Document:

Exhibit 10.12

 

DISTRIBUTION AGREEMENT

 

THIS DISTRIBUTION AGREEMENT (“Agreement”), dated as of August 24,
2000, 2000, is by and between DAITO-OSIM HEALTH CARE APPLIANCES (SIZHOU) CO.,
LTD., a Chinese corporation, having its principal place of business at NO. 16
SuTong Rd., Suzhou, Jiangsu, P.R. China 215006 (“Supplier”), and INTERATIVE
HEALTH LLC, a California limited liability company, having its principal place
of business at 3030 Walnut Ave., Long Beach, CA 90807, United States of America
(“Distributor”).

 

WITNESSETH:

 

WHEREAS, Supplier and /or Distributor have developed the Products
jointly or separately (as hereinafter defined).

 

WHEREAS, Supplier wishes to manufacture the Products.

 

WHEREAS, Distributor wishes to import through a trading company, Daito Mingsi
Inc., a California corporation, having its principal place of business at 4929
Wilshire Blvd., Suite 1020, Los Angeles, CA 90010, United States of America
(“Daito Mingsi”), or directly market and distribute the Products throughout the
Territory (as hereinafter defined); and

 

WHEREAS, Supplier desires to appoint Distributor as its exclusive
distributor of the Products in the Territory, and Distributor desires to accept
such appointment, in accordance with the terms and conditions hereof.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the Parties (as hereinafter defined)
hereby agree as follows:

 

1.                                       Definitions.  As used herein, the following terms shall
have the meanings set forth below:

 

                                                “Effective
Date” means the date of this Agreement, as enumerated above.

“Party” or “Parties” means Supplier and/or Distributor, as applicable.

“Person” means any individual, firm, corporation, partnership or other entity,
and shall include any successor (by merger or otherwise) of such entity.  

“Product” or “Products” means any and all massage chairs manufactured or sold
by Supplier, whether now or in the future.

“Territory” means the United States of America and Canada.

 

2.                                       Grants

 

2.1                                 Appointment as Distributor.  Subject to the terms and conditions of this
Agreement, Supplier hereby grants to Distributor, and Distributor hereby
accepts from Supplier, an exclusive right and license to import, market and
distribute the Products in the Territory.

 

2.2                                 Exception to
Exclusivity.  Distributor hereby agrees
that notwithstanding the exclusive right and license set forth above, Supplier
shall reserve a right to export

 

***         Confidential
treatment requested.

 

 

and sell Non-IH Massage Chairs (as defined below) directly to ***,
which imports, markets and distributes certain Products in the Territory;
provided, however, such sales are only for resale by *** to end users and not
to resellers.  “Non IH Massage Chairs”
shall refer to any massage chair manufactured by Supplier that does not contain
any technology owned or designed by Distributor and is different in design,
features, or specifications from the Products previously or currently purchased
by Distributor from Supplier.

 

2.3                                 Delegation of Each
Party’s Responsibilities.  Distributor
and Supplier may perform their responsibilities under this Agreement directly
or through one or more of its affiliates, upon notice to the other Party,
provided that each Party shall remain fully liable for the due observance and
performance of any obligation undertaken or assumed by its affiliate(s).  Supplier agrees to cause its affiliates to
conform to the terms and obligations of this Agreement as if they were the
Supplier hereunder.

 

2.4                                 License of
Intellectual Property.  Supplier hereby
grants to Distributor a non-exclusive and non-royalty bearing license to sell,
offer to sell, import and export the Products within the Territory under all of
the patents owned or licensed by Supplier related to the Products.  Distributor shall not transfer  its rights under this Section 2.2 to
any third party without the prior written consent of Supplier.

 

3.                                       Purchase and
Delivery Terms

 

3.1                                 Prices to
Distributor.  The price for each unit of
Products purchased hereunder by Distributor shall be set according to the
prices established between the Parties (and shall be reviewed annually by the
Parties).  Supplier may increase the
price of the Products provided that Supplier notifies Distributor of such
increase at least ninety (90) days prior to the effectiveness of any such price
increase.  Supplier shall use its
reasonable efforts to maintain reasonable prices for its Products.

 

3.2                                 Orders.  Distributor shall place firm orders for
Products with Supplier in writing (including facsimile transmission or other
electronic media) and in English, and must specify Products ordered by name and
quantity.  Distributor may use its own
order forms, provided that in the event of any inconsistency between the
provisions of any purchase order and this Agreement, the provisions of this
Agreement shall prevail.

 

3.3                                 Filling Orders.  Supplier shall use its reasonable efforts to
meet Distributor’s requested delivery schedule for the Products.

 

3.4                                 Shipment Terms.  Supplier shall ship all Products to
Distributor F.O.B. Port of Shanghai, China or another location within the
Territory that has been agreed upon at the time by Supplier and Distributor
(air or sea freight).  Distributor may
elect to have the Products shipped by any shipping company in its sole and

 

2

 

absolute discretion.  Ownership
and risk of loss associated with the Products shall be transferred from
Supplier to Distributor at the Port of Shanghai, China or such other place of
delivery agreed upon by Supplier and Distributor.  Shipment shall be made to Distributor’s identified warehouse
facilities or freight forwarder.  All
orders placed by Distributor, whether supplied or delayed by Supplier, shall be
included in the actual purchases of Distributor for purposes of determining the
number of units of the Products that have been purchased by Distributor
hereunder.

 

3.5                                 Payment.  Distributor shall pay Supplier for each
shipment of the Products to Distributor hereunder within ninety (90) days
following the date of the confirmed bill of lading (“B/L”) for the Products
shipped to Distributor, in U.S. Dollars, with an irrevocable letter of credit
(an “L/C”).  All L/Cs must be issued by
a reputable international, national, or regional bank in favor of
Supplier.  Notwithstanding the
foregoing, Supplier may, its absolute discretion, accept the payments set forth
above by telegraphic transfer (“T.T.”) within sixty (60) days following the
date of the confirmed B/L.  Supplier may
refuse to ship to Distributor when Distributor is late in paying Supplier.

 

3.6                                 Inspection.  Upon receiving a shipment of Product at its
identified warehouse facilities or freight forwarder, Distributor shall inspect
the shipment to determine if the shipment is incomplete or contains patently defective
or damaged Products.  If Distributor
wishes to submit a claim to Supplier, Distributor shall notify Supplier within
30 days after receiving the shipment that the shipment was incomplete or
contained patently defective or damaged Products at the time of delivery.  Upon receiving the notification, Supplier
shall have 3 0 days to conduct an investigation of the claim and issue a report
to Distributor regarding the results of the investigation.  If it is agreed by the Parties hereto that
the shipment was incomplete or contained patently defective or damaged
Products, Supplier shall deliver replacement Products to Distributor.  If no notification is issued in accordance
with this section, Distributor shall be deemed to have waived its rights to
claim the shipment was incomplete or contained patently defective or damaged
Products.

 

4.                                       Distributor’s
Obligations

 

4.1                                 In the event any
Product is subject to regulation by Chinese laws in relation to export
compliance, Distributor shall furnish to Supplier any information reasonably
requested by Supplier in order for Supplier to obtain any necessary consents
and licenses from the Chinese governmental authorities for the export or
re-export of the Products from China.

 

4.2                                 As and when requested
by Supplier (but no more frequently than quarterly), Distributor shall provide
Supplier with Distributor’s sales and market conditions in the Territory with
supporting data of its purchase plans and sales forecast for the Products.

 

3

 

5.                                       Supplier’s
Obligations

 

5.1                                 Product Supply.  Supplier shall use its reasonable efforts to
fill all of Distributor’s orders for Products in order to meet Distributor’s
needs.

 

5.2                                 Insurance.  At all times during the terms of this
Agreement and five years thereafter, Supplier shall maintain an insurance
policy with a reputable carrier providing coverage for products liability with
a minimum of $2,000,000 per occurrence and $2,000,000 in the aggregate.  Supplier will add Distributor and its
customers as an additional insureds on such policy and provide the Distributor
with a certificate of insurance evidencing the required coverage, including the
broad form endorsement adding Distributor and its customers as additional
insureds.  The certificates and additional
insured endorsement must provide Distributor with at least 30 days notice of
cancellation, non-renewal or material change.

 

6.                                       Handling of
Product Recalls.  In the event either
Party determines that a recall of any Product may be necessary or desirable,
the Parties shall consult with each other concerning the appropriate action to
be taken.  In the event any Product is
recalled, Supplier and Distributor will examine and determine the cause or
causes for the recall.  Upon this
determination, the burden of costs for each recall will be allocated in
proportion to Supplier’s and Distributor’s responsibility for the cause of the
recall.

 

7.                                       Supplier’s
Warranties.

 

7.1.                              Subject to the terms and
conditions of this Agreement, Supplier warrants to Distributor that the
Products, when and as delivered to Distributor, conform to their specifications
in all material respects, and are free from design and manufacturing defects,
including, without limitation, defects in materials and workmanship (the
“Warranty”), provided, however, the- Warranty shall not apply to defects
arising from Product specifications supplied by Distributor to Supplier.  The Parties hereto acknowledge that minor
defects are inevitable and will occur occasionally in specific units of the
Products.  In the event any Product is
defective, Supplier and Distributor will examine and determine the cause or
causes for the defect.  Upon this
determination, the burden of costs for each defect will be allocated in
proportion to Supplier’s and Distributor’s responsibility for the cause of the
defect.

 

7.2           The
warranty provided in the foregoing Section 7.1 shall not be valid if:

 

(a)                                  The Supplier’s
identification marks are removed, covered or otherwise tempered with;

 

(b)                                 The Products are
altered or modified without the prior written consent therefor of Supplier; or

 

(c)                                  The Products are used
with Products other than those manufactured by Supplier without the prior
written consent therefor of Supplier.

 

4

 

8.                                       Proprietary
Information

 

8.1                                 It is expressly
understood and agreed that all information furnished by or obtained from the
providing party during the term of this Agreement, and marked as confidential,
including, without limitation, all drawings, plans, data, instructions,
hardware and software, whether furnished or obtained in writing, orally or in
physical configuration, is the proprietary information and constitute the trade
secrets of the providing party, and shall not be reproduced in any form or
disclosed to any third party by the receiving party, nor shall the same be used
by the receiving party to produce any product which is functionally comparable
to the Products at any time during the term of this Agreement or thereafter
without the prior written consent therefor of the providing party, as the case
may be; provided, however, that proprietary information does not include, and
the requirements of this Section 8 do not apply to, any information which
(a) at the time of its disclosure is in the public domain or thereafter comes
into the public domain (other than as a direct result of disclosure by the
receiving party in breach of the terms hereof); (b) is already in the receiving
party’s possession at the time of disclosure by the providing party to the receiving
party; (c) is subsequently made available to the receiving party by a source
other than the providing party provided always that the receiving party shall
not be under any duty or enquiry as to the capacity of such source to disclose
information to the receiving party; (d) has been or is acquired or
independently developed by the receiving party or on the receiving party’s
behalf; or (e) is oral information, except for that which is later specified as
confidential in writing by the providing party.

 

8.2                                 As an exception to the
obligation of confidence contained in the foregoing Section 8.1, the
receiving party may disclose proprietary information to such of its employees
or third parties as may reasonably require access to such information in order for
the receiving party to fulfill its obligations under this Agreement; provided,
however, that any such disclosure shall be made to the minimum extent necessary
for such purpose.

 

8.3                                 Upon termination of
this Agreement, for whatever reason, the receiving party shall return to the
providing party, as the case may be, all proprietary information furnished by
or obtained from the providing party hereunder still in its possession except
for that information retention of which is specifically permitted by the providing
party, as the case may be and except that the receiving party may retain and
continue to use proprietary information to the extent necessary to dispose of
any remaining inventory of the Products.

 

9.                                       Term and
Termination

 

9.1           Term.  Subject to earlier termination pursuant to
Section 9.2, the initial term of this Agreement shall commence as of the
Effective Date and continue through the third (3rd) anniversary thereof.  This Agreement may thereafter be automatically
annually renewed for additional subsequent one (1) year period (hereinafter
referred to as an “Extended Term”) unless either party gives to the other party
a

 

5

 

written notice to terminate this Agreement at least three (3) months
before the expiration of the initial term or any Extended Term.

 

9.2           Early
Termination by a Party.  Any Party may
terminate this Agreement prior to the expiration of its term upon written
notice to the other party upon the occurrence of any of the following events,
provided, however, that, in case of sub-section (c) below, such a written
notice must be made at least ninety (90) days prior to the effectiveness of
such termination:

 

(a)                                  If the other Party
breaches any covenant, agreement, representation or other provision of this
Agreement which materially and adversely affects the supply, marketing,
distribution, sale or service of the Products and fails to cure such breach
within thirty (30) days after.  having
being notified of such breach.

 

(b)                                 If the other Party
ceases to do business or otherwise terminates its business operations involving
the Products or becomes insolvent or seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against such Party and is
not dismissed within sixty (60) days.

 

(c)                                  ***

 

9.3                                 Consequences of
Termination.  Any termination or
expiration of this Agreement shall not release (i) either Party from paying any
amount that may then be owing to the other party or from any obligation to pay
for any Products that may have been ordered from and not shipped by the other
Party prior to such termination or expiration or (ii) Supplier from its
obligations hereunder to supply replacement parts for the Products for a period
of five (5) years after such termination or expiration.  The Parties understand that the rights of
termination hereunder are absolute. 
Termination is not the sole remedy under this Agreement, and, whether or
not termination is effected, all other remedies shall remain available.

 

9.4                                 Survival.  Sections 8, 9.3, 10.2, 10.4, 10.6, 10.7 and
10.9 hereof shall survive the termination or expiration for any reason of this
Agreement.

 

10.                                 Miscellaneous

 

10.1                           Entire Agreement.  This Agreement constitutes the entire
agreement between the Parties, superseding all prior oral or written agreements
and negotiations on the

 

6

 

subject hereof; and there are no conditions affecting this Agreement, which
are not expressed herein.

 

10.2                           Terms Generally.  The definitions in Section 1 shall
apply equally to both the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”.

 

10.3                           Force Majeure.  Neither Supplier nor Distributor shall be
liable for failure to perform its part of this Agreement when such failure is
due to fire, flood, earthquakes, strikes, labor troubles or other industrial
disturbances, inevitable accidents, war (declared or undeclared), embargoes,
blockades, legal restrictions, riots, insurrections, or any cause beyond the
control of such Party to the extent and for the period that such situation
continues.  The affected Party shall
notify the other Party of the updated situation from time to time.

 

10.4                           Notices.  Any notice required or permitted to be given
hereunder shall be sufficient if in writing, and in English, and (i) delivered
in person or by express delivery or courier service, (ii) sent by facsimile, or
(iii) deposited in the mail registered or certified first class, postage
prepaid and return receipt requested (provided that any notice given pursuant
to clause (ii) is also confirmed by the means described in clause (i) or (iii),
to the address of the Party above first written or to such other address as
such Party from time to time may designate in writing in compliance with the
terms hereof.  Each notice shall be
deemed given when so delivered personally, or sent by facsimile transmission,
or, if sent by express delivery or courier service three (3) business days
after being sent, or if mailed, nine (9) days after date of deposit in the
mail.

 

10.5                           Modifications.  In the event a Party notifies the other
Party of its desire to modify or amend this Agreement, the Parties shall
discuss such proposed modification or amendment, provided that no such
amendment or modification shall be binding on the Parties unless mutually
agreed in writing and signed by the Parties.

 

10.6                           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
reference to its principles of conflicts of laws.  The United Nations Convention on Contracts for the International
Sale of Goods shall not apply to this Agreement and is hereby excluded.  Incoterms 1990, as in effect on July 1,
1990, shall apply to all shipping terms used herein.

 

10.7                           Relationship of the
Parties.  Subject to the terms and
conditions of this Agreement, Distributor is authorized to sell any Products
purchased from Supplier in such manner, at such prices and upon such terms as
Distributor shall determine.  Each Party
is an independent contractor, not an agent or employee of the other Party, and
each Party is solely responsible for all of its employees and agents and its
labor costs and other expenses arising in connection with the performance of

 

7

 

this Agreement.  Neither of the
Parties is authorized to assume or create any obligation or responsibility,
including obligations based on warranties or guarantees or other contractual
obligations, on behalf or in the name of the other Party.

 

10.8                           Severability.  In the event that particular provisions or
requirements of this Agreement are in violation of any law, the validity of any
other provision or requirement shall not be affected thereby and such other provisions
or requirements shall be enforced and remain in full force and effect.

 

10.9                           Arbitration.  All disputes, controversies and differences
which may arise between the Parties out of, in relation to or in connection
with this Agreement, or for the breach thereof, or any claim based on or
arising from any alleged wrongful conduct or omission related to this Agreement
shall, at the request of a Party, be determined by arbitration.  The arbitration shall be conducted in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (“ICC”) in effect as of the commencement of the arbitration.  The arbitration shall be held in
English.  Any arbitration under this
Agreement shall be held in Osaka, Japan. 
The award rendered by the arbitrator(s) shall be final and binding upon
the Parties.

 

10.10                     Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the sane, instrument.

 

10.11                     Enforcement of Intellectual
Property Rights.  Distributor shall
cooperate with Supplier regarding enforcement of intellectual property rights
of Supplier by promptly notifying Supplier of alleged infringers.  Supplier agrees to be listed as a named party
in any suit brought by Distributor to enforce Supplier’s intellectual property
rights against an infringer.

 

10.12                     Assignment.  Except as expressly provided herein, the
rights and obligations of this Agreement may not be assigned or delegated by
either party hereto without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld.

 

8

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date and year above first written.

 

	
   

  	
  DAITO-OSIM HEALTH CARE APPLIANCES

  (SUZHOU) CO., LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Shimizu

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Shinichi Shimizu

  
	
   

  	
   

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INTERACTIVE HEALTH LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carolyn Perrier

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Carolyn Perrier

  
	
   

  	
   

  
	
   

  	
  Title: President and Chief Executive Officer

  

 

9Exhibit
10.13

 

 

INTERACTIVE HEALTH LLC

 

CREDIT AGREEMENT

 

DATED AS OF DECEMBER 30, 2003

 

COMERICA BANK

 

 

 

TABLE OF
CONTENTS

 

	
  1.

  	
  DEFINITIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  REVOLVING CREDIT

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Revolving Credit Commitment

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Accrual of Interest
  and Maturity

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Requests For Advance

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Sweep to Loan

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Accrual of
  Interest; Interest Payments

  	
   

  	
   

  
	
   

  	
  2.6

  	
  Interest Periods

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Conversion
  of Advances

  	
   

  	
   

  
	
   

  	
  2.8

  	
  Prepayment.

  	
   

  	
   

  
	
   

  	
  2.9

  	
  Reduction of Indebtedness

  	
   

  	
   

  
	
   

  	
  2.10

  	
  Optional
  Reduction or Termination of Revolving Credit Aggregate Commitment

  	
   

  	
   

  
	
   

  	
  2.11

  	
  Revolving Credit
  Commitment Fee

  	
   

  	
   

  
	
   

  	
  2.12

  	
  Use of Proceeds

  	
   

  	
   

  
	
   

  	
  2.13

  	
  Prime-based
  Advance in Absence of Election or Upon Default

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  ACCEPTANCES

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Acceptance
  Commitment

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Drafts
  Eligible for Creation of Acceptances

  	
   

  	
   

  
	
   

  	
  3.3

  	
  Assurances

  	
   

  	
   

  
	
   

  	
  3.4

  	
  Discount
  Rate and Acceptance Commission Rate

  	
   

  	
   

  
	
   

  	
  3.5

  	
  Payment Obligation

  	
   

  	
   

  
	
   

  	
  3.6

  	
  Compliance with Laws

  	
   

  	
   

  
	
   

  	
  3.7

  	
  Acceptances
  Ineligible for Purchase or Discount

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  LETTERS OF CREDIT.

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Letter of Credit Commitment

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Conditions
  to Issuance.

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Reimbursement Obligations

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Obligations Unconditional

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Indemnification

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Reliance
  on Documents/Remedies Against Beneficiary

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Existing Letters of Credit

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Letter of Credit Fees

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Use
  of Letters of Credit

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  SPECIAL PROVISIONS, CHANGES IN
  CIRCUMSTANCES AND YIELD PROTECTION.

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Reimbursement of
  Prepayment Cost

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Bank’s Eurodollar
  Lending Office

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Circumstances
  Affecting Eurodollar-based Rate Availability

  	
   

  	
   

  

 

i

 

	
   

  	
  5.4

  	
  Laws
  Affecting Eurodollar-based Rate Availability

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Increased Costs

  	
   

  	
   

  
	
   

  	
  5.6

  	
  Other
  Increased Costs

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Margin Adjustments

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Corporate Authority

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Execution of Loan Documents

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Collateral
  Documents

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Lessor’s
  Acknowledgments

  	
   

  	
   

  
	
   

  	
  6.5

  	
  Payment of Fees

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Appraisals; Collateral
  Audit

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Insurance

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Compliance with
  Contractual Obligations

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Opinions of Counsel

  	
   

  	
   

  
	
   

  	
  6.10

  	
  Closing Certificate

  	
   

  	
   

  
	
   

  	
  6.11

  	
  Minimum EBITDA

  	
   

  	
   

  
	
   

  	
  6.12

  	
  Management and
  Employment Agreements

  	
   

  	
   

  
	
   

  	
  6.13

  	
  Continuing
  Conditions to all Advances

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Corporate
  Authority

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Due Authorization–Company

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Due
  Authorization–Other Loan Parties

  	
   

  	
   

  
	
   

  	
  7.4

  	
  No Litigation

  	
   

  	
   

  
	
   

  	
  7.5

  	
  Good Title; No Liens

  	
   

  	
   

  
	
   

  	
  7.6

  	
  ERISA

  	
   

  	
   

  
	
   

  	
  7.7

  	
  Accuracy
  of Information

  	
   

  	
   

  
	
   

  	
  7.8

  	
  Taxes

  	
   

  	
   

  
	
   

  	
  7.9

  	
  Subsidiaries

  	
   

  	
   

  
	
   

  	
  7.10

  	
  Environmental and
  Safety Matters

  	
   

  	
   

  
	
   

  	
  7.11

  	
  No Investment
  Company or Margin Stock

  	
   

  	
   

  
	
   

  	
  7.12

  	
  Solvency

  	
   

  	
   

  
	
   

  	
  7.13

  	
  Capitalization

  	
   

  	
   

  
	
   

  	
  7.14

  	
  Anti-Terrorism Laws

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  AFFIRMATIVE
  COVENANTS

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Financial
  Statements; Certificates; Other Information

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Payment
  of Obligations

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Maintenance of
  Property; Insurance

  	
   

  	
   

  
	
   

  	
  8.4

  	
  Inspection
  of Property; Books, Records; Insurance

  	
   

  	
   

  
	
   

  	
  8.5

  	
  Notices

  	
   

  	
   

  
	
   

  	
  8.6

  	
  Licenses, Permits, etc

  	
   

  	
   

  
	
   

  	
  8.7

  	
  Conduct
  of Business, Maintenance of Existence

  	
   

  	
   

  
	
   

  	
  8.8

  	
  Compliance
  with ERISA

  	
   

  	
   

  
	
   

  	
  8.9

  	
  Security; Defense of
  Collateral

  	
   

  	
   

  
	
   

  	
  8.10

  	
  Interest
  Coverage Ratio

  	
   

  	
   

  

 

ii

 

	
   

  	
  8.11

  	
  Funded Debt to EBITDA

  	
   

  	
   

  
	
   

  	
  8.12

  	
  Operating Accounts

  	
   

  	
   

  
	
   

  	
  8.13

  	
  Environmental
  Compliance

  	
   

  	
   

  
	
   

  	
  8.14

  	
  Use of Proceeds

  	
   

  	
   

  
	
   

  	
  8.15

  	
  Acceptances—Licenses
  and Insurance

  	
   

  	
   

  
	
   

  	
  8.16

  	
  Future
  Subsidiaries; Additional Collateral

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  NEGATIVE COVENANTS

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Limitations on Debt

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Limitation on
  Mergers; Asset Sales

  	
   

  	
   

  
	
   

  	
  9.3

  	
  Limitation of
  Guarantee Obligations

  	
   

  	
   

  
	
   

  	
  9.4

  	
  Limitation on Acquisitions

  	
   

  	
   

  
	
   

  	
  9.5

  	
  Limitations on Liens

  	
   

  	
   

  
	
   

  	
  9.6

  	
  Restricted Payments

  	
   

  	
   

  
	
   

  	
  9.7

  	
  Capital
  Expenditures

  	
   

  	
   

  
	
   

  	
  9.8

  	
  Transactions with
  Affiliates

  	
   

  	
   

  
	
   

  	
  9.9

  	
  Limitation on Investments

  	
   

  	
   

  
	
   

  	
  9.10

  	
  Limitation on
  Negative Pledge Clause

  	
   

  	
   

  
	
   

  	
  9.11

  	
  Prepayment of Debts.

