Document:

Exhibit 10.7

 

ROSETTA STONE INC.

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT
is entered into, effective as of «Date» by and between Rosetta Stone Inc., a
Delaware corporation (the “Company”),
and «Name» (“Indemnitee”).

 

WHEREAS, it is
essential to the Company to retain and attract as directors and officers the
most capable persons available;

 

WHEREAS,
Indemnitee is a director and/or officer of the Company;

 

WHEREAS, both
the Company and Indemnitee recognize the increased risk of litigation and other
claims currently being asserted against directors and officers of corporations;

 

WHEREAS, the
certificate of incorporation and bylaws of the Company require the Company to
indemnify and advance expenses to its directors and officers to the fullest
extent permitted under Delaware law, and the Indemnitee has been serving and
continues to serve as a director and/or officer of the Company in part in
reliance on the Company’s certificate of incorporation and bylaws; and

 

WHEREAS, in
recognition of Indemnitee’s need for (i) substantial protection against
personal liability based on Indemnitee’s reliance on the aforesaid certificate
of incorporation and bylaws, (ii) specific contractual assurance that the
protection promised by the certificate of incorporation and bylaws will be
available to Indemnitee (regardless of, among other things, any amendment to or
revocation of the certificate of incorporation and bylaws or any change in the
composition of the Company’s Board of Directors or acquisition transaction
relating to the Company) and (iii) an inducement to provide effective
services to the Company as a director and/or officer, the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted under Delaware law and as set forth in this Agreement, and, to the
extent insurance is maintained, to provide for the continued coverage of
Indemnitee under the Company’s directors’ and officers’ liability insurance
policies.

 

NOW, THEREFORE,
in consideration of the above premises and of Indemnitee continuing to serve
the Company directly or, at its request, with another enterprise, and intending
to be legally bound hereby, the parties agree as follows:

 

1.                                       Certain
Definitions:

 

(a)           “Board” shall mean the Board of
Directors of the Company.

 

(b)           “Affiliate” shall mean any
corporation or other person or entity that directly, or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with, the person specified, including, without limitation, with respect to the
Company, any direct or indirect subsidiary of the Company.

 

 

(c)           A
“Change in Control” shall be deemed
to have occurred if (i) any “person” (as
such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”))
(other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, and other than any person holding shares of
the Company on the date that the Company first registers under the Act or any
transferee of such individual if such transferee is a spouse or lineal
descendant of the transferee or a trust for the benefit of the individual, his
or her spouse or lineal descendants), is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or more
of the total voting power represented by the Company’s then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board and any new director
whose election by the Board or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board, (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other entity, other than a merger or consolidation that would result
in the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least two-thirds (2/3) of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company (in one transaction or a series of transactions) of all or
substantially all of the Company’s assets.

 

(d)           “Expenses” shall mean any expense,
liability or loss, including reasonable attorneys’ fees, judgments, fines,
ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any
interest, assessments or other charges imposed thereon, any federal, state,
local or foreign taxes imposed as a result of the actual or deemed receipt of
any payments under this Agreement and all other costs and obligations, paid or
incurred in connection with investigating, defending, being a witness in,
participating in (including on appeal) or preparing for any of the foregoing
in, any Proceeding relating to any Indemnifiable Event.

 

(e)           “Indemnifiable Event” shall mean any
event or occurrence that takes place either prior to or after the execution of
this Agreement, related to the fact that Indemnitee is or was a director or
officer of the Company or an Affiliate of the Company, or while a director or
officer is or was serving at the request of the Company or an Affiliate of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another foreign or domestic corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise or was a director, officer, employee or
agent of a foreign or domestic corporation that was a predecessor corporation
of the Company or of another enterprise at the request of such predecessor
corporation, or related to anything done or not done by Indemnitee in any such
capacity, whether or not the basis of the Proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent of the Company
or an Affiliate of the Company, as described above.

 

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(f)            “Independent Counsel” shall mean the
person or body appointed in connection with Section 3.

