) at a rate per annum equal
to the rate applicable to Revolving Advances maintained as a Domestic Rate
Loans on and after the fourth day following the Drawing Date.  Agent will promptly give notice of the
occurrence of the Drawing Date, but failure of Agent to give any such notice on
the Drawing Date or in sufficient time to enable any Lender to effect such
payment on such date shall not relieve such Lender from its obligation under
this Section 2.11(c), provided that such Lender shall not be obligated to
pay interest as provided in Section 2.11(c)(i) and (ii) until
and commencing from the date of receipt of notice from Agent of a drawing.

 

(d)           With respect to
any unreimbursed drawing that is not converted into a Revolving Advances
maintained as a Domestic Rate Loan to Borrower in whole or in part as
contemplated by Section 2.11(b), because of Borrower’s failure to satisfy
the conditions set forth in Section 8.2 (other than any notice
requirements) or for any other reason, Borrower shall be deemed to have
incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in
the amount of such drawing.  Such Letter
of Credit Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at the rate per annum applicable to a Revolving Advance
maintained as a Domestic Rate Loan.  Each
Lender’s payment to Agent pursuant to Section 2.11(c) shall be deemed
to be a payment in respect of its participation in such Letter of Credit
Borrowing and shall constitute a “Participation Advance” from such Lender in
satisfaction of its Participation Commitment under this Section 2.11.

 

Each Lender’s
Participation Commitment shall continue until the last to occur of any of the
following events:  (x) Agent ceases
to be obligated to issue or cause to be issued Letters of Credit hereunder; (y) no
Letter of Credit issued or created hereunder remains outstanding and
uncancelled and (z) all Persons (other than the Borrower) have been fully
reimbursed for all payments made under or relating to Letters of Credit.

 

35

 

2.12.       Repayment of Participation Advances.

 

(a)           Upon (and only
upon) receipt by Agent for its account of immediately available funds from
Borrower (i) in reimbursement of any payment made by the Agent under the
Letter of Credit with respect to which any Lender has made a Participation
Advance to Agent, or (ii) in payment of interest on such a payment made by
Agent under such a Letter of Credit, Agent will pay to each Lender, in the same
funds as those received by Agent, the amount of such Lender’s Commitment
Percentage of such funds, except Agent shall retain the amount of the
Commitment Percentage of such funds of any Lender that did not make a
Participation Advance in respect of such payment by Agent.

 

(b)           If Agent is
required at any time to return to Borrower, or to a trustee, receiver,
liquidator, custodian, or any official in any insolvency proceeding, any
portion of the payments made by Borrower to Agent pursuant to Section 2.12(a) in
reimbursement of a payment made under the Letter of Credit or interest or fee
thereon, each Lender shall, on demand of Agent, forthwith return to Agent the
amount of its Commitment Percentage of any amounts so returned by Agent plus
interest at the Federal Funds Effective Rate.

 

2.13.       Documentation.

 

Borrower agrees to be
bound by the terms of the Letter of Credit Application and by Agent’s
interpretations of any Letter of Credit issued for Borrower’s account and by
Agent’s written regulations and customary practices relating to letters of
credit, though Agent’s interpretations may be different from Borrower’s
own.  In the event of a conflict between
the Letter of Credit Application and this Agreement, this Agreement shall
govern.  It is understood and agreed
that, except in the case of gross negligence, willful misconduct or bad faith
(as determined by a court of competent jurisdiction in a final non-appealable
judgment), Agent shall not be liable for any error, negligence and/or mistakes,
whether of omission or commission, in following Borrower’s instructions or
those contained in the Letters of Credit or any modifications, amendments or
supplements thereto.

 

2.14.       Determination to Honor Drawing Request.

 

In determining whether to
honor any request for drawing under any Letter of Credit by the beneficiary
thereof, Agent shall be responsible only to determine that the documents and
certificates required to be delivered under such Letter of Credit have been
delivered and that they comply on their face with the requirements of such
Letter of Credit and that any other drawing condition appearing on the face of
such Letter of Credit has been satisfied in the manner so set forth.

 

2.15.       Nature of Participation and
Reimbursement Obligations.

 

Each Lender’s obligation
in accordance with this Agreement to make the Revolving Advances or
Participation Advances as a result of a drawing under a Letter of Credit, and
the obligations of Borrower to reimburse Agent upon a draw under a Letter of
Credit, shall be

 

36

 

absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms
of this Section 2.15 under all circumstances, including the following
circumstances:

 

(i)            any
set-off, counterclaim, recoupment, defense or other right which such Lender may
have against Agent, Borrower or any other Person for any reason whatsoever;

 

(ii)           the
failure of Borrower or any other Person to comply, in connection with a Letter
of Credit Borrowing, with the conditions set forth in this Agreement for the
making of a Revolving Advance, it being acknowledged that such conditions are
not required for the making of a Letter of Credit Borrowing and the obligation
of the Lenders to make Participation Advances under Section 2.11;

 

(iii)          any
lack of validity or enforceability of any Letter of Credit;

 

(iv)          any
claim of breach of warranty that might be made by Borrower or any Lender
against the beneficiary of a Letter of Credit, or the existence of any claim,
set-off, recoupment, counterclaim, crossclaim, defense or other right which
Borrower or any Lender may have at any time against a beneficiary, any
successor beneficiary or any transferee of any Letter of Credit or the proceeds
thereof (or any Persons for whom any such transferee may be acting), Agent or
any Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any Subsidiaries of Borrower and the
beneficiary for which any Letter of Credit was procured);

 

(v)           the
lack of power or authority of any signer of (or any defect in or forgery of any
signature or endorsement on) or the form of or lack of validity, sufficiency,
accuracy, enforceability or genuineness of any draft, demand, instrument,
certificate or other document presented under or in connection with any Letter
of Credit, or any fraud or alleged fraud in connection with any Letter of
Credit, or the transport of any property or provisions of services relating to
a Letter of Credit, in each case even if Agent or any of Agent’s Affiliates has
been notified thereof;

 

(vi)          payment
by Agent under any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit;

 

(vii)         the
solvency of, or any acts or omissions by, any beneficiary of any Letter of
Credit, or any other Person having a role in any transaction or obligation
relating to a Letter of Credit, or the existence, nature, quality, quantity,
condition, value or other characteristic of any property or services relating
to a Letter of Credit;

 

(viii)        any
failure by the Agent or any of Agent’s Affiliates to issue any Letter of Credit
in the form requested by Borrower, unless the Agent has received written notice
from Borrower of such failure within three (3) Business Days after the
Agent shall have

 

37

 

furnished Borrower a copy
of such Letter of Credit and such error is material and no drawing has been
made thereon prior to receipt of such notice;

 

(ix)           any
Material Adverse Effect on Borrower or any Guarantor;

 

(x)            any
breach of this Agreement or any Other Document by any party thereto;

 

(xi)           the
occurrence or continuance of an insolvency proceeding with respect to Borrower
or any Guarantor;

 

(xii)          the
fact that a Default or Event of Default shall have occurred and be continuing;

 

(xiii)         the
fact that the Term shall have expired or this Agreement or the Obligations
hereunder shall have been terminated; and

 

(xiv)        any
other circumstance or happening whatsoever, whether or not similar to any of
the foregoing.

 

2.16.       Indemnity.

 

In addition to amounts
payable as provided in Section 15.5, the Borrower hereby agrees to
protect, indemnify, pay and save harmless Agent and any of Agent’s Affiliates
that have issued a Letter of Credit from and against any and all claims,
demands, liabilities, damages, taxes, penalties, interest, judgments, losses,
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent or any of Agent’s Affiliates may incur or be subject to as a consequence,
direct or indirect, of the issuance of any Letter of Credit, other than as a
result of (A) the gross negligence, willful misconduct or bad faith of the
Agent as determined by a final and non-appealable judgment of a court of
competent jurisdiction or (b) the wrongful dishonor by the Agent or any of
Agent’s Affiliates of a proper demand for payment made under any Letter of
Credit, except if such dishonor resulted from any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Body (all such acts or omissions herein called “Governmental Acts”).  The foregoing obligations and the
indemnifications hereunder shall survive the termination of this Agreement.

 

2.17.       Liability for Acts and Omissions.

 

As between Borrower and
Agent and Lenders, Borrower assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit by, the respective beneficiaries of such
Letters of Credit.  In furtherance and not
in limitation of the respective foregoing, Agent shall not be responsible
for:  (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for an issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged (even if Agent shall
have been notified thereof); (ii) the validity

 

38

 

or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) the failure of the beneficiary of any such Letter of Credit,
or any other party to which such Letter of Credit may be transferred, to comply
fully with any conditions required in order to draw upon such Letter of Credit
or any other claim of Borrower against any beneficiary of such Letter of
Credit, or any such transferee, or any dispute between or among Borrower and
any beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, facsimile, telex or otherwise, whether or not they be in
cipher; (v) errors in interpretation of technical terms; (vi) any
loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of Agent, including any
Governmental Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of Agent’s rights or powers hereunder.  Nothing in the preceding sentence shall
relieve Agent from liability for Agent’s gross negligence, willful misconduct
or bad faith (as determined by a court of competent jurisdiction in a final
non-appealable judgment) in connection with actions or omissions described in
such clauses (i) through (viii) of such sentence.  In no event shall Agent or Agent’s Affiliates
be liable to the Borrower for any indirect, consequential, incidental,
punitive, exemplary or special damages or expenses (including without
limitation attorneys’ fees), or for any damages resulting from any change in
the value of any property relating to a Letter of Credit.

 

Without limiting the
generality of the foregoing, Agent and each of its Affiliates (i) may rely
on any oral or other communication believed in good faith by Agent or  such Affiliate to have been authorized or
given by or on behalf of the applicant for a Letter of Credit, (ii) may
honor any presentation if the documents presented appear on their face
substantially to comply with the terms and conditions of the relevant Letter of
Credit; (iii) may honor a previously dishonored presentation under a
Letter of Credit, whether such dishonor was pursuant to a court order, to
settle or compromise any claim of wrongful dishonor, or otherwise, and shall be
entitled to reimbursement to the same extent as if such presentation had initially
been honored, together with any interest paid by Agent or its Affiliates; (iv) may
honor any drawing that is payable upon presentation of a statement advising
negotiation or payment, upon receipt of such statement (even if such statement
indicates that a draft or other document is being delivered separately), and
shall not be liable for any failure of any such draft or other document to
arrive, or to conform in any way with the relevant Letter of Credit; (v) may
pay any paying or negotiating bank claiming that it rightfully honored under
the laws or practices of the place where such bank is located; and (vi) may
settle or adjust any claim or demand made on Agent or its Affiliate in any way
related to any order issued at the applicant’s request to an air carrier, a
letter of guarantee or of indemnity issued to a carrier or any similar document
(each an “Order”) and honor any drawing in connection with any Letter of
Credit that is the subject of such Order, notwithstanding that any drafts or
other documents presented in connection with such Letter of Credit fail to
conform in any way with such Letter of Credit.

 

In furtherance and
extension and not in limitation of the specific provisions set forth above, any
action taken or omitted by Agent under or in connection with the Letters of
Credit

 

39

 

issued by it or any
documents and certificates delivered thereunder, if taken or omitted in good
faith and without gross negligence (as determined by a court of competent
jurisdiction in a final non-appealable judgment), shall not put Agent under any
resulting liability to Borrower or any Lender.

 

2.18.       Additional Payments.

 

Any sums expended by
Agent or any Lender due to Borrower’s failure to perform or comply with its obligations
under this Agreement or any Other Document including Borrower’s obligations
under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged
to Borrower’s Account as a Revolving Advance and added to the Obligations.  Agent shall provide notice to Borrower of any
sums charged to Borrower’s Account hereunder.

 

2.19.       Manner of Borrowing and Payment.

 

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

 

(b)           Each payment
(including each prepayment) by Borrower on account of the principal of and
interest on the Revolving Advances, shall be applied to the Revolving Advances
pro rata according to the applicable Commitment Percentages of Lenders.  Each payment (including each prepayment) by
Borrower on account of the principal of and interest on the Term Note, shall be
made from or to, or applied to that portion of the Term Loan evidenced by the
Term Note pro rata according to the Commitment Percentages of Lenders.  Except as expressly provided herein, all
payments (including prepayments) to be made by Borrower on account of
principal, interest and fees shall be made without set off or counterclaim and
shall be made to Agent on behalf of the Lenders to the Payment Office, in each
case on or prior to 1:00 p.m., New York time, in Dollars and in
immediately available funds.

 

(c)           (i)            Notwithstanding
anything to the contrary contained in Sections 2.19(a) and (b) hereof,
commencing with the first Business Day following the Closing Date, each
borrowing of Revolving Advances shall be advanced by Agent and each payment by
Borrower on account of Revolving Advances shall be applied first to those
Revolving Advances advanced by Agent.  On
or before 1:00 p.m., New York time, on each Settlement Date commencing
with the first Settlement Date following the Closing Date, Agent and Lenders
shall make certain payments as follows:  (I) if
the aggregate amount of new Revolving Advances made by Agent during the
preceding Week (if any) exceeds the aggregate amount of repayments applied to
outstanding Revolving Advances during such preceding Week, then each Lender
shall provide Agent with funds in an amount equal to its applicable Commitment
Percentage of the difference between (w) such Revolving Advances and (x) such
repayments and (II) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall provide each
Lender with funds in an amount equal to its applicable Commitment Percentage of
the difference between (y) such repayments and (z) such Revolving
Advances.

 

40

 

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

 

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

 

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

 

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

 

41

 

2.20.       Mandatory Prepayments.

 

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

 

2.21.       Use of Proceeds.

 

(a)           Borrower shall
apply the proceeds of Advances to (i) purchase the assets of Seller
pursuant to the terms of the Acquisition Agreement, (ii) purchase the
assets of Woodmark International, L.P. (including its Stair House operations)
and Pacific Stair Products, Inc., (iii) repay existing indebtedness
of P&F secured by assets being contributed by P&F to Borrower, (iv) pay
fees and expenses relating to this transaction, (v) provide for its
working capital needs, capital expenditure needs and reimburse drawings under
Letters of Credit, and (vi) for other general corporate purposes of
Borrower.

 

(b)           Without limiting
the generality of Section 2.21(a) above, neither the Borrower nor any
other Person which may in the future become party to this Agreement or the
Other Documents as Borrower, intends to use nor shall they use any portion of
the proceeds of the Advances, directly or indirectly, for any purpose in
violation of the Trading with the Enemy Act.

 

2.22.       Defaulting Lender.

 

(a)           Notwithstanding anything
to the contrary contained herein, in the event any Lender (x) has refused
(which refusal constitutes a breach by such Lender of its obligations under
this Agreement) to make available its portion of any Advance or (y) notifies
either Agent or Borrower that it does not intend to make available its portion
of any Advance (if the actual refusal would constitute a breach by such Lender
of its obligations under this Agreement) (each, a “Lender Default”), all
rights and obligations hereunder of such Lender (a “Defaulting Lender”)
as to which a Lender Default is in effect and of the other parties hereto shall
be modified to the extent of the express provisions of this Section 2.22
while such Lender Default remains in effect.

 

(b)           Advances shall be
incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which are
not Defaulting Lenders based on their respective Commitment Percentages, and no
Commitment Percentage of any Lender or any pro rata share of any Advances
required to be advanced by any Lender shall be increased as a result of such
Lender Default.  Amounts received in
respect of principal of any type of Advances shall be applied to reduce the
applicable Advances of each Lender (other than any Defaulting Lender) pro rata
based on the aggregate of 

 

42

 

the outstanding Advances
of that type of all Lenders at the time of such application; provided, that,
Agent shall not be obligated to transfer to a Defaulting Lender any payments
received by Agent for the Defaulting Lender’s benefit, nor shall a Defaulting
Lender be entitled to the sharing of any payments hereunder (including any
principal, interest or fees).  Amounts
payable to a Defaulting Lender shall instead be paid to or retained by
Agent.  Agent may hold and, in its
discretion, re-lend to Borrower the amount of such payments received or
retained by it for the account of such Defaulting Lender.

 

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

 

(d)           Other than as
expressly set forth in this Section 2.22, the rights and obligations of a
Defaulting Lender (including the obligation to indemnify Agent) and the other
parties hereto shall remain unchanged. 
Nothing in this Section 2.22 shall be deemed to release any
Defaulting Lender from its obligations under this Agreement and the Other
Documents, shall alter such obligations, shall operate as a waiver of any
default by such Defaulting Lender hereunder, or shall prejudice any rights
which Borrower, Agent or any Lender may have against any Defaulting Lender as a
result of any default by such Defaulting Lender hereunder.

 

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

 

ARTICLE III

 

INTEREST AND FEES

 

3.1.         Interest.

 

Interest on Advances
shall be payable in arrears on the first day of each month with respect to
Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end of
each Interest Period or, for Eurodollar Rate Loans with an Interest Period in
excess of three months, at the earlier of (a) each three months from the
commencement of such Eurodollar Rate Loan or (b) the end of the Interest
Period.  Interest charges shall be
computed on the actual principal amount of Advances outstanding during the
month at a rate per annum equal to (i) with respect to Revolving Advances,
and the Term Loans, the applicable Interest Rate (as applicable, the “Contract
Rate”).  Whenever, subsequent to the
date of this Agreement, the Alternate Base Rate is increased or decreased, the
applicable Contract Rate for Domestic Rate Loans shall be similarly changed
without notice or demand of any kind by an amount equal to the amount of such
change in the Alternate Base Rate during the time such change or changes remain
in effect.  The Eurodollar Rate shall be
adjusted with respect to Eurodollar Rate Loans without notice or 

 

43

 

demand of any kind on the
effective date of any change in the Reserve Percentage as of such effective
date.  Upon and after the occurrence of
an Event of Default, and during the continuation thereof, (i) at the
option of Agent or at the direction of Required Lenders, the Obligations shall
bear interest at the applicable Contract Rate plus two (2%) percent per annum
(the “Default Rate”).  Agent will
promptly provide notice to Borrower if the Default Rate is instituted.

 

3.2.         Letter of Credit Fees.

 

(a)           Borrower shall
pay (x) to Agent, for the ratable benefit of Lenders, fees for each Letter
of Credit for the period from and excluding the date of issuance of same to and
including the date of expiration or termination, equal to the average daily
face amount of each outstanding Letter of Credit multiplied by three and
one-half of one percent (3.50%) per annum, such fees to be calculated on the
basis of a 360-day year for the actual number of days elapsed and to be payable
quarterly in arrears on the first day of each fiscal quarter and on the last
day of the term, and (y) to the Issuer, a fronting fee of one quarter of
one percent (0.25%) per annum, together with any and all administrative,
issuance, amendment, payment and negotiation charges with respect to Letters of
Credit and all fees and expenses as agreed upon by the Issuer and the Borrower
in connection with any Letter of Credit, including in connection with the
opening, amendment or renewal of any such Letter of Credit and any acceptances
created thereunder and shall reimburse Agent for any and all fees and expenses,
if any, paid by Agent to the Issuer (all of the foregoing fees, the “Letter
of Credit Fees”).  All such charges
shall be deemed earned in full on the date when the same are due and payable
hereunder and shall not be subject to rebate or pro-ration upon the termination
of this Agreement for any reason.  Any
such charge in effect at the time of a particular transaction shall be the
charge for that transaction, notwithstanding any subsequent change in the
Issuer’s prevailing charges for that type of transaction.  All Letter of Credit Fees payable hereunder
shall be deemed earned in full on the date when the same are due and payable
hereunder and shall not be subject to rebate or pro-ration upon the termination
of this Agreement for any reason.  Upon
and after the occurrence of an Event of Default, and during the continuation
thereof, at the option of Agent or at the direction of Required Lenders, the
Letter of Credit Fees described in clause (x) of this Section 3.2(a) shall
be increased by an additional two percent (2%) per annum.  Any Letters of Credit which the Agent agrees
to allow to remain outstanding after the termination of this Agreement will be
cash collateralized in an amount equal to one hundred and five percent (105%)
of the amount thereof in the manner described above.