  	
   

  	
   

  
	
   

  	
  9.12

  	
  Amendment of
  Subordinated Debt Documents

  	
   

  	
   

  
	
   

  	
  9.13

  	
  Amendment to Certain
  Agreements

  	
   

  	
   

  
	
   

  	
  9.14

  	
  Management Fees

  	
   

  	
   

  
	
   

  	
  9.15

  	
  Limitation
  on Sale – Leaseback Transactions

  	
   

  	
   

  
	
   

  	
  9.16

  	
  Fiscal Year

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  EVENTS OF DEFAULT

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Events of Default

  	
   

  	
   

  
	
   

  	
  10.2

  	
  Exercise of Remedies

  	
   

  	
   

  
	
   

  	
  10.3

  	
  Application
  of Proceeds

  	
   

  	
   

  
	
   

  	
  10.4

  	
  Rights Cumulative

  	
   

  	
   

  
	
   

  	
  10.5

  	
  Waiver by Company of
  Certain Laws

  	
   

  	
   

  
	
   

  	
  10.6

  	
  Set–Off

  	
   

  	
   

  
	
   

  	
  10.7

  	
  Waiver of Defaults

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Successors
  and Assigns

  	
   

  	
   

  
	
   

  	
  11.2

  	
  Costs and Expenses

  	
   

  	
   

  
	
   

  	
  11.3

  	
  Accounting
  Principles

  	
   

  	
   

  
	
   

  	
  11.4

  	
  Indulgence

  	
   

  	
   

  
	
   

  	
  11.5

  	
  Notices

  	
   

  	
   

  
	
   

  	
  11.6

  	
  Law of
  Michigan; Consent to Jurisdiction

  	
   

  	
   

  
	
   

  	
  11.7

  	
  Amendment and Waiver

  	
   

  	
   

  
	
   

  	
  11.8

  	
  Payments

  	
   

  	
   

  
	
   

  	
  11.9

  	
  Interest

  	
   

  	
   

  
	
   

  	
  11.10

  	
  WAIVER OF JURY TRIAL

  	
   

  	
   

  
	
   

  	
  11.11

  	
  Counterparts

  	
   

  	
   

  
	
   

  	
  11.12

  	
  Complete Agreement;
  Conflicts

  	
   

  	
   

  

 

iii

 

	
   

  	
  11.13

  	
  Severability

  	
   

  	
   

  
	
   

  	
  11.14

  	
  Independence of Covenants

  	
   

  	
   

  
	
   

  	
  11.15

  	
  Reliance
  on and Survival of Various Provisions

  	
   

  	
   

  
	
   

  	
  11.16

  	
  Indemnification

  	
   

  	
   

  
	
   

  	
  11.17

  	
  Effective
  Upon Execution

  	
   

  	
   

  
	
   

  	
  11.18

  	
  Headings

  	
   

  	
   

  
	
   

  	
  11.19

  	
  USA Patriot Act

  	
   

  	
   

  

 

SCHEDULES

 

Schedule 1.1                                                                             EBITDA
Adjustments

Schedule 1.2                                                                             Wells
Fargo Letters of Credit

Schedule 5.7                                                                             Applicable
Margin Grid

Schedule 6.4A                                                                   Owned
Real Property

Schedule 6.4B                                                                     Leased
Real Property

Schedule 7.6                                                                             Employee
Pension Benefit Plans

Schedule 7.9                                                                             Subsidiaries

Schedule 7.10                                                                       Environmental
Matters

Schedule 7.13                                                                       Capitalization

Schedule 8.16                                                                       Real
Estate Documentation

Schedule 9.1                                                                             Existing
Debt

Schedule 9.3                                                                             Existing
Guarantees

Schedule 9.5                                                                             Permitted
Liens

Schedule 9.10                                                                       Negative
Pledges

 

EXHIBITS

 

A                                                                                      FORM
OF BORROWING BASE CERTIFICATE

B                                                                                        FORM
OF GUARANTY

C                                                                                        FORM
OF MORTGAGE

D                                                                                       FORM
OF REQUEST FOR REVOLVING CREDIT ADVANCE

E                                                                                         FORM
OF REVOLVING CREDIT NOTE

F                                                                                         FORM
OF SECURITY AGREEMENT

G                                                                                        FORM
OF PARENT PLEDGE AGREEMENT

H                                                                                       FORM
OF REQUEST FOR BANKER’S ADVANCE

 

iv

 

CREDIT
AGREEMENT

 

THIS CREDIT AGREEMENT, made as of the 30th day of December,
2003, by and between INTERACTIVE HEALTH LLC, a Delaware limited liability
company (herein called “Company”) and COMERICA BANK, a Michigan banking
corporation, of Detroit, Michigan (herein called “Bank”).

 

RECITALS

 

A.                                   Company
desires to obtain certain credit facilities from Bank.

 

B.                                     Bank
is willing to extend such credit to Company on the terms and conditions herein
set forth.

 

NOW, THEREFORE, Bank and Company agree as follows:

 

1.                                       DEFINITIONS

 

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

 

“Acceptance” shall mean a draft drawn by Company on Bank and
accepted and discounted by Bank pursuant to the terms, conditions and
procedures set forth in this Agreement.

 

“Acceptance Commission Rate” shall mean, in respect of any
Acceptance created and discounted pursuant to this Agreement, a rate equal to
two percent (2.0%) per annum.

 

“Acceptance Discount Rate” shall mean, with respect to the
discount of any Acceptance created hereunder on any day (which must be a Business
Day), a per annum rate equal to the sum of (i) three percent (3.0%), plus
(ii)  rate determined by Bank to be the
rate available to Bank on such Business Day for discounting prime eligible
bankers’ acceptances having a similar tenor to the proposed Acceptance to be
created and discounted on such day.

 

“Acceptance Maximum Amount” shall mean Twenty Million Dollars
($20,000,000).

 

“Acceptance Obligation” shall mean, at any particular time,
the obligations of the Company under each Acceptance to pay the amount of each
Acceptance, together with all other sums, fees, charges and other amounts which
may be owing to the Bank with respect to each Acceptance or with respect to the
related Time Draft Letter of Credit to the extent not already paid by the
Company.

 

“Account” shall have the meaning assigned to it in the
Michigan Uniform Commercial Code on the date of this Agreement.

 

“Account Debtor” shall mean the party who is obligated on or
under any Account.

 

 

“Advance” shall mean a borrowing requested by Company and made
by Bank under Section 2 of this Agreement, including any refunding or
conversions of such borrowings pursuant to Section 2.7 hereof, and shall
include a Eurodollar-based Advance and a Prime-based Advance.

 

“Affiliate” shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation for the purposes of this definition if such Person possesses,
directly or indirectly, the power (i) to vote 10% or more of the securities
having ordinary voting power for the election of directors or managers of such
corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.

 

“Alternate Base Rate” shall mean for any day a rate per annum
(rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the
Federal Funds Effective Rate in effect on such day plus one percent (1%).

 

“Applicable Commercial L/C Issuance Fee” shall mean the
issuance fee applicable to each Commercial Letter of Credit issued in
accordance with Section 4.8(a)(iii)(x) hereof in an amount equal to the
greater of (i) one tenth of one percent (.10%) of the face amount of each such
Commercial Letter of Credit and (ii) Ninety Five Dollars ($95.00).

 

“Applicable Commercial L/C Negotiation Fee” shall mean the fee
payable in accordance with Section 4.8(a)(iii)(y) hereof in an amount
equal to the greater of (i) one eighth of one percent (.125%) of the face
amount of each such Commercial Letter of Credit and (ii) One Hundred Dollars
($100.00).

 

“Applicable Commitment Fee Rate” shall mean as of any date of
determination, the commitment fee rate determined in accordance with the
provisions of Section 5.7 and Schedule 5.7.

 

“Applicable Eurodollar Margin” shall mean as of any date of
determination with respect to the Revolving Credit Note, the interest rate
margin determined in accordance with the provisions of Section 5.7 and
Schedule 5.7.

 

“Applicable Interest Rate” shall mean the Eurodollar-based
Rate or the Prime-based Rate, as selected by Company from time to time subject
to the terms and conditions of this Agreement.

 

“Applicable L/C Commission Rate” shall mean as of any date of
determination with respect to any Standby Letters of Credit, the annual
commission rate determined in accordance with the provisions of
Section 5.7 and Schedule 5.7.

 

“Applicable Prime-based Margin” shall mean as of any date of
determination and with respect to the Revolving Credit Note, the interest rate
margin determined in accordance with the provisions of Section 5.7 and
Schedule 5.7.

 

2

 

“Asset Sale” shall mean the sale, transfer, lease or other
disposition by the Company or any Subsidiary of any asset (other than stock or
other ownership interests of any Subsidiary) to any Person (other than to the
Company or any Guarantor), other than sales, transfers or other dispositions of
Inventory in the ordinary course of business and sales or other dispositions of
assets that have been damaged, become obsolete or are no longer useable.

 

“Borrowing Base” shall mean as of any date of determination,
the sum of (a) eighty-five percent (85%) of the Eligible Accounts, plus (b) the
lesser of (i) seventy-five percent (75%) of Eligible Inventory and (ii) the
amount determined pursuant to clause (a) hereof, provided, however that the
Borrowing Base shall be determined on the basis of the most recent Borrowing
Base Certificate, and provided further that the amount determined as the
Borrowing Base shall be subject, without duplication, to any reserves for
contras/offsets, drop ship receivables, potential offsets due to customer
deposits, discount arrangements approved by Bank, chargebacks, disputed
accounts (or potential chargebacks or disputed accounts), and such other
reserves as reasonably established by the Bank from time to time, including,
without limitation any reserves or other adjustments established by the Bank on
the basis of any subsequent collateral audits conducted hereunder, provided,
however, that (i) the Bank shall give the Company ten (10) days prior written
notice of any new reserves to be established and (ii) the Bank shall not
establish any reserves for inventory-in-transit.

 

“Borrowing Base Certificate” shall mean a Borrowing Base
certificate substantially in the form of Exhibit “A”, executed by an
authorized representative of the Company.

 

“Business Day” shall mean any day on which commercial banks
are open for domestic and international business (including dealings in foreign
exchange) in Detroit, London and New York.

 

“Capital Expenditures” shall mean, for any period, with
respect to any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing (pursuant to a Capitalized Lease)
of fixed or capital assets or additions to equipment, plant and property that
should be capitalized under GAAP on a Consolidated balance sheet of such Person
and its Subsidiaries including, without limitation, amounts paid or payable
under any conditional sale or other title retention agreement or under any lease
or other periodic payment arrangement which is of such a nature that payment
obligations of the lessee or obligor thereunder would be required by GAAP to be
capitalized and shown as liabilities on the balance sheet of such lessee or
obligor.

 

“Capitalized Lease” shall mean any lease of any property
(whether real, personal or mixed) by any Person as lessee which, in conformity
with GAAP, is, or is required to be accounted for as a capital lease on the
balance sheet of such Person, together with any renewals of such leases (or
entry into new leases) on substantially similar terms.

 

“Closing Date” shall mean the date on which the Bank notifies
the Company that the conditions specified in Article 6 hereof have been
satisfied.

 

“Collateral” shall mean all property or rights in which a
security interest, mortgage, lien or other encumbrance for the benefit of the
Bank is or has been granted or arises or has arisen,

 

3

 

under or in connection
with this Agreement, the other Loan Documents, or otherwise to secure the
Indebtedness.

 

“Commercial Letters of Credit” shall mean the commercial
documentary letters of credit issued by the Bank for the account of the Company
for the purchase of goods in the ordinary course of business.

 

“Consolidated” or “Consolidating” shall mean, when used with
reference to any financial term in this Agreement, the aggregate for two or
more Persons of the amounts signified by such term for all such Persons
determined on a consolidated or combined, as applicable, basis in accordance
with GAAP. Unless otherwise specified herein, references to Consolidated
financial statements or data of Holdings or the Company shall be deemed to mean
the financial statements and data of Holdings in consolidation with its
Subsidiaries in accordance with GAAP.

 

“Consolidated Net Income” shall mean the net income (or loss)
of Holdings and its Consolidated Subsidiaries for any period determined in
accordance with GAAP.

 

“Debt” shall mean as to any Person, without duplication (a)
all Funded Debt of a Person, (b) all Guarantee Obligations of such Person, (c)
all obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (d) all
indebtedness of such Person arising in connection with any interest rate swap
transaction, basis swap transaction, forward rate transaction, commodity swap
transaction, equity transaction, equity index transaction, foreign exchange
transaction, cap transaction, floor transaction (including any option with
respect to any of these transactions and any combination of any of the
foregoing) entered into by such Person, and (e) all Off-Balance Sheet
Liabilities.

 

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

 

“EBITDA” shall mean for any period of determination,
Consolidated Net Income for the applicable period plus, without duplication and
only to the extent deducted in determining Consolidated Net Income, (i)
depreciation and amortization expense for such period, (ii) Interest Expense
for such period, (iii) Income Taxes for such period, (iv) any extraordinary,
unusual or non-recurring non-cash expenses or losses (including, whether or not
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, non-cash losses on sales of assets outside of the
ordinary course of business and inventory write up), and (v) such other amounts
as set forth in Schedule 1.1 of this Agreement, all as determined in
accordance with GAAP.

 

“Effective Date” shall mean December 30, 2003.

 

“Eligible Account” shall mean an Account which has been
included in a Borrowing Base Certificate to determine the Borrowing Base, and
as to which Account the following is true and accurate as of the time it was
utilized to determine the Borrowing Base:

 

(a)                                  such
Account arose in the ordinary course of the business of the Company out of
either (i) a bona fide sale of Inventory (as defined in the UCC) by Company,
and in such case such Inventory has in fact been shipped to the appropriate
Account Debtor or

 

4

 

the
sale has otherwise been consummated in accordance with such order, or (ii)
services performed by Company under an enforceable contract (written or oral),
and in such case such services have in fact been performed for the appropriate
Account Debtor in accordance with such contract;

 

(b)                                 such
Account represents a legally valid and enforceable claim which is due and owing
to Company by such Account Debtor and for such amount as is represented by the Company to Bank in the applicable
Borrowing Base Certificate;

 

(c)                                  it is
evidenced by an invoice (i) dated not later than five (5) Business Days after
the date of shipment of the related Inventory giving rise to such Account or
(ii) dated as of such other date as may have been mutually agreed to by the
Company and the Account Debtor in the ordinary course of business (provided
however, that in any event the Company shall invoice at least monthly for
services performed) and not more than sixty (60) days have passed since the
invoice date corresponding to such Account;

 

(d)                                 the
unpaid balance of such Account as represented by the Company to Bank in the applicable Borrowing Base Certificate is
not subject to any defense, counterclaim, setoff, contra account, credit,
allowance or adjustment by the Account Debtor because of returned, inferior or
damaged Inventory or services, or for any other reason, except for customary
discounts allowed by the Company in the ordinary course of business for prompt
payment, and, to the extent there is any agreement between the Company, the
related Account Debtor and any other person, for any rebate, discount,
concession or release of liability in respect of such Account, in whole or in
part, the amount of such rebate, discount, concession or release of liability
shall be excluded from the Borrowing Base;

 

(e)                                  the
transactions leading to the creation of such Account comply with all applicable
local, state and federal laws and regulations of the jurisdiction in which such
Account was created where the failure to comply therewith could reasonably be
expected to materially impair the collectibility of such Account;

 

(f)                                    the
Company has granted to the Bank pursuant to or in accordance with the Loan
Documents (except to the extent not required to do so thereunder) a perfected
security interest in such Account prior in right to all other persons or
entities and such Account has not been sold, transferred or otherwise assigned
or encumbered by Company, as applicable, to any person or entity other than
pursuant to or in accordance with the Loan Documents or this Agreement;

 

(g)                                 it is
not owing by an Account Debtor who, as of the date of determination, has failed
to pay twenty-five percent (25%) or more of the aggregate amount of their
respective Accounts arising from the sale of Inventory owing to Company (i)
within 75 (75) days since the original invoice date with respect to any
Accounts owing by The Sharper Image or (ii) within sixty (60) days since the
original invoice date with respect to all other Accounts;

 

5

 

(h)                                 such
Account is not represented by any note, trade acceptance, draft or other
negotiable instrument or by any chattel paper, except any such as has been
endorsed and delivered by Company pursuant to or in accordance with the Loan
Documents or this Agreement on or prior to such Account’s inclusion in any
applicable Borrowing Base Certificate;

 

(i)                                     the
Company has not received, with respect to such Account, any notice of the death
of the related Account Debtor or any general partner thereof, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of, assignment
for the benefit of creditors by, or the filing of a petition in bankruptcy or
the commencement of any proceeding under any bankruptcy or insolvency laws by
or against, such Account Debtor; and

 

(j)                                     the
Account Debtor on such Account is not:

 

(i)                                     an
Affiliate or a Subsidiary of the Company;

 

(ii)                                  the
United States of America or any department, agency, or instrumentality thereof
(unless the Company has complied with the provisions of the Federal Assignment
of Claims Act);

 

(iii)                               a citizen
or resident of any jurisdiction other than one of the United States; or

 

(iv)                              an Account
Debtor whose obligations the Bank, acting in its commercially reasonable judgment,
has notified the Company are not
deemed to constitute an Eligible Account because the collectibility of such
Account is or will be impaired.

 

(k)                                  such
Account satisfies any other eligibility criteria reasonably established from
time to time by the Bank.

 

Any Account which is at any time an Eligible Account but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account.

 

“Eligible Inventory” shall mean Inventory of Company which
meets each of the following requirements:

 

(a)                                  it (i)
is subject to a perfected lien in favor of Bank and (ii) is not subject to any
other assignment, claim or lien;

 

(b)                                 it is saleable;

 

(c)                                  it is in the possession and
control of Company and it is stored and held in facilities owned by Company or,
if such facilities are not so owned, Bank is in possession of a landlord
agreement, bailee agreement or other collateral access agreement satisfactory
to Bank with respect thereto, or it constitutes In Transit Inventory;

 

6

 

(d)                                 it is not Inventory produced
in violation of the Fair Labor Standards Act and subject to the “hot goods”
provisions contained in Title 29 U.S.C. §215;

 

(e)                                  it is not subject to any
agreement which would restrict Bank’s ability to sell or otherwise dispose of
such Inventory;

 

(f)                                    it is located in the
United States or in any territory or possession of the United States that has
adopted Article 9 of the Uniform Commercial Code;

 

(g)                                 it is not held by Company on
consignment;

 

(h)                                 it is not work-in-progress
inventory;

 

(i)                                     it is not “in transit” to
the Company, unless such “in transit” inventory constitutes “In Transit
Inventory” as defined herein; and

 

(j)                                     Bank shall not have
determined in its sole discretion, all in accordance with ordinary and
customary asset-based lending standards, that it is unacceptable due to age,
type, category, quality, quantity and/or any other reason whatsoever.

 

Inventory which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements shall forthwith
cease to be Eligible Inventory.

 

“Environmental Laws” shall mean all federal, state and local
laws including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental
pollution, contamination or other impairment of the environment or any
hazardous or toxic substances of any nature, including but not be limited to
the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976,
the Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980, and the Federal Superfund Amendments and Reauthorization Act of
1986, each as amended from time to time.

 

“ERISA” shall mean the Employee Retirement Income Security Act
of 1974, as amended, or any successor act or code.

 

“Eurodollar-based Advance” shall mean an Advance which bears
interest at the Eurodollar-based Rate.

 

“Eurodollar-based Rate” shall mean a per annum interest rate
which is the Applicable Eurodollar Margin plus the quotient of:

 

(a)                                  the per
annum interest rate at which Bank’s Eurodollar Lending Office offers deposits
to prime banks in the eurodollar market in an amount comparable to the relevant
Eurodollar-based Advance and for a period equal to the relevant Interest Period
at approximately the time Company requests such Advance on the first day of
such Interest Period; divided by

 

7

 

(b)                                 a
percentage equal to 100% minus the maximum rate on such date at which Bank is
required to maintain reserves on “Euro-currency Liabilities” as defined in and
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System or, if such regulation or definition is modified, and as long as Bank is
required to maintain reserves against a category of liabilities which includes
eurodollar deposits or includes a category of assets which includes eurodollar
loans, the rate at which such reserves are required to be maintained on such
category;

 

all as conclusively determined by Bank, such sum to be rounded
upward, if necessary, to the nearest whole multiple of 1/100th of 1%.

 

“Eurodollar Lending Office” shall mean Bank’s office located
at Grand Cayman, British West Indies or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Company.

 

“Event of Default” shall mean any of the events of default
specified in Section 10 hereof.

 

“Federal Funds Effective Rate” shall mean, for any day, a
fluctuating interest rate per annum equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Bank from three Federal funds brokers of recognized
standing selected by it.

 

“Funded Debt” of any Person shall mean (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property
or services as of such date (other than operating leases and trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices) or which is evidenced by a note, bond, debenture or
similar instrument, (b) the principal component of all obligations of such
person under Capitalized Leases, (c) all reimbursement obligations (actual,
contingent or otherwise) of such Person in respect of letters of credit,
acceptances or similar obligations issued or created for the account of such
Person and which are the functional equivalent of indebtedness for borrowed
money, (d) all liabilities secured by any liens on any property owned by such
Person as of such date even though such Person has not assumed or otherwise
become liable for the payment thereof, in each case determined in accordance
with GAAP; provided however that so long as such Person is not personally
liable for such liabilities, the amount of such liability shall be deemed to be
the lesser of the fair market value at such date of the property subject to the
lien securing such liability and the amount of the liability secured, and (e)
all Guarantee Obligations in respect of any liability which constitutes Funded
Debt; provided, however that Funded Debt shall not include any interest rate
swap transaction, basis swap transaction, forward rate transaction, commodity
swap transaction, equity transaction, equity index transaction, foreign
exchange transaction, cap transaction, floor transaction (including any option
with respect to any of these transactions and any combination of any of the
foregoing) entered into by such Person prior to the occurrence of a termination
event with respect thereto.

 

8

 

“Funded Debt to EBITDA Ratio” shall mean as of any date of
determination the ratio of (i) total Funded Debt of Holdings and its
Consolidated Subsidiaries as determined in accordance with GAAP as of such date
of determination, to (ii) EBITDA for the four preceding fiscal quarters ending
on such date of determination.

 

“GAAP” shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied.

 

“Governmental Obligations” means noncallable direct general
obligations of the United States of America or obligations the payment of
principal of and interest on which is unconditionally guaranteed by the United
States of America.

 

“Guarantee Obligations” shall mean as to any Person (the
“guaranteeing person”) any obligation of the guaranteeing person in respect of
any obligation of another Person (including, without limitation, any bank under
any letter of credit), the creation of which was induced by a reimbursement
agreement, counter indemnity or similar obligation issued by the guaranteeing
person, in either case guaranteeing or in effect guaranteeing any Debt, leases,
dividends or other obligations (the “primary obligations”) of any other third
Person (the “primary obligor”) in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the owner of any such primary obligation against loss in
respect thereof; provided, however, that the term Guarantee Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person’s maximum reasonably anticipated liability in respect
thereof as determined by Company in good faith.

 

“Guarantors” shall mean each Subsidiary which is required to
guarantee the obligations of the Company hereunder and under the other Loan
Documents, and “Guarantor” shall mean any one of them.

 

“Guaranty” shall mean that certain guaranty of all outstanding
Indebtedness by the Guarantors (whether by execution thereof or by execution of
a joinder agreement thereto) in substantially the form to be attached as Exhibit
“B” hereto on or prior to the Closing Date.

 

9

 

“Hazardous Materials” shall mean and include any hazardous,
toxic or dangerous waste, substance or material defined as such in (or for
purposes of) the Environmental Laws.

 

“Hedging Transaction” means each interest rate swap
transaction, basis swap transaction, forward rate transaction, commodity swap
transaction, equity transaction, equity index transaction, foreign exchange
transaction, cap transaction, floor transaction (including any option with
respect to any of these transactions and any combination of any of the
foregoing) entered into by the Company from time to time, but only for risk
management purposes and not for speculative purposes.

 

“Holdings” shall mean Interactive Health, Inc., a Delaware
corporation.

 

“Income Taxes” shall mean for any period the aggregate amount
of taxes based on income or profits for such period of the operations of
Holdings and its Subsidiaries, determined in accordance with GAAP on a
Consolidated basis.

 

“Indebtedness” shall mean all loans, advances, indebtedness,
obligations and liabilities of Holdings, Company and their respective
Subsidiaries to Bank under this Agreement or any of the other Loan Documents or
under any hedging agreements with the Bank, together with all other
indebtedness, obligations and liabilities whatsoever of Holdings, Company and
their respective  Subsidiaries to Bank
arising under or in connection with this Agreement or any of the other Loan
Documents, whether matured or unmatured, liquidated or unliquidated, direct or
indirect, absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising.

 

“Intercompany Loan” shall mean any loan (or advance in the
nature of a loan) by the Company to any Guarantor, or by any Guarantor to the
Company or to any other Guarantor, provided that each such loan or advance is
subordinated in right of payment and priority to the Indebtedness on terms and conditions
satisfactory to Bank.

 

“Intercompany Loans or Investments” shall mean any
Intercompany Loan or any investment (including without limitation any guaranty
of obligations or indebtedness to third parties) by Company in or to any
Guarantor, or by any Guarantor in or to the Company or any other Guarantor.

 

“Intercompany Note” shall mean any promissory note issued or
to be issued by the Company or any Subsidiary to evidence an Intercompany Loan
in form and substance satisfactory to Bank.

 

“Interest Coverage Ratio” shall mean as of any date of
determination, a ratio of (i) EBITDA for the four preceding fiscal quarters
ending on such date of determination to (ii) Interest Expense for such period.

 

“Interest Expense” shall mean for any period consolidated cash
interest expense of Holdings and its Subsidiaries (including that attributable
to Capitalized Leases) determined in accordance with GAAP.

 

“Interest Period” shall mean a period of one (1), two (2),
three (3) or six (6) months as selected by Company pursuant to the provisions
of this Agreement commencing on the day a

 

10

 

Eurodollar-based Advance
is made, or on the effective date of an election of the Eurodollar-based Rate
made under Section 2.6.

 

“In Transit Inventory” shall mean (i) Inventory of the Company
(A) which is in transit to the Company at sea or by inland waterway to or at a
port in the United States so long as, with respect to such Inventory, the Bank
shall have been named loss payee on the Company’s [Ocean Cargo Marine or other
applicable] insurance policy, the applicable bill of lading shall run to the
order of the Bank and shall promptly be furnished to the applicable freight
forwarder and the applicable freight forwarder shall have delivered in favor of
the Bank an acknowledgment and lien waiver agreement in form and substance
satisfactory to the Bank, and (B) as to which the purchase of such Inventory
from the applicable trade supplier was financed through the issuance of a
Commercial Letter of Credit and/or the creation of an Acceptance under this
Agreement; and (ii) Inventory of the Company which was initially In Transit
Inventory under clause (i) above and is subsequently in transit from the port
to the Company’s warehouse located at 3030 Walnut Avenue, Long Beach,
California (or such other location as may be designated by the Company and
approved by the Bank from time to time), aboard trucks or other transport
vehicles within the United States owned or leased by the Company or by a common
carrier that has delivered in favor of the Bank an acknowledgment and lien
waiver agreement in form and substance satisfactory to Bank.

 

 “Inventory” shall have
the meaning assigned to it in the Michigan Uniform Commercial Code on the date
of this Agreement.

 

“Investor Subdebt Documents” shall mean and include the
Securities Purchase Agreement and the promissory note(s) issued thereunder,
together with any and all other documents, instruments and certificates
executed and delivered pursuant thereto, as the same may be amended, modified
or supplemented from time to time in compliance with the terms of this
Agreement.

 

“Investor Subdebt Purchasers” shall mean the initial
purchaser(s) of the notes issued pursuant to the Securities Purchase Agreement
and their permitted successors and assigns.

 

“Investor Subordinated Debt” shall mean unsecured Debt
obtained by the Company from the Investor Subdebt Purchasers, provided that
such Debt shall be subordinated in right of payment and priority to the
Indebtedness pursuant to the Investor Subordination Agreement.

 

“Investor Subordination Agreement” shall mean the
Subordination Agreement to be dated on or prior to the Closing Date, among J.H.
Whitney Mezzanine Fund, L.P., Whitney Private Debt Fund, L.P., GreenLeaf
Capital, L.P., Whitney V, L.P., the Company, Holdings and the Guarantors in
favor of the Bank, as amended from time to time.

 

“Letter(s) of Credit” shall mean, collectively, the Standby
Letters of Credit, Commercial Letters of Credit and Wells Fargo Letters of Credit
issued by Bank upon the request and application of Company and for the account
of Company.

 

“Letter of Credit Agreement” shall mean, in respect of each
Letter of Credit, the application and related documentation satisfactory to
Bank of the Company requesting Bank to issue a Letter of Credit hereunder, and
all amendments thereto.

 

11

 

“Letter of Credit Maximum Amount (Commercial)” shall mean
Twenty Million Dollars ($20,000,000).

 

“Letter of Credit Maximum Amount (Standby)” shall mean Two
Million Five Hundred Thousand Dollars ($2,500,000).

 

“Letter of Credit Maximum Amount (Wells Fargo)” shall mean
Fifteen Million Dollars ($15,000,000).

 

“Letter of Credit Reserve” shall mean as of any date of
determination, an amount equal to the aggregate undrawn principal amount of all
issued, outstanding and unexpired Letters of Credit issued by Bank for the
account of Company under and pursuant to this Agreement and the amount of all
draws under Letters of Credit paid by Bank and not reimbursed by Company or
accepted by Bank under Section 3 hereof.

 

“Loan Documents” shall mean collectively, this Agreement, the
Revolving Credit Note, the Security Agreement, the Mortgages, the Guaranty, the
Parent Pledge Agreement and any other instruments or agreements executed at any
time pursuant to or in connection with any such documents, and any and all
amendments, renewals, replacements, substitutions, extensions or other
modifications of any of the foregoing.

 

“Loan Parties” shall mean collectively the Holdings, Company
and any or all of the Guarantors, and “Loan Party” shall mean any one of them,
as the context indicates or otherwise requires.

 

“Material Adverse Effect” shall mean a material adverse effect
on (a) the business, operations, property or financial condition of  Holdings and its Subsidiaries taken as a
whole, (b) the ability of  Holdings,
Company and the Guarantors to perform their respective obligations under this
Agreement, the Revolving Credit Note (if issued) or any other Loan Document to
which any of them is a party, or (c) the validity or enforceability of this
Agreement, the Revolving Credit Note (if issued) or any of the other Loan
Documents or the rights or remedies of the Bank hereunder or thereunder.

 

“Mortgage(s)” shall mean the mortgage in substantially the
form to be annexed hereto as Exhibit “C”, on or prior to the Closing
Date pursuant to which Company grants to Bank first priority mortgage on the
real property described therein, as the same may be amended or otherwise
modified from time to time.

 

“Off-Balance Sheet Liability(ies)” of a Person shall mean (i)
any repurchase obligation or liability of such Person with respect to accounts
or notes receivables sold by such Person, (ii) any liability under any sale and
leaseback transaction which is not a Capitalized Lease, (iii) any liability
under any so-called “synthetic lease” transaction entered into by such Person, or (iv) any obligation arising with respect
to any other transaction which is the functional equivalent of but which does
not constitute a liability on the balance sheets of such person.

 

“Parent Pledge Agreement” shall mean the Pledge Agreement and
Guaranty from Holdings to Bank in substantially the form to be annexed hereto
as Exhibit “G”, on or prior to the Closing Date, pursuant to which
Holdings pledges to Bank all of the issued and outstanding

 

12

 

shares of stock of Company, as the same may be
amended or otherwise modified from time to time.

 

“Permitted Acquisition” shall mean any acquisition by the
Company or any Subsidiary of all or substantially all of the assets of another
Person, or of a division or line of business of another Person, or shares of
stock or other ownership interests of another Person which satisfies and/or is
conducted in accordance with the following requirements:

 

(a)                                  Such
acquisition is of a business or Person engaged in a line of business which is
compatible with, or complementary to, the business of the Company;

 

(b)                                 If such
acquisition is structured as a stock acquisition, then the Person so acquired
shall either (X) become a wholly-owned Subsidiary of Company or of a Guarantor
and Company shall comply, or cause such Guarantor to comply, with
Section 8.16 hereof (if applicable) or (Y) such Person shall be merged
with and into Company or a Guarantor (with Company or such Guarantor being the
surviving entity);

 

(c)                                  If such
acquisition is structured as the acquisition of assets, such assets shall be
acquired by Company or a Guarantor;

 

(d)                                 Company
shall have delivered to the Bank not less than fifteen (15) nor more than
ninety (90) days prior to the date of such acquisition, notice of such
acquisition together with Pro Forma Projected Financial Information, copies of
all material documents relating to such acquisition, and historical financial
information (including income statements, balance sheets and cash flows)
covering at least two (2) complete fiscal years of the acquisition target, if
available, prior to the effective date of the acquisition or the entire credit
history of the acquisition target, whichever period is shorter, in each case in
form and substance reasonably satisfactory to the Bank, and the Bank shall,
within five (5) Business Days of receipt of such Pro Forma Projected Financial
Information, give notice to the Company that such information is acceptable or
unacceptable, and in the event that the Bank, in its sole and reasonable
discretion, deems such information unacceptable, the Bank shall provide the
Company with a statement explaining the basis for this determination;

 

(e)                                  Both
immediately before and after such acquisition no Default or Event of Default
shall have occurred and be continuing and, giving effect to the Pro Forma
Projected Financial Information, no Default or Event of Default shall have
occurred and be continuing;

 

(f)                                    The
board of directors (or other Person(s) exercising similar functions) of the
seller of the assets or issuer of the shares of stock or other ownership
interests being acquired shall not have disapproved such transaction or
recommended that such transaction be disapproved;

 

(g)                                 All
governmental, quasi-governmental, agency, regulatory or similar licenses,
authorizations, exemptions, qualifications, consents and approvals necessary or
appropriate under any laws applicable to Company or any of its Subsidiaries, or
the acquisition target for or in connection with the proposed acquisition and
all necessary or

 

13

 

appropriate
non-governmental and other third-party approvals which, in each case, are
material to such acquisition shall have been obtained, and all necessary or
appropriate declarations, registrations or other filings with any court,
governmental or regulatory authority, securities exchange or any other person
have been made, and evidence thereof satisfactory in form and substance to the
Bank shall have been delivered, or caused to have been delivered, by Company to
the Bank;

 

(h)                                 There
are no actions, suits or proceedings pending or, to the knowledge of Company
threatened against or affecting the acquisition target in any court or before
or by any governmental department, agency or instrumentality, an adverse
decision in which would materially adversely affect the financial condition of
the acquisition target or the ability of the target company to enter into or
perform its obligations in connection with the proposed acquisition, nor are
any actions, suits, or proceedings pending, or to the knowledge of the Company
threatened against the Company or any of its Subsidiaries which would
materially adversely affect the ability of the Company or any of its
Subsidiaries to enter into or perform their respective obligations in
connection with the proposed acquisition; and

 

(i)                                     The
purchase price of such proposed new acquisition, computed on the basis of total
acquisition consideration paid or incurred, or to be paid or incurred, with
respect thereto, including the amount of Funded Debt assumed or to which such
assets, businesses or business or ownership interests or shares, or any Person
so acquired is subject (and including payments made or to be made under any
non-compete agreements), (X) is less than Four Million Dollars ($4,000,000),
(Y) when added to the purchase price for each other acquisition consummated
hereunder during the same fiscal year as a Permitted Acquisition, does not
exceed Eight Million Dollars ($8,000,000) and (Z) when added to the purchase
price for each other acquisition consummated hereunder during the life of this
agreement as a Permitted Acquisition, does not exceed Twenty Million Dollars
($20,000,000).

 

“Permitted Investments” shall mean with respect to any Person:

 

(a)                                  Governmental
Obligations;

 

(b)                                 Obligations
of a state of the United States, the District of Columbia or any possession of
the United States, or any political subdivision thereof, which are described in
Section 103(a) of the Internal Revenue Code and are graded in any of the
highest three (3) major grades as determined by at least one Rating Agency; or
secured, as to payments of principal and interest, by a letter of credit
provided by a financial institution or insurance provided by a bond insurance
company which in each case is itself or its debt is rated in one of the highest
three (3) major grades as determined by at least one Rating Agency;

 

(c)                                  Banker’s
acceptances, commercial accounts, demand deposit accounts, money market
accounts, certificates of deposit, or depository receipts issued by or
maintained with any bank, trust company, savings and loan association, savings
bank or other financial institution whose deposits are insured by the Federal
Deposit Insurance

 

14

 

Corporation
and whose reported capital and surplus equal at least $250,000,000, provided
that such minimum capital and surplus requirement shall not apply to demand
deposit accounts maintained by the Company or any of the Subsidiaries in the
ordinary course of business;

 

(d)                                 Commercial
paper rated at the time of purchase within the two highest classifications
established by not less than two Rating Agencies, and which matures within 270
days after the date of issue;

 

(e)                                  Secured
repurchase agreements against obligations itemized in paragraph (a) above, and
executed by a bank or trust company or by members of the association of primary
dealers or other recognized dealers in United States government securities, the
market value of which must be maintained at levels at least equal to the
amounts advanced; and

 

(f)                                    Any
fund or other pooling arrangement which exclusively purchases and holds the
investments itemized in (a) through (e) above.

 

“Permitted Liens” shall mean with respect to any Person:

 

(a)                                  liens
for taxes not yet due and payable or which are being contested in good faith by
appropriate proceedings diligently pursued, provided that provision for the
payment of all such taxes has been made on the books of such Person as may be
required by GAAP consistently applied;

 

(b)                                 mechanics’,
materialmen’s, banker’s, carriers’, warehousemen’s and similar liens and
encumbrances arising in the ordinary course of business and securing
obligations of such Person that are not overdue for a period of more than 30
days or are being contested in good faith by appropriate proceedings diligently
pursued, provided that in the case of any such contest (i) any proceedings
commenced for the enforcement of such liens and encumbrances shall have been
duly suspended; and (ii) such provision for the payment of such liens and
encumbrances has been made on the books of such Person as may be required by
GAAP, consistently applied;

 

(c)                                  liens
arising in connection with worker’s compensation, unemployment insurance, old
age pensions and social security benefits and similar statutory obligations
which are not overdue for a period of more than 30 days or are being contested
in good faith by appropriate proceedings diligently pursued, provided that in
the case of any such contest (i) any proceedings commenced for the enforcement
of such liens shall have been duly suspended; and (ii) such provision for the
payment of such liens has been made on the books of such Person as may be
required by GAAP, consistently applied;

 

(d)                                 (i)
liens incurred in the ordinary course of business to secure the performance of
statutory obligations arising in connection with progress payments or advance
payments due under contracts with the United States government or any agency
thereof entered into in the ordinary course of business and (ii) liens incurred
or deposits made in the ordinary course of business to secure the performance
of statutory obligations, bids, leases, fee and expense arrangements with
trustees and fiscal agents and

 

15

 

other
similar obligations (exclusive of obligations incurred in connection with the
borrowing of money, any lease-purchase arrangements or the payment of the
deferred purchase price of property), provided that full provision for the
payment of all such obligations set forth in clauses (i) and (ii) has been made
on the books of such Person as may be required by GAAP, consistently applied;

 

(e)                                  any
attachment or judgment lien not constituting an Event of Default under
Section 10.1(i) hereof;

 

(f)                                    leases
or subleases of real property interests granted to others in the ordinary
course of business and not materially interfering with the business of Company
and its Subsidiaries; and

 

(g)                                 minor
survey exceptions or minor encumbrances, easements or reservations, or rights
of others for rights-of-way, utilities and other similar purposes, or zoning or
other restrictions as to the use of real properties, or any interest of any
lessor or sublessor under any lease permitted hereunder, which in each case
does not materially interfere with the business of such Person.

 

“Person” or “person” shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.

 

“Prime Rate” shall mean the per annum interest rate
established by Bank as its prime rate for its borrowers as such rate may vary
from time to time, which rate is not necessarily the lowest rate on loans made
by Bank at any such time.

 

“Prime-based Advance” shall mean an Advance which bears
interest at the Prime-based Rate.

 

“Prime-based Rate” shall mean for any day a per annum interest
rate which is the sum of the Applicable Prime-based Margin, plus the greater of
(i) the Prime Rate or (ii) the Alternate Base Rate.

 

“Pro Forma Projected Financial Information” shall mean, as to
any proposed acquisition, a statement executed by the Company (supported by
reasonable detail) setting forth the total consideration to be paid or incurred
in connection with the proposed acquisition, and pro forma combined projected
financial information for Holdings, the Company and their respective
Subsidiaries and the acquisition target (if applicable), consisting of
projected balance sheets as of the proposed effective date of the acquisition
or the closing date thereof and as of the end of at least the next succeeding
three (3) fiscal years of the Company following the acquisition and projected
statements of income and cash flows for each of those years, including
sufficient detail to permit calculation of the amounts and the ratios described
in Sections 8.10, 8.11 and 9.7 hereof, as projected as of the effective date of
the acquisition and for those fiscal years and accompanied by (i) a statement
setting forth a calculation of the ratios and amounts so described, (ii) a
statement in reasonable detail specifying all material assumptions underlying
the projections and (iii) such other information as the Bank shall reasonably
request.

 

16

 

“Rating Agency” shall mean Moody’s Investor Services, Inc.,
Standard and Poor’s Ratings Services, their respective successors or any other
nationally recognized statistical rating organization which is acceptable to
the Bank.

 

“Reimbursement Obligations” shall mean the aggregate amount of
all unreimbursed drawings under all Letter of Credit Agreements together with
all other sums, fees, charges and amounts which may be owing to Bank under such
Letter of Credit Agreement or this Agreement relating to Letters of Credit.

 

“Request for Advance” shall mean a Request for Advance issued
by Company under this Agreement in the form annexed to this Agreement as Exhibit
“D”.

 

“Request for Banker’s Acceptance” shall mean a Request for
Banker’s Acceptance in the form annexed to this Agreement as Exhibit
“H”, issued by Company to Bank under Section 3 of this Agreement and
requesting that Bank create and discount an Acceptance under and pursuant to
the terms of this Agreement.

 

“Revolving Credit” shall mean the revolving credit loan to be
advanced by the Bank pursuant to Section 2 hereof in an aggregate amount
not to exceed at any one time outstanding the Revolving Credit Aggregate
Commitment.

 

“Revolving Credit Aggregate Commitment” shall mean Twenty
Million Dollars ($20,000,000), subject to reduction or termination under
Section 2 hereof.

 

“Revolving Credit Maturity Date” shall mean December 31,
2006.

 

“Revolving Credit Note” shall mean the Revolving Credit Note
described in Section 2.1 hereof made by Company to Bank in the form annexed
hereto as Exhibit “E”, as may be amended or modified from time to time.

 

“Securities Purchase Agreement” shall mean the Securities
Purchase Agreement dated August 22, 2003, among J.H. Whitney Mezzanine
Fund, L.P., Whitney Private Debt Fund, L.P., Greenleaf Capital, L.P., Whitney
V, L.P., the Note Purchasers (as defined therein) and the Management Purchasers
(as defined therein), Holdings and the Company, as amended, subject to the
terms hereof, from time to time.

 

“Security Agreement” shall mean the Security Agreement
executed and delivered by Company and each domestic Subsidiary to Bank in
substantially the form to be annexed hereto as Exhibit “F” on or prior
to the Closing Date, as may be amended or otherwise modified from time to time.

 

“Sight Draft Letter of Credit” shall mean a Commercial Letter
of Credit providing for payment  of
sight drafts when presented for honor in accordance with the terms thereof and
when accompanied by documents complying with the terms thereof.

 

“Standby Letter of Credit” shall mean the irrevocable standby
Letters of Credit pursuant to which the Bank agrees to make payments for the
account of the Company in respect of obligations of the Company incurred
pursuant to contracts made or performance undertaken or to

 

17

 

be undertaken or matters
relating to contracts to which the Company is or proposes to become a party in
the ordinary course of the Company’s business.

 

“Subordinated
Debt” shall mean (a) the Investor Subordinated Debt and (b) any other Debt
of Holdings, Company or any Subsidiary which has been subordinated in right of
payment and priority to the Indebtedness, all on terms and conditions
satisfactory to the Bank.

 

“Subordinated
Debt Documents” shall mean and include (a) the Investor Subdebt Documents, and
(b) any other documents evidencing any other Subordinated Debt, in each case,
as the same may be amended or otherwise modified from time to time in
compliance with the terms of this Agreement.

 

“Subordinated
Notes” shall mean the (a) the promissory notes issued by the Company to the
Investor Subdebt Purchasers pursuant to the Investor Subdebt Documents and (b)
any other notes or instruments evidencing Subordinated Debt as the same may be
amended, modified or supplemented from time to time in compliance with the
terms of this Agreement.

 

“Subordination
Agreements” shall mean, collectively, the Investor Subordination Agreement and
any other subordination agreement entered into from time to time in connection
with any other Subordinated Debt.

 

“Subsidiary(ies)” shall mean any other corporation,
association, joint stock company, business trust, limited liability company or
any other business entity of which more than fifty percent (50%) of the
outstanding voting stock, share capital, membership or other interests, as the
case may be, is owned either directly or indirectly by any Person or one or
more of its Subsidiaries, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by any
Person and/or its Subsidiaries. Unless otherwise specified to the contrary
herein or the context otherwise requires, Subsidiary(ies) shall refer to the
Subsidiary(ies) of the Company.

 

“Time Draft Letter of Credit” shall mean a Commercial Letter
of Credit providing for acceptance by the Bank of time drafts when presented
for honor thereunder in accordance with the terms thereof and when accompanied
by documents complying with the terms thereof.

 

“Wells Fargo Letters of Credit” shall mean the standby Letters
of Credit issued by the Bank on the Closing Date to support the Wells Fargo
L/Cs.

 

“Wells Fargo L/Cs” shall mean the letters of credit previously
issued by Wells Fargo for the account of the Company, in the amounts and with
expiry dates as set forth in Schedule 1.2 hereof.

 

“Whitney” shall mean, collectively, Whitney V Management Co.,
LLC and Whitney Mezzanine Management Company, LLC.

 

2.                                       REVOLVING CREDIT

 

2.1                                 Revolving Credit Commitment.  Subject to the terms and conditions of this
Agreement (including without limitation Section 2.3 and Article 6
hereof), Bank agrees to make

 

18

 

Advances to Company at any time and from time
to time until the Revolving Credit Maturity Date, in aggregate amount not to
exceed at any one time outstanding the Revolving Credit Aggregate
Commitment.  All of the Advances under
this Section 2 shall be evidenced by the Revolving Credit Note, under
which Advances, repayments and readvances may be made, subject to the terms and
conditions of this Agreement.

 

2.2                                 Accrual of Interest and Maturity.  The Revolving Credit Note, and all principal
and interest outstanding thereunder, shall mature on the Revolving Credit
Maturity Date and each Advance from time to time outstanding thereunder shall
bear interest at its Applicable Interest Rate. The amount and date of each
Advance, its Applicable Interest Rate, its Interest Period, if applicable, and
the amount and date of any repayment shall be noted on Bank’s records, which
records will be conclusive evidence thereof absent manifest error.