 

Upon the occurrence and
continuance of an Event of Default, on demand, Borrower will cause cash to be
deposited and maintained in an account with Agent, as cash collateral, in an
amount equal to one hundred and five percent (105%) of the Maximum Undrawn
Amount of all outstanding Letters of Credit, and Borrower hereby irrevocably
authorizes Agent, in its discretion, on Borrower’s behalf and in Borrower’s
name, to open such an account and to make and maintain deposits therein, or in
an account opened by Borrower, in the amounts required to be made by Borrower,
out of the proceeds of Receivables or other Collateral or out of any other
funds of Borrower coming into any Lender’s possession at any time.  Agent will invest such cash collateral (less
applicable reserves) in such short-term money-market items as to which Agent
and Borrower mutually agree and the net return on such investments shall be
credited to such account and constitute additional cash collateral.  Borrower may not withdraw amounts credited 

 

44

 

to any such account
except upon the occurrence of all of the following: (x) payment and
performance in full of all Obligations, (y) expiration of all Letters of
Credit and (z) termination of this Agreement.

 

3.3.         Closing Fee and Facility Fee.

 

(a)           Closing
Fee.

 

Upon the execution of
this Agreement, Borrower shall pay to Agent for the ratable benefit of Lenders
a closing fee of $90,000 less that portion of the deposit fee of $80,000
heretofore paid by Borrower to Agent after application of such fee to out of
pocket expenses.

 

(b)           Facility
Fee.

 

Borrower shall pay to
Agent a fee for the ratable benefit of Lenders in an amount equal to one-half
of one percent (0.50%) per annum multiplied by the amount by which the Maximum
Revolving Advance Amount exceeds the average daily unpaid balance of the
Revolving Advances plus the aggregate amount of any outstanding Letters of
Credit that are available to be drawn during each calendar quarter.  Such fee shall be payable to Agent in arrears
on the first day of each calendar quarter with respect to the previous calendar
quarter.

 

3.4.         Collateral Fees.

 

(a)           Collateral
Management Fee.

 

Borrower shall pay Agent
a collateral management fee equal to $1,250 per month commencing on the first
day of the month following the Closing Date and on the first day of each month
thereafter during the term.  The
collateral management fee shall be deemed earned in full on the date when same
is due and payable hereunder and shall not be subject to rebate or proration
upon termination of this Agreement for any reason.

 

(b)           Collateral
Monitoring Fee.

 

Borrower shall pay to
Agent on the first day of each month following any month in which Agent
performs any collateral monitoring - namely any field examination, collateral
analysis or other business analysis, the need for which is to be reasonably
determined by Agent and which monitoring is undertaken by Agent or for Agent’s
benefit - a collateral monitoring fee in an amount equal to $850 per day for
each person employed to perform such monitoring plus all costs and
disbursements incurred by Agent in the performance of such examination or
analysis (absent an Event of Default, Borrower shall not be required to pay
Agent for more than four (4) such collateral monitoring fees per calendar
year).

 

3.5.         Computation of Interest and Fees.

 

Interest and fees
hereunder shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed.  If any
payment to be made hereunder becomes due and 

 

45

 

payable on a day other
than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.

 

3.6.         Maximum Charges.

 

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

 

3.7.         Increased Costs.

 

(a)           In the event that
any introduction of or change in Applicable Law or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section 3.7,
the term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:

 

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

 

(ii)           impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of Agent or any
Lender, including pursuant to Regulation D of the Board of Governors of the
Federal Reserve System; or

 

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

 

and the result of any of
the foregoing is to increase the cost to Agent or any Lender of making,
renewing or maintaining its Advances hereunder by an amount that Agent or such
Lender deems to be material or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of any of the Advances by an
amount that Agent or such Lender deems to be material, then, in any case
Borrower shall promptly pay Agent or such Lender, upon its demand, such
additional amount as will compensate Agent or such Lender for such additional 

 

46

 

cost or such reduction,
as the case may be, provided that the foregoing shall not apply to increased
costs which are reflected in the Eurodollar Rate, as the case may be.  Agent or such Lender shall certify the amount
of such additional cost or reduced amount to Borrower, and such certification
shall be conclusive absent manifest error.

 

(b)           A certificate
of a Lender setting forth the amount or amounts necessary to compensate such
Lender and delivered to the Borrower shall be conclusive absent manifest error.

 

(c)           Failure
or delay on the part of any Lender to demand compensation pursuant to the
foregoing provisions of this Section 3.7 shall not constitute a waiver of
such Lender’s right to demand such compensation.

 

3.8.         Basis For Determining Interest Rate
Inadequate or Unfair.

 

In the event that Agent
or any Lender shall have determined that:

 

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

 

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

 

then Agent shall give
Borrower prompt written, or telephonic notice of such determination.  If such notice is given, (i) any such
requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless
Borrower shall notify Agent no later than 11:00 a.m. (New York City time)
two (2) Business Days prior to the date of such proposed borrowing, that
its request for such borrowing shall be cancelled or made as an unaffected type
of Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate
Loan which was to have been converted to an affected type of Eurodollar Rate
Loan shall be continued as or converted into a Domestic Rate Loan, or, if
Borrower shall notify Agent, no later than 11:00 a.m. (New York City time)
two (2) Business Days prior to the proposed conversion, shall be
maintained as an unaffected type of Eurodollar Rate Loan, and (iii) any
outstanding affected Eurodollar Rate Loans shall be converted into a Domestic
Rate Loan, or, if Borrower shall notify Agent, no later than 11:00 a.m.
(New York City time) two (2) Business Days prior to the last Business Day
of the then current Interest Period applicable to such affected Eurodollar Rate
Loan, shall be converted into an unaffected type of Eurodollar Rate Loan, on
the last Business Day of the then current Interest Period for such affected
Eurodollar Rate Loans.  Until such notice
has been withdrawn, Lenders shall have no obligation to make an affected type
of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans
and Borrower shall not have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar
Rate Loan.

 

47

 

3.9.         Capital Adequacy.

 

(a)           In the event that
Agent or any Lender shall have determined that any Applicable Law, rule,
regulation or guideline regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Body, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Agent or any Lender (for purposes of
this Section 3.9, the Term “Lender” shall include Agent or any Lender and
any corporation or bank controlling Agent or any Lender) and the office or
branch where Agent or any Lender (as so defined) makes or maintains any
Eurodollar Rate Loans with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on Agent or any Lender’s capital as a consequence of its obligations hereunder
to a level below that which Agent or such Lender could have achieved but for
such adoption, change or compliance (taking into consideration Agent’s and each
Lender’s policies with respect to capital adequacy) by an amount deemed by
Agent or any Lender to be material, then, from time to time, Borrower shall pay
upon demand to Agent or such Lender such additional amount or amounts as will
compensate Agent or such Lender for such reduction.  In determining such amount or amounts, Agent
or such Lender may use any reasonable averaging or attribution methods.  The protection of this Section 3.9 shall
be available to Agent and each Lender regardless of any possible contention of
invalidity or inapplicability with respect to the Applicable Law, regulation or
condition.

 

(b)           A certificate of
Agent or such Lender setting forth such amount or amounts as shall be necessary
to compensate Agent or such Lender with respect to Section 3.9(a) hereof
when delivered to Borrower shall be conclusive absent manifest error.

 

(c)           Failure or
delay on the part of any Lender to demand compensation pursuant to the
foregoing provisions of this Section 3.9 shall not constitute a waiver of
such Lender’s right to demand such compensation.

 

3.10.       Gross Up for Taxes.

 

If Borrower shall be
required by Applicable Law to withhold or deduct any taxes from or in respect
of any sum payable under this Agreement or any of the Other Documents to Agent,
or any Lender, assignee of any Lender, or Participant (each, individually, a “Payee”
and collectively, the “Payees”), (a) the sum payable to such Payee
or Payees, as the case may be, shall be increased as may be necessary so that,
after making all required withholding or deductions, the applicable Payee or
Payees receives an amount equal to the sum it would have received had no such
withholding or deductions been made (the “Gross-Up Payment”), (b) Borrower
shall make such withholding or deductions, and (c) Borrower shall pay the
full amount withheld or deducted to the relevant taxation authority or other
authority in accordance with Applicable Law. 
Notwithstanding the foregoing, Borrower shall not be obligated to make
any portion of the Gross-Up Payment that is attributable to any withholding or
deductions that would not have been paid or claimed had the applicable Payee or
Payees properly claimed a complete exemption with respect thereto pursuant to Section 3.11
hereof.

 

48

 

3.11.       Withholding Tax Exemption.

 

(a)           Each Payee that
is not incorporated under the Laws of the United States of America or a state
thereof (and, upon the written request of Agent, each other Payee) agrees that
it will deliver to Borrower and Agent two (2) duly completed appropriate
valid Withholding Certificates (as defined under §1.1441-1(c)(16) of the Income
Tax Regulations (“Regulations”)) certifying its status (i.e., U.S. or
foreign person) and, if appropriate, making a claim of reduced, or exemption
from, U.S. withholding tax on the basis of an income tax treaty or an exemption
provided by the Code.  The Term “Withholding
Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY
and the related statements and certifications as required under §1.1441-1(e)(2) and/or
(3) of the Regulations; a statement described in §1.871-14(c)(2)(v) of
the Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.

 

(b)           Each Payee
required to deliver to Borrower and Agent a valid Withholding Certificate
pursuant to Section 3.11(a) hereof shall deliver such valid
Withholding Certificate as follows:  (A) each
Payee which is a party hereto on the Closing Date shall deliver such valid
Withholding Certificate at least five (5) Business Days prior to the first
date on which any interest or fees are payable by Borrower hereunder for the
account of such Payee; (B) each Payee shall deliver such valid Withholding
Certificate at least five (5) Business Days before the effective date of
such assignment or participation (unless Agent in its sole discretion shall
permit such Payee to deliver such Withholding Certificate less than five (5) Business
Days before such date in which case it shall be due on the date specified by
Agent).  Each Payee which so delivers a
valid Withholding Certificate further undertakes to deliver to Borrower and
Agent two (2) additional copies of such Withholding Certificate (or a
successor form) on or before the date that such Withholding Certificate expires
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent Withholding Certificate so delivered by it, and such amendments
thereto or extensions or renewals thereof as may be reasonably requested by
Borrower or Agent.

 

(c)           Notwithstanding
the submission of a Withholding Certificate claiming a reduced rate of or
exemption from U.S. withholding tax required under Section 3.11(b) hereof,
Agent shall be entitled to withhold United States federal income taxes at the
full 30% withholding rate if in its reasonable judgment it is required to do so
under the due diligence requirements imposed upon a withholding agent under
§1.1441-7(b) of the Regulations. 
Further, Agent is indemnified under §1.1461-1(e) of the Regulations
against any claims and demands of any Payee for the amount of any tax it
deducts and withholds in accordance with regulations under §1441 of the Code.

 

3.12.       Treatment
of Certain Refunds.

 

If Agent, any Lender or
the Issuer receives a refund of any taxes as to which it has been indemnified
by Borrower or with respect to which Borrower has paid additional amounts
pursuant to this Agreement, it shall pay to Borrower an amount equal to such
refund (but only to the extent of indemnity payments made or additional amounts
paid, by Borrower under this Agreement with respect to the taxes giving rise to
such refund), net of all out-of-pocket expenses 

 

49

 

of Agent, such Lender or
the Issuer, as the case may be, and without interest (other than any interest
paid by the relevant Governmental Body with respect to such refund), provided
that Borrower, upon the request of Agent, such Lender or the Issuer, agrees to
repay the amount paid over to Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Body) to Agent, such Lender or the
Issuer in the event Agent, such Lender or the 
Issuer is required to repay such refund to such Governmental Body.  This subsection shall not be construed
to require the Agent, any Lender or the Issuer to make available its tax
returns (or any other information relating to its taxes that it deems
confidential) to Borrower or any other Person.

 

3.13.        Survival of Obligations.

 

The Borrower’s
obligations and the indemnifications under this Article III shall survive
the termination of this Agreement.

 

ARTICLE IV

 

COLLATERAL:
GENERAL TERMS

 

4.1.         Security Interest in the Collateral.

 

To secure the prompt
payment and performance to Agent and each Lender of the Obligations, Borrower
hereby assigns, pledges and/or grants, as applicable, to Agent for its benefit
and for the ratable benefit of each Lender a continuing security interest in
and to and Lien on all of its Collateral, whether now owned or existing or
hereafter acquired or arising and wheresoever located.  Borrower shall mark its books and records as
may be necessary or appropriate to evidence, protect and perfect Agent’s
security interest and shall cause its financial statements to reflect such
security interest.  Borrower shall
promptly provide Agent with written notice of all commercial tort claims, such
notice to contain the case title together with the applicable court and a brief
description of the claim(s).  Upon
delivery of each such notice, Borrower shall be deemed to hereby grant to Agent
a security interest and lien in and to such commercial tort claims and all
proceeds thereof.

 

4.2.         Perfection of Security Interest.

 

Borrower shall take all
action that may be reasonably necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent’s security interest in and Lien on the
Collateral or to enable Agent to protect, exercise or enforce its rights
hereunder and in the Collateral, including, but not limited to, (i) immediately
discharging all Liens other than Permitted Encumbrances, (ii) obtaining
Lien Waiver Agreements, (iii) delivering to Agent, endorsed or accompanied
by such instruments of assignment as Agent may specify, and stamping or
marking, in such manner as Agent may specify, any and all chattel paper,
instruments, letters of credits and advices thereof and documents evidencing or
forming a part of the Collateral, (iv) entering into warehousing, lockbox
and other custodial arrangements reasonably satisfactory to Agent, and (v) executing
and delivering financing statements, control agreements, instruments of pledge,
mortgages, 

 

50

 

notices and assignments,
in each case in form and substance reasonably satisfactory to Agent, relating
to the creation, validity, perfection, maintenance or continuation of Agent’s
security interest and Lien under the Uniform Commercial Code or other
Applicable Law.  Agent is hereby
authorized to file financing statements in accordance with the Uniform
Commercial Code as adopted in the State of North Carolina from time to
time.  By its signature hereto, Borrower
hereby authorizes Agent to file against Borrower, one or more financing
continuation or amendment statements pursuant to the Uniform Commercial Code in
form and substance reasonably satisfactory to Agent (which statements may have
a description of collateral which is broader than that set forth herein and
which may describe the Collateral as “all assets” or “all personal property”).  All charges, expenses and fees Agent may
incur in doing any of the foregoing, and any local taxes relating thereto,
shall be charged to Borrower’s Account as a Revolving Advance of a Domestic
Rate Loan and added to the Obligations, or, at Agent’s option, shall be paid to
Agent for its benefit and for the ratable benefit of Lenders immediately upon demand.

 

4.3.         Disposition of Collateral.

 

Borrower will utilize all
commercially reasonable means in the Ordinary Course of Business to safeguard
and protect all Collateral for Agent’s general account and make no disposition
thereof whether by sale, lease or otherwise except (a) the sale or lease
of Inventory in the Ordinary Course of Business, and (b) the disposition
or transfer of obsolete and worn-out Equipment in the Ordinary Course of
Business during any fiscal year having an aggregate fair market value of not
more than $250,000 and only to the extent that (i) the proceeds of any
such disposition are used to acquire replacement Equipment which is subject to
Agent’s first priority security interest or (ii) the proceeds of which are
remitted to Agent to be applied pursuant to Section 2.20 and (c) the
disposition or transfer of obsolete and worn-out personal property no longer
necessary to the efficient conduct of business; and (d) the sale or
discount of Receivables in the Ordinary Course of Business absent a Default or
an Event of Default.

 

4.4.         Preservation of Collateral.

 

Following the occurrence
of an Event of Default, in addition to the rights and remedies set forth in Section 11.1
hereof, Agent: (a) may at any time take such steps as Agent deems necessary
to protect Agent’s interest in and to preserve the Collateral, including the
hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any
of Borrower’s premises a custodian who shall have full authority to do all acts
necessary to protect Agent’s interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d) may
use Borrower’s owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and
is hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any of Borrower’s owned
or leased property.  Borrower shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the
Collateral, including any expenses relating to the bonding of a custodian,
shall be charged to Borrower’s Account as a Revolving Advance maintained as a 

 

51

 

Domestic Rate Loan and
added to the Obligations.  Agent shall
provide notice to Borrower of any amounts charged to Borrower’s Account.

 

4.5.         Ownership of Collateral.

 

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

 

(b)           (i)            There
is no location at which Borrower has any Inventory (except for Inventory in
transit) or other Collateral other than those locations listed on
Schedule 4.5; (ii) Schedule 4.5 hereto contains a correct and
complete list, as of the Closing Date, of the legal names and addresses of each
warehouse at which Inventory of Borrower is stored and each warehouseman,
bailee or other third party in possession of any of Borrower’s Inventory or
Equipment; (iii) Schedule 4.5 hereto sets forth a correct and
complete list as of the Closing Date of (A) each place of business of
Borrower and (B) the chief executive office of Borrower; and (iv) Schedule 4.5
hereto sets forth a correct and complete list as of the Closing Date of the
location, by state and street address, of all Real Property owned or leased by
Borrower, identifying which properties are owned and which are leased, together
with the names and addresses of any landlords.

 

4.6.         Defense of Agent’s and Lenders’
Interests.

 

Until (a) payment
and performance in full of all of the Obligations and (b) termination of
this Agreement, Agent’s interests in the Collateral shall continue in full
force and effect.  During such period
Borrower shall not, without Agent’s prior written consent, pledge, sell (except
Inventory in the Ordinary Course of Business and Equipment to the extent
permitted in Section 4.3 hereof), assign, transfer, create or suffer to
exist a Lien upon or encumber or allow or suffer to be encumbered in any way
except for Permitted Encumbrances, any part of the Collateral.  Borrower shall defend Agent’s interests in
the Collateral against any and all Persons whatsoever.  At any time following demand by Agent for
payment of all Obligations, after the occurrence of an Event of Default and
provided Agent elects to exercise its remedies hereunder, Agent shall have the
right to take possession of the indicia of the Collateral and the Collateral in
whatever physical form contained, including: 
labels, stationery, documents, instruments and advertising
materials.  If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place
reasonably convenient to Agent.  In
addition, with respect to all Collateral, Agent and 

 

52

 

Lenders shall be entitled
to all of the rights and remedies set forth herein and further provided by the
Uniform Commercial Code or other Applicable Law.  Borrower shall, and Agent may, at its option,
instruct all suppliers, carriers, forwarders, warehousers or others receiving
or holding cash, checks, Inventory, documents or instruments in which Agent
holds a security interest to deliver same to Agent and/or subject to Agent’s
order and if they shall come into Borrower’s possession, they, and each of
them, shall be held by Borrower in trust as Agent’s trustee, and Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.

 

4.7.         Books and Records.

 

Borrower shall (a) keep
proper books of record and account in which full, true and correct entries will
be made of all dealings or transactions of or in relation to its business and
affairs which books and records shall be kept at Borrower’s principal place of
business; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current
basis set up on its books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper accruals (including
by reason of enumeration, accruals for premiums, if any, due on required
payments and accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in connection with
its business.  All determinations
pursuant to this subsection shall be made in accordance with, or as
required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.

 

4.8.         Financial Disclosure.

 

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

 

4.9.         Compliance with Laws.

 

Borrower shall comply in
all material respects with all Applicable Laws with respect to the Collateral
or any part thereof or to the operation of Borrower’s business the non-compliance
with which could reasonably be expected to have a Material Adverse Effect.  The Collateral assets of Borrower at all
times shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the Collateral assets of
Borrower so that such insurance shall remain in full force and effect.

 

53

 

4.10.       Inspection of Premises; Appraisals.

 

At all reasonable times
and upon reasonable notice to Borrower in the absence of an Event of Default,
Agent and each Lender shall have full access to and the right to audit, check,
inspect and make abstracts and copies from Borrower’s books, records, audits,
correspondence and all other papers relating to the Collateral and the
operation of Borrower’s business.  Agent,
any Lender and their agents may enter upon any of Borrower’s premises at any
time during business hours and at any other reasonable time and upon reasonable
notice to Borrower in the absence of an Event of Default, and from time to
time, for the purpose of inspecting the Collateral and any and all records
pertaining thereto and the operation of Borrower’s business and discussing the
affairs, finances and business of Borrower with any officers and directors of
Borrower or with the Accountants.  At the
sole cost of Borrower, Agent will conduct no more than four field examinations
per year in the absence of a Default and no more than one Appraisal of
Inventory and one Appraisal of Machinery and Equipment but reserves the right,
in its Permitted Discretion, to conduct additional Appraisals at Borrower’s
expense upon reasonable notice to Borrower.