 

2.3                                 Requests For Advance.  Company may request an Advance under this
Section 2 upon the delivery to Bank of a Request for Advance executed by
an authorized officer of Company, subject to the following:

 

(a)                                  each
such Request for Advance shall set forth the information required on the
Request for Advance form annexed hereto as Exhibit “D”;

 

(b)                                 each
such Request for Advance shall be delivered to Bank by 11:00 a.m. (Detroit
time) on the proposed date of Advance with respect to Prime-based Advances, and
by 11:00 a.m. (Detroit time) three (3) Business Days prior to the proposed date
of Advance with respect to Eurodollar-based Advances;

 

(c)                                  the
principal amount of any Eurodollar-based Advance, plus the amount of any
outstanding Advances to be then combined therewith having the same Applicable
Interest Rate and Interest Period, if any, shall be at least $100,000 or any
larger amount in $25,000 increments;

 

(d)                                 on the
proposed date of such Advance, after giving effect to all Advances and Letters
of Credit and Acceptances requested on that day, the principal amount of such
Advance, plus the aggregate amount of all other outstanding Advances under this
Section 2 (including, without duplication, any deemed Advances funded by
Bank under Sections 3.5 and 4.3 in respect of the Company’s reimbursement
obligations thereof) plus the Letter of Credit Reserve, plus the aggregate unpaid face amount of all
outstanding Acceptances  shall
not exceed the Revolving Credit Aggregate Commitment;

 

(e)                                  on the
proposed date of such Advance, after giving effect to all Advances and Letters
of Credit and Acceptances requested on that day, the principal amount of such
Advance, plus the aggregate amount of all other outstanding Advances under this
Section 2 (including, without duplication, any deemed Advances funded by
Bank under Sections 3.5 and 4.3 in respect of the Company’s reimbursement
obligations thereof), plus the Letter of Credit Reserve with respect to Standby
Letters of Credit and Wells Fargo Letters of Credit only, plus the aggregate unpaid face amount of all
outstanding Acceptances  shall
not exceed the lesser of the then applicable (i) Revolving Credit Aggregate
Commitment and (ii) Borrowing Base;

 

19

 

(f)                                    a
Request for Advance, once delivered to Bank, shall not be revocable by Company;

 

(g)                                 each
Request for Advance shall constitute a certification by Company, as of the date
thereof:

 

(i)                                     both
before and after such Advance, the obligations of the Loan Parties set forth in
this Agreement and the other Loan Documents to which such Persons are parties
are valid, binding and enforceable obligations of such Persons;

 

(ii)                                  all
conditions to Advances of the Revolving Credit have been satisfied (including,
without limitation, the delivery of the required Borrowing Base Certificate),
and shall remain satisfied to the date of such Advance (both before and after
giving effect to such Advance);

 

(iii)                               there is
no Default or Event of Default in existence, and none will exist upon the
making of such Advance (both before and after giving effect to such Advance);

 

(iv)                              the
representations and warranties contained in this Agreement and the other Loan
Documents are true and correct in all material respects and shall be true and
correct in all material respects as of the making of such Advance (both before
and after giving effect to such Advance), other than any representation or
warranty that expressly speaks only as of a different date; and

 

(v)                                 the
execution of such Request for Advance will not violate the material terms and
conditions of any material contract, agreement or other borrowing of Company.

 

Bank may, at its option, lend under this Section 2 upon
the telephone request of an authorized officer of Company and, in the event
Bank makes any such advance upon a telephone request, the requesting officer
shall, if so requested by Bank, fax to Bank, on the same day as such telephone
request, a Request for Advance in the form attached as Exhibit “D”.
Company hereby authorizes Bank to disburse Advances under this Section 2
pursuant to the telephone instructions of any person purporting to be an
authorized officer of Company and Company shall bear all risk of loss resulting
from disbursements made upon any telephone request. Each telephone request for
an Advance shall constitute a certification of the matters set forth in clause
(g) of this Section 2.3.

 

2.4                                 Sweep to Loan. 
Subject to revocation by Bank upon the occurrence of any Default or Event
of Default, the Company may utilize the Bank’s “Sweep to Loan” automated system
for obtaining Advances and making periodic repayments, subject to the terms
hereof. Each time an Advance is made using the “Sweep to Loan” system, the
Company shall be deemed to have certified to the Bank of the matters set forth
in clause (g) of Section 2.3. Bank may revoke the Company’s privilege to
use the “Sweep to Loan” system upon the occurrence of any

 

20

 

Default or Event of Default and, immediately
upon any such revocation, the “Sweep to Loan” system shall no longer be
available to the Company for the funding of Advances hereunder (or otherwise)
and the regular procedures set forth for the making of Advances shall be deemed
immediately to apply.

 

2.5                                 Accrual of Interest; Interest
Payments.  The Revolving Credit
Note and the Advances thereunder shall bear interest from the date thereof on
the unpaid principal balance thereof from time to time outstanding, at a rate
per annum equal to the Prime-based Rate or the Eurodollar-based Rate, as the
Company may elect subject to the provisions of this Agreement. With respect to
Prime-based Advances, interest shall be payable quarterly in arrears on the
first Business Day of each January, April, July and October, commencing on
the first Business Day following the month during which such Advance is made,
and at maturity (whether by acceleration or otherwise). With respect to
Eurodollar-based Advances, interest shall be payable on the last day of each
Interest Period applicable thereto, provided, however, if such Interest Period
is longer than three months, interest shall be payable three months following
the first day of such Interest Period (and at three month intervals thereafter)
and on the last day of such Interest Period. Notwithstanding the foregoing, in
the event and so long as any Event of Default shall exist, in the case of any
Event of Default under Sections 10.1(a), 10.1(b) or 10.1(l), immediately upon
the occurrence thereof, and in the case of all other Events of Default, from
and after notice from Bank, interest shall be payable on demand, at a rate per
annum equal to: (i) in the case of Prime-based Advances, two percent (2%) above
the Prime-based Rate; and (ii) in the case of Eurodollar-based Advances, two
percent (2%) above the rate which would otherwise be applicable under this
Section 2.5 until the end of the then current Interest Period, at which
time such Advance shall bear interest at the Prime-based Rate plus two percent
(2%) per annum. Interest on all Eurodollar-based Advances shall be calculated
on the basis of a 360 day year for the actual number of days elapsed. Interest
on all Prime-based Advances shall be calculated on the basis of a 365 or 366
day year, as the case may be, for the actual number of days elapsed. The
interest rate with respect to any Prime-based Advance shall change on the
effective date of any change in the Prime-based Rate.

 

2.6                                 Interest Periods.  Each Interest Period for a Eurodollar-based Advance shall
commence on the date such Eurodollar-based Advance is made or is converted from
an Advance of another type pursuant to Section 2.7 hereof or on the last
day of the immediately preceding Interest Period for such Eurodollar-based
Advance, and shall end on the date one, two, three and six months thereafter,
as the Company may elect as set forth below, subject to the following:

 

(a)                                  no
Interest Period shall extend beyond the Revolving Credit Maturity Date; and

 

(b)                                 any
Interest Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day unless the next
succeeding Business Day falls in another calendar month, in which case, such
Interest Period shall end on the immediately preceding Business Day and when an
Interest Period begins on a day which has no numerically corresponding day in
the calendar month during which such Interest Period is to end, it shall end on
the last Business Day of such calendar month.

 

21

 

The Company shall elect
the initial Interest Period applicable to a Eurodollar-based Advance by its
Request for Advance given to the Bank pursuant to Section 2.3 or by its
notice of conversion given to the Bank pursuant to Section 2.7, as the
case may be. Provided that no Default or Event of Default shall have occurred
and be continuing, the Company may elect to continue an Advance as a
Eurodollar-based Advance by giving irrevocable written, telephonic or
telegraphic notice thereof to the Bank, before 11:00 a.m. on the last day of
the then current Interest Period applicable to such Eurodollar-based Advance,
specifying the duration of the succeeding Interest Period therefor. If the Bank
does not receive timely notice of the election and the Interest Period elected
by the Company, the Company shall be deemed to have elected to convert such
Eurodollar-based Advance to a Prime-based Advance at the end of the then
current Interest Period.

 

2.7                                 Conversion of Advances.  Provided that no Default or Event of Default
shall have occurred and be continuing, the Company may, on any Business Day,
convert any outstanding Advance into an Advance of another type in the same
aggregate principal amount, provided that any conversion of a Eurodollar-based
Advance shall be made only on the last Business Day of the then current
Interest Period applicable to such Advance. If the Company desires to convert
an Advance, it shall give the Bank written, telephonic or telegraphic notice,
specifying the date of such conversion, the Advances to be converted, the type
of Advance elected and, if the conversion is into a Eurodollar-based Advance,
the duration of the first Interest Period therefor, which notice shall be given
not later than 11:00 a.m. on the applicable date of conversion. Each notice of
conversion described in this Section 2.7 shall constitute and include a
certification by the Company as of the date hereof as to the matters set forth
in clause (g) of Section 2.3.

 

2.8                                 Prepayment.

 

Company may prepay all or part of the outstanding balance of
the Prime-based Advance(s) under the Revolving Credit Note at any time. Upon
one (1) Business Day prior notice to Bank, Company may prepay all or part of
any Eurodollar-based Advance, provided that the amount of any such partial
prepayment shall be at least $100,000 and the unpaid portion of such Advance
which is refunded or converted under Section 2.7 shall be subject to the
limitations of Section 2.3(c) hereof. Any prepayment of a Prime-based
Advance, or a Eurodollar-based Advance on the last day of the Interest Period
therefor made in accordance with this Section shall be without premium,
penalty or prejudice to Company’s right to reborrow under the terms of this
Agreement. Any other prepayment shall be subject to the provisions of
Section 5.1 hereof.

 

2.9                                 Reduction of Indebtedness.  If at any time and for any reason (a) the
aggregate outstanding principal amount of Advances hereunder (including,
without duplication, any deemed Advances funded by Bank under Sections 3.5 and
4.3 in respect of the Company’s reimbursement obligations thereof), plus the
Letter of Credit Reserve, plus the aggregate unpaid amount of any outstanding
Acceptances shall exceed the Revolving Credit Aggregate Commitment, or (b) the
aggregate outstanding principal amount of Advances hereunder (including,
without duplication, any deemed Advances funded by Bank under Section 3.5
and 4.3 in respect of the Company’s reimbursement obligations thereof), plus
the Letter of Credit Reserve with respect to Standby Letters of Credit and
Wells Fargo Letters of Credit only, plus the aggregate unpaid amount of any
outstanding Acceptances shall exceed the lesser of the then

 

22

 

applicable (i) Revolving Credit Aggregate Commitment
and (ii) Borrowing Base, the Company shall immediately reduce any pending
request for an Advance on such day by the amount of such excess and, to the
extent any excess remains thereafter, immediately repay an amount of the
Indebtedness equal to such excess and, to the extent such Indebtedness consists
of obligations arising in connection with any Acceptances or Letters of Credit,
as applicable, provide cash collateral upon demand in an amount equal to the
sum of (i) the maximum amount that may be available to be drawn at any time
prior to the stated expiry of all applicable Letters of Credit, and (ii) the
aggregate face amount of such outstanding Acceptances. The Company acknowledges
that, in connection with any repayment required hereunder, it shall also be
responsible for the reimbursement of any prepayment or other costs required
under Section 5.1 hereof; provided, however, that the Company shall, in
order to reduce any such prepayment costs and expenses, first prepay such
portion of the Indebtedness then carried as a Prime-based Advance, if any.

 

2.10                           Optional Reduction or Termination
of Revolving Credit Aggregate Commitment.  Provided that no Default or Event of Default has occurred and is
continuing, Company may, upon at least five (5) Business Days’ prior written
notice to Bank, permanently reduce the Revolving Credit Aggregate Commitment in
whole at any time, or in part from time to time, without premium or penalty,
provided that: (i) each partial reduction of the Revolving Credit Aggregate Commitment
shall be in an aggregate amount equal to at least One Million Dollars
($1,000,000); (ii) each reduction shall be accompanied by the payment of the
commitment fee, if any, accrued to the date of such reduction attributable to
the amount of such reduction; (iii) Company shall prepay in accordance with the
terms hereof the amount, if any, by which the aggregate unpaid principal amount
of Advances, plus the Letter of Credit Reserve, plus the aggregate unpaid
amount of outstanding Acceptances, exceeds the amount of the Revolving Credit
Aggregate Commitment, taking into account the aforesaid reductions thereof,
together with accrued but unpaid interest on the principal amount of such
prepaid Advances to the date of prepayment; (iv) if the termination or reduction
of the Revolving Credit Aggregate Commitment requires the prepayment of a
Eurodollar-based Advance, the termination or reduction may be made only on the
last Business Day of the then current Interest Period applicable to such
Advance and (v) no reduction shall reduce the amount of the Revolving Credit
Aggregate Commitment to an amount which is less than the sum of the aggregate
undrawn amount of any Letters of Credit and unpaid Acceptances outstanding at
such time. Reductions of the Revolving Credit Aggregate Commitment will not be
available for reinstatement by or readvance to the Company and shall be
permanent and irrevocable.

 

2.11                           Revolving Credit Commitment Fee.  From the Closing Date to the Revolving
Credit Maturity Date, the Company shall pay to the Bank, a commitment fee
quarterly in arrears commencing April 1, 2004 (in respect of the prior
fiscal quarter or portion thereof), and on the first day of each fiscal quarter
thereafter. The commitment fee payable to the Bank shall be determined by multiplying
the Applicable Commitment Fee Rate times the average daily amount by which the
Revolving Credit Aggregate Commitment then in effect exceeds the sum of (i) the
aggregate principal amount of Advances outstanding from time to time during
such period, (ii) the Letter of Credit Reserve during such period, and (iii)
the aggregate face amount of all outstanding Acceptances during such period,
calculated on a daily basis. The commitment fee shall be computed on the basis
of a year of three hundred sixty (360) days and assessed for the actual number
of days elapsed. Whenever any payment of the commitment fee shall be due on a
day which is not a Business Day, the date for payment thereof shall be extended
to the next

 

23

 

Business Day. It is expressly understood that
the commitment fees described in this Section shall not be refundable
under any circumstances.

 

2.12                           Use of Proceeds. 
Proceeds of Advances under the Revolving Credit Note shall be used
solely for working capital purposes.

 

2.13                           Prime-based Advance in Absence of
Election or Upon Default. If, (a) as to any outstanding
Eurodollar-based Advance of the Revolving Credit, Bank has not received payment
of all outstanding principal and accrued interest on the last day of the
Interest Period applicable thereto, and does not receive a timely Request for
Advance meeting the requirements of Section 2 hereof with respect to the
refunding or conversion of such Advance, or (b) subject to Section 2.8
hereof, if on such day a Default or an Event of Default shall have occurred and
be continuing, then the principal amount thereof which is not then prepaid in
the case of a Eurodollar-based Advance shall be converted automatically to a
Prime-based Advance and the Bank shall thereafter promptly notify the Company
of said action.

 

3.                                       ACCEPTANCES

 

3.1                                 Acceptance Commitment.  Subject to the terms and conditions of this
Agreement, Bank agrees, from time to time, to create and discount Acceptances
for and on behalf of Company, in an aggregate amount for all Acceptances at any
one time outstanding not to exceed the Acceptance Maximum Amount. Each
Acceptance shall mature not later than the earliest to occur of (i) one hundred
twenty (120) days from its date of creation; (ii) one hundred twenty (120) days
from the date of issuance of the Time Draft Letter of Credit related to the
Acceptance and (c) the Revolving Credit Maturity Date.

 

3.2                                 Drafts Eligible for Creation of
Acceptances.  In addition to any
other terms and conditions set forth in this Agreement, in order to be eligible
for creation of an Acceptance by Bank under this Agreement, a draft must be in
form and substance satisfactory to Bank. Acceptances shall be created at the
request and for the account of Company, if, as of the date of creation of such
Acceptance:

 

(a)                                  the
face amount of the Acceptance requested, plus the unpaid portion of all other
outstanding Acceptances, does not exceed the Acceptance Maximum Amount;

 

(b)                                 the face
amount of the Acceptance requested, plus the aggregate principal amount of all
outstanding and requested but not issued Advances (including, without
duplication, any deemed Advances funded by Bank under Section 3.5 and 4.3
in respect of the Company’s reimbursement obligations thereof), plus the Letter
of Credit Reserve, plus the aggregate unpaid face amount of all other
outstanding Acceptances do not exceed the Revolving Credit Aggregate
Commitment;

 

(c)                                  the
face amount of the Acceptance requested, plus the aggregate principal amount of
all outstanding and requested but not yet funded Advances, plus the Letter of
Credit Reserve with respect to Standby Letters of Credit and the Wells Fargo
Letters of Credit only, plus the aggregate unpaid face amount of all other
Acceptances do not exceed the lesser of the then applicable (i) Revolving
Credit Aggregate Commitment and (ii) Borrowing Base;

 

24

 

(d)                                 the
obligations of Company set forth in this Agreement and the other Loan Documents
are valid, binding and enforceable obligations of Company and the valid,
binding and enforceable nature of this Agreement and the other Loan Documents
has not been disputed by Company;

 

(e)                                  both
immediately before and immediately after creation of the Acceptance requested,
no Default or Event of Default exists;

 

(f)                                    the
representations and warranties contained in this Agreement and the Loan
Documents are true in all material respects as if made on such date;

 

(g)                                 Each
Acceptance will, when created, be eligible for purchase or discount by Federal
Reserve Banks within the meaning of Section 13 of the Federal Reserve Act
(12 U.S.C. §372), as amended from time to time, or any successor act or code,
and the applicable guidelines and regulations promulgated thereunder in effect
from time to time (herein called the “Act”) and satisfy such other conditions
as Bank may reasonably impose; and

 

(h)                                 Company
shall have delivered a duly executed certificate to Bank certifying as to the
matters set forth in Section 3.2(a) through (g) and acknowledging that the
Bank shall be entitled to rely on such certification without any duty of
inquiry.

 

3.3                                 Assurances. 
(a)  The Company hereby
guarantees and agrees that, if requested by the Bank, they will be able to give
such assurances as are satisfactory and acceptable to any Federal Reserve Bank
as to the genuineness and validity of the underlying transactions and the
relationship between the Acceptance financing and such transaction as required
by the Act.

 

(b)                                 Upon
receipt by Company, Company shall promptly deliver to Bank, upon Bank’s
request, a copy of the underlying contract(s), commercial invoice(s), any
bill(s) of lading and other documentation as Bank may reasonably request or
which the United States Government may request and which relate to any underlying
trade transaction(s) to which an Acceptance relates.

 

(c)                                  Company
agree to comply with all laws and regulations applicable to any and all drafts
and Acceptances created, discounted or arising hereunder and any and all
transactions to which such drafts and Acceptances relate, and Company shall
indemnify Bank on demand and hold Bank harmless from any claim, loss, liability
or expense (including, without limitation, all attorneys’ fees and expenses and
the allocated costs of Bank’s in-house staff counsel) arising from any material
violation of any such laws or regulations by Company, or in the event that any
Acceptance created hereunder is found to be ineligible under the applicable
regulations of the Board of Governors of the Federal Reserve System of the
United States governing banker’s acceptance for purchase or discount.

 

(d)                                 Company
hereby agrees to: (a) procure promptly any necessary licenses related to any
Acceptance created hereunder; (b) comply with all governmental laws and
regulations as Bank may at any time reasonably require; (c) to the extent that
prudent business judgment and practice would dictate, keep such goods
adequately covered at all

 

25

 

times
by insurance; and (d) pay any and all taxes related to the goods to which any
Acceptance relates.

 

(e)                                  Bank
shall be fully protected and indemnified in relying upon any instructions
received from an authorized officer of Company, or any person purporting or
representing himself to be an authorized officer, without any duty to confirm
the identity of such person or to make any inquiry as to the genuineness of
such instructions.  Bank shall not be
liable for any errors, omissions, delays or interruptions in the transmission
of any such instructions.  Bank may act
upon any verbal instructions given by any authorized officer of Company, or by
any person which Bank believes, in good faith, to be an authorized officer of
Company.  All such verbal instructions
to Bank shall be confirmed in writing by Company, either via first class  mail, postage prepaid, or telefax or telex
transmission, in the form of a Request for Banker’s Acceptance  within three (3) Business Days of such verbal
instructions.  In the event that any
such verbal instructions differ in any respect from the written confirmation
subsequently furnished to Bank, the verbal instructions shall govern as to all
Acceptances created in accordance with such verbal instructions prior to the
receipt of such written confirmation. 
Bank’s determination of the contents of any verbal instructions shall be
conclusive and binding upon Company, absent manifest error.  Company acknowledges that if Bank issues an
Acceptance based on any telephonic, telefaxed or telexed request, confirmation
or instructions, it shall be for Company’s convenience, and all risks involved
in the use of such procedures shall be borne by Company, and Company expressly
agrees to indemnify and hold Bank harmless therefor; provided, however, Bank
shall have no duty to confirm the identity of anyone requesting or confirming a
request for an Acceptance by telephone or telefax.

 

3.4                                 Discount Rate and Acceptance
Commission Rate.  (a) The
Company shall pay to Bank a per annum acceptance commission with respect to
each Acceptance created pursuant hereto in an amount equal to the greater of
(i) $125 or (ii) the Acceptance Commission Rate times the face amount of the
respective draft relating to such Acceptance, payable upon the creation of such
Acceptance.

 

(b)                                 The
Company shall pay to Bank an acceptance discount commission with respect to
each Acceptance created pursuant hereto in an amount equal to the greater of
(i) $150 or (ii) the Acceptance Discount Rate times the face amount of such
Acceptance, payable upon the creation and discounting of such Acceptance.

 

(c)                                  The
fees described in clauses (a) and (b) above shall be (i) nonrefundable under
all circumstances and (ii) calculated on the basis of a 360 day year and
assessed for the actual number of days from the date of the creation thereof to
the stated expiration thereof. The amount of such acceptance or acceptance
discount commission in respect of any Acceptance created hereunder may be paid,
in Dollars, in immediately available funds, by Company to Bank or,
alternatively, may be deducted from the amount otherwise payable by Bank to or
in favor of Company upon Bank’s creation and discounting of such Acceptance, as
the case may be.

 

26

 

3.5                                 Payment Obligation.  Company unconditionally agrees to repay Bank on the maturity date
of each Acceptance or on such earlier date as may be required by the terms of
this Agreement, an amount equal to the Acceptance Obligation with respect
thereto, and all expenses paid or incurred by Bank relative thereto.  If any such amount is not paid when due in
accordance with the terms thereof, Company shall be deemed to have requested a
Prime-based Advance under the Revolving Credit in an amount equal to the amount
of such Acceptance Obligation, as a substitute for its repayment obligation on
such date.

 

3.6                                 Compliance with Laws.  Company agrees to comply with all laws and
regulations applicable to any and all drafts and Acceptances created,
discounted or arising hereunder and any and all transactions to which such
drafts and Acceptances relate, and Company shall indemnify Bank and hold Bank
harmless from any claim, loss, liability or expense (including, without
limitation, reasonable attorneys’ fees and expenses and the allocated costs of
Bank’s in-house staff counsel) arising from any material violation of any such
laws or regulations by Company.

 

3.7                                 Acceptances Ineligible for Purchase
or Discount.  In the event that
any Acceptance is, for any reason whatsoever, deemed by Bank or any Federal
Reserve Bank not to be eligible for purchase or discount under the Act or under
any applicable regulations of the Board of Governors of the Federal Reserve
System of the United States governing banker’s acceptances, Company hereby
agrees to fully indemnify Bank, on demand, for any and all costs, expenses,
damages and liabilities of any kind whatsoever incurred by Bank, directly or
indirectly, as a result of such ineligibility, including, without limitation,
any costs of maintaining reserves with respect to any such Acceptance and any
costs and expenses incurred by Bank as a result of any illiquidity of the
market for ineligible Acceptances.  A
certificate as to such costs, expenses, damages and liabilities incurred by
Bank shall be submitted to Company by Bank and shall be deemed to be conclusive
and binding upon Company, absent manifest error.

 

4.                                       LETTERS OF CREDIT.

 

4.1                                 Letter of Credit Commitment.  (a) 
Subject to the terms and conditions of this Agreement, Bank may, at any
time and from time to time from and after the date hereof, until thirty (30)
days prior to the Revolving Credit Maturity Date, upon the execution and/or
delivery by Company unto Bank of a Letter of Credit Agreement and such other
documentation related to the requested Letter of Credit as Bank may reasonably
require, issue Commercial Letters of Credit for the account of Company in favor
of sellers of goods to the Company, in an aggregate face amount at any one time
outstanding not to exceed $20,000,000.  
Each Commercial Letter of Credit shall contain terms, conditions and
provisions acceptable to Bank, in its sole discretion, shall be in a minimum
face amount of Ten Thousand Dollars ($10,000) and shall be either a Sight Draft
Letter of Credit or a Time Draft Letter of Credit.  No Commercial Letter of Credit shall have expiry date which
extends beyond one hundred twenty (120) days from the date of issuance of such
Letter of Credit, or ten (10) Business Days prior to the Revolving Credit
Maturity Date, whichever first occurs.