 

4.11.       Insurance.

 

The assets and properties
of Borrower at all times shall be maintained in accordance with the
requirements of all insurance carriers which provide insurance with respect to
the assets and properties of Borrower so that such insurance shall remain in
full force and effect.  Borrower shall
bear the full risk of any loss of any nature whatsoever with respect to the
Collateral.  At Borrower’s own cost and
expense in amounts and with carriers acceptable to Agent, Borrower shall (a) keep
all its insurable properties and properties in which Borrower has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to Borrower’s including business interruption insurance; (b) if required
by Agent and only if customary for companies engaged in businesses similar to
Borrower, maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to Borrower insuring against larceny,
embezzlement or other criminal misappropriation of insured’s officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of Borrower either directly or through authority to draw
upon such funds or to direct generally the disposition of such assets; (c) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (d) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which Borrower is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of
such policies by the renewal thereof at least thirty (30) days before any
expiration date, and (ii) appropriate loss payable endorsements in form
and substance satisfactory to Agent, naming Agent as a loss payee as its
interests may appear with respect to all insurance coverage referred to in
clauses (a) and (c) above, and providing (A) that all proceeds
thereunder shall be payable to Agent, (B) no such insurance shall be
affected by any act or neglect of the insured or owner of the property described
in such policy, and (C) that such policy and loss payable clauses may not
be cancelled, amended or terminated unless at least thirty (30) days’ prior
written notice is given to Agent.  In the
event of any loss thereunder, the carriers 

 

54

 

named therein hereby are
directed by Agent and Borrower to make payment for such loss to Agent and not
to Borrower and Agent jointly.  If any
insurance losses are paid by check, draft or other instrument payable to
Borrower and Agent jointly, Agent may endorse Borrower’s name thereon and do
such other things as Agent may deem advisable to reduce the same to cash.  If any payment for such loss is made to
Borrower and not Agent, Borrower shall turn over such payment to Agent.  Agent is hereby authorized to adjust and
compromise claims under insurance coverage referred to in clauses (a) and (b) above.  All loss recoveries received by Agent upon
any such insurance may be applied to the Obligations, in such order as Agent in
its sole discretion shall determine.  Any
surplus shall be paid by Agent to Borrower or applied as may be otherwise
required by law.  Any deficiency thereon
shall be paid by Borrower to Agent, on demand.

 

4.12.       Failure to Pay Insurance.

 

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

 

4.13.       Payment of Taxes.

 

Subject to those Charges
Properly Contested, Borrower will pay, when due, all taxes, assessments and
other Charges lawfully levied or assessed upon Borrower or any of the
Collateral including real and personal property taxes, assessments and charges
and all franchise, income, employment, social security benefits, withholding,
and sales taxes.  If any tax by any
Governmental Body is or may be imposed on or as a result of any transaction
between Borrower and Agent or any Lender which Agent or any Lender may be
required to withhold or pay or if any taxes, assessments, or other Charges
remain unpaid after the date fixed for their payment, or if any claim shall be made
which, in Agent’s or any Lender’s opinion, may possibly create a valid Lien on
the Collateral, Agent may without notice to Borrower pay the taxes, assessments
or other Charges and Borrower hereby indemnifies and holds Agent and each
Lender harmless in respect thereof. 
Agent will endeavor to give Borrower prompt notice of the payment of
such items.  The amount of any payment by
Agent under this Section 4.13 shall be charged to Borrower’s Account as a
Revolving Advance maintained as a Domestic Rate Loan and added to the
Obligations and, until Borrower shall furnish Agent with an indemnity therefor
(or supply Agent with evidence satisfactory to Agent that due provision for the
payment thereof has been made or same is being Properly Contested), Agent may hold
without interest any balance standing to Borrower’s credit and Agent shall
retain its security interest in and Lien on any and all Collateral held by
Agent.

 

4.14.       Payment of Leasehold Obligations.

 

Borrower shall at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant, and shall otherwise comply, in all material respects, with all
other terms of such leases and keep them in full force and effect unless the
failure to comply would not 

 

55

 

be expected to have a
Material Adverse Effect and, at Agent’s request will provide evidence of having
done so.

 

4.15.       Receivables.

 

(a)           Nature
of Receivables.

 

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

 

(b)           Solvency
of Customers.

 

Each Customer, to the
best of Borrower’s actual knowledge, with respect to the P&F contributed
assets and based solely on the representations of Seller contained in the
Acquisition Agreement with respect to Seller assets, as of the date each
Receivable is created, is and will be solvent and able to pay all Receivables on
which the Customer is obligated in full when due or with respect to such
Customers of Borrower who are not solvent Borrower has set up on its books and
in its financial records bad debt reserves adequate to cover such Receivables.

 

(c)           Location
of Borrower.

 

Borrower’s chief
executive office is located at the address set forth on Schedule 4.5.  Until written notice is given to Agent by
Borrower of any other office at which Borrower keeps its records pertaining to
Receivables, all such records shall be kept at such executive office.

 

(d)           Collection
of Receivables.

 

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

 

(e)           Notification
of Assignment of Receivables.

 

At any time following the
occurrence of an Event of Default and provided Agent elects to exercise its
remedies hereunder, Agent shall have the right to send notice of the assignment
of, 

 

56

 

and Agent’s security
interest in and Lien on, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral.  Thereafter, Agent shall have the sole right
to collect the Receivables, take possession of the Collateral, or both.  Agent’s actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrower’s Account and added to the
Obligations.

 

(f)            Power
of Agent to Act on Borrower’s Behalf.

 

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

 

(g)           No
Liability.

 

Neither Agent nor any
Lender shall, under any circumstances or in any event whatsoever, have any
liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Receivables or any instrument
received in payment thereof, or for any damage resulting therefrom except those
specified in Section 4.15(f) hereof. 
Following the occurrence of an Event of Default Agent may, without
notice or consent from 

 

57

 

Borrower, sue upon or
otherwise collect, extend the time of payment of, compromise or settle for
cash, credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof.  Agent is authorized and empowered to accept
following the occurrence of an Event of Default the return of the goods
represented by any of the Receivables, without notice to or consent by
Borrower, all without discharging or in any way affecting Borrower’s liability
hereunder.

 

(h)           Establishment
of a Cash Management System.

 

All proceeds of
Collateral shall be deposited by Borrower into either (i) a lockbox
account, dominion account or such other “blocked account” (“Blocked Accounts”)
established at a bank or banks (each such bank, a “Blocked Account Bank”)
pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrower and be reasonably acceptable to Agent or (ii) depository accounts
(“Depository Accounts”) established at the Agent for the deposit of such
proceeds.  Borrower, Agent and each
Blocked Account Bank shall enter into a deposit account control agreement in
form and substance reasonably satisfactory to Agent directing such Blocked
Account Bank to transfer such funds so deposited to Agent, either to any
account maintained by Agent at said Blocked Account Bank or by wire transfer to
appropriate account(s) of Agent. 
All funds deposited in such Blocked Accounts shall immediately become
the property of Agent and Borrower shall obtain the agreement by such Blocked
Account Bank to waive any offset rights against the funds so deposited.  Neither Agent nor any Lender assumes any
responsibility for such blocked account arrangement, including any claim of
accord and satisfaction or release with respect to deposits accepted by any
Blocked Account Bank thereunder.  All
deposit accounts and investment accounts of Borrower and its Subsidiaries are
set forth on Schedule 4.15(h).

 

(i)            Adjustments.

 

Borrower will not,
without Agent’s consent, compromise or adjust any material amount of the
Receivables (or extend the time for payment thereof) or accept any material
returns of merchandise or grant any additional discounts, allowances or credits
thereon except for those compromises, adjustments, returns, discounts, credits
and allowances in the Ordinary Course of Business.

 

4.16.       Inventory.

 

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

 

4.17.       Maintenance of Equipment.

 

The Equipment shall be
maintained in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto shall be made
so that the value and operating efficiency of the Equipment shall be maintained
and preserved.  Borrower shall not use or
operate the Equipment in violation of any law, statute, ordinance, code, 

 

58

 

rule or
regulation.  Borrower shall have the
right to sell Equipment to the extent set forth in Section 4.3 hereof.

 

4.18.       Exculpation of Liability.

 

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

 

4.19.       Environmental Matters.

 

(a)           Borrower shall
ensure that the Real Property owned or leased by Borrower remains in compliance
in all material respects with all Environmental Laws and they shall not place
or permit to be placed any Hazardous Substances on any Real Property except as
permitted by Applicable Law or appropriate governmental authorities or except
where such non-compliance would not result in a Material Adverse Effect.

 

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

 

(c)           Borrower shall (i) employ
in connection with the use of the Real Property appropriate technology
necessary to maintain compliance in all material respects with any applicable
Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property in accordance with Environmental Laws in all
material respects.  Borrower shall use
its reasonable efforts to obtain certificates of disposal, such as hazardous
waste manifest receipts, from all treatment, transport, storage or disposal facilities
or operators employed by Borrower in connection with the transport or disposal
of any Hazardous Waste generated at the Real Property.

 

(d)           In the event
Borrower obtains, gives or receives notice of any Release or threat of Release
of a reportable quantity of any Hazardous Substances at the Real Property (any
such event being hereinafter referred to as a “Hazardous Discharge”) or
receives any notice of violation, request for information or notification that
it is potentially responsible for investigation or cleanup of environmental
conditions at the Real Property, demand letter or complaint, order or citation
with regard to any Hazardous Discharge or violation of Environmental Laws
affecting the Real Property or Borrower’s interest therein (any of the
foregoing is referred to herein as an “Environmental Complaint”) from
any Person, including any state agency responsible in whole or in part for
environmental matters in the state in which the Real Property is located or the
United States Environmental Protection Agency (any such person or entity
hereinafter the “Authority”), then Borrower shall promptly give written
notice of same to Agent detailing facts 

 

59

 

and circumstances of
which Borrower is aware giving rise to the Hazardous Discharge or Environmental
Complaint.  Such information is to be
provided to allow Agent to protect its security interest in and Lien on the
Real Property and the Collateral and is not intended to create nor shall it
create any obligation upon Agent or any Lender with respect thereto.

 

(e)           Borrower shall
promptly forward to Agent copies of any request for information, notification
of potential liability, demand letter relating to potential responsibility with
respect to the investigation or cleanup of Hazardous Substances at any other
site owned, operated or used by Borrower to dispose of Hazardous Substances and
shall continue to forward copies of correspondence between Borrower and the
Authority regarding such claims to Agent until the claim is settled.  Borrower shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at the
Real Property that Borrower is required to file under any Environmental Laws.  Such information is to be provided solely to
allow Agent to protect Agent’s security interest in and Lien on the Real
Property and the Collateral.

 

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

 

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

 

60

 

(h)           Borrower shall
defend and indemnify Agent and Lenders and hold Agent, Lenders and their
respective employees, agents, directors and officers harmless from and against
all loss, liability, damage and expense, claims, costs, fines and penalties,
including reasonable attorney’s fees, suffered or incurred by Agent or Lenders
under or on account of any Environmental Laws, including the assertion of any
Lien thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
realized as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender.  Borrower’s obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of
any Hazardous Substances.  Borrower’s
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.

 

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

 

4.20.       Financing Statements.

 

Except as respects the
financing statements filed by Agent and the financing statements described on
Schedule 1.2, no financing statement covering any of the Collateral or any
proceeds thereof is on file in any public office except for financing
statements related to Permitted Encumbrances.

 

ARTICLE V

 

REPRESENTATIONS
AND WARRANTIES

 

Borrower
represents and warrants as follows:

 

5.1.         Authority.

 

Borrower has full power,
authority and legal right to enter into this Agreement and the Other Documents
and to perform all its respective Obligations hereunder and thereunder.  This Agreement, the Subordination Agreements
and the Other Documents have been duly executed and delivered by Borrower, and
this Agreement, the Subordination Agreements and the Other Documents constitute
the legal, valid and binding obligation of Borrower enforceable in accordance
with their terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, moratorium, or similar laws affecting creditors’
rights generally and general principles of equity.  The execution, delivery and performance of
this Agreement and of the Other Documents (a) are within Borrower’s
limited liability company powers, have been duly authorized by all necessary
company action, are not in contravention of law or the terms of Borrower’s
operating agreement, certificate of formation or other applicable documents
relating 

 

61

 

to Borrower’s formation
or to the conduct of Borrower’s business or of any material agreement or
undertaking to which Borrower is a party or by which Borrower is bound,
including the Acquisition Agreement or the Subordinated Loan Documentation, (b) to
the best of Borrower’s knowledge after due diligence, will not conflict with or
violate any law or regulation, or any judgment, order or decree of any
Governmental Body, (c) will not require the Consent of any Governmental
Body or any other Person, except those Consents set forth on Schedule 5.1
hereto, all of which will have been duly obtained, made or compiled prior to
the Closing Date and which are in full force and effect and (d) to the
best of Borrower’s knowledge after due diligence, will not conflict with, nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any
asset of Borrower under (i) the provisions of any charter document,
operating agreement to which Borrower is a party or by which it or its property
is a party or by which it may be bound, including under the provisions of the
Subordinated Loan Documentation or the Acquisition Agreement or (ii) the
provisions of any agreement, instrument or other instruments to which Borrower
is a party or by which it or its property is a party or by which it may be
bound provided such conflict or breach would have a Material Adverse Effect.

 

5.2.         Formation and Qualification.

 

(a)           Borrower is duly
formed and in good standing under the laws of the state indicated on Schedule 5.2(a) and
is qualified to do business and is in good standing in the states indicated on
Schedule 5.2(a) which constitute all states in which qualification
and good standing are necessary for Borrower to conduct its business and own
its property and where the failure to so qualify could reasonably be expected
to have a Material Adverse Effect. 
Borrower has delivered to Agent true and complete copies of its
certificate of formation and operating agreement and will promptly notify Agent
of any amendment or changes thereto.

 

(b)           As of the Closing
Date, the only Subsidiaries of Borrower are listed on Schedule 5.2(b).  As of the Closing Date, the Persons
identified on Schedule 5.2(b) are the record and beneficial
owners of all of the shares of Capital Stock of each of the Persons listed on Schedule 5.2(b) as
being owned by thereby, there are no proxies, irrevocable or otherwise, with
respect to such shares, and no equity securities of any of such Persons are or
may become required to be issued by reason of any options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any Capital Stock of any such Person (except as set forth under the Subordinated
Loan Documentation), and there are no contracts, commitments, understandings or
arrangements by which any such Person is or may become bound to issue
additional shares of its Capital Stock or securities convertible into or
exchangeable for such shares.  All of the
shares owned by Borrower are owned free and clear of any Liens other than
Permitted Encumbrances.

 

5.3.         Survival of Representations and
Warranties.

 

All representations and
warranties of Borrower contained in this Agreement and the Other Documents
shall be true at the time of Borrower’s execution of this Agreement and the
Other Documents, and shall survive in all material respects the execution,
delivery and 

 

62

 

acceptance thereof by the
parties thereto and the closing of the transactions described therein or
related thereto (except to the extent such representations and warranties
relate to an earlier date).

 

5.4.         Tax Returns.

 

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

 

5.5.         Financial Statements.

 

(a)           The pro forma
balance sheet of Borrower (the “Pro Forma Balance Sheet”) furnished to
Agent on the Closing Date reflects the consummation of the transactions
contemplated by the Acquisition Agreement, the Subordinated Loan Documentation
and under this Agreement (collectively, the “Transactions”) and is
accurate, complete and correct and fairly reflects, in all material respects,
the financial condition of Borrower as of the Closing Date after giving effect
to the Transactions, and has been prepared in accordance with GAAP,
consistently applied.  The Pro Forma
Balance Sheet has been certified as accurate, complete and correct in all
material respects by the President, Chief Financial Officer or Chief Executive
Officer of Borrower.  All financial
statements referred to in this subsection 5.5(a), including the related
schedules and notes thereto, have been prepared, in accordance with GAAP,
except as may be disclosed in such financial statements.

 

(b)           The four quarters
cash flow projections of Borrower and its projected balance sheets as of the
Closing Date (and income statements), and the twelve month cash flow
projections of Borrower and its projected balance sheet after the Closing Date
and delivered after the Closing Date (and income statements), copies of the
four quarter cash flow projections are annexed hereto as Exhibit 5.5(b) (the
“Projections”) were prepared by the President, Chief Financial Officer
or Chief Executive Officer of Borrower, are based on underlying assumptions
which provide a reasonable basis for the projections contained therein and
reflect Borrower’s judgment based on present circumstances of the most likely
set of conditions and course of action for the projected period.  The cash flow Projections together with the
Pro Forma Balance Sheet, are referred to as the “Pro Forma Financial
Statements”.

 

(c)           The combined and
consolidating balance sheets of Borrower and such other Persons prepared by
Price Waterhouse Coopers in the Quality of Earnings Report dated December 31,
2008, and the related statements of income, changes in stockholder’s equity,
and changes in cash flow for the period ended on such date, all accompanied by
reports thereon containing opinions without qualification by independent
certified public accountants, copies of which have been delivered to Agent,
have been prepared in accordance with GAAP, consistently applied (except for
changes in application in which such accountants concur) and present fairly the
financial position of Borrower at such date and the results of their operations
for such period.  

 

63

 

Since December 31,
2008 there has been no material change in the condition, financial or
otherwise, of Borrower as shown on the consolidated balance sheet as of such
date and no material change in the aggregate value of machinery, equipment and
Real Property owned by Borrower, except changes in the Ordinary Course of
Business

 

5.6.         Entity Name and Locations.

 

Borrower has not been
known by any other corporate name in the past five years and does not sell
Inventory under any other name except as set forth on Schedule 5.6, nor
has Borrower been the surviving company of a merger or consolidation or
acquired all or substantially all of the assets of any Person during the
preceding five (5) years.

 

5.7.         O.S.H.A. and Environmental
Compliance.

 

(a)           Except as set
forth on Schedule 5.7, (i) Borrower has duly complied within all
material respects, and its facilities, business, assets, property, leaseholds,
Real Property and Equipment are in compliance in all material respects with,
the provisions of the Federal Occupational Safety and Health Act, RCRA and all
other Environmental Laws; and (ii) there have been no outstanding
citations, notices or orders of non-compliance issued to Borrower or relating
to its business, assets, property, leaseholds or Equipment under any such laws,
rules or regulations, except where such non-compliance is not reasonably
likely to have a Material Adverse Effect.

 

(b)           Borrower has been
issued all required federal, state and local licenses, certificates or permits
relating to all applicable Environmental Laws, except where such failure to
issue would not have a Material Adverse Effect.

 

(c)           Except as set
forth on Schedule 5.7 and except for matters not reasonably expected to
have a Material Adverse Effect, (i) there are no visible signs of
releases, spills, discharges, leaks or disposal (collectively referred to as “Releases”)
of Hazardous Substances at, upon, under or within any Real Property or any
premises leased by Borrower; (ii) there are no underground storage tanks
or polychlorinated biphenyls on the Real Property or any premises leased by
Borrower; (iii) neither the Real Property nor any premises leased by
Borrower has  ever been used as a
treatment, storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on the Real Property or any premises leased by
Borrower, excepting such quantities as are handled in accordance with all
applicable manufacturer’s instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of Borrower or of its tenants.

 

Sections 4.19 and
5.7 contain the sole representations or warranties of Borrower pertaining to
Hazardous Substances, Hazardous Discharges, Hazardous Wastes, Releases,
Environmental Laws, Environmental Complaints, Toxic Substances, or any other
environmental, health, or safety matter associated with Borrower.

 

64

 

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

 

(a)           After giving
effect to the Transactions, Borrower will be solvent, able to pay its debts as
they mature, will have capital sufficient to carry on its business and all
businesses in which it is about to engage, and (i) as of the Closing Date,
the fair present saleable value of its assets, calculated on a going concern
basis, is in excess of the amount of its liabilities and (ii) subsequent
to the Closing Date, the fair saleable value of its assets (calculated on a
going concern basis) will be in excess of the amount of its liabilities.