 

(b)                                 Subject
to the terms and conditions of this Agreement, Bank may, at any time and from
time to time from and after the date hereof, until thirty (30) days prior to
the Revolving Credit Maturity Date, upon the execution and/or delivery by
Company unto Bank of a Letter of Credit Agreement and such other documentation
related to the

 

27

 

requested
Letter of Credit as Bank may reasonably require, issue Standby Letters of
Credit for the account of Company, in an aggregate face amount at any one time
outstanding not to exceed $2,500,000.  
Each Standby Letter of Credit shall contain terms, conditions and
provisions acceptable to Bank, in its sole discretion, and shall be in a
minimum face amount of Ten Thousand Dollars ($10,000).  No Standby Letter of Credit shall have an
expiry date which extends beyond one (1) year from the date of issuance of such
Letter of Credit, or ten (10) Business Days prior to the Revolving Credit
Maturity Date, whichever first occurs.

 

(c)                                  Subject
to the terms and conditions of this Agreement, on the [Effective Date], Bank
shall issue the Wells Fargo Letters of Credit to support the Wells Fargo L/Cs,
provided that the Company execute and deliver unto Bank Letter of Credit
Agreements and such other documentation as Bank may reasonably require.  No Wells Fargo Letter of Credit shall be
issued on any day other than the Closing Date or shall have an expiry date that
extends beyond April 30, 2004.

 

(d)                                 In
addition to the terms and conditions set forth herein, the submission of all
Letter of Credit Agreements, and the issuance of each Letter of Credit pursuant
hereto, shall be further subject, in all respects, to the Uniform Customs and
Practices for Documentary Credits of the International Chamber of Commerce,
1993 Revisions, ICC Publication No. 506 or the International Standby Practices
98, as the case may be and any successor documentation thereto, the laws of the
State of Michigan and the applicable provisions of all other laws and
regulations, including, without limitation, the Trading With the Enemy Act,
Export Administration Act, International Emergency Economic Powers Act, and the
Regulations of the Office of Foreign Assets Control of the U.S. Department of
the Treasury.  In the event of any conflict
between this Agreement and any Letter of Credit Document other than any Letter
of Credit, this Agreement shall control.

 

4.2                                 Conditions to Issuance.  (a) 
In addition to any other terms and conditions set forth in this
Agreement or in any Letter of Credit Agreement, no Letter of Credit shall be
issued by Bank pursuant hereto, unless, as of the date of issuance of such
Letter of Credit:

 

(b)                                 with
respect to any Standby Letters of Credit requested, both before and after
giving effect to the issuance thereof, the Letter of Credit Reserve on such date
with respect to Standby Letters of Credit does not exceed the Letter of Credit
Maximum Amount (Standby);

 

(c)                                  with
respect to any Wells Fargo Letters of Credit requested, both before and after
giving effect to the issuance thereof, the Letter of Credit Reserve on such
date with respect to the Wells Fargo Letters of Credit does not exceed the
Letter of Credit Maximum Amount (Wells Fargo);

 

(d)                                 with
respect to any Commercial Letters of Credit requested, both before and after
giving effect to the issuance thereof, the Letter of Credit Reserve on such
date with respect to Commercial Letters of Credit does not exceed the Letter of
Credit Maximum Amount (Commercial);

 

28

 

(e)                                  both
before and after giving effect to the issuance of the Letter of Credit so
requested, the Letter of Credit Reserve on such date, plus the aggregate amount
of all Advances requested or outstanding on such date (including, without
duplication, any deemed Advances funded by Bank under Section 3.5 and 4.3
in respect of the Company’s reimbursement obligations thereof), plus the
aggregate unpaid face amount of all outstanding Acceptances on such date, do
not exceed the Revolving Credit Aggregate Commitment;

 

(f)                                    with
respect to any Standby Letters of Credit and Wells Fargo Letters of Credit
requested, both before and after giving effect to the issuance thereof, the
Letter of Credit Reserve on such date with respect to Standby Letters of Credit
and Wells Fargo Letters of Credit, plus the aggregate amount of all Advances
requested or outstanding on such date (including, without duplication, any
deemed Advances funded by Bank under Section 3.5 and 4.3 in respect of the
Company’s reimbursement obligations thereof), plus the aggregate unpaid face
amount of all outstanding Acceptances on such date, do not exceed the lesser of
the then applicable (i) Revolving Credit Aggregate Commitment and (ii)
Borrowing Base;

 

(g)                                 both
immediately before and after the issuance of such Letter of Credit, the
obligations of Company set forth in this Agreement, the applicable Letter of
Credit Agreement, and in any of the other Loan Documents to which Company is a
party or by which it is otherwise bound shall be valid, binding and enforceable
obligations of Company;

 

(h)                                 both
before and after issuance of the Letter of Credit so requested, no Default or
Event of Default shall have occurred and be continuing or exist;

 

(i)                                     each
of the representations and warranties made by Company in this Agreement and the
other Loan Documents to which it is a party or by which it is otherwise bound
shall be true and correct in all material respects as if made on and as of such
date;

 

(j)                                     the
execution of the Letter of Credit Agreement with respect to the Letter of
Credit so requested will not violate the terms and conditions of any contract,
agreement, indenture or other borrowing of Company;

 

(k)                                  Company
shall have delivered to Bank, not less than five (5) Business Days prior to the
requested date for issuance of such requested Letter of Credit, the Letter of
Credit Agreement related thereto, together with such other documents and
materials as may be required pursuant to the terms thereof or as Bank may
otherwise reasonably require, and the terms of the proposed Letter of Credit
shall be satisfactory to Bank in its sole discretion;

 

(l)                                     no
order, judgment or decree of any court, arbitrator or governmental authority
shall purport, by its terms, to enjoin or restrain Bank from issuing the Letter
of Credit, and no law, rule, regulation, request or directive (whether or not
having the force

 

29

 

of law)
shall prohibit or request that Bank refrain from issuing the Letter of Credit
requested or letters of credit generally;

 

(m)                               (i) there
shall have been no introduction of or any change in the interpretation of any
law or regulation that would make it unlawful for Bank to issue the requested
Letter of Credit, (ii) there shall have been no declaration of a general
banking moratorium by banking authorities in the United States of America, the
State of Michigan, or any of the respective jurisdictions in which Company or
the beneficiary of the requested Letter of Credit is/are located, and (iii)
there shall have been no establishment of any new restrictions on transactions
involving letters of credit or on banks materially affecting the extension of
credit by banks; and

 

(n)                                 Bank
shall have received the issuance and other fees required in connection with the
issuance of such Letter of Credit pursuant to Section 4.8 hereof.

 

4.3                                 Reimbursement Obligations.  Company agrees to pay to Bank, on the day on
which Bank shall honor any draft or other demand for payment presented or made
under any Letter of Credit, an amount equal to the Reimbursement Obligation
with respect thereto, all in accordance with the applicable Letter of Credit
Agreement (provided, however, that the Company’s reimbursement obligations with
respect to Time Draft Letters of Credit shall be governed by Section 3
hereof).  Unless Company shall have made
such payment to Bank on such day, upon each such payment by Bank, Company shall
be deemed to have requested a Prime-based Advance in an amount equal to such
Reimbursement Obligation, subject in all respects to the terms and conditions
of this Agreement.

 

4.4                                 Obligations Unconditional.  (a) The obligations of Company to make
payments to Bank with respect to any Reimbursement Obligations under
Section 4.3 hereof shall be unconditional and irrevocable, and shall not
be subject to any condition, qualification or exception whatsoever, including,
without limitation:

 

(i)                                     any
lack of validity or enforceability of any Letter of Credit, or any
documentation relating to any Letter of Credit, or to any transaction related
in any way to such Letter of Credit (collectively, the “Letter of Credit
Documents”);

 

(ii)                                  any
amendment, modification, waiver, consent, or any substitution, exchange or
release of or failure to perfect any interest in any collateral or security
with respect to any of the Letter of Credit Documents;

 

(iii)                               the
existence of any claim, setoff, defense or other right which Company may have
at any time against any beneficiary or any transferee of any Letter of Credit
(or any Person(s) for whom any such beneficiary or any such transferee may be
acting), Bank or any other Person, whether in connection with any of the Letter
of Credit Documents, the transactions contemplated herein or therein, or any
unrelated transactions;

 

30

 

(iv)                              any draft
or other statement or document presented under any Letter of Credit proves to
be forged, fraudulent, invalid or insufficient in any respect or any statement
therein is untrue or inaccurate in any respect;

 

(v)                                 any
failure, omission, delay or lack on the part of Bank, or any party to any of
the Letter of Credit Documents, to enforce, assert or exercise any right, power
or remedy conferred upon Bank, or any such party, under this Agreement, any of
the other Loan Documents or any of the Letter of Credit Documents, or any other
acts or omissions on the part of Bank or any such party; or

 

(vi)                              any other
event or circumstances that would, in the absence of this Section 4.4,
result in the release or discharge, whether by operation of law or otherwise,
of Company from the performance or observance of any obligation, covenant or
agreement of Company contained in Section 4.3 of this Agreement.

 

(b)                                 No
setoff, counterclaim, reduction or diminution of any obligation or any defense
of any kind or nature which Company has or may have against the beneficiary of
any Letter of Credit shall be available hereunder to Company against Bank.

 

4.5                                 Indemnification.  Company hereby indemnifies and agrees to hold Bank, Bank’s
officers, directors, employees and agents, harmless from and against any and
all claims, damages, losses, liabilities, costs and expenses of any kind or
nature whatsoever which Bank or any such Person may incur or which may be
claimed against any of them by reason of or in connection with any Letter of
Credit, and neither Bank nor any of its officers, directors, employees or
agents shall be liable or responsible for: (a) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (b) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should, in fact, prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by
Bank to the beneficiary under any Letter of Credit against presentation of
documents which substantially comply with the terms of any Letter of Credit,
including, without limitation, failure of any documents to bear any reference
or adequate reference to such Letter of Credit; (d) any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit; or (e)
any other event or circumstance whatsoever arising in connection with any
Letter of Credit; provided, however, that Company shall not be required to
indemnify Bank and such other Persons, and Bank shall be liable to Company to
the extent, but only to the extent, of any direct, as opposed to consequential
or incidental, damages suffered by Company which were caused (i) improper payment
by Bank to the beneficiary under any Letter of Credit as a result of the gross
negligence or willful misconduct of Bank or (ii) Bank’s wrongful dishonor of
any Letter of Credit after the presentation to it by the beneficiary thereunder
of a draft or other demand for payment and other documentation strictly
complying with the terms and conditions of such Letter of Credit.

 

4.6                                 Reliance on Documents/Remedies
Against Beneficiary.  It is
understood that in making any payment under a Letter of Credit, Bank will rely
on documents presented to it under

 

31

 

such Letter of Credit as to any and all
matters set forth therein, without further investigation and regardless of any
notice or information to the contrary. 
It is further acknowledged and agreed that Company may have rights
against the beneficiary or others in connection with any Letter of Credit with
respect to which Bank is alleged to be liable and it shall be a condition of
the assertion of any liability of Bank under this Section 4.6 that Company
shall contemporaneously pursue all remedies in respect of the alleged loss
against such beneficiary and any other parties obligated or liable in
connection with such Letter of credit and any related transactions.

 

4.7                                 Existing Letters of Credit.  In the event that and to the extent that any
letter(s) of credit previously issued by Bank upon the application of or for
the account of Company remain(s) issued, undrawn and outstanding as of the
effective date of this Agreement, said letter(s) of credit shall be deemed, for
all purposes of this Agreement, to be Letters of Credit under this Agreement,
and each application and agreement submitted in connection with each such
letter of credit shall be deemed, for all purposes of this Agreement, to be a
Letter of Credit Agreement hereunder.

 

4.8                                 Letter of Credit Fees. The Company shall pay
to Bank letter of credit fees as follows:

 

(a)                                  (i)
With respect to any Standby Letters of Credit issued hereunder, a per annum
letter of credit fee with respect to the undrawn face amount of each Standby
Letter of Credit issued pursuant hereto in the amount of the Applicable L/C
Commission Rate;   (ii) with respect to
any Wells Fargo Letter of Credit, a per annum letter of credit fee equal to two
and one half percent (2.5%) on the undrawn face amount of each Wells Fargo
Letter of Credit issued pursuant hereto; and (iii) with respect to any
Commercial Letter of Credit issued hereunder, (x) upon the issuance thereof,
the Applicable Commercial L/C Issuance Fee and (y) upon presentation by the
beneficiary of the draft (and other required documentation) for payment under
such Commercial Letter of Credit, the Applicable Commercial L/C Negotiation
Fee.

 

(b)                                 The fees
described in clause (a) above (i) shall be nonrefundable under all
circumstances, (ii) with respect to any Standby Letters of Credit and Wells
Fargo Letters of Credit, shall be payable upon the issuance of such Letter of
Credit and thereafter, semi-annually in advance on January 1 and July 1
of each year, and in the case of Commercial Letters of Credit, shall be payable
upon the issuance of such Letter of Credit, and (ii) shall be determined by
multiplying the applicable rate times the undrawn amount of the face amount of
each such Letter of Credit on the date of determination, and in the case of the
fees described in clauses (a)(i) and (a)(ii) above, shall be calculated on the
basis of a 360 day year and assessed for the actual number of days from the
date of the issuance thereof to the stated expiration thereof.

 

(c)                                  If any
change in any law or regulation or in the interpretation thereof by any court
or administrative or governmental authority charged with the administration
thereof, adopted after the date hereof, shall either (i) impose, modify or
cause to be deemed applicable any reserve, special deposit, limitation or
similar requirement against letters of credit issued or participated in by, or
assets held by, or deposits in or for the account of, Bank or (ii) impose on
Bank any other condition regarding this Agreement,

 

32

 

the
Letters of Credit or any participations in such Letters of Credit, and the
result of any event referred to in clause (i) or (ii) above shall be to
increase the cost or expense to Bank of issuing or maintaining or participating
in any of the Letters of Credit (which increase in cost or expense shall be
determined by Bank’s reasonable allocation of the aggregate of such cost
increases and expenses resulting from such events), then, upon demand by the
Bank the Company shall, within thirty (30) days following demand for payment,
pay to Bank from time to time as specified by the Bank, additional amounts
which shall be sufficient to compensate the Bank for such increased cost and
expense, together with interest on each such amount from ten days after the
date such payment is due until payment in full thereof at the Prime-based Rate.
Each demand for payment under this Section shall be accompanied by a
certificate of Bank setting forth the amount of such increased cost or expense
incurred by the Bank as a result of any event mentioned in clause (i) or (ii)
above, and in reasonable detail, the methodology for calculating and the
calculation of such amount, which certificate shall be prepared in good faith
and shall be conclusive evidence, absent manifest error, as to the amount
thereof.

 

(d)                                 The
Company also agrees to pay, to the Bank the customary fees (including, without
limitation, documentation, administration, amendment, payment, processing and
cancellation charges) assessed by Bank, at the times, in the amounts and on the
terms set forth or to be set forth from time to time in the standard fee
schedule of Bank in effect from time to time.

 

4.9                                 Use of Letters of Credit.  The Commercial Letters of Credit shall be
used solely to finance the purchase of inventory in the ordinary course of the
Company’s business.  The Standby Letters
of Credit shall be used solely for the purposes described in the definition of
such term in Section 1 of this Agreement. 
The Wells Fargo Letters of Credit shall be used solely for the purposes
described in the definition of such term in Section 1 of this
Agreement.  .

 

5.                                       SPECIAL PROVISIONS, CHANGES IN CIRCUMSTANCES AND
YIELD PROTECTION.

 

5.1                                 Reimbursement of Prepayment Cost.  If Company makes any payment of principal
with respect to any Eurodollar-based Advance on any day other than the last day
of the Interest Period applicable thereto (whether voluntarily, by
acceleration, or otherwise), or if Company fails to borrow any Eurodollar-based
Advance after notice has been given by Company to Bank in accordance with the
terms hereof requesting such Advance, or if Company fails to make any payment
of principal or interest when due in respect of a Eurodollar-based Advance,
Company shall reimburse Bank on demand for any resulting loss, cost or expense
incurred by Bank as a result thereof, including, without limitation, any such
loss, cost or expense incurred in obtaining, liquidating, employing or redeploying
deposits from third parties, whether or not Bank shall have funded or committed
to fund such Advance. Such amount payable by Company to Bank may include,
without limitation, an amount equal to the excess, if any, of (a) the amount of
interest which would have accrued on the amount so prepaid, or not so borrowed,
refunded or converted, for the period from the date of such prepayment or of
such failure to borrow, refund or convert, through the last day of the relevant
Interest Period, at the applicable rate of interest for said Advance(s)
provided under this Agreement (excluding the Applicable Eurodollar Margin),
over (b) the amount of interest (as reasonably determined by Bank) which

 

33

 

would have accrued to Bank on such amount by
placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. Calculation of any amounts payable to Bank
under this paragraph shall be made as though Bank shall have actually funded or
committed to fund the relevant Eurodollar-based Advance through the purchase of
an underlying deposit in an amount equal to the amount of such Advance and
having a maturity comparable to the relevant Interest Period; provided,
however, that Bank may fund any Eurodollar-based Advance in any manner it deems
fit and the foregoing assumptions shall be utilized only for the purpose of the
calculation of amounts payable under this paragraph. Upon the written request
of Company, Bank shall deliver to Company a certificate setting forth the basis
for determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error.

 

5.2                                 Bank’s Eurodollar Lending Office.  For any Interest Period for which the
Applicable Interest Rate is the Eurodollar-based Rate, if Bank shall designate
a Eurodollar Lending Office which maintains books separate from those of the
rest of Bank, Bank shall have the option of maintaining and carrying the
relevant Advance on the books of such Eurodollar Lending Office.

 

5.3                                 Circumstances Affecting
Eurodollar-based Rate Availability. 
If with respect to any Interest Period Bank reasonably determines that,
by reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts are not being
offered to the Bank for such Interest Period, then Bank shall forthwith give
notice thereof to the Company. Thereafter, until Bank notifies Company that
such circumstances no longer exist, the obligation of Bank to make
Eurodollar-based Advances, and the right of Company to convert an Advance to or
refund an Advance as a Eurodollar-based Advance.

 

5.4                                 Laws Affecting Eurodollar-based
Rate Availability.  If, after
the date hereof, the introduction or implementation of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, shall make it unlawful or impossible for the Bank (or
its Eurodollar Lending Office) to honor its obligations hereunder to make or
maintain any Advance, Bank shall forthwith give notice thereof to Company.
Thereafter (a) the obligations of Bank to make Eurodollar-based Advances and
the right of Company to convert an Advance or refund an Advance as a
Eurodollar-based Advance shall be suspended and thereafter Company may select
as Applicable Interest Rates only those which remain available, and (b) if Bank
may not lawfully continue to maintain an Advance to the end of the then current
Interest Period applicable thereto, the Prime-based Rate shall be the
Applicable Interest Rate for the remainder of such Interest Period.

 

5.5                                 Increased Costs.  If the adoption or implementation after the date hereof, or any
change after the date hereof in, any applicable law, rule or regulation of any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) made by any such authority, central bank or comparable agency
after the date hereof:

 

34

 

(a)                                  shall
subject Bank (or its Eurodollar Lending Office) to any tax, duty or other
charge with respect to any Advance or the Revolving Credit Note or shall change
the basis of taxation of payments to Bank (or its Eurodollar Lending Office) of
the principal of or interest on any Advance or the Revolving Credit Note or any
other amounts due under this Agreement in respect thereof (except for changes
in the rate of tax on the overall net income of Bank or its Eurodollar Lending
Office imposed by any jurisdiction in which Bank is organized or engaged in
business); or

 

(b)                                 shall
impose, modify or deem applicable any reserve (including, without limitation,
any imposed by the Board of Governors of the Federal Reserve System), special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by Bank (or its Eurodollar Lending Office) or
shall impose on Bank (or its Eurodollar Lending Office) or the foreign exchange
and interbank markets any other condition affecting any Advance or the
Revolving Credit Note;

 

and the result of any of the foregoing is to increase the
costs to Bank of maintaining any part of the indebtedness hereunder or to
reduce the amount of any sum received or receivable by Bank under this
Agreement or under the Revolving Credit Note, by an amount deemed by the Bank
to be material, then Bank shall promptly notify Company of such fact and demand
compensation therefor and, within fifteen days after demand by Bank, Company
agrees to pay to Bank such additional amount or amounts as will compensate Bank
for such increased cost or reduction. Bank will promptly notify Company of any
event of which it has knowledge which will entitle Bank to compensation
pursuant to this Section. A certificate of Bank setting forth the basis for
determining such additional amount or amounts necessary to compensate Bank
shall be conclusively presumed to be correct save for manifest error. Bank
agrees that, as promptly as practical after it becomes aware of the occurrence
of any event or the existence of a condition that will cause Bank to be
entitled to compensation under this Section, it will, to the extent not inconsistent
with Bank’s internal policies, use reasonable efforts to make, fund or maintain
any affected Eurodollar-based Advance through another lending office of Bank if
as a result thereof the additional monies which would otherwise be required to
be paid in respect of such Eurodollar-based Advance would be materially reduced
and if, as determined by Bank, in its reasonable discretion, the making,
funding or maintaining of such Eurodollar-based Advance through such other
lending office would not materially adversely affect such Advance or Bank.
Company shall pay all reasonable expenses incurred by Bank in utilizing another
lending office pursuant to this Section.

 

5.6                                 Other Increased Costs.  In the event that at any time after the date
of this Agreement any change in law such as described in Section 5.5,
hereof, shall, in the reasonable opinion of Bank require that the credit
provided under Section 2 of this Agreement be treated as an asset or
otherwise be included for purposes of calculating the appropriate amount of
capital to be maintained by Bank or any corporation controlling Bank and such
change has or would have the effect of reducing the rate of return on Bank’s or
Bank’s parent’s capital or assets as a consequence of the Bank’s obligations
hereunder to a level below that which Bank or Bank’s parent would have achieved
but for such change, then Bank shall notify Company and demand compensation
therefor and, within fifteen days after demand by Bank, Company agrees to pay
to Bank such additional amount or amounts as will compensate Bank for such
reduction. Bank will promptly notify Company of any event of which it has
knowledge which will entitle Bank to

 

35

 

compensation pursuant to this Section. A
certificate of Bank setting forth the basis for determining such additional
amount or amounts necessary to compensate Bank shall be conclusively presumed
to be correct save for manifest error.

 

5.7                                 Margin Adjustments.  Adjustments in the Applicable Eurodollar Margin, Applicable
Prime-based Margin, Applicable Commitment Fee Rate and the Applicable L/C
Commission Rate, based on the Company’s Funded Debt to EBITDA Ratio and
determined in accordance with Schedule 5.7 hereto, shall be implemented on
a quarterly basis as follows:

 

(a)                                  Such
margin adjustments shall be given prospective effect only, effective
immediately upon the required date of delivery of the financial statements
under Sections 8.1(a) and 8.1(b) hereof, establishing applicability of the
appropriate adjustments, if any.

 

(b)                                 Such
Margin adjustments under this Section 5.7 shall be made irrespective of,
and in addition to, any other interest rate or pricing adjustments hereunder,
including any assessment of a default rate of interest hereunder.

 

(c)                                  The
pricing set forth under Level I of the attached Schedule 5.7 shall apply
until the delivery of the financial statements for the fiscal year ended
December 31, 2003, in accordance with Section 8.1(a) hereof. Upon any
failure at any time to deliver any financial statement on a timely basis under
this Agreement, and until delivery of such financial statement, the highest
pricing level hereunder shall apply.

 

6.                                       CONDITIONS

 

The obligations of Bank to make Advances, to issue Letters of
Credit and to create and discount Acceptances pursuant to this Agreement are
subject to the conditions precedent that (i) the Closing Date shall have
occurred on or before January 31, 2004 and (ii) the Company shall have
satisfied each of the following conditions:

 

6.1                                 Corporate Authority.  Company agrees to furnish Bank in form and
substance to be reasonably satisfactory to Bank, with (i) copies of resolutions
of the board of directors of each Loan Party evidencing approval of the
transactions contemplated hereunder and authorizing the execution and delivery
of the Loan Documents, and in the case of the Company, the requests of Advances
and Letters of Credit hereunder, including incumbency and signatures of
authorized officers of the applicable Loan Party, such resolutions and
incumbency to be certified no later than seven days after the Effective Date;
(ii) on or prior to Effective Date, a certificate of good standing from the
state of each Loan Party’s incorporation and from the state(s) in which it is
required to be qualified to do business; (iii) on or prior to Effective Date,
copies of each Loan Party’s articles of incorporation and bylaws or other
constitutional documents, as in effect on the Effective Date, and (iv) such
other documents and instruments as Bank may reasonably require.

 

6.2                                 Execution of Loan Documents.  Company shall have executed and delivered to
Bank, the Revolving Credit Note and this Agreement (including all schedules,
exhibits, certificates, opinions, financial statements and other documents to
be delivered pursuant hereto), and, as applicable, the Loan Documents, and such
Revolving Credit Note, Loan Documents and this Agreement shall be in full force
and effect.

 

36

 

6.3                                 Collateral Documents.  As security for all indebtedness of Company
to Bank hereunder, Company agrees to furnish, execute and deliver to Bank, or
cause to be furnished, executed and delivered to Bank, prior to or
simultaneously with the initial borrowing hereunder, in form to be satisfactory
to Bank and supported by appropriate resolution in certified form authorizing
same, the following:

 

(a)                                  Security
Agreement;

 

(b)                                 Parent
Pledge Agreement;

 

(c)                                  Investor
Subordination Agreement;

 

(d)                                 Financing
Statements required or requested by Bank to perfect all security interests to
be conferred upon Bank under this Agreement and to accord Bank a perfected
first priority security position under the Uniform Commercial Code (subject
only to the encumbrances permitted hereunder);

 

(e)                                  Certified
copies of uniform commercial code requests for information, or a similar search
report certified by a party acceptable to the Bank, dated a date reasonably
near to the Closing Date, listing all effective financing statements which name
the Company or any Subsidiary (under their present names or under any previous
names used within five (5) years prior to the date hereof) as debtors and which
are filed in the jurisdictions in which filings are to be made pursuant to the
Loan Documents, together with (i) copies of such financing statements, and (ii)
executed Uniform Commercial Code (Form UCC-3) Termination Statements, if any,
necessary to release all liens and other rights of any Person in any Collateral
described in the Loan Documents previously granted by any Person (other than
liens permitted by Section 9.5); and

 

(f)                                    Such
other documents or agreements of security and appropriate assurances of
validity and perfected first priority of lien or security interest as Bank may
reasonably request at any time.

 

6.4                                 Lessor’s Acknowledgments.  For each property leased by Company or any of
its Subsidiaries listed on Schedule 6.4B, the Bank shall have received a
copy of the applicable lease agreement and lessor’s acknowledgments and
consents in form and substance acceptable to Bank; provided, however, that the
Company shall not be required to deliver a lessor’s acknowledgment and consent
in connection with the property located at Space #1-555, Plaza Suites, 222
South Main Street, High Point, North Carolina.

 

6.5                                 Payment of Fees. 
On or before the Effective Date, Company shall have paid to Bank the
Up-Front Fee as described in the commitment letter and the Summary of Terms and
Conditions, from Bank to Company, each dated as of November 25, 2003
(collectively, the “Commitment Letter”), and on or before the Closing Date, but
in any event no later than January 31, 2004, Company shall have paid to
Bank the balance of any other fees and expenses payable under the terms of the
Commitment Letter and Section 11.2 hereof.

 

6.6                                 Appraisals; Collateral Audit.  On or before the Closing Date, the Bank
shall have received appraisals of inventory of Company and its Subsidiaries and
audits of the Accounts and

 

37

 

Inventory of the Company and its Subsidiaries,
in each case in form and substance satisfactory to the Bank.

 

6.7                                 Insurance. 
The Bank shall have received evidence satisfactory to it that the
Company and the Guarantor have obtained the insurance policies required by
Section 8.3 hereof and that such insurance policies are in full force and
effect.

 

6.8                                 Compliance with Contractual
Obligations.  The Loan Parties
(and any of their respective Subsidiaries or Affiliates) shall have each
performed and complied in all material respects with all agreements and
conditions contained in this Agreement, other Loan Documents, or any agreement
or other document executed thereunder and required to be performed or complied
with by each of them (as of the applicable date) and none of such parties shall
be in material default in the performance or compliance with any of the terms
or provisions hereof or thereof.

 

6.9                                 Opinions of Counsel.  The Loan Parties shall furnish Bank prior to
the initial Advance under this Agreement, opinions of counsel to the Loan
Parties, dated the Closing Date and covering such matters as reasonably
required by and otherwise reasonably satisfactory in form and substance to the
Bank.

 

6.10                           Closing Certificate.  The Bank shall have received a certificate
of the Company dated the Closing Date, stating that to the best of his or her
knowledge after due inquiry, (a) the conditions set forth in this
Section 6 have been satisfied (provided that the Company is not required
to certify that such matters are satisfactory to Bank); (b) the representations
and warranties made by Loan Parties in this Agreement or any of the other Loan
Documents, shall have been true and correct in all material respects when made
and shall be true and correct in all material respects on and as of the Closing
Date; (c) no Default or Event of Default shall have occurred and be continuing;
(d) since September 30, 2003 nothing shall have occurred which has had, or
could reasonably be expected to have, a Material Adverse Effect; and (e) there
shall have been no material changes to the pro forma opening balance sheet of
the Company previously delivered to the Bank.

 

6.11                           Minimum EBITDA. Bank shall have received a
certification from the Company that, for the four quarter period ending
September 30, 2003, the Company has maintained Consolidated EBITDA of not
less than $15,000,000.

 

6.12                           Management and Employment Agreements.  Bank shall have received copies of all
management agreements and employment agreements entered into by the Company
existing on or before the Closing Date.

 

6.13                           Existing
Credit Facilities.  On or before
the Closing Date, all existing Funded Debt, other than Funded Debt expressly
permitted hereunder, of Loan Parties shall have been paid in full and the
related commitments terminated and all liens securing payment of such Funded
Debt shall have been released and the Bank shall have received all Uniform
Commercial Code Form UCC-3 termination statements or other instruments as may
be suitable or appropriate in connection therewith, or undertakings from the
applicable secured parties as to the termination and discharge thereof
satisfactory in form and substance to the Bank.

 

38

 

6.14                           Continuing Conditions to all Advances.  The obligations of the Bank to make Advances
(including the initial Advance) under this Agreement, issue any Letters of
Credit and create any Acceptances shall be subject to the continuing conditions
that:

 

(a)                                  No
Default or Event of Default shall exist as of the date of the Advance, the
request for the Letter of Credit or the request for an Acceptance; and

 

(b)                                 Each of
the representations and warranties contained in this Agreement and in each of
the other Loan Documents shall be true and correct in all material respects as
of the date of the Advance, Letter of Credit or Acceptance as if made on and as
of such date (other than any representation or warranty that expressly speaks
only as of a different date).

 

7.                                       REPRESENTATIONS AND WARRANTIES

 

Company represents and warrants and such representations and
warranties shall survive until the Revolving Credit Maturity Date and
thereafter until the expiration of all Letters of Credit and the maturity of
all Acceptances and the final payment in full of the Indebtedness and the
performance by the Loan Parties of all other obligations under this Agreement
and the other Loan Documents:

 

7.1                                 Corporate Authority.  Each Loan Party is a corporation (or other
business entity) duly organized and existing in good standing under the laws of
the state of its incorporation; each Loan Party is in good standing in each
jurisdiction in which it is required to be qualified to do business, except
where the failure to be so qualified would not have a Material Adverse Effect.

 

7.2                                 Due Authorization–Company.  Execution, delivery and performance of this
Agreement and other documents and instruments required under this Agreement,
and the issuance of the Revolving Credit Note by Company are within its powers,
have been duly authorized, are not in contravention of law or the terms of
Company’s Articles of Organization or Operating Agreement, or of the unwaived
terms of any indenture, agreement or undertaking to which Company is a party or
by which it is bound, and do not require the consent or approval of any
governmental body, agency or authority; and this Agreement and other documents
and instruments required under this Agreement and the Revolving Credit Note,
when issued and delivered, will be valid and binding on the Company in
accordance with their terms.

 

7.3                                 Due Authorization–Other Loan Parties.  Execution, delivery and performance of the
applicable Loan Documents (including the Guaranty) to which any such Loan Party
is a party, are within its powers, having been duly authorized, are not in
contravention of law or such Loan Party’s organizational documents or of the
unwaived terms of any indenture, agreement or undertaking to which such Loan
Party is a party or by which it is bound, and do not require the consent or
approval of any governmental body, agency or authority; and the Loan Documents
and other documents and instruments required under thereunder, when issued and
delivered, will be valid and binding on such Loan Party in accordance with
their terms.

 

7.4                                 No Litigation. 
No litigation or other proceeding before any court or administrative
agency is pending, or to the knowledge of the officers of Company is threatened

 

39

 

against any Loan Party, the outcome of which
could reasonably be expected to have a Material Adverse Effect.

 

7.5                                 Good Title; No Liens.  The property described in Schedules 6.4A and
6.4B hereof constitutes all of the real property owned or leased, respectively,
by Holdings, the Company and their respective Subsidiaries as of the Closing
Date. Holdings, the Company and their respective Subsidiaries have good title
to or a valid leasehold interest or interest as licensee in (or, in the case of
any fee interest in real property, good and marketable title to) all of their
respective material assets, subject to the exceptions stated in the next
sentence. There are no security interests in, liens, mortgages, or other
encumbrances on and no financing statements on file with respect to any of the
assets owned by Holdings, Company or their Subsidiaries, except to Bank or as
otherwise permitted under this Agreement.

 

7.6                                 ERISA.  As of the
Closing Date, none of the Loan Parties nor any of their respective Subsidiaries
maintains or contributes to any Pension Plan subject to Title IV of ERISA,
except as set forth on Schedule 7.6 hereto; and there is no accumulated
funding deficiency within the meaning of ERISA, or any outstanding liability
with respect to any of the Pension Plans owed to the PBGC or any successor
thereto other than future premiums due and owing pursuant to Section 4006
of ERISA, and no “reportable event” as defined in ERISA has occurred with
respect to any Pension Plan other than an event for which the notice
requirement has been waived by the PBGC. Neither the Loan Parties nor any of
their respective Subsidiaries have engaged in a transaction with respect to any
Pension Plan, other than a transaction for which an exemption is available and
has been obtained, which could subject the Loan Parties nor any of their
respective Subsidiaries to a tax or penalty imposed by Section 4975 of the
Code or Section 502(i) of ERISA in an amount that would be material.  All Pension Plans are in material compliance
with the requirements of the Internal Revenue Code and ERISA.

 

7.7                                 Accuracy of Information. (a)  The audited financial statements of the
Company previously delivered by the Company to the Bank fairly present in all
material respects the financial condition of the Holdings and its Consolidated
Subsidiaries as of such date; since said date there has been no material
adverse change in the financial condition of the Holdings and its Consolidated
Subsidiaries; to the best of the knowledge of Company’s officers, as of the
Closing Date, neither Holdings nor any of its Consolidated Subsidiaries have
any material contingent obligations (including any liability for taxes) not
disclosed by or reserved against in said balance sheet, and there are no
material unrealized or anticipated losses from any present commitment of
Holdings or any of its Subsidiaries.

 

(b)                                 To the
best knowledge of Company, the financial projections furnished by Company to
Bank prior to the date of execution of this Agreement were as of the date
thereof and are as of the date of execution of this Agreement reasonable in all
material respects taking into account all facts and information known or
reasonably available to Company.

 

7.8                                 Taxes.  All income
tax returns and tax reports of Holdings and its Consolidated Subsidiaries
required by law to have been filed have been duly filed or extensions obtained,
and all taxes, assessments and other governmental charges or levies (other than
those presently payable without penalty and those currently being contested in
good faith for which adequate

 

40

 

reserves have been established) upon Holdings
and its Consolidated Subsidiaries (or any of its or their properties) which are
due and payable, and for which the failure to pay, would materially adversely
affect its business or the value of its property or assets have been paid. The
charges, accruals and reserves on the books of Company in respect of the
Federal income tax for all periods are adequate in the opinion of Company.

 

7.9                                 Subsidiaries. 
Except as set forth on Schedule 7.9 as of the Closing Date, there
are no subsidiaries of Company.

 

7.10                           Environmental and Safety Matters.  Except as set forth in Schedule 7.10
and except for such matters as are not likely to have a Material Adverse
Effect:

 

(a)                                  all
facilities and property owned or leased by the Loan Parties or any of their
respective Subsidiaries, are in material compliance with all Environmental
Laws;

 

(b)                                 to the
best knowledge of the Company, there have been no unresolved and outstanding
past, and there are no pending or threatened:

 

(i)                                     claims,
complaints, notices or requests for information received by any Loan Party or
any of their respective Subsidiaries with respect to any alleged violation of
any Environmental Law, or

 

(ii)                                  written
complaints, notices or inquiries to any Loan Party or any of their respective
Subsidiaries regarding potential liability of the Loan Parties or any of their
respective Subsidiaries under any Environmental Law; and

 

(c)                                  to the
knowledge of the Company, no conditions exist at, on or under any property now
or previously owned or leased by the Loan Parties or any of their respective
Subsidiaries which, with the passage of time, or the giving of notice or both,
would give rise to liability of the Loan Parties or any of their respective
Subsidiaries under any Environmental Law.

 

7.11                           No Investment Company or Margin Stock.  None of the Loan Parties nor any of their
respective Subsidiaries is not an “investment company” within the meaning of
the Investment Company Act of 1940, as amended. None of the Loan parties nor
any of their respective Subsidiaries is not engaged principally, or as one of
its important activities, directly or indirectly, in the business of extending
credit for the purpose of purchasing or carrying margin stock, and none of the
proceeds of any of the loans hereunder will be used, directly or indirectly,
for any purpose which would violate the provisions of Regulation U or X of the
Board of Governors of the Federal Reserve System. Terms for which meanings are
provided in Regulation U of the Board of Governors of the Federal Reserve
System or any regulations substituted therefor, as from time to time in effect,
are used in this paragraph with such meanings.

 

7.12                           Solvency. 
After giving effect to the consummation of the transactions contemplated
by this Agreement, Holdings and its Consolidated Subsidiaries will each be
solvent, able to pay its indebtedness as it matures and will have capital
sufficient to carry on its business and all business in which it is about to
engage. This Agreement is being executed and

 

41

 

delivered by the Company to the Bank in good
faith and in exchange for fair, equivalent consideration. Neither Holdings nor
any of its Consolidated Subsidiaries is insolvent, nor will Holdings or any
Subsidiary be rendered insolvent by its execution and delivery to the Bank of
this Agreement or by the consummation of the transactions contemplated by this
Agreement, and the capital and monies remaining in Holdings and its
Consolidated Subsidiaries are not now and will not become so unreasonably small
as to preclude the Holdings or its Consolidated Subsidiaries from carrying on
their businesses. Neither Holdings nor any Subsidiary intends to nor does
management of Holdings or any Subsidiary believe it will incur debts beyond its
ability to pay as they mature. Neither Holdings nor any Subsidiary contemplates
filing a petition in bankruptcy or for an arrangement or reorganization under
the Bankruptcy Code or any similar law of any jurisdiction now or hereafter in
effect relating to Holdings or any Subsidiary, nor does Holdings or any
Subsidiary have any knowledge of any threatened bankruptcy or insolvency
proceedings against Holdings or any Subsidiary.

 

7.13                           Capitalization. 
On the Closing Date, all issued and outstanding shares of capital stock
or other ownership interests of Company and its Consolidated Subsidiaries are
duly authorized and validly issued, fully paid, nonassessable, free and clear
of all liens other than liens permitted under Section 9.5 and such shares
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. On the Closing Date, the capital stock (or other
ownership interests) of the Company and each Subsidiary is owned by the
interest holders and in the amounts set forth on Schedule 7.13.  On the Closing Date, no shares of the
capital stock (or other ownership interests) of the Company or any Subsidiary,
other than those described above, are issued and outstanding. On the Closing
Date, except as disclosed on Schedule 7.13, there are no preemptive or
other outstanding rights, options, warrants, conversion rights or similar
agreements or understandings for the purchase or acquisition from the Company
or any Subsidiary, of any shares of capital stock (or other ownership
interests) of the Company or any Subsidiary.

 

7.14                           Anti-Terrorism Laws.  Neither the extension of credit made
pursuant to this Agreement or the use of the proceeds thereof will violate the
Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto, or The United and Strengthening America by providing appropriate Tools
Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001,
Public Law 107﷓56, October 26, 2001 or  Executive Order 13224 of September 23, 2001 issued by the
President of the United States (66 Fed. Reg. 49049 (2001)).

 

8.                                       AFFIRMATIVE COVENANTS

 

Company covenants and agrees that it will and, as applicable,
it will cause its Subsidiaries to, so long as Bank may make any Advance under
this Agreement and thereafter until the expiration of all Letters of Credit,
the maturity of all Acceptances and the irrevocable final payment in full of the
Indebtedness and the performance by the Loan Parties of all other obligations
under this Agreement and the other Loan Documents:

 

8.1                                 Financial Statements; Certificates;
Other Information.  Furnish
Bank:

 

42

 

(a)                                  as soon
as available, but in any event within (i) one hundred twenty (120) days after
the fiscal year ended December 31, 2003, and (ii) within ninety (90) days
after the end of each subsequent fiscal year thereafter of the Company, a copy
of the audited Consolidated and unaudited Consolidating financial statements of
the Holdings and its Subsidiaries as at the end of such year and the related
audited statements of income, accumulated earnings, and cash flows for such
year, setting forth in each case in comparative form the figures for the
previous year, certified as being fairly stated in all material respects by one
of nationally recognized certified public accounting firms reasonably
satisfactory to the Bank;

 

(b)                                 as soon
as available, but in any event not later than (i) forty five (45) days after
the end of March, June, September and December of each year, and (ii)
thirty (30) days after the end of every other month, in each case other than
the last month of each fiscal year, in which case the following items shall be
delivered concurrently with the delivery of the financial statements under
clauses (a) above), Company prepared unaudited Consolidated and Consolidating
financial statements of Holdings and its Subsidiaries as at the end of such month
and the related unaudited statements of income and cash flows of the Holdings
and its Subsidiaries for the portion of the fiscal year through the end of such
fiscal month, setting forth in each case in comparative form the figures for
the corresponding periods in the previous year, and certified by Company as
being fairly stated in all material respects;

 

(c)                                  within
twenty (20) days after and as of the end of each month, including the last
month of each fiscal year, (i) a monthly aging of Company’s Accounts, (ii) a
monthly aging of Company’s accounts payable, (iii) an inventory report in form
satisfactory to Bank, (iv) a Borrowing Base Certificate, and (v) a listing of
all outstanding Letters of Credit and Acceptances, in each case in form
acceptable to Bank, and in each case, accompanied, if so requested by Bank, by
supporting detail reasonably acceptable to Bank;

 

(d)                                 concurrently
with the delivery of each of the financial statements required by
Section 8.1(a) and (b)(i) hereof, a statement prepared and certified by
the chief financial officer of Company (or in such officer’s absence, a
responsible senior officer of Company) (a) setting forth all computations
necessary to show compliance by Company with the financial covenants contained
in Sections 8.10, 8.11 and 9.7 hereof, (b) stating that as of the date thereof,
no condition or event which constitutes a Default hereunder or which with the
running of time and/or the giving of notice would constitute an Event of
Default hereunder has occurred and is continuing, or if any such event or
condition has occurred and is continuing or exists, specifying in detail the
nature and period of existence thereof and any action with respect thereto
taken or contemplated to be taken by Company and (c) stating that the signer
has personally reviewed this Agreement and has made such examination (or had
persons under the signer’s supervision make such examination) as signer deemed
necessary to enable signer to provide such certification and to attest to its
accuracy;

 

(e)                                  within
thirty (30) days after the end of each fiscal year, financial projections for
Holdings and its Subsidiaries in form satisfactory to Bank;

 

43

 

(f)                                    concurrently
with the delivery of each of the financial statements required by
Section 8.1(a) and (b)(i) hereof (or more frequently upon the request of
the Bank or at the option of the Company), revisions or updates to Schedules
6.4A, 6.4B, 7.6, and 7.9 as may be necessary or appropriate from time to time
to update or correct such Schedules, which revisions shall be effective from
the date received by the Bank; provided, however, that no such revisions or
updates to any Schedules shall be deemed to have cured any breach of warranty
or misrepresentations occurring prior to the delivery of such revision or
update by reason of the inaccuracy or incompleteness of any such
Schedule at the time such warranty or representation previously was made
or deemed to be made;

 

(g)                                 such
information as required by the terms and conditions of any security agreements
referred to in this Agreement;

 

(h)                                 such
other financial and other reports as delivered to the holders of the Investor
Subdebt pursuant to the Investor Subdebt Documents and the holders of any other
Subordinated Debt under the applicable Subordinated Debt Documents;

 

(i)                                     such
additional schedules, certificates and reports respecting all or any of the
assets being pledged to the Bank, the items or amounts received by the Company
or any of its Subsidiaries in full or partial payment thereof, and any goods
(the sale or lease of which shall have given rise to any of the collateral)
possession of which has been obtained by Company, all to such extent as Bank
may reasonably request, and any such schedule, certificate or report shall be
certified as accurate by the Company and shall be in such form and detail as
Bank may reasonably specify; and

 

(j)                                     promptly,
and in form to be satisfactory to Bank, such other information as Bank may
reasonably request from time to time;

 

all such financial statements required to be delivered under
this Section 8.1 to be complete and correct in all material respects and
to be prepared in reasonable detail and in accordance with GAAP throughout the
periods reflected therein and consistent with prior periods (except as approved
by such officer and disclosed therein and except in the case of monthly
financial statements, for [normal year end adjustments and] the absence of
footnotes).

 

8.2                                 Payment of Obligations.  Pay and discharge, and cause its Subsidiaries
to pay and discharge, all taxes and other governmental charges, and all
contractual obligations calling for the payment of money, before the same shall
become overdue except to the extent only that such payment is being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided upon the books of the Company or where
the failure to pay any such matter could not reasonably be expected to have a
Material Adverse Effect, provided that, in any event, the Company will, and
will cause its Subsidiaries to pay any such tax, charge or other obligation
prior to the commencement of any proceeding to foreclose any lien securing the
same.

 

8.3                                 Maintenance of Property; Insurance.  (a) Keep all property useful and necessary
in its business in working order (ordinary wear and tear excepted); and (b)
maintain, and cause its Subsidiaries to maintain, insurance coverage on their
physical assets and against other

 

44

 

business risks in such amounts and of such
types as are customarily carried by companies similar in size and nature, and
in the event of acquisition of additional property, real or personal, or of
incurrence of additional risks of any nature, increase such insurance coverage
in such manner and to such extent as prudent business judgment and present
practice would dictate; and in the case of all policies covering property
mortgaged or pledged to Bank or property in which Bank shall have a security
interest of any kind whatsoever, all such insurance policies shall provide that
the loss payable thereunder shall be payable to Company and Bank (as mortgagee
or lender loss payee, as applicable) as their respective interests may appear,
all said policies or copies or certifications thereof, including all
endorsements thereon and those required hereunder, to be deposited with Bank.

 

8.4                                 Inspection of Property; Books,
Records; Insurance.  Permit
Bank, through its authorized attorneys, accountants and representatives, upon
reasonable advance notice (unless a Default or Event of Default has occurred
and is continuing in which event such notice shall not be required) and during
normal business hours, to examine Holding’s, Company’s and each Subsidiaries’
books, accounts, records, ledgers and assets of every kind and description at
all reasonable times upon oral or written request of Bank, which shall include
but shall not be limited to collateral audits of Holdings, the Company or any
of their respective Subsidiaries conducted by Bank, with all reasonable costs
and expenses of such audits to be reimbursed by the Company,  provided that so long as no Default or Event
of Default has occurred and is continuing, the Company shall not be obligated
to reimburse Bank for more than one collateral audit per calendar year, and to
visit all of their respective offices and discuss financial matters with their
respective officers and independent certified public accountant. Company hereby
authorizes such officers and accountants to discuss the finances and affairs of
the Loan Parties (provided that the Company is given an opportunity to
participate in such discussions) and to examine any of its or their books and
other corporate records.