 

(b)           Except as
disclosed in Schedule 5.8(b), Borrower has no (i) pending or, to the
best of its knowledge, threatened litigation, arbitration, actions or proceedings
which involve the possibility of having a Material Adverse Effect, and (ii) liabilities
or indebtedness for borrowed money other than the Obligations (or as otherwise
permitted under this Agreement).

 

(c)           Borrower is not
in violation of any applicable statute, law, rule, regulation or ordinance in
any respect which could reasonably be expected to have a Material Adverse
Effect, nor is Borrower in violation of any order of any court, Governmental
Body or arbitration board or tribunal.

 

(d)           Neither Borrower
nor any member of the Controlled Group maintains or contributes to any Plan
other than those listed on Schedule 5.8(d) hereto.  (i) No Plan has incurred any “accumulated
funding deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a) of
the Code, whether or not waived, and Borrower and each member of the Controlled
Group has met all applicable minimum funding requirements under Section 302
of ERISA in respect of each Plan; (ii) each Plan which is intended to be a
qualified plan under Section 401(a) of the Code as currently in
effect has been determined by the Internal Revenue Service to be qualified
under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code; (iii) neither
Borrower nor any member of the Controlled Group has incurred any liability to
the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid; (iv) no Plan has been
terminated by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV
of ERISA to terminate any Plan; (v) at this time, the current value of the
assets of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities; (vi) neither
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan; (vii) neither Borrower nor any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or
4980B of the Code, and no fact exists which could give rise to any such
liability; (viii) neither Borrower nor any member of the Controlled Group
nor any fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited
transaction” described in Section 406 of the ERISA or Section 4975 of
the Code nor taken any action which would constitute or result in a Termination
Event with respect to any such Plan which is subject to ERISA; (ix) Borrower
and each member of the Controlled Group has made all contributions due and
payable with respect to each Plan; (x) there exists no event described in Section 4043(b) of

 

65

 

ERISA, for which the
thirty (30) day notice period has not been waived; (xi) neither Borrower nor
any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of Borrower and any member of the Controlled
Group; (xii) neither Borrower nor any member of the Controlled Group maintains
or contributes to any Plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code; (xiii) neither Borrower nor any
member of the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980 and there exists no fact which would reasonably be
expected to result in any such liability; and (xiv) no Plan fiduciary (as
defined in Section 3(21) of ERISA) has any liability for breach of
fiduciary duty or for any failure in connection with the administration or
investment of the assets of a Plan.

 

5.9.         Patents, Trademarks, Copyrights and
Licenses.

 

All patents, patent
applications, registered trademarks, trademark applications, registered service
marks, service mark applications, registered copyrights, registered copyright
applications, design patents and applications thereto, tradenames and assumed
names, filed with any Governmental Body and licenses owned or utilized by
Borrower and reasonably necessary for the operation of Borrower are set forth
on Schedule 5.9, to the knowledge of Borrower, after due inquiry, are
valid and have been duly registered or filed with all appropriate Governmental
Bodies and constitute all of the intellectual property rights which are
necessary for the operation of its business; there is no known objection to or
pending challenge to the validity of any such patent, registered trademark,
registered copyright, design rights, registered tradename or license and
Borrower is not aware of any grounds for any challenge, except as set forth in
Schedule 5.9 hereto.  Each patent,
patent application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license, design
rights, copyright, copyright application and copyright license owned or held by
Borrower and all trade secrets used by Borrower consist of original material or
property developed by Borrower or was lawfully acquired by Borrower from the
proper and lawful owner thereof.  Each of
such items has been maintained so as to preserve the value thereof from the
date of creation or acquisition thereof. 
Other than software that is commercially available and not customized
for Borrower, Borrower is either in possession of all source and object codes
related to each piece of software or is the beneficiary of a source code escrow
agreement, with respect to all software used by Borrower that is material in
the operation of its business.  Each such
source code escrow agreement being listed on Schedule 5.9 hereto.

 

5.10.       Licenses and Permits.

 

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

 

66

 

5.11.       Default of Indebtedness.

 

Borrower is not in
default in the payment of the principal of or interest on any material
Indebtedness or under any instrument or agreement under or subject to which any
material Indebtedness has been issued and no event has occurred under the
provisions of any such instrument or agreement which with or without the lapse
of time or the giving of notice, or both, constitutes or would constitute an
event of default thereunder that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Borrower.

 

5.12.       No Default.

 

Borrower is not in
default in the payment or performance of any of its material contractual
obligations and no Default has occurred that could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Borrower.

 

5.13.       No Burdensome Restrictions.

 

Borrower is not party to
any contract or agreement the performance of which could have a Material
Adverse Effect on Borrower (other than Material Contracts).  Borrower has heretofore delivered to Agent
true and complete copies of all Material Contracts.  Borrower has not agreed or consented to cause
or permit in the future (upon the happening of a contingency or otherwise) any
of its property, whether now owned or hereafter acquired, to be subject to a
Lien which is not a Permitted Encumbrance.

 

5.14.       No Labor Disputes.

 

Borrower is not involved
in any labor dispute; there are no strikes or walkouts or union organization of
Borrower’s employees, to the best of Borrower’s knowledge after due diligence,
threatened or in existence and no labor contract is scheduled to expire during
the Term other than as set forth on Schedule 5.14 hereto.

 

5.15.       Margin Regulations.

 

Borrower is not engaged,
nor will it engage, principally or as one of its important activities, in the
business of extending credit for the purpose of “purchasing” or “carrying” any “margin
stock” within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. 
No part of the proceeds of any Advance will be used for “purchasing” or “carrying”
“margin stock” as defined in Regulation U of such Board of Governors.

 

5.16.       Investment Company Act.

 

Borrower is not an “investment
company” registered or required to be registered under the Investment Company
Act of 1940, as amended, nor is it controlled by such a company.

 

67

 

5.17.       Disclosure.

 

No representation or
warranty made by Borrower in this Agreement, the Subordinated Loan
Documentation or in the Acquisition Agreement, or in any financial statement,
report, certificate or any other document furnished in connection herewith or
therewith contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements herein or therein not
misleading.  There is no fact known to
Borrower or which reasonably should be known to Borrower which Borrower has not
disclosed to Agent in writing with respect to the transactions contemplated by
the Acquisition Agreement, the Subordinated Loan Documentation or this
Agreement which could reasonably be expected to have a Material Adverse Effect.

 

5.18.       Delivery of Acquisition Agreement and
Subordinated Loan Documentation.

 

Agent has received
complete copies of the Acquisition Agreement and the Subordinated Loan
Documentation (including all exhibits, schedules and disclosure letters
referred to therein or delivered pursuant thereto, if any) and all amendments
thereto, waivers relating thereto and other side letters or agreements
affecting the terms thereof.  None of
such documents and agreements has been amended or supplemented, nor have any of
the provisions thereof been waived, except pursuant to a written agreement or
instrument which has heretofore been delivered to Agent.

 

5.19.       Swaps.

 

Borrower is not a party
to, nor will it be a party to, any swap agreement whereby Borrower has agreed
or will agree to swap interest rates or currencies unless same provides that
damages upon termination following an event of default thereunder are payable
on an unlimited “two-way basis” without regard to fault on the part of either
party.

 

5.20.       Conflicting Agreements.

 

No provision of any
material mortgage, indenture, contract, agreement, judgment, decree or order
binding on Borrower or affecting the Collateral conflicts with, or requires any
Consent which has not already been obtained to, or would in any way prevent the
execution, delivery or performance of, the terms of this Agreement or the Other
Documents, except to the extent such failure would not result in a Material
Adverse Effect.

 

5.21.       Application of Certain Laws and
Regulations.

 

Neither Borrower nor any
of its Subsidiaries is a “holding company” or a “subsidiary company” of a “holding
company” or an “affiliate” of a “holding company” or of a “subsidiary company”
of a “holding company” within the meaning of the Public Utility Holding Company
Act of 1935, as amended.

 

68

 

5.22.       Business and Property of Borrower.

 

Borrower did not engage
in any business prior to the Closing Date, except organizational matters in
connection with the Acquisition Agreement.

 

5.23.       [Reserved.]

 

5.24.       Anti-Terrorism Laws.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Neither Borrower or to
the knowledge of Borrower, any of its agents acting in any capacity in
connection with the Advances or other transactions hereunder (i) conducts
any business or engages in making or receiving any contribution of funds, goods
or services to or for the benefit of any Blocked Person, or (ii) deals in,
or otherwise engages in any transaction relating to, any property or interests
in property blocked pursuant to the Executive Order No. 13224.

 

69

 

5.25.       Trading with the Enemy.

 

Borrower has not engaged,
nor does it intend to engage, in any business or activity prohibited by the
Trading with the Enemy Act.

 

5.26.       Federal Securities Laws.

 

Neither Borrower nor any
of its Subsidiaries (i) is required to file periodic reports under the
Exchange Act, (ii) has any securities registered under the Exchange Act or
(iii) has filed a registration statement that has not yet become effective
under the Securities Act.

 

5.27.       Commercial Tort Claims.

 

Borrower does not have
any known material commercial tort claims as of the Closing Date.

 

5.28.       Partnership and Limited Liability
Company Interests.

 

Except as previously
disclosed in writing to Agent, none of the Subsidiary Stock consisting of
partnership or limited liability company interests (i) is dealt in or
traded on a securities exchange or in a securities market, (ii) by its
terms expressly provides that it is a security governed by Article 8 of
the Uniform Commercial Code, (iii) is an investment company security, (iv) is
held in a securities account or (v) constitutes a “security” or a “financial
asset” as such terms are defined in Article 8 of the Uniform Commercial
Code.

 

5.29.       Material
Contracts.

 

Set forth on Schedule 5.29,
as updated from time to time, is a complete and accurate list of all Material
Contracts of Borrower and its Subsidiaries. 
All of the Material Contracts are in full force and effect, and no
material defaults currently exist thereunder.

 

ARTICLE VI

 

AFFIRMATIVE
COVENANTS

 

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

 

6.1.         Payment of Fees.

 

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

 

70

 

6.2.         Conduct of Business and Maintenance
of Existence and Assets.

 

(a)           Conduct
continuously and operate actively its business according to good business
practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks and necessary for the operation of
Borrower and take all actions reasonably necessary to enforce and protect the
validity of any intellectual property right or other right included in the
Collateral; (b) keep in full force and effect its existence and comply in
all material respects with the laws and regulations governing the conduct of
its business where the failure to do so could reasonably be expected to have a
Material Adverse Effect; and (c) make all such reports and pay all such
franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof where the failure to do so could reasonably be expected to
have a Material Adverse Effect.

 

6.3.         Violations.

 

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

 

6.4.         Government Receivables.

 

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

 

6.5.         Financial
Covenants.

 

(a)           Fixed
Charge Coverage Ratio.

 

Cause to be maintained a
Fixed Charge Coverage Ratio of not less than 1.15 to 1.0 for (i) the one
quarter period ending as of September 30, 2009; (ii) the two quarter
period ending as of December 31, 2009; (iii) the three quarter period
ending as of March 31, 2010; and (iv) the four quarter period ending
as of June 30, 2010 and for each fiscal quarter thereafter.

 

71

 

(b)           Minimum EBITDA.

 

Cause to be maintained an
EBITDA of at least (i) $50,000 as of July 31, 2009; (ii) $92,000
as of August 31, 2009; (iii) $175,000 as of September 30, 2009; (iv) $237,000
as of October 31, 2009; and (v) $171,000 as of November 30,
2009.

 

6.6.         Execution of Supplemental
Instruments.

 

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

 

6.7.         Payment of Indebtedness.

 

Pay, discharge or
otherwise satisfy at or before maturity (subject, where applicable, to
specified grace periods and, in the case of the trade payables, to normal
payment practices) all its obligations and liabilities of whatever nature,
except when the failure to do so could not reasonably be expected to have a
Material Adverse Effect or when the amount or validity thereof is currently
being Properly Contested.

 

6.8.         Standards of Financial Statements.

 

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

 

6.9.         Federal Securities Laws.

 

Promptly notify Agent in
writing if Borrower or any of its Subsidiaries (i) is required to file
periodic reports under the Exchange Act, (ii) registers any securities
under the Exchange Act or (iii) files a registration statement under the
Securities Act.

 

6.10.       Exercise of Rights.

 

Enforce all of its rights
under the Acquisition Agreement and the Indemnification Agreement executed in
connection therewith including, but not limited to, all indemnification rights
and pursue all remedies available to it with diligence and in good faith in
connection with the enforcement of any such rights.

 

72

 

6.11.       Real
Property.

 

If Borrower shall acquire
at any time or times hereafter any fee simple interest in real property with a
value in excess of $250,000, then within
ninety (90) days of the acquisition thereof Borrower shall execute and deliver
to Agent, as additional security and Collateral for the Obligations, deeds of
trust, security deeds, mortgages or other collateral assignments reasonably
satisfactory in form and substance to Agent and its counsel (herein
collectively referred to as “New Mortgages”) covering such real
property.  The New Mortgages shall be
duly recorded (at Borrower’s expense) in each office where such recording is
required to constitute a valid lien on the real property covered thereby.  In respect of any New Mortgage, Borrower
shall deliver to Agent, at Borrower’s expense, mortgagee title insurance
policies issued by a title insurance company reasonably satisfactory to Agent,
which policies shall be in form and substance reasonably satisfactory to Agent
and shall insure a valid lien in favor of Agent on the property covered
thereby, subject only to Permitted Encumbrances and those other exceptions reasonably
acceptable to Agent and its counsel. 
Borrower shall also deliver to Agent such other usual and customary
documents, including, without limitation, ALTA surveys of the real property
described in the New Mortgages, as Agent and its counsel may reasonably request
relating to the real property subject to the New Mortgages.

 

6.12.       Opening Balance Sheet.

 

Within ninety (90) days
of the Closing Date Borrower shall deliver to Agent an opening balance sheet
for Borrower from J.H. Cohn LLP.

 

ARTICLE VII

 

NEGATIVE COVENANTS

 

Borrower shall not, until
satisfaction in full of the Obligations and termination of this Agreement:

 

7.1          Merger, Consolidation, Acquisition
and Sale of Assets.

 

(a)           Enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a substantial portion of the assets or Equity Interests of any
Person or permit any other Person to consolidate with or merge with it.

 

(b)           Sell, lease,
transfer or otherwise dispose of any of its properties or assets, except (i) dispositions
of Inventory, Equipment and/or other assets to the extent expressly permitted
by Section 4.3 and (ii) any other sales or dispositions expressly
permitted by this Agreement.

 

7.2.         Creation of Liens.

 

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

 

73

 

7.3.         Guarantees.

 

Become liable upon the
obligations or liabilities of any Person by assumption, endorsement or guaranty
thereof or otherwise (other than to Lenders) except (a) guarantees made in
the Ordinary Course of Business up to an aggregate amount of $100,000, and (b) the
endorsement of checks in the Ordinary Course of Business.

 

7.4          Investments.

 

Purchase or acquire
obligations or Equity Interests of, or any other interest in, any Person, or
make other investments except (a) obligations issued or guaranteed by the
United States of America or any agency thereof, (b) commercial paper with
maturities of not more than one hundred eighty (180) days and a published
rating of not less than A-1 or P-1 (or the equivalent rating), (c) certificates
of time deposit and bankers’ acceptances having maturities of not more than one
hundred eighty (180) days and repurchase agreements backed by United States
government securities of a commercial bank if (i) such bank has a combined
capital and surplus of at least $500,000,000, or (ii) its debt
obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency, (d) U.S. money market funds that invest solely
in obligations issued or guaranteed by the United States of America or an
agency thereof, (e) investments in respect of Interest Rate Hedges, (f) extensions
of trade credit in the Ordinary Course of Business, (g) loan and advances
to officers, directors and employees made in compliance with Section 7.5, (h) investments
existing on the Closing Date and set forth on Schedule 7.4; (i) investments
in the form of promissory notes in connection with sales permitted under Section 7.1;
and (j) investments in connection with the bankruptcy or reorganization of
settlement of delinquent accounts and disputes with customers and suppliers.

 

7.5.         Loans.

 

Make advances, loans or
extensions of credit to any Person, including any Parent, Subsidiary or
Affiliate except with respect to (a) the extension of commercial trade
credit in connection with the sale of Inventory in the Ordinary Course of
Business and (b) loans to its employees and officers not to exceed the
aggregate amount of $250,000 at any time outstanding.

 

7.6.         Capital Expenditures.

 

Contract for, purchase or
make any expenditure or commitments for Capital Expenditures in any fiscal year
in an aggregate amount in excess of $400,000, excluding Capital Expenditures
financed by equity investments in Borrower.

 

7.7.         Distributions.

 

(i) Pay or make any
distribution on any membership interests of Borrower other than the purchase of
capital stock or options from present or former employees, officers, directors
or consultants of any Borrower or their respective estates, spouses or family
members upon the 

 

74

 

death, disability or
termination of employment of such employee, officer, director or consultant
(provided that no such purchase shall be made after the occurrence and during
the continuation of an Event of Default and the amount of such purchase shall
not exceed $250,000 in the aggregate) or (ii) apply any of its funds,
property or assets to the purchase, redemption or other retirement of any
membership interests, or of any options to purchase or acquire any such
membership interests of Borrower (other than the purchase of capital stock or
options from present or former employees, officers, directors or consultants of
Borrower or their respective estates, spouses or family members upon the death,
disability or termination of employment of such employee, officer, director or
consultant (provided that no such purchase shall be make after the occurrence
and during the continuation of an Event of Default and the aggregate amount of
such purchase shall not exceed $250,000 in the aggregate)) except that so long
as (a) a notice of termination with regard to this Agreement shall not be
outstanding, and (b) no Event of Default or Default shall have occurred,
and (c) the purpose for such purchase, redemption or distribution shall be
as set forth in writing to Agent at least ten (10) Business Days prior to
such purchase, redemption or distribution and such purchase, redemption or
distribution shall in fact be used for such purpose.  Borrower shall be permitted to make
distributions to its members in an aggregate amount equal to the Increased Tax
Burden of its members.  Payments to
members shall be made so as to be available when the tax is due, including in
respect of estimated tax payments.  In
the event (x) the actual distribution to members made pursuant to this Section 7.7
exceeds the actual income tax liability of any member due to Borrower’s status
as a limited liability company, or (y) if Borrower was a subchapter C
corporation, Borrower would be entitled to a refund of income taxes previously
paid as a result of a tax loss during a year in which Borrower is a limited
liability company, then the members shall repay Borrower the amount of such
excess or refund, as the case may be, no later than the date the annual tax
return must be filed by Borrower (without giving effect to any filing
extensions).  In the event such amounts
are not repaid in a timely manner by any member, then such Borrower shall not
pay or make any distribution with respect to, or purchase, redeem or retire,
any membership interest of Borrower held or controlled by, directly or
indirectly, such member until such payment has been made.

 

7.8.         Indebtedness.

 

Create,
incur, assume or suffer to exist any Indebtedness (exclusive of trade debt)
except in respect of:

 

(a)           Indebtedness to
Lenders under this Agreement and the Other Documents;

 

(b)           Indebtedness
incurred for Capital Expenditures permitted under Section 7.6 hereof;

 

(c)           Permitted
Purchase Money Indebtedness;

 

(d)           Indebtedness due
under the Subordinated Loan Documentation and Indebtedness assumed or incurred
under or pursuant to the Acquisition Agreement and any refinancings of such  Indebtedness, provided that in connection with such
refinancing:  (i) the aggregate principal
amount of such Indebtedness is not increased, (ii) the scheduled maturity
date of such 

 

75

 

Indebtedness is not
shortened, (iii) the covenants or defaults are not materially more
restrictive or more onerous than analogous provisions in the Subordinated Loan
Documentation as in effect on the date hereof, and (iv) an intercreditor
agreement in form and substance reasonably satisfactory to Agent and the
Required Lenders shall have been executed and delivered to Agent prior to the
consummation of such refinancing (it being agreed that an intercreditor
agreement containing terms substantially similar to the terms set forth in the
Subordination Agreements will be satisfactory);

 

(e)           Indebtedness
described on Schedule 7.8 and any refinancings of such Indebtedness,
provided that the aggregate principal amount of such Indebtedness is not
increased, the scheduled maturity dates of such Indebtedness are not shortened
and such refinancing is on terms and conditions no more restrictive than the
terms and conditions of the Indebtedness being refinanced;

 

(f)            Indebtedness
under any Interest Rate Hedge;

 

(g)           Indebtedness
unsecured in an amount not to exceed $200,000 in the aggregate;

 

(h)           Indebtedness
under promissory notes issued by Borrower to (i) Richard Horowitz in the
amount of any draw under the NY Commercial Bank A Letter of Credit or the NY
Commercial Bank B Letter of Credit or (ii) Carousel Capital Partners II,
L.P. in the amount of any Shortfall Payment required by the Carousel Guaranty;
provided, however, that any such promissory note (A) must be in the form
attached hereto as Exhibit 7.8(h)(i) and be fully subordinate to the
Obligations pursuant to a subordination agreement in the form attached hereto
as Exhibit 7.8(h)(ii), (B) may provide for quarterly payments of
interest provided no Default or Event of Default then exists at a rate not to
exceed six and one-half of one percent (6.50%) per annum and (C) may
provide for principal payments after repayment in full of the Term Note
provided no Default or Event of Default then exists and provided that after
making any such principal payment Undrawn Availability is at least $400,000 for
the day such payment is made and for the next four Business Days; and

 

(i)            Indebtedness
consisting of taxes either not yet due or being property contested pursuant to
the Agreement.

 

7.9.         Nature of Business.

 

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

 

7.10.       Transactions with Affiliates.

 

Except for transactions
under the Subordinated Loan Documentation, the Section 7.8(h) notes,
products purchased from Borrower or its Affiliates listed on the schedule
provided to Agent and the Transition Services Agreements and Supply Agreements
furnished to Agent, 

 

76

 

directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, make any payment to, or enter into any transaction or arrangement
with, or otherwise deal with, any Affiliate, except transactions disclosed to
the Agent, which are in the Ordinary Course of Business, on an arm’s-length
basis on terms and conditions no less favorable than terms and conditions which
would have been obtainable from a Person other than an Affiliate.

 

7.11.       Leases.

 

Enter as lessee into any
lease arrangement for real or personal property (unless capitalized and
permitted under Section 7.6 hereof) if after giving effect thereto,
aggregate annual rental payments for all leased real and personal property
would exceed $2,000,000 in any one fiscal year in the aggregate for Borrower.

 

7.12.       Subsidiaries.

 

(a)           Form any
Subsidiary.

 

(b)           Enter into any
partnership, joint venture or similar arrangement.

 

7.13.       Fiscal Year and Accounting Changes.

 

Change its fiscal year
from its current practices in accordance with its financial statements or make
any material change (i) in accounting treatment and reporting practices
except as required by GAAP or (ii) in tax reporting treatment except as required
by law.

 

7.14.       Pledge of Credit.

 

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

 

7.15.       Amendment of Organizational Documents.

 

Amend, modify or waive
any material term or material provision of its Certificate of Formation or
Operating Agreement or other organizational documents or adopt any resolution
which would have the effect of diminishing the rights of Agent or the Lenders
under this Agreement or any Other Documents.

 

7.16.       Compliance with ERISA.

 

(i) (x) Maintain,
or permit any member of the Controlled Group to maintain, or (y) become
obligated to contribute, or permit any member of the Controlled Group to become
obligated to contribute, to any Plan, other than those Plans disclosed on
Schedule 5.8(d), (ii) engage, or permit any member of the Controlled
Group to engage, in any non-exempt “prohibited transaction”, as that term is
defined in Section 406 of ERISA and Section 4975 of the 

 

77

 

Code, (iii) incur,
or permit any member of the Controlled Group to incur, any “accumulated funding
deficiency”, as that term is defined in Section 302 of ERISA or Section 412
of the Code, (iv) terminate, or permit any member of the Controlled Group
to terminate, any Plan where such event could result in any liability of
Borrower or any member of the Controlled Group or the imposition of a lien on
the property of Borrower or any member of the Controlled Group pursuant to Section 4068
of ERISA, (v) assume, or permit any member of the Controlled Group to
assume, any obligation to contribute to any Multiemployer Plan not disclosed on
Schedule 5.8(d), (vi) incur, or permit any member of the Controlled
Group to incur, any withdrawal liability to any Multiemployer Plan; (vii) fail
promptly to notify Agent of the occurrence of any Termination Event, (viii) fail
to comply, or permit a member of the Controlled Group to fail to comply, with
the requirements of ERISA or the Code or other Applicable Laws in respect of
any Plan, (ix) fail to meet, or permit any member of the Controlled Group
to fail to meet, all minimum funding requirements under ERISA or the Code or
postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect of any Plan.

 

7.17.       Prepayment of Indebtedness.

 

At any time, prepay,
repurchase, redeem, retire or otherwise acquire, or make any payment on account
of any principal of, interest on or premium payable in connection with the
prepayment or redemption of any Indebtedness for borrowed money (other than
Indebtedness owed to the Lender under this Agreement or the Other Documents),
except (i) any such prepayment, repurchase, redemption, retirement or
acquisition expressly permitted in the Subordination Agreements, (ii) in
connection with any refinancing of Indebtedness in compliance with Section 7.8(d) or
Section 7.8(e) or (iii) in accordance with Indebtedness
permitted under Section 7.8(b), (c), (e), (f), (g), (h), (i) and (j).

 

7.18.       Anti-Terrorism Laws.

 

Borrower
shall not, until satisfaction in full of the Obligations and termination of
this Agreement, nor shall it permit any Affiliate or agent acting or
benefitting in any capacity in connection with the Advances or other
transactions hereunder:

 

(a)           Conduct
any business or engage in any transaction or dealing with any Blocked Person,
including the making or receiving any contribution of funds, goods or services
to or for the benefit of any Blocked Person.

 

(b)           Deal
in, or otherwise engage in any transaction relating to, any property or
interests in property blocked pursuant to the Executive Order No. 13224.

 

(c)           Engage
in or conspire to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in the Executive Order No. 13224, the USA PATRIOT Act or any
other Anti-Terrorism Law.  Borrower shall
deliver to Lenders any certification or other evidence requested from time to
time by any Lender in its sole discretion, confirming Borrower’s compliance
with this Section.

 

78

 

7.19.       Trading with the Enemy Act.

 

Engage in any business or
activity in violation of the Trading with the Enemy Act.

 

7.20.       Subordinated Notes.

 

At any time, directly or
indirectly, pay, prepay, repurchase, redeem, retire or otherwise acquire, or
make any payment on account of any principal of, interest on or premium payable
in connection with the repayment or redemption of the Subordinated Notes or the
Section 7.8(h) notes, except as expressly permitted in the
Subordination Agreements or the Section 7.8(h) notes.

 

7.21.       Other Agreements.

 

Enter into any material
amendment, waiver or modification of (a) the Acquisition Agreement, (b) the
Subordinated Loan Documentation, other than as permitted by the Subordination
Agreements, or (c) any Material Contract that is materially adverse to
Agent and Lender.

 

7.22        Additional Negative Pledges.

 

Create or otherwise cause
or suffer to exist or become effective, directly or indirectly, (i) any
prohibition or restriction (including any agreement to provide equal and
ratable security to any other Person in the event a Lien is granted to or for
the benefit of the Agent and the Lenders) on the creation or existence of any
Lien upon the assets of Borrower, other than in the documentation evidencing
Permitted Encumbrances or (ii) any contractual obligation which may
restrict or inhibit the Agent’s rights or ability to sell or otherwise dispose
of the Collateral or any part thereof after the occurrence of an Event of
Default.

 

7.23.       Additional Bank Accounts.

 

Open, maintain or
otherwise have any checking, savings or other accounts at any bank or other
financial institution, or any other account where money is or may be deposited
or maintained with any Person, other than (a) the accounts set forth on
Schedule 4.15(h), each of which shall be subject to a blocked account
arrangement with the depository institution, except to the extent otherwise
determined by Agent (b) deposit accounts established after the Closing
Date that are subject to a blocked account arrangement with the depository
institution in form and substance satisfactory to Agent, (c) other deposit
accounts established after the Closing Date solely as payroll and other zero
balance accounts and (d) other deposit accounts established after the
Closing Date, so long as at any time the balance in any such account does not
exceed $10,000 and the aggregate balance in all such accounts does not exceed
$100,000.

 

7.24.      Remuneration.

 

Other than amounts paid
under the Consulting Agreements, Borrower will not permit the aggregate amount
of salary and other direct and indirect remuneration (including, but not
limited 

 

79

 

to, employee benefits and
professional, consulting and management fees and expenses and bonuses) paid or
accrued by Borrower during any fiscal year to or for the benefit of (a) Countrywide
Hardware, Inc. and Visador Holding Corporation for Management Fees to
exceed $250,000 each in any fiscal year with respect to Countrywide Hardware, Inc.
and $200,000 in fiscal year 2009 and $300,000 in fiscal year 2010 with respect
to Visador Holding Corporation (beginning with the 2009 fiscal year; provided,
however, any accrued and unpaid Management Fees from any prior year where such
Management Fee was not paid may be paid at any time) or (b) any other
officer, director or member of management of any Borrower to exceed amounts
which are reasonable and customary for employees with similar responsibility
and experience of other companies in the same industry as the Borrower;
provided, however, that nothing in this Section 7.26 shall prohibit
Borrower from (A) paying P&F Industries’ out-of-pocket expenses, fees
and closing costs on the Closing Date in connection with the transactions
contemplated hereby and (B) paying indemnification claims made by an officer
or director or shareholder of Borrower to the extent of any contractual
obligation to do so currently in effect; provided, however, Borrower agrees to
promptly notify Agent of the payment of any such indemnification claims.  Notwithstanding the foregoing, no Management
Fees shall be paid by Borrower for a period of twelve (12) months following the
Closing Date and in no event shall be paid if after making any such payment (i) Undrawn
Availability is less than $500,000 if the reserve set forth in Section 2.1(a)(iv) is
not in effect or $350,000 if the reserve is in effect on the day such payment
is made and for the next ten (10) Business Days or (ii) any of the
other financial covenants set forth herein would be violated.

 

ARTICLE VIII

 

CONDITIONS PRECEDENT

 

8.1.         Conditions to Initial Advances.

 

The
agreement of Lenders to make the initial Advances requested to be made on the
Closing Date is subject to the satisfaction, or waiver by Agent, immediately
prior to or concurrently with the making of such Advances, of the following
conditions precedent:

 

(a)           Loan
Documents.

 

Agent shall have received
the Agreement, the Notes and each Other Documents duly executed and delivered
by an authorized officer of Borrower;

 

80

 

(b)           Filings, Registrations and
Recordings.

 

Each document (including any Uniform Commercial Code
financing statement) required by this Agreement, any related agreement or under
law or reasonably requested by the Agent to be filed, registered or recorded in
order to create, in favor of Agent, a perfected security interest in or lien
upon the Collateral shall have been properly filed, registered or recorded in
each jurisdiction in which the filing, registration or recordation thereof is
so required or requested, and Agent shall have received an acknowledgment copy,
if required, or other evidence satisfactory to it, of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;

 

(c)           Company
Proceedings of Borrower.

 

Agent shall have received
a copy of the resolutions in form and substance reasonably satisfactory to
Agent, of the Board of Directors, Board of Managers or other similar managing
body of Borrower authorizing (i) the execution, delivery and performance
of this Agreement and each of the Other Documents and (ii) the granting by
Borrower of the security interests in and liens upon the Collateral in each
case certified by the Secretary or an Assistant Secretary of Borrower as of the
Closing Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;

 

(d)           Incumbency
Certificates of Borrower.

 

Agent shall have received
a certificate of the Secretary or an Assistant Secretary of Borrower, dated the
Closing Date, as to the incumbency and signature of the officers of Borrower
executing this Agreement, the Other Documents, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;

 

(e)           Certificates.

 

Agent shall have received
a copy of the Articles or Certificate of Formation of Borrower, and all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of Formation together with copies of the Operating
Agreement of Borrower and all agreements of Borrower’s members certified as
accurate and complete by the Secretary of Borrower;

 

(f)            Good
Standing Certificates.

 

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

 

81

 

(g)           Legal Opinion.

 

Agent shall have received the executed legal opinion
of counsel to Borrower in form and substance reasonably satisfactory to Agent
which shall cover such matters incident to the transactions contemplated by
this Agreement, the Note, the Other Documents, the Subordination Agreements and
related agreements as Agent may reasonably require and Borrower hereby
authorizes and directs such counsel to deliver such opinions to Agent and
Lenders;

 

(h)           No
Litigation.

 

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

 

(i)            Financial
Condition Certificates.

 

Agent shall have received
an executed Financial Condition Certificate in the form of Exhibit 8.1(i);

 

(j)            Collateral
Examination.

 

Agent shall have
completed Collateral examinations and received appraisals, the results of which
shall be reasonably satisfactory in form and substance to Lenders, of the
Receivables, Inventory, General Intangibles, and Equipment of Borrower and all
books and records in connection therewith, including, without limitation,
satisfactory review of the detail supporting the non-recurring adjustments for
reasonableness;

 

(k)           Fee.

 

Agent shall have received
all fees payable to Agent and Lenders on or prior to the Closing Date
hereunder, including pursuant to Article III hereof;

 

(l)            Pro
Forma Financial Statements.

 

Agent shall have received
a copy of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;

 

82

 

(m)          Acquisition and Subordinated Loan
Documents.

 

Agent shall have received final executed copies of the
Acquisition Agreement and the Subordinated Loan Documentation, and all related
agreements, documents and instruments, together with all exhibits, schedules
and amendments thereto, as in effect on the Closing Date;

 

(n)           Subordination
Agreements.

 

Agent shall have entered
into a Subordination Agreement with Borrower and each Subordinated Lender which
shall set forth the basis upon which the “Subordinated Noteholder” may receive,
and Borrower may make, payments under the applicable Subordinated Note, which
basis shall be reasonably satisfactory in form and reasonably satisfactory in
substance to Agent;

 

(o)           Insurance.

 

Agent shall have received
in form and substance reasonably satisfactory to Agent, certificates of
insurance of Borrower’s casualty insurance policies, together with loss payable
endorsements on Agent’s standard form of lender loss payee endorsement naming
Agent as loss payee, and certificates of insurance of Borrower’s liability
insurance policies, together with endorsements naming Agent as a co-insured;

 

(p)           Disbursement
Agreement; Payment Instructions.

 

Agent shall have received
written instructions from Borrower directing the application of proceeds of the
initial Advances made pursuant to this Agreement;

 

(q)           Blocked
Accounts.

 

Agent shall have received
duly executed agreements establishing the Blocked Accounts or Depository
Accounts with financial institutions reasonably acceptable to Agent for the
collection or servicing of the Receivables and proceeds of the Collateral;

 

(r)           Consents.

 

Agent shall have received
any and all Consents necessary to permit the effectuation of the transactions
contemplated by this Agreement and the Other Documents; and, Agent shall have
received such Consents and waivers of such third parties as might assert claims
with respect to the Collateral, as Agent and its counsel shall deem reasonably
necessary;

 

(s)           No
Adverse Material Change.

 

(i) since December 31,
2009 (the date of the Quality of Earnings Report prepared by Price Waterhouse
Coopers on Borrower’s behalf) there shall not have occurred any event,
condition or state of facts which could reasonably be expected to have a
Material Adverse Effect and (ii) no representations made or information
supplied to Agent or Lenders shall have been proven to be inaccurate or
misleading in any material respect;

 

83

 

(t)            Leasehold
Agreements.

 

Agent shall have received
landlord, mortgagee or warehouseman, agreements reasonably satisfactory to
Agent with respect to all premises leased by Borrower at which Inventory and
books and records are located;

 

(u)           Contract
Review.

 

Agent shall have reviewed
copies of all Material Contracts of Borrower requested by Agent including
leases, union contracts, labor contracts, vendor supply contracts, license
agreements, purchase and sale agreements and distributorship agreements and such
contracts and agreements shall be reasonably satisfactory in all respects to
Agent;

 

(v)            Closing
Certificate.

 

Agent shall have received
a closing certificate signed by the President, Chief Financial Officer or Chief
Executive Officer of Borrower dated as of the date hereof, stating, among other
matters, that (i) all representations and warranties set forth in this
Agreement and the Other Documents are true and correct on and as of such date, (ii) Borrower
is on such date in compliance with all the terms and provisions set forth in
this Agreement and the Other Documents and (iii) on such date no Default
or Event of Default has occurred or is continuing;

 

(w)           Borrowing
Base.

 

Agent shall have received
evidence from Borrower that the aggregate amount of Eligible Receivables and
Eligible Inventory is sufficient in value and amount to support Advances in the
amount requested by Borrower on the Closing Date;

 

(x)           Undrawn
Availability.

 

After giving effect to
the initial Advances hereunder, Borrower shall have Undrawn Availability of at
least $1,200,000;

 

(y)           Compliance
with Laws.

 

Agent shall be reasonably
satisfied that Borrower is in compliance with all pertinent federal, state,
local or territorial regulations, including those with respect to the Federal
Occupational Safety and Health Act, the Environmental Protection Act, ERISA and
the Trading with the Enemy Act;

 

(z)           Stock
Building Agreement.

 

Agent shall have received
and approved the form Stock Building Supply “Extended Terms Agreement” and the
associated accounts receivable;

 

84

 

(aa)         Quality
of Earnings Report.

 

Agent shall have received
a Quality of Earning report satisfactory to Agent prepared by a firm acceptable
to Agent;

 

(bb)         Financial
Statements.

 

Agent shall have received
year-to-date financial statements for Seller and Woodmark International, L.P.
(without inclusion of the kitchen and bath business) satisfactory to Agent;

 

(cc)         Management
Meeting.

 

Agent shall have met with
the management team of Borrower and certain officers of P&F;

 

(dd)         NY Commercial Bank Letters of Credit
and Carousel Guaranty.

 

The NY Commercial Bank Letters of Credit and the
Carousel Guaranty; and

 

(ee)         Other.

 

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

 

8.2.         Conditions to Each Advance.

 

The agreement of Lenders
to make any Advance requested to be made on any date (including the initial
Advance), is subject to the satisfaction of the following conditions precedent
as of the date such Advance is made:

 

(a)           Representations
and Warranties.

 

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

 

(b)           No
Default.

 

No Event of Default or
Default shall have occurred and be continuing on such date, or would exist
after giving effect to the Advances requested to be made, on such date and, in
the case of the initial Advance, after giving effect to the consummation of the
transactions 

 

85

 

contemplated by the
Acquisition Agreement; provided, however that Agent, in its sole discretion,
may continue to make Advances notwithstanding the existence of an Event of
Default or Default and that any Advances so made shall not be deemed a waiver
of any such Event of Default or Default; and

 

(c)           Maximum
Advances.

 

In the case of any type
of Advance requested to be made, after giving effect thereto, the aggregate
amount of such type of Advance shall not exceed the maximum amount of such type
of Advance permitted under this Agreement.

 

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

 

ARTICLE IX

 

INFORMATION AS TO
BORROWER

 

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

 

9.1.         Disclosure of Material Matters.

 

Promptly upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectability of any portion of the Collateral, including Borrower’s
reclamation or repossession of, or the return to Borrower of, a material amount
of goods or claims or disputes asserted by any Customer or other obligor.

 

9.2          Schedules.

 

Deliver to Agent on or
before the fifteenth (15th) day of each month as and for the prior month (a) accounts
receivable ageings inclusive of reconciliations to the general ledger, (b) accounts
payable schedules inclusive of reconciliations to the general ledger, (c) Inventory
reports and (d) a Borrowing Base Certificate in form and substance
reasonably satisfactory to Agent (which shall be calculated as of the last day
of the prior month and which shall not be binding upon Agent or restrictive of
Agent’s rights under this Agreement).  In
addition, Borrower will deliver to Agent (i) a weekly Borrowing Base
Certificate in form and substance satisfactory to Agent and (ii) at such
intervals as Agent may require:  (a) confirmatory
assignment schedules, (b) copies of Customer’s invoices, (c) evidence
of shipment or delivery, and (d) such further schedules, documents and/or
information regarding the Collateral as Agent may reasonably require including
trial balances and test verifications. 
Agent shall have the right to confirm and verify all Receivables by any
manner and through any medium it considers advisable and do whatever it may
deem reasonably necessary to protect its interests hereunder.  The items to be provided under this Section are
to be in form reasonably satisfactory to Agent 

 

86

 

and executed by Borrower
and delivered to Agent from time to time solely for Agent’s convenience in
maintaining records of the Collateral, and Borrower’s failure to deliver any of
such items to Agent shall not affect, terminate, modify or otherwise limit
Agent’s Lien with respect to the Collateral.