 

8.5                                 Notices.  (a)
Promptly give notice to Bank of any condition or event known to Company or any
Loan Party which constitutes or with the running of time and/or the giving of
notice would constitute a Default or an Event of Default under this Agreement,
and promptly inform Bank of the existence or occurrence of any condition or
event (other than conditions having an effect on the economy in general) which
could reasonably be expected to have a Material Adverse Effect upon the
financial condition of Holdings and its Subsidiaries; and

 

(b)                                 Promptly
provide Bank with any notices delivered to the Investor Subdebt Purchasers or
any other holders of Subordinated Debt, and notify Bank of any default under
the Investor Subdebt Documents or any other Subordinated Debt Document known to
Company or any Loan Party.

 

8.6                                 Licenses, Permits, etc.  Maintain, and cause the other Loan Parties
to maintain, in good standing all material licenses required by their
respective states of incorporation or any agency thereof, or other governmental
authority that may be necessary or required for Holdings, the Company and their
respective Subsidiaries to carry on its general business objects and purposes,
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect.

 

45

 

8.7                                 Conduct of Business, Maintenance of
Existence.  (a) Continue to
engage in the business as substantially now conducted by the Company and its
Subsidiaries and businesses related thereto and preserve, renew and keep in full
force and effect its existence, (except for mergers, consolidations and Asset
Sales permitted by this Agreement) and cause Holdings not to engage in any
activity other than acting as a holding company for membership or partnership
interests of the Company or any Affiliate of the Company engaged in activities
reasonably related to the business of the Company and any activities incidental
thereto; and (b) comply with all contractual obligations, except to the extent
that failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

8.8                                 Compliance with ERISA.  Comply, and cause its Subsidiaries to
comply, with all material requirements imposed by ERISA as presently in effect
or hereafter promulgated, including but not limited to, the minimum funding
requirements of any Pension Plan, and promptly notify Bank after the occurrence
thereof in writing of any of the following events:

 

(a)                                  the
termination of a Pension Plan pursuant to Subtitle C of Title IV of ERISA or
otherwise;

 

(b)                                 the
appointment of a trustee by a United States District Court to administer a
Pension Plan;

 

(c)                                  the
commencement by the Pension Benefit Guaranty Corporation, or any successor
thereto of any proceeding to terminate a Pension Plan;

 

(d)                                 the
failure of a Pension Plan to satisfy the minimum funding requirements for any
plan year as established in Section 412 of the Internal Revenue Code of
1954, as amended or any similar provision under the Internal Revenue Code of
1986, as amended;

 

(e)                                  the
withdrawal of Company or any Subsidiary from a Pension Plan; or

 

(f)                                    a
reportable event, within the meaning of Title IV of ERISA, other than a
reportable event for which the notice requirement has been waived by the PBCG.

 

8.9                                 Security; Defense of Collateral.  Furnish Bank, upon Bank’s request, in form
reasonably satisfactory to Bank with pledges, assignments, mortgages, lien
instruments or other security instruments covering any or all of Company’s and
each domestic Subsidiary’s real and personal property, of every nature and
description, whether now owed or hereafter acquired, to the extent that Bank
may in its sole reasonable discretion require, and defend all collateral
pledged to Bank as security for the Indebtedness from any liens other than liens
permitted under Section 9.5.

 

8.10                           Interest Coverage Ratio.  Maintain as of the end of each fiscal
quarter ending during the periods specified below for the four fiscal quarters
then ending, commencing with the fiscal quarter ending March 31, 2004, an Interest Coverage Ratio of not less than
(i) 2.25 to 1.0, for each fiscal quarter ending on or before March 31,
2005, and (ii) 2.50 to 1.0, for each fiscal quarter ending on or after
June 30, 2005.

 

46

 

8.11                           Funded Debt to EBITDA.  Maintain as of the end of each fiscal
quarter ending during the periods specified below for the four fiscal quarters
then ending, commencing with the fiscal quarter ending March 31, 2004, a Funded Debt to EBITDA Ratio of not more than
(i) 4.25 to 1.0, for each fiscal quarter of the Company ending on or before
March 31, 2005, and (ii) 4.00 to 1.0, for each fiscal quarter ending on or
after June 30, 2005.

 

8.12                           Operating Accounts.  Maintain all of the primary cash collection, operating and
general disbursement accounts of Company and each of its Subsidiaries with
Bank.

 

8.13                           Environmental Compliance.  (a) Use and operate all of its facilities
and properties in material compliance with all material Environmental Laws,
keep all necessary permits, approvals, certificates, licenses and other
authorizations under Environmental Laws in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material compliance
with all applicable Environmental Laws except where the failure to do so would
not reasonably be expected to have a Material Adverse Effect;

 

(b)                                 Promptly
notify Bank and provide copies upon receipt of all written claims, complaints,
notices or inquiries received by the Company or any of its Subsidiaries of a
material nature relating to its facilities and properties or compliance with
Environmental Laws, and promptly cure all violations of or noncompliance with
all Environmental Laws to the extent that such violations could reasonably be
likely to have a Material Adverse Effect and undertake to have dismissed with
prejudice to the satisfaction of the Bank any actions and proceedings relating
to compliance with Environmental Laws to which Company or any of its
Subsidiaries is named a party, other than such actions or proceedings being
contested in good faith and with the establishment of a reasonable reserve; and

 

(c)                                  To the
extent necessary to materially comply with Environmental Laws, remediate or
monitor contamination arising from a release or disposal of Hazardous Material.

 

8.14                           Use of Proceeds.  Use (i) the proceeds of the Revolving Credit in accordance with
Section 2.12, (ii) the Letters of Credit in accordance with
Section 4.9 and (iii) the Acceptances to honor the Time Draft Letters of
Credit in compliance with the terms thereof.

 

8.15                           Acceptances—Licenses and Insurance.  Except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, Company agrees to:
(a) procure and maintain any necessary import, export or other licenses for the
import, export, shipping, warehousing or sale of any goods, and any and all
other property covered by any documents relating to any Acceptance created
hereunder; (b) comply with all governmental laws and regulations regarding the
importing, exporting, shipping, warehousing and/or sale of all such goods or
the financing thereof, and furnish such certificates in that respect as Bank
may at any time reasonably require; (c) to the extent that prudent business
judgment and practice would dictate, keep such goods adequately covered at all
times by insurance reasonably satisfactory to Bank, under policies and by
insurance carriers reasonably satisfactory to Bank; and (d) pay any and all
taxes, and any and all shipping, warehousing, cartage and other charges or
expenses, upon or with regard to the goods to which any Acceptances relates,
and furnish Bank with such

 

47

 

receipts or other
evidence in that respect as Bank may at any time or times reasonably
require.  In the event that Bank pays
for or incurs any liability in connection with any of the above shipping or
other licenses or any insurance, tax, shipping, warehousing, cartgage or other
charges, then all of such charges shall be payable by Company to Bank upon
demand, together with interest thereon at a per annum rate of three percent
(3%) above the Prime-based Rate.

 

8.16                           Future Subsidiaries; Additional
Collateral.  (a) With respect to
each Person which becomes a Subsidiary subsequent to the date of this
Agreement, on the date a new Subsidiary is created or acquired, as the case may
be, (x) cause each such Subsidiary to execute and deliver to Bank, (i) a
joinder agreement in the form attached as Exhibit “A” to the Guaranties whereby
each Subsidiary becomes obligated as a Guarantor under the Guaranty and (ii)
Security Agreements and Mortgages, as applicable, together with such supporting
documentation, including without limitation corporate authority, items,
certificates and opinions of counsel, as reasonably required by Bank, and (y)
execute and deliver, or cause any applicable Subsidiary to execute and deliver
to Bank a Security Agreement encumbering all of the share capital or other
ownership interests of such Subsidiary; and (b) with respect to real property
located in the United States that is: 
(i) owned or otherwise acquired by the Company or any other Loan Party
after the Closing Date, not later than sixty (60) days after such property is
acquired, the Company shall execute or cause to be executed a Mortgage covering
such property, together with such real estate documentation listed on
Schedule 8.16 hereto; and (ii) leased by the Company or any Subsidiary
after the Closing Date, not later than thirty (30) days after the execution of
the applicable lease, the Company shall execute or cause to be executed [a leasehold mortgage and/or] a
lessor’s acknowledgment and consent, in each case in form and substance
satisfactory to Bank, together with such supporting documentation, including
without limitation corporate authority items, certificates and opinions of
counsel, as reasonably required by the Bank, and the Company shall take, or
cause to be taken, such steps as are necessary or advisable under applicable
law to perfect the liens granted under this Section 8.16.

 

9.                                       NEGATIVE COVENANTS

 

Company covenants and agrees that, so long as Bank may make
any Advances under this Agreement and thereafter until the expiration of all
Letters of Credit and the maturity of all Acceptances, and the irrevocable final
payment in full of the Indebtedness and the performance by the Loan Parties of
all other obligations under this Agreement and the other Loan Documents, it
will not, and will cause its Subsidiaries not to, without the prior written
consent of Bank:

 

9.1                                 Limitations on Debt.  Create, incur, assume or suffer any Debt,
except:

 

(a)                                  Indebtedness
to Bank and any renewals or refinancing of such Indebtedness;

 

(b)                                 any Debt
described in attached Schedule 9.1 and any renewals or refinancings of
such Debt in amounts not exceeding the scheduled amounts (less any required
amortization according to the terms thereof) on substantially the same terms as
in effect on the Closing Date and otherwise in compliance with this Agreement;

 

(c)                                  Guarantee
Obligations to the extent permitted under Section 9.3;

 

48

 

(d)                                 Subordinated
Debt;

 

(e)                                  any
Debt assumed pursuant to a Permitted Acquisition conducted in compliance with
this Agreement, provided that such Debt was not entered into, extended or
renewed in contemplation of such acquisition and provided further that  the aggregate amount of all such Debt shall
not exceed $2,000,000 at any time outstanding;

 

(f)                                    any
Debt incurred to finance the acquisition of fixed or capital assets (whether
pursuant to a loan or a Capitalized Lease), provided that the aggregate amount
of all such Debt shall not exceed $500,000 at any one time outstanding;

 

(g)                                 Hedging
Transactions;

 

(h)                                 Intercompany
Loans, but only to the extent permitted under Section 9.9;

 

(i)                                     Any
Debt owing by any foreign Subsidiary provided that the aggregate amount of all
such Debt shall not exceed $500,000 at any one time outstanding; and

 

(j)                                     additional
unsecured Debt not otherwise described above, provided that at the time of and immediately
after giving effect to the occurrence thereof, (i) the aggregate principal
amount outstanding at any one time shall not exceed $700,000 and (ii) no
Default or Event of Default shall have occurred and be continuing.

 

9.2                                 Limitation on Mergers; Asset Sales.  Enter into any merger or consolidation or
sell, lease, assign, transfer, or dispose of all, substantially all, or any
part of its assets, except:

 

(a)                                  inventory
leased or sold in the ordinary course of its business;

 

(b)                                 obsolete,
damaged or worn out property, property no longer useful or useable in the
conduct of a Company or a Subsidiary’s business; and

 

(c)                                  (i)
mergers or consolidations of any Subsidiary with or into Company (so long as
Company shall be the continuing or surviving entity); and (ii) mergers or
consolidations of any Subsidiary (excluding Company) with or into any
Guarantor, so long as such Guarantor shall be the continuing or surviving
entity; provided, however, that at the time of each such merger or
consolidation under sub-clauses (i) through (ii) of this clause (c), both
before and after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing;

 

(d)                                 sales or
transfers, including upon voluntary liquidation (other than sales or transfers
of stock or other ownership interests) (i) between Company and any Guarantor or
(ii) from any Subsidiary of the Company to the Company or any Guarantor;

 

(e)                                  (i)
provided no Default or Event of Default has occurred and is continuing at the
time of such sale (both before and after giving effect to such Asset Sale),
Asset Sales in which the sales price is at least the fair market value of the
assets sold and the aggregate amount of such Asset Sales (as determined on the
basis of the gross sales price

 

49

 

of such
Asset Sales) is less than $50,000 in any fiscal year, and (ii) other Asset
Sales approved in writing by the Bank.

 

9.3                                 Limitation of Guarantee Obligations.  Guarantee, endorse, or otherwise become
secondarily liable for or upon the obligations of others, except (i) by
endorsement for deposit in the ordinary course of business, (ii) guarantees in
favor of Bank, (iii) guarantees existing on the Closing Date and set forth on
Schedule 9.3 hereto, (iv) guarantees made in the ordinary course of
business by Company or any of its Subsidiaries in respect of Debt incurred by
Company or any Subsidiary, as the case may be, in compliance with this
Agreement and (iv) other guarantees and similar obligations not otherwise permitted
under this Section 9.3 in respect of Debt incurred by any Person, provided
that the aggregate amount of such Debt at any time outstanding does not exceed
$500,000.

 

9.4                                 Limitation on Acquisitions.  Purchase or otherwise acquire or become
obligated for the purchase of all or substantially all or any material portion
of the assets or business interests of any person, firm or corporation or any
shares of stock of any corporation, trusteeship or association or in any other
manner effectuate or attempt to effectuate an expansion of present business by
an acquisition, except for Permitted Acquisitions.

 

9.5                                 Limitations on Liens.  Affirmatively pledge or mortgage any of its
property, assets or revenues, whether now owned or hereafter acquired, or
create, suffer or permit to exist any lien, security interest in, or
encumbrance thereon, except:

 

(a)                                  to
Bank;

 

(b)                                 the
Permitted Liens;

 

(c)                                  liens
securing Debt permitted by Section 9.1(e), provided that such liens do not
at any time encumber any property other than property subject to such liens
prior to such Permitted Acquisition;

 

(d)                                 liens
securing Debt permitted by Section 9.1(f), provided that (i) such liens
shall be created substantially simultaneously with the acquisition of such
fixed or capital asset, (ii) such liens do not at any time encumber any
property other than the property, equipment or improvements financed by such
Debt, and (iii) the principal amount of Debt secured by any such lien shall at
no time exceed 100% of the original purchase price of such property, equipment
or improvements and related costs and charges imposed by the vendors thereof;
and

 

(e)                                  liens
described in attached Schedule 9.5.

 

9.6                                 Restricted Payments.  Declare or make, or permit Holdings or any
Subsidiary to declare or make any dividends, payments or make any other
distribution upon its stock (whether in form of cash, assets, properties,
rights, obligations or securities) or purchase, redeem or acquire for value any
shares of its stock or other ownership interests, as applicable, or any
warrants, rights or options to acquire such shares or other ownership
interests, as applicable, except (i) dividends payable in the interests of
Company (provided such interests are immediately pledged to Bank); (ii)
distributions by Company to Holdings in an amount

 

50

 

necessary to enable Holdings to pay its
aggregate income taxes attributable to the income of Company and its
Subsidiaries (such taxes being determined without regard to any net income or
loss derived other than from Company and its Subsidiaries and using the highest
marginal federal and state tax rates then in effect); (iii) distributions by
any Subsidiary to Company or any Guarantor; (iv) provided that no Default or
Event of Default has occurred and is continuing (both before and after giving
effect thereto), distributions by Holdings to its shareholders made on or prior
to March 31, 2004, in an aggregate amount not to exceed $9,000,000; and
(v) provided that, both before and after giving effect thereto, (x) no Default
or Event of Default has occurred and is continuing, and (y) no default has
occurred and is continuing under Section 9.08 of the Securities Purchase
Agreement, other distributions by the Company to Holdings, and any corresponding
distribution by Holdings to its Shareholders in an aggregate amount not to
exceed $2,000,000 in any fiscal year; provided that, any amounts not
distributed by the Company under clause (v) of this Section 9.6 in any
fiscal year may be distributed in any subsequent fiscal year, but in no event
shall the aggregate amount of any such distribution by the Company in any
fiscal year exceed $6,000,000.

 

9.7                                 Capital Expenditures.  Make any Capital Expenditures during any
fiscal year of Company if, after giving effect thereto, the aggregate amount of
all Capital Expenditures made by Company and its Subsidiaries during such
period would exceed $600,000; provided that up to fifty percent (50%) of the
unused amount of Capital Expenditures in any fiscal year may be carried over
and used (without cumulation) in the following fiscal year.

 

9.8                                 Transactions with Affiliates.  Enter into any transaction or series of
transactions (including, without limit, the sale, purchase, lease or exchange
of property or the rendering of any service or providing for the payment of any
management or other fee) with any Affiliate except for (a) transactions
expressly permitted under this Agreement (including the payment of management
fees permitted under Section 9.14 hereof), (b) employment agreements
entered into in the ordinary course of business with officers and employees of
the Loan Parties, customary fees paid to members of the [board of directors] of
the Company, and customary officer and director indemnification arrangements, (c)
transactions among Company and the Loan Parties not involving any other
Affiliates and (d) other transactions on terms and conditions as favorable to
Company as would be obtainable in a comparable arms-length transaction with a
Person other than an Affiliate.

 

9.9                                 Limitation on Investments.  Make or allow to remain outstanding any
investment (whether such investment shall be of the character of investment in
shares of stock, evidence of indebtedness or other securities or otherwise) in,
or any loans or advances or extensions of credit to, any person, firm,
corporation or other entity or association, except:

 

(a)                                  Permitted
Investments;

 

(b)                                 sales on
open account and in the ordinary course of business;

 

(c)                                  Intercompany
Loans, Advances or Investments made on or after the Closing Date (provided that
any Intercompany Loan hereunder shall be evidenced by and funded under an
Intercompany Note encumbered pursuant to the appropriate Loan Document),
provided that at the time any such loan, advance or investment is made

 

51

 

(before
and after giving effect thereto), no Default or Event of Default has occurred
and is continuing;

 

(d)                                 investments
consisting of loans and advances to employees for moving, entertainment, travel
and other similar expenses in the ordinary course of business not to exceed
$250,000 in the aggregate at any time outstanding;

 

(e)                                  deposits
made in the ordinary course of business in order to obtain goods or services in
an aggregate amount not to exceed $250,000 at any one time; and

 

(f)                                    other
loans, advances and investments not exceeding $100,000 in the aggregate at any
time outstanding.

 

9.10                           Limitation on Negative Pledge Clause.  After the Closing Date, except for such
agreements, documents or instruments which are in effect on the Closing Date
and which are set forth on Schedule 9.10 hereto, (i) enter into any
agreement, document or instrument which would restrict or prevent the Holdings,
the Company and their respective Subsidiaries from granting Bank liens upon,
security interests in and pledges of their respective assets which are senior
in priority to all other liens, except for Permitted Liens and any other
agreements, documents or instruments pursuant to which liens not prohibited by
the terms of this Agreement are created, entered into, or allowed to exist (but
limited to the property encumbered by such lien) and customary anti-assignment
provisions contained in leases or licenses entered into by any such Person (as
lessee) in the ordinary course of business (but limited to the property that is
the subject of such lease or license), or (ii) enter into any agreement,
contract or arrangement (excluding this Agreement and the other Loan Documents)
restricting the ability of Holdings, Company or any Subsidiary of Company to
make transfers or distributions of all or any part of its assets to Holdings,
Company or any other Loan Party, except for any restrictions arising in
connection with any agreements, documents or instruments pursuant to which liens
not prohibited by the terms of this Agreement are created, entered into, or
allowed to exist (but limited to the property encumbered by such lien) and
customary anti-assignment provisions contained in leases or licenses entered
into by any such Person (as lessee) in the ordinary course of business (but
limited to the property that is the subject of such lease or license), to make
loans, advances or other payments of whatever nature to Company, or to pay or
make dividends or distributions in cash or kind to Company or any other Loan
Party.

 

9.11                           Prepayment of Subordinated Debt.Voluntarily
prepay, purchase, redeem or defease any Subordinated Debt except for regularly
scheduled interest payments required by the documents and instruments
evidencing the Subordinated Debt and in accordance with, and only to the extent
permitted by the subordination provisions of the documents and instruments
evidencing Subordinated Debt or any applicable Subordination Agreement.

 

9.12                           Amendment of Subordinated Debt
Documents.  Amend, modify or
otherwise alter any of the material terms and conditions of those documents or
instruments evidencing or otherwise related to any Subordinated Debt (including
the Investor Subordinated Debt), or waive (or permit to be waived) any
provision thereof in any material respect, without the prior written approval
of Bank; for purposes of those documents or instruments evidencing or otherwise
related to such Subordinated Debt (including the Investor Subordinated Debt),
any increase in

 

52

 

the original interest rate or principal
amount, any shortening of the original amortization, any change in financial
covenants which make such covenants more restrictive or adds new covenants, any
change in any default, remedial or other repayment terms making such term more
onerous or restrictive, any increase in the fees payable after the Effective
Date pursuant to the Securities Purchase Agreement and any other change in or
waiver of conditions contained therein which makes such conditions more
restrictive or onerous or adds new conditions, shall (without reducing the
scope of this Section 9.12) be deemed to be material, provided, however,
that with respect to the Investor Subordinated Debt, any amendment permitted under
the Investor Subordination Agreement shall be permitted hereunder.

 

9.13                           Amendment to Certain Agreements.  Make, permit or consent to any amendment or
other modification to the constitutional documents of any of the Loan Parties
or any documents delivered in connection with any Permitted Acquisition, except
to the extent that any such amendment (i) does not violate the terms and
conditions of this Agreement or any of the other Loan Documents, (ii) does not
materially adversely affect the interest of the Banks as creditor under this
Agreement, the other Loan Documents or any other document or instrument in any
respect and (iii) could not reasonably be expected to have a Material Adverse
Effect.

 

9.14                           Management Fees.  Pay or otherwise advance, directly or indirectly, to any
Affiliate in respect of any fiscal year, any management, consulting or other
fee, except for an annual management fee to Whitney or any of its Affiliates in
an amount not to exceed $1,000,000 per fiscal year, provided however, that after
the delivery to Bank of the Company’s audited Consolidated financial statements
for the fiscal year ended December 31, 2003 in accordance with
Section 8.1(a), such payments may be made in an amount not to exceed
$2,000,000 per fiscal year. Notwithstanding the foregoing, however, no such
annual management fee shall be paid or otherwise advanced if (a) the Bank
provides notice to the Company prohibiting the payment of such fees, and (b)
(x) any Default or Event of Default under Sections 10.1(a) or 10.1(b) has
occurred and is continuing (both before and after giving effect to such
payment), (y) any Default or Event of Default under Section 10.1(c), by
reason of a failure to comply with Sections 8.10, 8.11 or 9.7 hereof, has
occurred and is continuing (both before and after giving effect to such
payment) or (z) any default has occurred and is continuing (both before and
after giving effect to such payment) under Section 9.08 of the Securities
Purchase Agreement.

 

9.15                           Limitation on Sale – Leaseback
Transactions.  Enter into any
arrangement with any Person providing for the leasing by any Loan Party of real
or personal property which has been or is to be sold or transferred by Company
or such other Loan Party to such Person or to any other Person to whom funds have
been or are to be advanced by such Person on the security of such property or
rental obligations of Company or such other Loan Party, as the case may be.

 

9.16                           Fiscal Year. 
Permit the fiscal year of the Company to end on a day other than
December 31.