 

9.3.         Environmental Reports.

 

Furnish Agent,
concurrently with the delivery of the financial statements referred to in
Sections 9.7 and 9.8, a Compliance Certificate signed by the President,
Chief Financial Officer, Chief Executive Officer or Controller of Borrower
stating, to the best of his knowledge, that Borrower is in compliance in all
material respects with all federal, state and local Environmental Laws.  To the extent Borrower is not in compliance
with the foregoing laws, the Compliance Certificate shall set forth with specificity
all areas of non-compliance and the proposed action Borrower will implement in
order to achieve full compliance.

 

9.4.         Litigation.

 

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

 

9.5.         Material Occurrences.

 

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

 

9.6.         Government Receivables.

 

Notify Agent promptly if
any of its Receivables arise out of contracts between Borrower and the United
States, any state, or any department, agency or instrumentality of any of them.

 

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9.7.         Annual Financial Statements.

 

Furnish Agent within
ninety (90) days after the end of each fiscal year of Borrower, financial
statements of Borrower including, but not limited to, statements of income and
stockholders’ equity and cash flow from the beginning of the current fiscal
year to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis consistent
with prior practices, and in reasonable detail and accompanied by a report and
opinion (which report and opinion shall be prepared in accordance with
generally accepted auditing standards and shall not be subject to any “going
concern” or like assumption, qualification or exception as to scope of the
audit) of J.H. Cohn LLP or another an independent certified public accounting
firm selected by Borrower and reasonably satisfactory to Agent (the “Accountants”).  Beginning with fiscal year 2009 and each
fiscal year thereafter, the report of the Accountants shall be accompanied by a
statement of the Accountants certifying that no information came to their
attention which to their knowledge constituted an Event of Default or a Default
under this Agreement.  In addition, the
reports shall be accompanied by a Compliance Certificate.

 

9.8          Quarterly Financial Statements.

 

Furnish Agent within
forty-five (45) days after the end of each fiscal quarter, an unaudited balance
sheet of Borrower and unaudited statements of income and stockholders’ equity
and cash flow of Borrower reflecting results of operations from the beginning
of the fiscal year to the end of such quarter and for such quarter, prepared on
a basis consistent with prior practices and complete and correct in all
material respects, subject to normal and recurring year end adjustments that
individually and in the aggregate are not material to Borrower’s business.  The reports shall be accompanied by a
Compliance Certificate.

 

9.9.         Monthly Financial Statements.

 

Furnish Agent within
thirty (30) days after the end of each month, an unaudited balance sheet of
Borrower and unaudited statements of income and stockholders’ equity and cash
flow of Borrower reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal and recurring year end adjustments in accordance
with GAAP, and accompanied by management and analysis discussion.  The reports for the last month of each
quarter shall be accompanied by a Compliance Certificate regarding the quarter
then ended.

 

9.10.       Other Reports.

 

Furnish Agent as soon as
available, but in any event within ten (10) days after the issuance
thereof, (i) with copies of such financial statements, reports and returns
as Borrower shall send to its members and (ii) copies of all notices,
reports, financial statements and other materials sent pursuant to the
Subordinated Loan Documentation.

 

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9.11.       Additional Information.

 

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

 

9.12.       Projected Operating Budget.

 

Furnish Agent, no later
the first day of Borrower’s fiscal years commencing with fiscal year 2010, a
month by month projected operating budget and cash flow of Borrower for such
fiscal year (including an income statement for each month and a balance sheet
as at the end of the last month in each fiscal quarter), such projections
include a summary of the assumptions upon which such projections are based.

 

9.13.       Variances From Operating Budget.

 

Furnish Agent,
concurrently with the delivery of the financial statements referred to in Section 9.7
and each quarterly report, a written report summarizing all material variances
from budgets submitted by Borrower pursuant to Section 9.12 and a
discussion and analysis by management with respect to such variances.

 

9.14.       Notice of Suits, Adverse Events.

 

Furnish Agent with prompt
written notice of (i) any lapse or other termination of any Consent issued
to Borrower by any Governmental Body or any other Person that is material to
the operation of Borrower’s business, (ii) any refusal by any Governmental
Body or any other Person to renew or extend any such Consent; and (iii) copies
of any periodic or special reports filed by Borrower with any Governmental Body
or Person, if such reports indicate any material change in the business,
operations, affairs or condition of Borrower, or if copies thereof are
requested by Lender, and (iv) copies of any material notices and other
communications from any Governmental Body or Person which specifically relate
to Borrower.

 

9.15.       ERISA Notices and Requests.

 

Furnish Agent with
immediate written notice in the event that (i) Borrower or any member of
the Controlled Group knows or has reason to know that a Termination Event has
occurred, together with a written statement describing such Termination Event
and the action, if any, which Borrower or any member of the Controlled Group
has taken, is taking, or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, Department of
Labor or PBGC with respect thereto, (ii) Borrower or any 

 

89

 

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

 

9.16.       Additional Documents.

 

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

 

ARTICLE X

 

EVENTS OF DEFAULT

 

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

 

10.1.       Nonpayment.

 

Failure by Borrower to
pay any principal or interest on the Obligations when due, whether at maturity
or by reason of acceleration pursuant to the terms of this Agreement or by
notice of intention to prepay, or by required prepayment or failure to pay when
due any other liabilities or make any other payment, fee or charge provided for
herein when due or in any Other Document;

 

90

 

10.2.       Breach of Representation.

 

Any representation or
warranty made or deemed made by Borrower or any Guarantor in this Agreement,
any Other Document or any related agreement or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made or deemed to have been made;

 

10.3.       Financial Information.

 

Failure by Borrower to (i) furnish
financial information when due or when requested, or (ii) permit the
inspection of its books or records;

 

10.4.       Judicial Actions.

 

Issuance of a notice of
Lien, levy, assessment, injunction or attachment against any material portion
of Borrower’s Inventory or Receivables or against a material portion of
Borrower’s other property which is not stayed or lifted or bonded within
forty-five (45) days;

 

10.5.       Noncompliance.

 

Except as otherwise
provided for in Section 10.1 or Section 10.3:

 

(a)           failure or
neglect of Borrower to perform, keep or observe any term, provision, condition,
or covenant, contained in Sections 4.10, 6.2(b) or 6.5 or in Article 7
or 9 (other than Section 9.15 which is subject to the terms of (b) below)
hereof, or

 

(b)           failure or
neglect of Borrower to perform, keep or observe any term, provision, condition
or covenant contained herein or any Other Document that, if such term,
provision, condition or covenant is capable of cure, is not cured within thirty
(30) days from the earlier to occur of (A) receipt by Borrower of written
notice thereof from Agent or any Lender and (B) the date upon which
Borrower obtains knowledge thereof, or within such reasonably longer period as
may be required to cure same (so long as cure is commenced within the
thirty-day period and thereafter is prosecuted to completion with reasonable
diligence);

 

10.6.       Judgments.

 

Any judgment or judgments
are rendered against Borrower or any Guarantor for an aggregate amount in
excess of $250,000 and (i) enforcement proceedings shall have been
commenced by a creditor upon such judgment, (ii) there shall be any period
of thirty (30) consecutive days during which a stay of enforcement of such
judgment, by reason of a pending appeal or otherwise, shall not be in effect,
or (iii) any such judgment results in the creation of a Lien upon any of
the Collateral (other than a Permitted Encumbrance or a Lien which is bonded);

 

91

 

10.7.       Bankruptcy.

 

Borrower shall (i) apply
for, consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within sixty (60) days, any petition filed
against it in any involuntary case under such bankruptcy laws,  or (vii) take any action for the purpose
of effecting any of the foregoing;

 

10.8.       Inability to Pay.

 

Borrower or any
Subsidiary of Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;

 

10.9.       Affiliate Bankruptcy.

 

Any Subsidiary of
Borrower, shall (i) apply for, consent to or suffer the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property, (ii) admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a
general assignment for the benefit of creditors, (iv) commence a voluntary
case under any state or federal bankruptcy laws (as now or hereafter in
effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vii) acquiesce to, or fail to have dismissed, within thirty (30)
days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (viii) take any action for the purpose of effecting
any of the foregoing;

 

10.10.     Material Adverse Effect.

 

Any change in Borrower’s
results of operations or condition (financial or otherwise) which in Agent’s
opinion has a Material Adverse Effect;

 

10.11.     Lien Priority.

 

Any Lien created
hereunder or under any Other Document or provided for hereby including, without
limitation, the Permitted Encumbrances, or thereby or under any related
agreement for any reason ceases to be or is not a valid and perfected Lien
having a first priority interest or Borrower or any other Person acting on its
behalf shall so claim except as the result of Agent’s or any Lender’s gross
negligence;

 

10.12.     Subordinated Loan Default.

 

An event of default has
occurred under the Subordinated Loan Documentation or either of the
Subordination Agreements, which default shall not have been cured or waived
within any 

 

92

 

applicable grace period
and for which the applicable Subordinated Lender is permitted to take action
under the applicable Subordination Agreement;

 

10.13.     Cross Default.

 

A default of the
obligations of Borrower under any other material agreement evidencing
Indebtedness in excess of $250,000 to which it is a party shall occur which
adversely affects its condition or affairs (financial or otherwise) which
default is not cured within any applicable grace period;

 

10.14.     Change of Ownership.

 

Any Change of Ownership
or Change of Control shall occur;

 

10.15.     Invalidity.

 

Any material provision of
this Agreement or any Other Document shall, for any reason, cease to be valid
and binding on Borrower, or Borrower or any Person acting on their behalf shall
so claim;

 

10.16.     Licenses.

 

(i) Any Governmental
Body shall (A) revoke, terminate, suspend or adversely modify any license,
permit, patent trademark or tradename of Borrower, the continuation of which is
material to the continuation of Borrower’s 
business, or (B) commence proceedings to suspend, revoke, terminate
or adversely modify any such license, permit, trademark, tradename or patent
and such proceedings shall not be dismissed or discharged within sixty (60)
days, or (c) Schedule or conduct a hearing on the renewal of any
license, permit, trademark, tradename or patent necessary for the continuation
of Borrower’s business and the staff of such Governmental Body issues a report
recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, tradename or patent; (ii) any
agreement which is necessary or material to the operation of Borrower’s
business shall be revoked or terminated and not replaced by a substitute
acceptable to Agent within thirty (30) days after the date of such revocation
or termination, and such revocation or termination and non-replacement would
reasonably be expected to have a Material Adverse Effect;

 

10.17.     Seizures.

 

Any portion of the
Collateral shall be seized or taken by a Governmental Body, or Borrower
material or the title and rights of Borrower, or any Original Owner which is
the owner of any material portion of the Collateral shall have become the
subject matter of claim, litigation, suit or other proceeding which might, in
the opinion of Agent, upon final determination, result in impairment or loss of
the security provided by this Agreement or the Other Documents;

 

93

 

10.18.     Operations.

 

The operations of any of
Borrower’s manufacturing facility are interrupted at any time for more than ten
(10) consecutive days, unless Borrower shall (i) be entitled to
receive for such period of interruption, proceeds of business interruption
insurance sufficient to assure that its per diem cash needs during such period
is at least equal to its average per diem cash needs for the consecutive three
month period immediately preceding the initial date of interruption and (ii) receive
such proceeds in the amount described in clause (i) preceding not later
than thirty (30) days following the initial date of any such interruption;
provided, however, that notwithstanding the provisions of clauses (i) and (ii) of
this section, an Event of Default shall be deemed to have occurred if Borrower
shall be receiving the proceeds of business interruption insurance for a period
of ninety (90) consecutive days; or

 

10.19.     Pension Plans.

 

An event or condition
specified in Sections 7.16 or 9.15 hereof shall occur or exist with
respect to any Plan and, as a result of such event or condition, together with
all other such events or conditions, Borrower or any member of the Controlled
Group shall incur, or in the opinion of Agent be reasonably likely to incur, a
liability to a Plan or the PBGC (or both) which, in the reasonable judgment of
Agent, would have a Material Adverse Effect.

 

ARTICLE XI

 

LENDERS’ RIGHTS
AND REMEDIES AFTER DEFAULT

 

11.1.       Rights and Remedies.

 

(a)           Upon the
occurrence of (i) an Event of Default pursuant to Section 10.7 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed terminated; and, (ii) any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Required Lenders all
Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to
make Advances and (iii) a filing of a petition against Borrower in any
involuntary case under any state or federal bankruptcy laws, which remains
undismissed for a period of sixty (60) days all Obligations shall be
immediately due and payable and the obligation of Lenders to make Advances
hereunder shall be terminated other than as may be required by an appropriate
order of the bankruptcy court having jurisdiction over Borrower.  Upon the occurrence of any Event of Default,
Agent shall have the right to exercise any and all rights and remedies provided
for herein, under the Other Documents, under the Uniform Commercial Code and at
law or equity generally, including the right to foreclose the security
interests granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process.  Agent
may enter any of Borrower’s premises or other premises without legal process
and without incurring liability to Borrower therefor, and Agent may thereupon,
or at any time thereafter, in its discretion without notice or demand, take 

 

94

 

the Collateral and remove
the same to such place as Agent may deem advisable and Agent may require
Borrower to make the Collateral available to Agent at a convenient place.  With or without having the Collateral at the
time or place of sale, Agent may sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more sales, at such
price or prices, and upon such terms, either for cash, credit or future
delivery, as Agent may elect.  Except as
to that part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Agent shall give Borrower reasonable notification of such sale or sales, it
being agreed that in all events written notice mailed to Borrower at least ten (10) days
prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender may
bid for and become the purchaser, and Agent, any Lender or any other purchaser
at any such sale thereafter shall hold the Collateral sold absolutely free from
any claim or right of whatsoever kind, including any equity of redemption and
all such claims, rights and equities are hereby expressly waived and released
by Borrower.  In connection with the
exercise of the foregoing remedies, including the sale of Inventory, Agent is
granted a perpetual nonrevocable, royalty free, nonexclusive license and Agent
is granted permission to use all of Borrower’s (a) trademarks, trade
styles, trade names, patents, patent applications, copyrights, service marks,
licenses, franchises and other proprietary rights which are used or useful in
connection with Inventory for the purpose of marketing, advertising for sale
and selling or otherwise disposing of such Inventory and (b) Equipment for
the purpose of completing the manufacture of unfinished goods.  The cash proceeds realized from the sale of
any Collateral shall be applied to the Obligations in the order set forth in Section 11.5
hereof.  Noncash proceeds will only be
applied to the Obligations as they are converted into cash.  If any deficiency shall arise, Borrower shall
remain liable to Agent and Lenders therefor.

 

(b)           To the extent
that Applicable Law imposes duties on the Agent to exercise remedies in a
commercially reasonable manner, Borrower acknowledges and agrees that it is not
commercially unreasonable for the Agent (i) to fail to incur expenses
reasonably deemed significant by the Agent to prepare Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies
against Customers or other Persons obligated on Collateral or to remove Liens
on or any adverse claims against Collateral, (iv) to exercise collection
remedies against Customers and other Persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as the Borrower, for
expressions of interest in acquiring all or any portion of such Collateral, (vii) to
hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capacity of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, such as title, possession or quiet enjoyment, (xi) to
purchase insurance or credit enhancements to insure the Agent against risks of
loss, collection or disposition of Collateral or to provide to the Agent a
guaranteed return from the collection or 

 

95

 

disposition of
Collateral, or (xii) to the extent deemed appropriate by the Agent, to obtain
the services of other brokers, investment bankers, consultants and other
professionals to assist the Agent in the collection or disposition of any of
the Collateral.  Borrower acknowledges
that the purpose of this Section 11.1(b) is to provide non-exhaustive
indications of what actions or omissions by the Agent would not be commercially
unreasonable in the Agent’s exercise of remedies against the Collateral and
that other actions or omissions by the Agent shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section 11.1(b).  Without limitation upon the foregoing,
nothing contained in this Section 11.1(b) shall be construed to grant
any rights to Borrower or to impose any duties on Agent that would not have
been granted or imposed by this Agreement or by Applicable Law in the absence
of this Section 11.1(b).

 

11.2.       Agent’s Discretion.

 

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

 

11.3.       Setoff.

 

Subject to Section 14.12,
in addition to any other rights which Agent or any Lender may have under
Applicable Law, upon the occurrence of an Event of Default hereunder, Agent and
such Lender shall have a right, immediately and without notice of any kind, to
apply Borrower’s property held by Agent and such Lender to reduce the
Obligations.

 

11.4.       Rights and Remedies not Exclusive.

 

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

 

11.5.       Allocation of Payments After Event of
Default.

 

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

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including reasonable attorneys’
fees) of the Agent in connection with enforcing its rights and the rights of
the Lenders under this Agreement and the Other Documents and any protective
advances made by the Agent with respect to the Collateral under or pursuant to
the terms of this Agreement;

 

96

 

SECOND, to payment of any
fees owed to the Agent;

 

THIRD, to the payment of
all reasonable out-of-pocket costs and expenses (including reasonable attorneys’
fees) of each of the Lenders in connection with enforcing its rights under this
Agreement and the Other Documents or otherwise with respect to the Obligations
owing to such Lender;

 

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

 

FIFTH, to the payment of
the outstanding principal amount of the Obligations (including the payment or
cash collateralization of any outstanding Letters of Credit), to breakage, termination or other payments, and any
interest accrued thereon, due under any Lender-Provided Interest Rate Hedge, to
the extent such Lender-Provided Interest Rate Hedge is permitted by Section 7.8,
and to amounts due under any Cash Management Products;

 

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

 

SEVENTH, to the payment
of the surplus, if any, to Borrower.

 

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

 

ARTICLE XII

 

WAIVERS AND
JUDICIAL PROCEEDINGS

 

12.1.       Waiver of Notice.

 

Borrower hereby waives
notice of non-payment of any of the Receivables, demand, presentment, protest
and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or 

 

97

 

delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.

 

12.2.       Delay.

 

No delay or omission on
Agent’s or any Lender’s part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
Default or Event of Default.  No
Out-of-Formula Loan or protective advance made during the existence of a
Default or an Event of Default shall operate as a waiver of any such Default or
Event of Default.

 

12.3.       Jury Waiver.

 

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

 

ARTICLE XIII

 

EFFECTIVE DATE AND
TERMINATION.

 

13.1.       Term.

 

This Agreement, which
shall inure to the benefit of and shall be binding upon the respective
successors and permitted assigns of Borrower, Agent and each Lender, shall
become effective on the date hereof and shall continue in full force and effect
until June 8, 2012 (the “Term”) unless sooner terminated as herein
provided.  Borrower may terminate this
Agreement at any time upon fifteen (15) days’ prior written notice upon payment
in full of the Obligations.  In the event
the Obligations are prepaid in full prior to the last day of the Term (the date
of such prepayment hereinafter referred to as the “Early Termination Date”),
Borrowers shall pay to Agent for the benefit of Lenders an early termination
fee in an amount equal to (x) two percent (2.0%) of the Maximum Loan
Amount if the Early Termination Date occurs on or after the Closing Date to and
including the date immediately preceding the first anniversary of the Closing 

 

98

 

Date, (y) one
percent (1.0%) of the Maximum Loan Amount if the Early Termination Date occurs
on or after the first anniversary of the Closing Date to and including the date
immediately preceding the second anniversary of the Closing Date, and (z) one-half
of one percent (0.50%) of the Maximum Loan Amount if the Early Termination Date
occurs on or after the second anniversary of the Closing Date to and including
the date immediately preceding the third anniversary of the Closing Date.