 

10.                                 EVENTS OF DEFAULT

 

10.1                           Events of Default.  The occurrence of any of the following events shall constitute an
Event of Default hereunder:

 

53

 

(a)                                  non-payment
when due of:  (i) any installment of the
principal on the Revolving Credit Note, (ii) any Reimbursement Obligation,
(iii) any Acceptance Obligation, or (iv) any interest or fees owing under this
Agreement, and in the case of interest payments and fees, continuance thereof
for three (3) Business Days;

 

(b)                                 non-payment
of any other amount payable by any Loan Party hereunder or under any other Loan
Document within three (3) Business Days after notice from the Bank that the
same is due and payable;

 

(c)                                  default
in the observance or performance of any of the conditions, covenants or
agreements of Company set forth in Sections 8.1(a) through (f), 8.2, 8.3(b),
8.4, 8.5, 8.7(a), 8.10, 8.11, 8.14, 8.16(b) or Section 9 provided that an
Event of Default arising from a breach of Sections 8.1(a) through (f) and 8.5
shall be deemed to have been cured upon delivery of the required item;

 

(d)                                 default
in the observance or performance of any of the other conditions, covenants or
agreements of Company herein set forth, and continuance thereof for a period of
thirty (30) days following the earlier to occur of (i) the obtaining of actual
knowledge by the Company or any other Loan Party of such default or (ii) the
receipt of written notice by Company or any other Loan Party of such default;

 

(e)                                  any
representation or warranty made by Company or any other Loan Party herein or in
any instrument submitted pursuant hereto proves untrue in any material adverse
respect when made or deemed made;

 

(f)                                    default
in the observance or performance of any of the conditions, covenants or agreements
of Company or any other Loan Party set forth in any collateral document which
may be given to secure the indebtedness hereunder or in any other collateral
document related to or connected with this Agreement or the indebtedness
hereunder and continuance for a period of thirty (30) days following the
earlier to occur of (i) the obtaining of actual knowledge by the Company or any
other Loan Party of such default or (ii) the receipt of written notice by
Company or any other Loan Party of such default;

 

(g)                                 default
in the payment of any other obligation of Company or any other Loan Party for
borrowed money in an aggregate amount in excess of Five Hundred Thousand Dollars ($500,000) individually or in the
aggregate when due (whether by acceleration or otherwise) and continuance
thereof beyond any applicable period of cure, or in the observance or
performance of any conditions, covenants or agreements related or given with
respect to any obligations for borrowed money in an aggregate amount in excess
of Five Hundred Thousand Dollars
($500,000) individually or in the aggregate when due (whether by
acceleration or otherwise) which continues beyond any applicable period of cure
and which is sufficient to permit any holder thereof to (i) accelerate the
maturity of such obligation or (ii) require the purchase or repayment of such
obligation before its regular maturity date or before its regularly scheduled
dates of payment;

 

54

 

(h)                                 judgments
for the payment of money in excess of the sum of Five Hundred Thousand Dollars ($500,000) in the aggregate shall be
rendered against Company or any other Loan Party and such judgments shall
remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of thirty (30) consecutive days from the date of its entry and such
judgment is not covered by insurance from a solvent insurer who is defending
such action without reservation of rights;

 

(i)                                     the
occurrence of any “reportable event”, as defined in the Employee Retirement
Income Security Act of 1974 and any amendments thereto, which is determined to
constitute grounds for termination by the Pension Benefit Guaranty Corporation
of any employee pension benefit plan maintained by or on behalf of Company or
any Loan Party for the benefit of any of its employees or for the appointment
by the appropriate United States District Court of a trustee to administer such
plan, and such reportable event is not corrected and such determination is not
revoked within sixty (60) days after notice thereof has been given to the plan
administrator or Company (or the applicable Loan Party); or the institution of
proceedings by the Pension Benefit Guaranty Corporation to terminate any such
employee benefit pension plan or to appoint a trustee to administer such plan;
or the appointment of a trustee by the appropriate United States District Court
to administer any such employee benefit pension plan; or for the appointment by
the appropriate United States District Court of a trustee to administer such
Pension Plan and such reportable event is not corrected and such determination
is not revoked within sixty (60) days after notice thereof has been given to
the plan administrator of such Pension Plan (without limiting any of Bank’s
other rights or remedies hereunder), or (ii) the institution of proceedings by
the Pension Benefit Guaranty Corporation to terminate any such Pension Plan or
(iii) the appointment of a trustee by the appropriate United States District
Court to administer any such Pension Plan, which in either case of (i), (ii) or
(iii) could reasonably be expected to have a Material Adverse Effect;

 

(j)                                     (i)
Whitney shall fail to own, directly or indirectly, at least fifty percent (50%)
by value and by voting of the aggregate ownership interests of the Holdings or
(ii) the occurrence of a [Change of Control] (as defined in the Investor
Subordinated Debt Documents);

 

(k)                                  any
material provision of the Investor Subordination Agreement shall at any time
for any reason cease to be valid, binding and enforceable (other than in
accordance with its terms), or any Subordinated Creditor shall challenge or
contest the enforceability of the Investor Subordination Agreement or shall
assert, or engage in any action or inaction based on any such assertion, that
any provision of the Investor Subordination Agreement has ceased to be or
otherwise is not valid, binding or enforceable in accordance with its terms; or
the Investor Subordination Agreement shall be terminated (other than in
accordance with the terms thereof), invalidated, revoked or set aside or in any
way cease to give or provide to the Bank the benefits purported to be created
thereby;

 

(l)                                     any
Loan Party shall be dissolved or liquidated (or any judgment, order or decree
therefor shall be entered) or; if a creditors’ committee shall have been
appointed

 

55

 

for the
business of the any Loan Party; or if any Loan Party shall have made a general
assignment for the benefit of creditors or shall have been adjudicated bankrupt
and if not an adjudication based on a filing by such other Loan Party it shall
not have been dismissed within sixty (60) days, or shall have filed a voluntary
petition in bankruptcy or for reorganization or to effect a plan or arrangement
with creditors or shall fail to pay or admits in writing its inability or
refusal to pay, its debts generally as such debts become due in the ordinary
course of business (except as contested in good faith and for which adequate
reserves are made in such party’s financial statements); or shall file an
answer to a creditor’s petition or other petition filed against it, admitting
the material allegations thereof for an adjudication in bankruptcy or for
reorganization; or shall have applied for or permitted the appointment of a
receiver or trustee or custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for any of its
property or assets (otherwise than upon application or consent of any Loan
Party) and shall not have been removed within sixty (60) days; or if an order
shall be entered approving any petition for reorganization of any Loan Party
and shall not have been reversed or dismissed within sixty (60) days; or any
Loan Party shall take any action (corporate or other) authorizing or in
furtherance any of the actions described above in this subsection;

 

(m)                               any
material provision of any Loan Document shall at any time for any reason cease
to be valid, binding and enforceable against any Loan Party (other than in
accordance with the terms thereof), as applicable, or the validity, binding
effect or enforceability thereof shall be contested by the any Loan Party, or
any Loan Party shall deny that it has any or further liability or obligation
under any Loan Document, or any such Loan Document shall be terminated (other
than in accordance with the terms thereof), invalidated, revoked or set aside
or in any way cease to give or provide to the Bank the benefits purported to be
created thereby.

 

10.2                           Exercise of Remedies.  If an Event of Default has occurred and is
continuing hereunder: (a) the Bank may declare the Revolving Credit Aggregate
Commitment terminated; (b) the Bank may declare the entire unpaid principal
Indebtedness, immediately due and payable, without presentment, notice or
demand, all of which are hereby expressly waived by Company; (c) upon the
occurrence of any Event of Default specified in subsection 10.1(l), above,
and notwithstanding the lack of any declaration by Bank under preceding clause
(b), the entire unpaid principal Indebtedness shall become automatically and
immediately due and payable, and the Revolving Credit Aggregate Commitment
shall be automatically and immediately terminated; (d) the Bank may demand
immediate delivery of cash collateral, and Company agrees to deliver such cash
collateral upon demand, in an amount equal to (i) the maximum amount that may
be available to be drawn at any time prior to the stated expiry of all
outstanding Letters of Credit, and (ii) the aggregate face amount of all
unmatured Acceptances outstanding, and (f) the Bank may exercise any remedy
permitted by this Agreement, the other Loan Documents or law.

 

10.3                           Application of Proceeds.  All of the Indebtedness shall constitute one
loan secured by Bank’s security interest in the collateral and by all other
security interests, mortgages, liens, claims, and encumbrances now and from
time to time hereafter granted from Company to Bank. Upon the occurrence and
during the continuance of an Event of Default, Bank may in its sole

 

56

 

discretion exercise any remedies available
under this Agreement or applicable law with respect to the Collateral and apply
the proceeds of any Collateral to any portion of the Indebtedness. The proceeds
of any sale or other disposition of the Collateral authorized by this Agreement
shall be applied by Bank, first upon all expenses authorized by the Michigan
Uniform Commercial Code (or other applicable law) or otherwise in connection with
the sale and all reasonable attorneys’ fees and legal expenses incurred by
Bank; the balance of the proceeds of such sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest, then to
principal, then to other Indebtedness and the surplus, if any, shall be paid
over to Company or to such other Person or Persons as may be entitled thereto
under applicable law. Company shall remain liable for any deficiency, which
Company shall pay to Bank immediately upon demand.

 

10.4                           Rights Cumulative.  The remedies provided for herein are cumulative to the remedies
for collection of the Indebtedness as provided by law, in equity or by any
mortgage, security agreement or other document contemplated hereby. Nothing
herein contained is intended, nor shall it be construed, to preclude Bank from
pursuing any other remedy for the recovery of any other sum to which Bank may
be or become entitled for the breach of this Agreement by Company.

 

10.5                           Waiver by Company of Certain Laws.  To the extent permitted by applicable law,
the Company hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish the benefit and advantage of any valuation, stay,
appraisement, extension or redemption laws now existing or which may hereafter
exist, which, but for this provision, might be applicable to any sale made
under the judgment, order or decree of any court, on any claim for interest on
the Revolving Credit Note, or any security interest or mortgage contemplated by
or granted under or in connection with this Agreement. These waivers have been
voluntarily given, with full knowledge of the consequences thereof.

 

10.6                           Set–Off.  Upon
the occurrence and during the continuance of any Event of Default, Bank may at
any time and from time to time, without notice to the Company (any requirement
for such notice being expressly waived by the Company), set off and apply
against any and all of the obligations of the Company now or hereafter existing
under this Agreement, any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of Company, irrespective of
whether or not such deposits held or indebtedness owing by the Bank may be
contingent and unmatured and regardless of whether any Collateral then held by
the Bank is adequate to cover the Indebtedness. Promptly following any such
setoff, the Bank shall give written notice to Company of the occurrence
thereof. The Company hereby grants to the Bank a lien on and security interest
in all such deposits, indebtedness and property as collateral security for the
payment and performance of all of the obligations of the Company under this
Agreement. The rights of the Bank under this Section 10.6 are in addition
to the other rights and remedies (including, without limitation, other rights
of setoff) which the Bank may have.

 

10.7                           Waiver of Defaults.  No Event of Default shall be waived by the Bank except in a
writing signed by an officer of the Bank. No single or partial exercise of any
right, power or privilege hereunder, nor any delay in the exercise thereof,
shall preclude other or further exercise of its rights by Bank. No waiver of
any Event of Default shall extend to any other or further Event of Default. No
forbearance on the part of the Bank in enforcing any of its rights shall

 

57

 

constitute a waiver of any of its rights.
Company expressly agrees that this Section 10.7 may not be waived or
modified by the Bank by course of performance, estoppel or otherwise.

 

11.                                 MISCELLANEOUS

 

11.1                           Successors and Assigns.  This Agreement shall be binding upon and
shall inure to the benefit of Company and Bank and their respective successors
and assigns, except that the credit provided for under this Agreement and no
part thereof and no obligation of Bank hereunder shall be assignable or
otherwise transferable by Company.  Bank
may not assign all or any portion of its rights and obligations under this
Agreement and under the other Loan Documents without the prior written consent
of the Company, which such consent shall not be unreasonably withheld or
delayed, provided, however, that (i) the approval of the Company shall not be
required upon the occurrence and during the continuance of an Event of Default
and (ii) the approval of the Company shall not be required for an assignment to
an Affiliate of the Bank.

 

11.2                           Costs and Expenses.  Company shall pay all reasonable closing costs and expenses, including,
by way of description and not limitation, reasonable house and outside attorney
fees (without duplication of fees and expenses for the same services), lien
search fees, approval fees and title policy fees incurred by Bank in connection
with the commitment, consummation and closing of this Agreement. All of said
amounts required to be paid by Company may, at Bank’s option if they remain
unpaid for fifteen days after payment therefore is requested by Bank, be
charged by Bank as an advance against the proceeds of the Revolving Credit
Note. All costs, including reasonable attorney fees incurred by Bank in
protecting or enforcing any of its or any of the Bank’s rights against Company
or any collateral or in defending Bank from any claims or liabilities by any
party or otherwise incurred by Bank in connection with a Default or an Event of
Default or the enforcement of this Agreement or the related documents,
including by way of description and not limitation, such charges in any court
or bankruptcy proceedings or arising out of any claim or action by any person
against Bank which would not have been asserted were it not for Bank’s
relationship with Company hereunder, shall also be paid by Company.

 

11.3                           Accounting Principles.  Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done in accordance with GAAP.

 

11.4                           Indulgence.  No
delay or failure of Bank in exercising any right, power or privilege hereunder
shall affect such right, power or privilege, nor shall any single or partial
exercise thereof preclude any further exercise thereof, or the exercise of any
other power, right or privilege. The rights of Bank under this Agreement are
cumulative and not exclusive of any right or remedies which Bank would
otherwise have.

 

11.5                           Notices. 
Except as expressly provided otherwise in this Agreement, all notices
and other communications provided to any party hereto under this Agreement
shall be in writing and shall be given by personal delivery, by mail, by
reputable overnight courier, by facsimile and addressed or delivered to it at
its address set forth below or at such other address as may be designated by
such party in a notice to the other parties that complies as to delivery with
the

 

58

 

terms of this Section 11.5. Any notice,
if personally delivered or if mailed and properly addressed with postage
prepaid and sent by registered or certified mail, shall be deemed given when
received; any notice, if given to a reputable overnight courier and properly
addressed, shall be deemed given two (2) Business Days after the date on which
it was sent, unless it is actually received sooner by the named addressee; and
any notice, if transmitted by facsimile, shall be deemed given when received
(receipt confirmed in the case of telecopies). Bank may, but shall not be
required to, take any action on the basis of any notice given to it by
telephone, but Company shall promptly confirm such notice in writing or by
telex or facsimile, and such notice will not be deemed to have been received
until such confirmation is deemed received in accordance with the provisions of
this Section set forth above. If such telephonic notice conflicts with any
such confirmation, the terms of such telephonic notice shall control.

 

To
Company:

c/o
Interactive Health LLC

3030
Walnut Avenue

Long
Beach, CA  90807

Attention:  Thomas Dragotto, Chief Financial Officer

Fax
No. (562) 426-7127

 

To
Bank:

Comerica
Bank

One
Detroit Center

500
Woodward Avenue

Detroit,
Michigan 48226

Attention:   Daryl Krause

Fax
No. (313) 222-5182

 

11.6                           Law of Michigan; Consent to
Jurisdiction.  This Agreement
and the Revolving Credit Note have been delivered at Detroit, Michigan, and
shall be governed by and construed and enforced in accordance with the laws of
the State of Michigan. Whenever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. Company and Banks hereby
irrevocably submit to the non-exclusive jurisdiction of any United States
Federal Court or Michigan state court sitting in Detroit, Michigan in any
action or proceeding arising out of or relating to this Agreement or any of the
Loan Documents and Company and Banks hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in any such
United States Federal Court or Michigan state court. Company irrevocably
consent to the service of any and all process in any such action or proceeding
brought in any court in or of the State of Michigan by the delivery of copies
of such process to Company at its address specified on the signature page
hereto or by certified mail directed to such address or such other address as
may be designated by Company in a notice to the other parties that complies as
to delivery with the terms of Section 11.5. Nothing in this Section shall
affect the right of the Bank to serve process in any other manner permitted by
law or limit the right of the Bank to bring any such action or proceeding
against Company or any Subsidiary or any of its or their property in the courts
with subject matter jurisdiction of any

 

59

 

other jurisdiction. Company hereby irrevocably
waives any objection to the laying of venue of any such suit or proceeding in
the above described courts.

 

11.7                           Amendment and Waiver.  No amendments or waiver of any provisions of
this Agreement nor consent to any departure by Company therefrom shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Company, and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
amendment, waiver or consent with respect to any provision of this Agreement
shall affect any other provision of this Agreement.

 

11.8                           Payments.  (a)
All sums payable by Company to Bank under this Agreement or the other documents
contemplated hereby shall be paid directly to Bank at its principal office set
forth in Section 11.5 hereof in immediately available United States funds,
without set off, deduction or counterclaim. In its sole discretion, Bank may
charge any and all deposit or other accounts (including without limit an
account evidenced by a certificate of deposit) of Company with Bank for all or
a part of any Indebtedness then due; provided, however, that this authorization
shall not affect Company’s obligation to pay, when due, any Indebtedness
whether or not account balances are sufficient to pay amounts due.

 

(b)                                  Any payment of the
Indebtedness made by mail will be deemed tendered and received only upon actual
receipt by Bank at the address designated for such payment, whether or not Bank
has authorized payment by mail or any other manner, and shall not be deemed to
have been made in a timely manner unless received on the date due for such
payment, time being of the essence. Company expressly assumes all risks of loss
or liability resulting from non-delivery or delay of delivery of any item of
payment transmitted by mail or in any other manner. Acceptance by Bank of any
payment in an amount less than the amount then due shall be deemed an
acceptance on account only, and the failure to pay the entire amount then due
shall be and continue to be an Event of Default, and at any time thereafter and
until the entire amount then due has been paid, Bank shall be entitled to
exercise any and all rights conferred upon it herein upon the occurrence of an
Event of Default. Upon the occurrence and during the continuance of  an Event of Default, Company waives the right
to direct the application of any and all payments at any time or times
hereafter received by Bank from or on behalf of Company. Upon the occurrence
and during the continuance of an Event of Default, Company agrees that Bank
shall have the continuing exclusive right to apply and to reapply any and all
payments received at any time or times hereafter against the Indebtedness in
such manner as Bank may deem advisable, notwithstanding any entry by Bank upon
any of its books and records. Company expressly agrees that to the extent that
Bank receives any payment or benefit and such payment or benefit, or any part
thereof, is subsequently invalidated, declared to be fraudulent or
preferential, set aside or is required to be repaid to a trustee, receiver, or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then to the extent of such payment or benefit, the
Indebtedness or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not been
made and, further, any such repayment by Bank, to the extent that Bank did not
directly receive a corresponding cash payment, shall be added to and be
additional Indebtedness payable upon demand by Bank.

 

60

 

11.9                           Interest.  In
the event Company’s obligation to pay interest on the principal balance of the
Revolving Credit Note is or becomes in excess of the maximum interest rate
which Company is permitted by law to contract or agree to pay, giving due
consideration to the execution date of this Agreement, then, in that event, the
rate of interest applicable shall be deemed to be immediately reduced to such
maximum rate and all previous payments in excess of such maximum rate shall be
deemed to have been payments in reduction of principal and not of interest.

 

11.10                     WAIVER OF JURY TRIAL.  COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT
TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.

 

11.11                     Counterparts. 
This Agreement may be executed in several counterparts, and each
executed copy shall constitute an original instrument, but such counterparts
together shall constitute but one and the same instrument.

 

11.12                     Complete Agreement; Conflicts.  This Agreement, the Revolving Credit Note
(if issued) and any Requests for Advance or Acceptance hereunder, and the Loan
Documents contain the entire agreement of the parties hereto, superseding all
prior agreements, discussions and understandings relating to the subject matter
hereof, and none of the parties shall be bound by anything not expressed in
writing. In the event of any conflict between the terms of this Agreement and
the other Loan Documents, this Agreement shall govern.

 

11.13                     Severability. 
In case any one or more of the obligations of Company under this
Agreement, the Revolving Credit Note or any of the other Loan Documents shall
be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining obligations of Company shall not
in any way be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of Company under this Agreement, the
Revolving Credit Note or any of the other Loan Documents in any other
jurisdiction.

 

11.14                     Independence of Covenants.  Each covenant hereunder shall be given
independent effect (subject to any exceptions stated in such covenant) so that
if a particular action or condition is not permitted by any such covenant
(taking into account any such stated exception), the fact that it would be
permitted by an exception to, or would be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default or an Event of
Default.

 

11.15                     Reliance on and Survival of Various
Provisions.  All terms,
covenants, agreements, representations and warranties of Company or any party
to any of the Loan Documents made herein or in any of the Loan Documents or in
any certificate, report, financial statement or other document furnished by or
on behalf of Company or any Subsidiary in

 

61

 

connection with this Agreement or any of the
Loan Documents shall be deemed to have been relied upon by the Bank,
notwithstanding any investigation heretofore or hereafter made by Bank, and
those covenants and agreements of Company set forth in Section 11.17
hereof (together with any other indemnities of Company or any Subsidiary
contained elsewhere in this Agreement or in any of the other Loan Documents)
shall survive the repayment in full of the Indebtedness and the termination of
the Revolving Credit Aggregate Commitment.

 

11.16                     Indemnification.  (a) Company agrees to indemnify and hold Bank harmless from all
loss, cost, damage, liability or expenses, including reasonable house and
outside attorneys’ fees and disbursements (but without duplication of fees and
expenses for the same services), incurred by Bank by reason of an Event of
Default, or enforcing the obligations of Holdings, Company or any Subsidiary
under this Agreement or any of the other Loan Documents or in the prosecution
or defense of any action or proceeding concerning any matter growing out of or
connected with this Agreement or any of the Loan Documents, excluding, however,
any loss, cost, damage, liability or expenses to the extent attributable to the
gross negligence or willful misconduct of the party seeking to be indemnified
under this Section 11.17(a).

 

(b)                                 Company
agrees to defend, indemnify and hold harmless Bank, and its respective
employees, agents, officers and directors from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs or expenses
of whatever kind or nature (including without limitation, reasonable attorneys
and consultants fees, investigation and laboratory fees, environmental studies
required by Bank in connection with the violation of Environmental Laws, court
costs and litigation expenses, excluding however, any such amounts attributable
to the gross negligence or willful misconduct of the Person seeking
indemnification, as the case may be) arising out of or related to (i) the
presence, use, disposal, release or threatened release of any Hazardous
Materials on, from or affecting any premises owned or occupied by Company or
any of their respective Subsidiaries in violation of or non-compliance with
applicable Environmental Laws, (ii) any personal injury (including wrongful death)
or property damage (real or personal) arising out of or related to such
Hazardous Materials, (iii) any lawsuit or other proceeding brought or
threatened, settlement reached or governmental order or decree relating to such
Hazardous Materials, (iv) the cost of remediation or monitoring of all
Hazardous Materials in violation of or non-compliance with applicable
Environmental Laws from all or any portion of any premises owned by Company or
their respective Subsidiaries, (v) complying or coming into compliance with all
Environmental Laws and/or (vi) any violation of Environmental Laws. The
obligations of Company under this Section 11.17(b) shall be in addition to
any and all other obligations and liabilities the Company may have to Bank at
common law or pursuant to any other agreement.

 

11.17                     Effective Upon Execution.  This Agreement shall become effective upon
the execution hereof by Bank and Company.

 

11.18                     Headings.  The
headings of the various subdivisions hereof are for convenience of reference
only and shall in no way modify or affect any of the terms or provisions
hereof.

 

62

 

11.19                     USA Patriot Act. 
Pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318 (“USA Patriot Act”), the Bank hereby notifies the Company
that if Holdings, the Company or any of its Subsidiaries open an account,
including any loan, deposit account, treasury management account, or other
extension of credit, the Bank will request the applicable Person’s name, tax
identification number, business address and other information necessary to
identify such Person (and may request such Person’s organizational documents or
other identifying documents) to the extent necessary for the Bank to comply
with the USA Patriot Act.

 

WITNESS the due execution hereof as of the day and year first
above written.

 

	
  COMERICA BANK

  	
  INTERACTIVE HEALTH LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Daryl Krause

  	
   

  	
  By:

  	
  /s/ Thomas M.
  Dragotto

  
	
   

  	
   

  
	
  Its: Vice President

  	
  Its: Chief
  Financial Officer

  
					

 

63

 

SCHEDULE 5.7 *

 

Applicable
Margin Grid

 

Interactive
Health, LLC

$20,000,000 Secured Revolving Credit Facility

 

 

(basis points per
annum)

 

	
  BASIS FOR PRICING

  	
   

  	
  LEVEL I

  	
   

  	
  LEVEL II

  	
   

  	
  LEVEL III

  	
   

  	
  LEVEL IV

  	
   

  
	
  Funded Debt to EBITDA Ratio*

  	
   

  	
  > 3.75x

  	
   

  	
  < 3.75x but >
  3.25x

  	
   

  	
  < 3.25x but
  >2.75x

  	
   

  	
  <2.75x

  	
   

  
	
  Commitment Fee

  	
   

  	
  25.0

  	
   

  	
  25.0

  	
   

  	
  25.0

  	
   

  	
  0.0

  	
   

  
	
  Base Rate Margin - R/C

  	
   

  	
  125.0

  	
   

  	
  75.0

  	
   

  	
  50.0

  	
   

  	
  25.0

  	
   

  
	
  LIBOR Margin - R/C

  	
   

  	
  375.0

  	
   

  	
  325.0

  	
   

  	
  300.0

  	
   

  	
  250.0

  	
   

  
	
  Standby Letter of Credit Commission**

  	
   

  	
  375.0

  	
   

  	
  325.0

  	
   

  	
  300.0

  	
   

  	
  250.0

  	
   

  

 

*                                         Definition as set
forth in the Credit Agreement.

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