 

13.2.       Termination.

 

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

 

ARTICLE XIV

 

REGARDING AGENT

 

14.1.       Appointment.

 

Each Lender hereby
designates PNC to act as Agent for such Lender under this Agreement and the
Other Documents.  Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto and Agent shall hold all
Collateral, payments of principal and interest, fees (except the fees set forth
in Sections 3.3(a) and 3.4), charges and collections (without giving
effect to any collection days) received pursuant to this Agreement, for the
ratable 

 

99

 

benefit of Lenders.  Agent may perform any of its duties hereunder
by or through its agents or employees. 
As to any matters not expressly provided for by this Agreement
(including collection of the Note) Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding; provided, however, that Agent shall not be required to take any action
which exposes Agent to liability or which is contrary to this Agreement or the
Other Documents or Applicable Law unless Agent is furnished with an
indemnification reasonably satisfactory to Agent with respect thereto.  In furtherance and not in limitation of the
foregoing, each of the Lenders hereby acknowledges that it has received and
reviewed copies of the Subordination Agreements and hereby authorizes Agent to
enter into the Subordination Agreements on its behalf.

 

14.2.       Nature of Duties.

 

Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and the Other Documents.  Neither Agent
nor any of its officers, directors, employees or agents shall be (i) liable
for any action taken or omitted by them as such hereunder or in connection
herewith, unless caused by their gross (not mere) negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final
non-appealable judgment), or (ii) responsible in any manner for any
recitals, statements, representations or warranties made by Borrower or any
officer thereof contained in this Agreement, or in any of the Other Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by Agent under or in connection with, this
Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, due execution, enforceability or sufficiency of
this Agreement, or any of the Other Documents or for any failure of Borrower to
perform its obligations hereunder.  Agent
shall not be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any of the Other Documents, or to inspect the
properties, books or records of Borrower. 
The duties of Agent as respects the Advances to Borrower shall be
mechanical and administrative in nature; Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Lender; and nothing in
this Agreement, expressed or implied, is intended to or shall be so construed
as to impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein.

 

14.3.       Lack of Reliance on Agent and
Resignation.

 

Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any
action in connection herewith, and (ii) its own appraisal of the
creditworthiness of Borrower.  Agent
shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before making of the Advances or at
any time or times thereafter except as shall be provided by Borrower pursuant
to the terms hereof.  Agent shall not be
responsible to any Lender for any recitals, statements, information, representations
or warranties herein or in any agreement, document, certificate or a statement
delivered in 

 

100

 

connection with or for
the execution, effectiveness, genuineness, validity, enforceability,
collectability or sufficiency of this Agreement or any Other Document, or of
the financial condition of Borrower or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, the Note, the Other Documents or the financial
condition of Borrower, or the existence of any Event of Default or any Default.

 

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

 

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

 

14.4.       Certain Rights of Agent.

 

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

 

14.5.       Reliance.

 

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

 

14.6.       Notice of Default.

 

Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Documents, unless Agent has received notice from a
Lender or Borrower referring to this Agreement or the Other Documents,
describing such Default or Event of Default and stating that such notice is a “notice
of default”.  In the event that Agent
receives such a notice, Agent shall give notice thereof to Lenders.  Agent shall take such 

 

101

 

action with respect to
such Default or Event of Default as shall be reasonably directed by the
Required Lenders; provided, that, unless and until Agent shall have received
such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.

 

14.7.       Indemnification.

 

To the extent Agent is
not reimbursed and indemnified by Borrower, each Lender will reimburse and
indemnify Agent in proportion to its respective portion of the Advances (or, if
no Advances are outstanding, according to its Commitment Percentage), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
Agent in performing its duties hereunder, or in any way relating to or arising
out of this Agreement or any Other Document; provided that, Lenders shall not
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent’s gross (not mere) negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final non-appealable
judgment).

 

14.8.       Agent in its Individual Capacity.

 

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

 

14.9.       Delivery of Documents.

 

To the extent Agent
receives financial statements required under Sections 9.7, 9.8, 9.9, and
9.12 or Borrowing Base Certificates from Borrower pursuant to the terms of this
Agreement which Borrower is not obligated to deliver to each Lender, Agent will
promptly furnish such documents and information to Lenders.

 

14.10.     Borrower’s Undertaking to Agent.

 

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

 

102

 

14.11.     No Reliance on Agent’s Customer
Identification Program.

 

Each Lender acknowledges
and agrees that neither such Lender, nor any of its Affiliates, participants or
assignees, may rely on the Agent to carry out such Lender’s, Affiliate’s,
participant’s or assignee’s customer identification program, or other
obligations required or imposed under or pursuant to the USA PATRIOT Act or the
regulations thereunder, including the regulations contained in 31 CFR 103.121
(as hereafter amended or replaced, the “CIP Regulations”), or any other
Anti-Terrorism Law, including any programs involving any of the following items
relating to or in connection with Borrower, its Affiliates or its agent, acting
or benefitting in any capacity in connection with Advances of other
transactions hereunder, this Agreement, the Other Documents or the transactions
hereunder or contemplated hereby: (1) any identity verification
procedures, (2) any record-keeping, (3) comparisons with government
lists, (4) customer notices or (5) other procedures required under
the CIP Regulations or such other laws.

 

14.12.     Other Agreements.

 

Each of the Lenders
agrees that it shall not, without the express consent of Agent, and that it
shall, to the extent it is lawfully entitled to do so, upon the request of
Agent, set off against the Obligations, any amounts owing by such Lender to
Borrower or any deposit accounts of Borrower now or hereafter maintained with
such Lender.  Anything in this Agreement
to the contrary notwithstanding, each of the Lenders further agrees that it
shall not, unless specifically requested to do so by Agent, take any action to
protect or enforce its rights arising out of this Agreement or the Other
Documents, it being the intent of Lenders that any such action to protect or enforce
rights under this Agreement and the Other Documents shall be taken in concert
and at the direction or with the consent of Agent or Required Lenders.

 

ARTICLE XV

 

MISCELLANEOUS

 

15.1.       Governing Law.

 

This Agreement shall be
governed by and construed in accordance with the laws of the State of North
Carolina applied to contracts to be performed wholly within the State of North
Carolina.  Any judicial proceeding
brought by or against Borrower with respect to any of the Obligations, this
Agreement, the Other Documents or any related agreement may be brought in any
court of competent jurisdiction in the State of North Carolina, United States
of America, and, by execution and delivery of this Agreement, Borrower accepts
for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.  Borrower hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to Borrower at its address set forth in Section 15.6
and service so made shall 

 

103

 

be deemed completed five (5) days
after the same shall have been so deposited in the mails of the United States
of America.  Nothing herein shall affect
the right to serve process in any manner permitted by law or shall limit the
right of Agent or any Lender to bring proceedings against Borrower in the
courts of any other jurisdiction. 
Borrower waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens.  Borrower waives the right to remove any
judicial proceeding brought against Borrower in any state court to any federal
court.  Any judicial proceeding by
Borrower against Agent or any Lender involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the County of Mecklenburg, State of North Carolina.

 

15.2.       Entire Understanding.

 

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

 

(b)           The Required
Lenders, Agent and Borrower may, subject to the provisions of this Section 15.2
(b), from time to time enter into written supplemental agreements to this
Agreement or the Other Documents executed by Borrower, for the purpose of
adding or deleting any provisions or otherwise changing, varying or waiving in
any manner the rights of Lenders, Agent or Borrower thereunder or the
conditions, provisions or terms thereof of waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:

 

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

 

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

 

(iii)          alter
the definition of the Term Required Lenders or alter, amend or modify this Section 15.2(b).

 

(iv)          release
any Collateral during any calendar year (other than in accordance with the
provisions of this Agreement.

 

104

 

(v)           change
the rights and duties of Agent.

 

(vi)          permit
any Revolving Advance to be made if after giving effect thereto the total of
Revolving Advances outstanding hereunder would exceed the Formula Amount for
more than thirty (30) consecutive Business Days or exceed one hundred and five
percent (105%) of the Formula Amount.

 

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

 

(viii)        release
any Guarantor.

 

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

 

In the event that Agent
requests the consent of a Lender pursuant to this Section 15.2 and such
Lender shall not respond or reply to Agent in writing within five (5) days
of delivery of such request, such Lender shall be deemed to have consented to
the matter that was the subject of the request. 
In the event that Agent requests the consent of a Lender pursuant to
this Section 15.2 and such consent is denied, then PNC may, at its option,
require such Lender to assign its interest in the Advances to PNC or to another
Lender or to any other Person designated by the Agent (the “Designated
Lender”), for a price equal to the then outstanding principal amount
thereof plus accrued and unpaid interest and fees due such Lender, which
interest and fees shall be paid when collected from Borrower.  In the event PNC elects to require any Lender
to assign its interest to PNC or to the Designated Lender, PNC will so notify
such Lender in writing within forty five (45) days following such Lender’s
denial, and such Lender will assign its interest to PNC or the Designated
Lender no later than five (5) days following receipt of such notice
pursuant to a Commitment Transfer Supplement executed by such Lender, PNC or
the Designated Lender, as appropriate, and Agent.

 

Notwithstanding (a) the
existence of a Default or an Event of Default, (b) that any of the other
applicable conditions precedent set forth in Section 8.2 hereof have not
been satisfied or (c) any other provision of this Agreement, Agent may at
its discretion and without the consent of the Required Lenders, voluntarily
permit the outstanding Revolving Advances at any time to exceed  the Formula Amount by up to ten percent (10%)
of the Formula Amount for up to thirty (30) consecutive Business Days (the “Out-of-Formula
Loans”); provided, that, such outstanding Advances do not exceed the
Maximum Revolving Advance Amount.  If
Agent is willing in its sole and absolute discretion to make such
Out-of-Formula Loans, such Out-of-Formula Loans shall be payable on demand and
shall bear interest at the Default Rate for Revolving Advances consisting of
Domestic Rate Loans; provided that, if Lenders do make Out-of-Formula Loans, 

 

105

 

neither Agent nor Lenders
shall be deemed thereby to have changed the limits of Section 2.1(a).  For purposes of this paragraph, the
discretion granted to Agent hereunder shall not preclude involuntary
overadvances that may result from time to time due to the fact that the Formula
Amount was unintentionally exceeded for any reason, including, but not limited
to, Collateral previously deemed to be either “Eligible Receivables” or “Eligible
Inventory”, as applicable, becomes ineligible, collections of Receivables
applied to reduce outstanding Revolving Advances are thereafter returned for
insufficient funds or overadvances are made to protect or preserve the
Collateral.  In the event Agent
involuntarily permits the outstanding Revolving Advances to exceed the Formula
Amount by more than ten percent (10%), Agent shall use its efforts to have
Borrower decrease such excess in as expeditious a manner as is practicable
under the circumstances and not inconsistent with the reason for such
excess.  Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.

 

In addition to (and not
in substitution of) the discretionary Revolving Advances permitted above in
this Section 15.2, the Agent is hereby authorized by Borrower and the
Lenders, from time to time in the Agent’s sole discretion, (A) after the
occurrence and during the continuation of a Default or an Event of Default, or (B) at
any time that any of the other applicable conditions precedent set forth in Section 8.2
hereof have not been satisfied, to make Revolving Advances to Borrower on
behalf of the Lenders which the Agent, in its reasonable business judgment,
deems necessary or desirable (a) to preserve or protect the Collateral, or
any portion thereof, (b) to enhance the likelihood of, or maximize the
amount of, repayment of the Advances and other Obligations, or (c) to pay
any other amount chargeable to Borrower pursuant to the terms of this
Agreement; provided, that at any time after giving effect to any such Revolving
Advances the outstanding Revolving Advances do not exceed one hundred and ten
percent (110%) of the Formula Amount.

 

15.3.       Successors and Assigns;
Participations; New Lenders.

 

(a)           This Agreement
shall be binding upon and inure to the benefit of Borrower, Agent, each Lender,
all future holders of the Obligations and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of Agent and
each Lender.

 

(b)           Borrower
acknowledges that in the regular course of commercial banking business one or
more Lenders may at any time and from time to time sell participating interests
in the Advances (without the consent of Agent, Borrower or any other Lender) to
other financial institutions (each such transferee or purchaser of a
participating interest, a “Participant”; provided, that any such sale of
participating interests must be for a constant and non-varying interest in all
Advances.  Each Participant may exercise
all rights of payment (including rights of set-off) with respect to the portion
of such Advances held by it or other Obligations payable hereunder as fully as
if such Participant were the direct holder thereof provided that Borrower shall
not be required to pay to any Participant more than the amount which it would
have been required to pay to Lender which granted an interest in its Advances
or other Obligations payable hereunder to such Participant had such Lender
retained such interest in the Advances hereunder or other Obligations payable
hereunder and in no event shall Borrower be required to pay any 

 

106

 

such amount arising from
the same circumstances and with respect to the same Advances or other
Obligations payable hereunder to both such Lender and such Participant.  Borrower hereby grants to any Participant a
continuing security interest in any deposits, moneys or other property actually
or constructively held by such Participant as security for the Participant’s
interest in the Advances.  No Lenders
shall transfer, grant, assign or sell any participation under which the
participant shall have rights to approve any amendment or waiver of this
Agreement except to the extent such amendment or waiver would (A) extend
the final maturity date or the date for the payments of any installment of fees
or principal or interest of any Advances or Letter of Credit reimbursement
obligations in which such participant is participating, (B) reduce the amount
of any installment of principal of the Advances or Letter of Credit
reimbursement obligations in which such participant is participating, (C) except
as otherwise expressly provided in this Agreement, reduce the interest rate
applicable to the Advances or Letter of Credit reimbursement obligations in
which such participant is participating, or (D) except as otherwise
expressly provided in this Agreement, reduce any fees payable hereunder.

 

(c)           Any Lender with
the consent of Agent (and, so long as no Event of Default has occurred and is
continuing, the Borrower, such consent not to be unreasonably withheld) which
shall not be unreasonably withheld or delayed must sell, assign or transfer all
or any part of its rights and obligations under or relating to Revolving
Advances and/or Term Loans under this Agreement and the Other Documents to one
or more additional banks or financial institutions and one or more additional
banks or financial institutions may commit to make Advances hereunder (each a “Purchasing
Lender”), in minimum amounts of not less than $5,000,000 for Revolving
Advances and $500,000 for a Term Loan, pursuant to a Commitment Transfer
Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent
and delivered to Agent for recording; provided, that any such assignment of a
portion must be for a constant and non-varying portion of such Lender’s rights
under this Agreement, the Other Documents, the Advances and Commitment
Percentage.  Upon such execution,
delivery, acceptance and recording, from and after the transfer effective date
determined pursuant to such Commitment Transfer Supplement, (i) Purchasing
Lender thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose.  Such Commitment Transfer Supplement shall be
deemed to amend this Agreement to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Other Documents.  Borrower hereby consents to the addition of
such Purchasing Lender and the resulting adjustment of the Commitment
Percentages arising from the purchase by such Purchasing Lender of all or a
portion of the rights and obligations of such transferor Lender under this
Agreement and the Other Documents. 
Borrower shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.

 

(d)           Any Lender, with
the consent of Agent which shall not be unreasonably withheld or delayed, may
directly or indirectly sell, assign or transfer all or any portion of its
rights and 

 

107

 

obligations under or
relating to Revolving Advances, and/or Term Loans under this Agreement and the
Other Documents to an entity, whether a corporation, partnership, trust,
limited liability company or other entity that (i) is engaged in making,
purchasing, holding or otherwise investing in bank loans and similar extensions
of credit in the ordinary course of its business and (ii) is administered,
serviced or managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing
CLO” and together with each Participant and Purchasing Lender, each a “Transferee”
and collectively the “Transferees”), pursuant to a Commitment Transfer
Supplement modified as appropriate to reflect the interest being assigned (“Modified
Commitment Transfer Supplement”), executed by any intermediate purchaser,
the Purchasing CLO, the transferor Lender, and Agent as appropriate and
delivered to Agent for recording.  Upon
such execution and delivery, from and after the transfer effective date
determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing
CLO thereunder shall be a party hereto and, to the extent provided in such Modified
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder and (ii) the transferor Lender thereunder shall, to the extent
provided in such Modified Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Modified Commitment Transfer Supplement
creating a novation for that purpose. 
Such Modified Commitment Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing CLO. 
Borrower hereby consents to the addition of such Purchasing CLO.  Borrower shall execute and deliver such
further documents and do such further acts and things in order to effectuate
the foregoing.

 

(e)           Agent shall
maintain at its address a copy of each Commitment Transfer Supplement and
Modified Commitment Transfer Supplement delivered to it and a register (the “Register”)
for the recordation of the names and addresses of each Lender and the
outstanding principal, accrued and unpaid interest and other fees due
hereunder.  The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower, Agent and
Lenders may treat each Person whose name is recorded in the Register as the
owner of the Advance recorded therein for the purposes of this Agreement.  The Register shall be available for
inspection by Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.  Agent
shall receive a fee in the amount of $3,500 payable by the applicable
Purchasing Lender and/or Purchasing CLO upon the effective date of each
transfer or assignment (other than to an immediate purchaser) to such
Purchasing Lender and/or Purchasing CLO.

 

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

 

15.4.       Application of Payments.

 

Agent shall have the
continuing and exclusive right to apply or reverse and re-apply any payment and
any and all proceeds of Collateral to any portion of the Obligations.  To the extent that Borrower makes a payment
or Agent or any Lender receives any payment or proceeds of the Collateral for
Borrower’s benefit, which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, 

 

108

 

custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.

 

15.5.       Indemnity.

 

Borrower shall indemnify
Agent, each Lender and each of their respective officers, directors,
Affiliates, attorneys, employees and agents from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including reasonable fees and disbursements of counsel) which may be imposed
on, incurred by, or asserted against Agent or any Lender in any claim,
litigation, proceeding or investigation instituted or conducted by any
Governmental Body or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Other Documents, whether or not Agent or any
Lender is a party thereto, except to the extent that any of the foregoing
arises out of the gross negligence, bad faith or willful misconduct of the
party being indemnified (as determined by a court of competent jurisdiction in
a final and non-appealable judgment). 
Without limiting the generality of the foregoing, this indemnity shall
extend to any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever (including reasonable fees and disbursements of counsel) asserted
against or incurred by any of the indemnitees described above in this Section 15.5
by any Person under any Environmental Laws or similar laws by reason of
Borrower’s or any other Person’s failure to comply with laws applicable to
solid or hazardous waste materials, including Hazardous Substances and
Hazardous Waste, or other Toxic Substances. 
Additionally, if any taxes (excluding taxes imposed upon or measured
solely by the net income of Agent and Lenders, but including any intangibles
taxes, stamp tax, recording tax or franchise tax) shall be payable by Agent,
Lenders or Borrower on account of the execution or delivery of this Agreement,
or the execution, delivery, issuance or recording of any of the Other
Documents, or the creation or repayment of any of the Obligations hereunder, by
reason of any Applicable Law now or hereafter in effect, Borrower will pay (or
will promptly reimburse Agent and Lenders for payment of) all such taxes,
including interest and penalties thereon, and will indemnify and hold the
indemnitees described above in this Section 15.5 harmless from and against
all liability in connection therewith.

 

15.6        Notice.

 

Any notice or request
hereunder may be given to Borrower or to Agent or any Lender at their
respective addresses set forth below or at such other address as may hereafter
be specified in a notice designated as a notice of change of address under this
Section.  Any notice, request, demand,
direction or other communication (for purposes of this Section 15.6 only,
a “Notice”) to be given to or made upon any party hereto under any
provision of this Loan Agreement shall be given or made by telephone or in
writing (which includes by means of electronic transmission (i.e., “e-mail”) or
facsimile transmission in accordance with this Section 15.6.  Any such Notice must be delivered to the
applicable parties hereto at the addresses and numbers set forth under their
respective names on Section 15.6 hereof or in accordance with any
subsequent unrevoked 

 

109

 

Notice from any such
party that is given in accordance with this Section 15.6.  Any Notice shall be effective:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

	
  (A)

  	
  If to Agent or

  	
  PNC Bank, National Association

  
	
   

  	
  PNC at:

  	
  One Piedmont Town Center

  
	
   

  	
  4720 Piedmont Row Drive

  
	
   

  	
  Suite 300

  
	
   

  	
  Charlotte, North Carolina 28210

  
	
   

  	
  Attention:

  	
  Bryan Shia

  
	
   

  	
  Telephone:

  	
  (704) 551-8512

  
	
   

  	
  Facsimile:

  	
  (704 693-7918

  
	
   

  
	
  with a copy to:

  	
  PNC Bank, National Association

  
	
   

  	
  PNC Agency Services

  
	
   

  	
  PNC Firstside Center

  
	
   

  	
  500 First Avenue, 4th Floor

  
	
   

  	
  Pittsburgh, Pennsylvania 15219

  
	
   

  	
  Attention:

  	
  Lisa Pierce

  
	
   

  	
  Telephone:

  	
  (412) 762-6442

  
	
   

  	
  Facsimile:

  	
  (412) 762-8672

  

 

110

 

	
  with an additional

  
	
  copy to:

  	
  Moore & Van Allen

  
	
   

  	
  100 N. Tryon Street, Floor 47

  
	
   

  	
  Charlotte, North Carolina 28202-4003

  
	
   

  	
  Attention:

  	
  Lea Stromire Johnson

  
	
   

  	
  Telephone:

  	
  (704) 331-1068

  
	
   

  	
  Facsimile:

  	
  (704) 378-2068

  
	
   

  	
   

  	
   

  
	
  (B) 

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

  
	
   

  
	
  (C)

  	
  If to Borrower:

  	
  WM Coffman LLC

  
	
   

  	
  c/o P&F
  Industries, Inc.

  
	
   

  	
  445 Broadhollow Road,
  Suite 100

  
	
   

  	
  Melville, New York
  11747

  
	
   

  	
  Attention:

  	
  Joseph A.
  Molino, Jr.

  
	
   

  	
   

  	
  Vice President and CFO

  
	
   

  	
  Telephone:

  	
  (631) 773-4210

  
	
   

  	
  Telecopier:

  	
  (631) 773-4230

  
	
   

  
	
  with a copy to:

  	
  Certilman Balin
  Adler & Hyman LLP

  
	
   

  	
  90 Merrick Avenue

  
	
   

  	
  East Meadow, New York
  11554

  
	
   

  	
  Attention:

  	
  Steven J.
  Kuperschmid, Esq.

  
	
   

  	
  Telephone:

  	
  (516) 296-7000

  
	
   

  	
  Telecopier:

  	
  (516) 296-7111

  

 

15.7.       Survival.

 

The obligations of
Borrower under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and 15.5 and the obligations
of Lenders under Section 14.7, shall survive termination of this Agreement
and the Other Documents and payment in full of the Obligations.

 

15.8.       Severability.

 

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

 

15.9.       Expenses.

 

All costs and
expenses including reasonable attorneys’ fees (including the allocated costs of
in house counsel) and disbursements incurred by Agent on its behalf or on
behalf of Lenders (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection
with the entering into, modification, amendment, administration and enforcement
of this Agreement, the Subordination Agreements, the Other Documents or any 

 

111

 

consents or waivers
hereunder or thereunder and all related agreements, documents and instruments,
or (c) in instituting, maintaining, preserving, enforcing and foreclosing
on Agent’s security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Agent’s or any Lender’s rights hereunder, under
the Subordination Agreements, the Other Documents and under all related
agreements, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent’s or any Lender’s transactions with Borrower, or any Subordinated
Lenders or (e) in connection with any advice given to Agent with respect
to its rights and obligations under this Agreement, the Subordination
Agreements, the Other Documents and all related agreements, may be charged to
Borrower’s Account and shall be part of the Obligations.

 

15.10.     Injunctive Relief.

 

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

 

15.11.     Damages.

 

Neither Agent nor
any Lender, nor any agent or attorney for any of them, shall be liable to
Borrower (or any Affiliate of any such Person) for punitive, exemplary or
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment, administration or collection of the Obligations or
as a result of any transaction contemplated under this Agreement or any other
Document.

 

15.12.     Captions.

 

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

 

15.13.     Counterparts; Facsimile Signatures.

 

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

 

15.14.     Construction.

 

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

 

112

 

15.15.     Confidentiality; Sharing Information.

 

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

 

(b)           Borrower
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to Borrower or one or more of its
Affiliates (in connection with this Agreement or otherwise) by any Lender or by
one or more Subsidiaries or Affiliates of such Lender and Borrower hereby
authorizes each Lender to share any information delivered to such Lender by
Borrower and its Subsidiaries pursuant to this Agreement, or in connection with
the decision of such Lender to enter into this Agreement, to any such
Subsidiary or Affiliate of such Lender, it being understood that any such
Subsidiary or Affiliate of any Lender receiving such information shall be bound
by the provisions of this Section 15.15 as if it were a Lender
hereunder.  Such authorization shall
survive the repayment of the other Obligations and the termination of this
Agreement.

 

15.16.     Publicity.

 

Borrower and each Lender
hereby authorizes Agent to make appropriate announcements of the financial
arrangement entered into among Borrower, Agent and Lenders, including
announcements which are commonly known as tombstones, in such publications and
to such selected parties as Agent provided Agent shall obtain Borrower’s
consent for announcements inconsistent with the prior approval of Borrower.

 

15.17.     Certifications From Banks and
Participants; USA PATRIOT Act.

 

Each Lender or assignee
or participant of a Lender that is not incorporated under the Laws of the
United States of America or a state thereof (and is not excepted from the
certification requirement contained in Section 313 of the USA PATRIOT Act
and the applicable 

 

113

 

regulations because it is
both (i) an affiliate of a depository institution or foreign bank that
maintains a physical presence in the United States or foreign country, and (ii) subject
to supervision by a banking authority regulating such affiliated depository
institution or foreign bank) shall deliver to the Agent the certification, or,
if applicable, recertification, certifying that such Lender is not a “shell”
and certifying to other matters as required by Section 313 of the USA
PATRIOT Act and the applicable regulations: 
(1) within 10 days after the Closing Date, and (2) as such
other times as are required under the USA PATRIOT Act.

 

15.18.     Draws Under the NY Commercial Bank
Letters of Credit.

 

Agent shall be permitted
to draw in full on first the NY Commercial Bank A Letter of Credit and next the
NY Commercial Bank B Letter of Credit upon Agent’s demand pursuant to the terms
of the applicable NY Commercial Bank Letter of Credit following a Triggering
Event (as defined below), provided Agent may only draw on one NY Commercial
Bank Letter of Credit with respect to any single Triggering Event, which draw
shall be the only amount payable under the NY Commercial Bank Letters of Credit
in respect of such Triggering Event.  A “Triggering
Event” shall occur at such time as Excess Availability for Borrower is less
than $150,000 for two (2) consecutive Business Days or more than five (5) Business
Days in total with no more than two Triggering Events occurring prior to September 30,
2010.  For the four quarter period ending
as of June 30, 2010, if the Fixed Charge Coverage Ratio of Borrower is
greater than or equal to 1.25 to 1.0 and there has been no Triggering Event,
both the NY Commercial Bank Letters of Credit shall be cancelled, terminated or
permitted to expire without renewal, as applicable, on June 30, 2010 and
Agent shall promptly deliver the original NY Commercial Bank Letters of Credit
to Borrower.  If there has been a
Triggering Event during the four quarter period ending as of June 30, 2010
and the Fixed Charge Coverage Ratio of Borrower is less than 1.25 to 1.0, the
outstanding NY Commercial Bank B Letter of Credit shall not be terminated until
September 30, 2010.  As used herein,
“Excess Availability” at a particular date shall mean an amount equal to (A) the
lesser of (I) the Formula Amount or (II) the Maximum Revolving
Advance Amount, minus (B) the outstanding amount of Advances.  Agent acknowledges that simultaneously with
making a draw under a NY Commercial Bank Letter of Credit that Agent will
demand payment of a Shortfall Payment under the Carousel Guaranty.  Notwithstanding the foregoing, Agent agrees
that prior to a draw under either NY Commercial Bank Letter of Credit Agent
will notify P&F that Agent intends to make a draw and if Agent receives a
wire from P&F no later than one (1) Business Day following Agent’s
notification in the amount of the proposed draw Agent will not make a draw
under the applicable NY Commercial Bank Letter of Credit.

 

114

 

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

 

 

	
   

  	
  WM COFFMAN LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph A. Molino,
  Jr.

  
	
   

  	
  Name:

  	
  Joseph A. Molino, Jr.

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PNC BANK, NATIONAL
  ASSOCIATION,

  
	
   

  	
  as Lender and as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bryan Shia

  
	
   

  	
  Name:

  	
  Bryan Shia

  
	
   

  	
  Title:

  	
  Vice President

  

 

 

Credit Agreement

 

 

	
  STATE OF New York

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF Suffolk

  	
  )

  

 

On this 5th day of June,
2009, before me personally came Joseph A. Molino, Jr., to me known, who, being
by me duly sworn, did depose and say that s/he is the Vice President of WM
COFFMAN LLC, the limited liability company described in and which executed the
foregoing instrument; and that s/he signed her/his name thereto by order of the
management committee of said limited liability company.

 

 

	
   

  	
  /s/ Robert C. Weiden

  
	
   

  	
  Notary Public

  

 

 

	
  STATE OF North Carolina

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF Mecklenburg

  	
  )

  

 

 

On this 12th day of June,
2009, before me personally came Bryan Shia, to me known, who, being by me duly
sworn, did depose and say that s/he is the Vice President of PNC BANK, NATIONAL
ASSOCIATION, and that s/he was authorized to sign her/his name thereto.

 

 

	
   

  	
  /s/ Stephanie O’ Madigan

  
	
   

  	
  Notary PublicExhibit
10.4

 

 

REIMBURSEMENT AGREEMENT

 

DATED AS OF June 8, 2009

 

By and Between

 

WM COFFMAN LLC

and

 

RICHARD HOROWITZ

 

 

 

 

REIMBURSEMENT AGREEMENT

 

THIS AGREEMENT is made as of
the 8th day of June, 2009 by and between WM COFFMAN
LLC, a limited liability company organized and existing under the laws of the
State of Delaware having its principal office at 445 Broadhollow Road,
Melville, New York 11747 (the Borrower”) and RICHARD HOROWITZ, an individual
residing at 90 Wheatley Road, Old Westbury, New York 11568 (the “Principal”).

 

W I T N E S S E T H:

 

The Borrower has applied to PNC
Bank National Association, a national bank (the “Agent”) for loans in aggregate
principal amount of $12,000,000.00 under a Revolving Credit Term Loan and
Security Agreement dated as of June 8, 2009 among the Borrower, the Agent
and the various lenders party thereto (the “Loan Agreement”); and

 

The Principal is a
substantial shareholder of P&F Industries, Inc., which is the indirect
owner of the Borrower.

 

In order to induce the lenders
and the Agent to enter into the Loan Agreement, Borrower caused Principal to
apply to and enter into letter of credit documentation with New York Commercial
Bank (the “Bank”) to issue two standby letters of credit, each in the amount of
$145,000 naming the Agent as beneficiary (the “Letters of Credit”).

 

In order to cause Principal
to enter into such documentation with Bank and thereby arrange for the issuance
of the Letters of Credit and because of the direct benefit to Borrower related
to the issuance of the Letters of Credit, Borrower has agreed to enter into
this Agreement to provide for the repayment to Principal of any payments made
by Principal to Bank pursuant to the letter of credit documentation arising out
of or by reason of draws under the Letters of Credit.

 

NOW, THEREFORE, intending to
be legally bound, the Borrower and the Principal hereby agree as follows:

 

ARTICLE I

 

1.01        Certain
Definitions.  All
capitalized terms used herein shall have the meanings set forth in the Loan
Agreement.

 

1.02        Accounting
Terms; Other Definitions.  As used herein and in any certificate or
other documents made or delivered pursuant hereto, accounting terms not
specifically defined herein shall have the respective meanings given to them
under GAAP.

 

1.03        Construction.  Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and “or” has the inclusive meaning represented by the
phrase “and/or”.  The words “hereof”, “herein”,
“hereunder” and 

 

1

 

similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  The article, section, table
of contents and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect.  Article, section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified.

 

ARTICLE II

LETTERS OF CREDIT AND LOANS

 

2.01        Issuance.  The Borrower hereby requests the Principal to
cause the Bank to issue to the Agent on or before the date of the Loan
Agreement, the Letters of Credit No. 2009FS00177 and No. 2009FS00176 in
the form attached hereto as Exhibit “A” for the account of the Borrower
each in the amount of $145,000 to pay a portion of the amounts provided for in Section 15.18
of the Loan Agreement.

 

2.02        Reduction
and Termination.  (a)       The Letters of Credit shall terminate on
the earliest of (i) 5:00 P.M. Eastern Time on June 30, 2010 in
the case of No. 2009FS00177 and September 30, 2010 in the case of No. 2009FS00176
(respectively, the “Expiration Date”), or if not a business day, the next
following business day, (ii) the date on which there has been a drawing, (iii) the
day upon which a substitute letter of credit becomes effective, or (iv) the
date the Letter of Credit shall be delivered to the Bank for cancellation as
set forth in the Loan Agreement.

 

2.03        Loans.  Any drawing under the Letters of Credit that
results in Principal being liable to Bank for the amount of such draw, pursuant
to the Bank documentation, shall automatically be converted into a loan (each,
a “Loan” and, collectively, the “Loans”). 
Each Loan shall be evidenced by a note (as amended and restated from
time to time, the “Note”), in the form attached hereto as Exhibit B, with
appropriate insertions, duly executed and delivered by the Borrower to the
order of the Principal, dated the date of any draw and payable to the Principal.

 

2.04        Interest
Rate.   The Loans
shall bear interest for the period from the date thereof until the stated
maturity thereof on the unpaid principal amount thereof at a rate per annum
equal to six and one-half (6.5%) percent.

 

(b)           If the Borrower shall default in the payment of the
principal of or interest on any Loan, or any other amount becoming due
hereunder, the Borrower shall on demand from time to time pay interest on such
defaulted amount accruing from the date of such default (without reference to
any period of grace) up to and including the date of actual payment (after as
well as before judgment) at eight and one-half (8.5%) percent.

 

(c)           Interest on each Loan shall be payable in arrears on each Quarterly
Payment Date, as of defined in the Note.

 

2

 

(d)           Interest payable on each Loan shall be computed on the
basis of a 360 day year, for the actual number of days elapsed and shall accrue
through the date of receipt of payment. 
In the event the date specified for any payment hereunder is not a business
day, such payment shall be made on the next following business day and interest
shall be paid at the rate provided for herein on any such payment to the business
day on which such payment is made.

 

ARTICLE
III

REPRESENTATIONS
AND WARRANTIES

 

3.01.                     Representations
and Warranties.

 

In order to induce the
Principal to enter into this Agreement and arrange with the Bank for issuance
of the Letters of Credit herein provided for, the Borrower represents and
warrants to the Bank that:

 

(a)           the Borrower has the all requisite
corporate power and authority to execute and deliver this Agreement and the
Notes and to perform all of the obligations hereunder and thereunder.

 

(b)           the execution and delivery by the Borrower of this
Agreement and the Notes and the consummation by the Borrower of the
transactions contemplated hereby and thereby have been validly authorized by
all necessary limited liability action on the part of the Borrower.

 

(c)           this Agreement and the Notes (when executed
and delivered by the Borrower) constitute valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws relating
to or affecting the rights of creditors generally and by equitable principles,
including those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses;
and

 

(d)           the execution, delivery and
performance by the Borrower of this Agreement and the Notes do not and will not
(i) violate any provisions of the Borrower’s formation document, operating
agreement or any contract, agreement, law, regulation, order, decree or writ to
which the Borrower or any of its properties are subject, or (ii) require
the consent or approval of any person, entity or authority, including, without limitation,
any regulatory authority or governmental body of the United States of America
or any state thereof or any political subdivision of any of the foregoing.

 

ARTICLE
IV

SUBORDINATION PROVISIONS

 

4.01        Subordination.    The Principal agrees that the Notes are
subordinate and junior in right of payment to all Obligations, as defined in
the Loan Agreement, except as such payments of 

 

3

 

principal and interest under the Notes are
specifically authorized and provided for in the Loan Agreement.  The full provisions related to the
subordination of the Notes are contained in the Subordination Agreement annexed
hereto and made a part hereof as Exhibit C.

 

ARTICLE
V

CONDITIONS
PRECEDENT

 

5.01        Conditions to Delivery of Notes.  The obligations of the Borrower to execute
and deliver the Notes in the form of Exhibit B hereto in accordance with
the terms hereof is specifically conditioned upon the Principal executing and
delivering the Subordination Agreement in the form of Exhibit C
hereto.  The parties agree to execute and
deliver each of the Note and the Subordination Agreement simultaneously.  Borrower acknowledges and agrees that it will
be responsible for obtaining execution by the Agent of the Subordination Agreement.  Principal agrees to take any actions
reasonably requested by Borrower to assist in obtaining Agent’s execution of
the Subordination Agreement.

 

ARTICLE
VI

MISCELLANEOUS

 

6.01        Consents to Amendments.  This Agreement may be amended and the Borrower
may take any action prohibited, or omit to perform any act required to be
performed by it, if the Borrower shall first obtain the Principal’s written
consent to such amendment, action or omission to act on such terms as the Principal
may require in his sole discretion.

 

6.02        Survival of Representations.  All representations, warranties, covenants
and agreements made by the Borrower in connection herewith shall survive the
execution and delivery of this Agreement.

 

6.03        Successors
and Assigns.  All
covenants and agreements herein shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, provided the Borrower
may not transfer or assign any of its rights or interests hereunder without the
specific written consent of the Principal.

 

6.04        Expenses.  The Borrower agrees (a) to pay or
reimburse the Principal for all its out-of-pocket costs and expenses incurred
in connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Principal and (b) to
pay or reimburse the Principal for all his costs and expenses incurred in
connection with the enforcement or preservation of any rights under the Notes and
any such other documents, including, without limitation, fees and disbursements
of counsel to the Principal.  The
agreements in this Section shall survive the respective Expiration Dates
of the Letters of Credit.

 

4

 

6.05        Applicable
Law and Jurisdiction; Counterclaims.  This Agreement and the rights and obligations
of the parties hereunder shall be construed and interpreted in accordance with
the law of the State of New York.  The Borrower
hereby submits to the jurisdiction of the Supreme Court of the State of New
York and agrees with the Principal that personal jurisdiction over the Borrower
shall rest with said Court for purposes of any action on or related to this
Agreement.  THE BORROWER HEREBY
EXPRESSLY WAIVES ANY RIGHT TO INTERPOSE A COUNTERCLAIM IN ANY ACTION OR
PROCEEDING ON OR RELATED TO THIS AGREEMENT EXCEPT FOR MANDATORY COUNTERCLAIMS.

 

6.06        Further
Assurances  The Borrower
agrees at any time and from time to time at its expense, upon request of the Principal,
to promptly execute, deliver, or obtain or cause to be executed, delivered or
obtained any and all further instruments and documents and to take or cause to
be taken all such other action as the Principal may reasonably deem desirable
in obtaining the full benefits of this Agreement.

 

6.07        Headings.  The headings herein are for convenience only
and shall not limit or affect the meaning or construction of the provisions
herein.

 

6.08        Notices.  Notices and consents provided herein shall be
in writing and shall be given to the other party by personal delivery or
certified mail, return receipt requested, in a prepaid wrapper directed to the
other party at its address stated below or such other address as from time to
time designated in writing by one party to the other:

 

(a)                                  if to the Borrower:

WM Coffman LLC

445 Broadhollow Road

Melville, New York 11747

 

(b)                                 if to the Principal:

 

Notice by mail shall be effective when
received but if not sooner received shall be deemed effective at 2:45 p.m.
on the second Business Day after mailing. 
This provision shall not prevent any party from using some other method
of giving notice.

 

6.09        Trial By
Jury.  THE BORROWER
AND THE PRINCIPAL MUTUALLY HEREBY KNOWINGLY VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE
OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.

 

5

 

THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR THE PRINCIPAL TO ACCEPT THIS AGREEMENT AND CAUSE THE ISSUANCE OF THE LETTER
OF CREDIT.

 

6.10        Severability.  In the event that any one or
more  of the provisions of this Agreement
or any document executed in connection herewith shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.

 

6.11        Counterparts.  This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original.  It shall not be necessary in making proof of
this Agreement to produce or account for more than one counterpart.

 

6

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed and delivered by
their proper and duly authorized officers as of the day and year first above
written.

 

	
   

  	
  WM COFFMAN LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph A. Molino, Jr.

  
	
   

  	
  Name:

  	
  Joseph A. Molino

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Richard Horowitz

  
	
   

  	
  Richard Horowitz

  

 

7

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