 

(g)           “Proceeding” shall mean any
threatened, pending or completed action, suit or proceeding or any alternative
dispute resolution mechanism (including an action by or in the right of the
Company or an Affiliate of the Company) or any inquiry, hearing or
investigation, whether conducted by the Company or an Affiliate of the Company
or any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.

 

(h)           “Reviewing Party” shall mean the
person or body appointed in accordance with Section 3.

 

(i)            “Voting Securities” shall mean any
securities of the Company that vote generally in the election of directors.

 

2.             Agreement to Indemnify.

 

(a)           General
Agreement.  In the event Indemnitee
was, is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, a
Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the
Company shall indemnify Indemnitee from and against any and all Expenses to the
fullest extent permitted by law, as the same exists or may hereafter be amended
or interpreted (but in the case of any such amendment or interpretation, only
to the extent that such amendment or interpretation permits the Company to
provide broader indemnification rights than were permitted prior thereto).  The parties hereto intend that this Agreement
shall provide for indemnification in excess of that expressly permitted by
statute, including, without limitation, any indemnification provided by the
Company’s certificate of incorporation, its bylaws, vote of its stockholders or
disinterested directors or applicable law.

 

(b)           Initiation
of Proceeding.  Notwithstanding
anything in this Agreement to the contrary, Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any Proceeding
initiated by Indemnitee against the Company or any director or officer of the
Company unless (i) the Company has joined in or the Board has consented to
the initiation of such Proceeding, (ii) the Proceeding is one to enforce
indemnification rights under Section 5 or (iii) the Proceeding is
instituted after a Change in Control (other than a Change in Control approved
by a majority of the directors on the Board who were directors immediately
prior to such Change in Control) and Independent Counsel has approved its
initiation.

 

(c)           Expense
Advances.  If so requested by
Indemnitee, the Company shall advance (within thirty (30) days of such request)
any and all Expenses to Indemnitee (an “Expense Advance”).  The Indemnitee shall qualify for such Expense
Advances upon the execution and delivery to the Company of this Agreement which
shall constitute an undertaking providing that the Indemnitee undertakes to
repay such Expense Advances if and to the extent that it is ultimately
determined by a court of competent jurisdiction in a final judgment, not
subject to appeal, that Indemnitee is not entitled to be indemnified by the
Company.  Indemnitee’s obligation to
reimburse the Company for Expense Advances shall be unsecured and 

 

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no interest shall be charged
thereon.  This Section 2(c) shall
not apply to any claim made by Indemnitee for which indemnity is excluded
pursuant to Section 2(b) or 2(f).

 

(d)           Mandatory
Indemnification.  Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding relating in
whole or in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.

 

(e)           Partial
Indemnification.  If Indemnitee is
entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of Expenses, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.

 

(f)            Prohibited
Indemnification.  No indemnification
pursuant to this Agreement shall be paid by the Company on account of any
Proceeding in which a final judgment is rendered against Indemnitee or Indemnitee
enters into a settlement, in each case (i) for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Exchange Act or
similar provisions of any federal, state or local laws; (ii) for which
payment has actually been made to or on behalf of Indemnitee under any
insurance policy or other indemnity provision, except with respect to any
excess beyond the amount paid under any insurance policy or other indemnity
provision; or (iii) for which payment is prohibited by law.  Notwithstanding anything to the contrary
stated or implied in this Section 2(f), indemnification pursuant to this
Agreement relating to any Proceeding against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Exchange Act or
similar provisions of any federal, state or local laws shall not be prohibited
if Indemnitee ultimately establishes in any Proceeding that no recovery of such
profits from Indemnitee is permitted under Section 16(b) of the
Exchange Act or similar provisions of any federal, state or local laws.

 

3.             Reviewing Party.  Prior to any Change in Control, the Reviewing
Party shall be any appropriate person or body consisting of a member or members
of the Board or any other person or body appointed by the Board who is not a
party to the particular Proceeding with respect to which Indemnitee is seeking
indemnification; provided that if all members of the Board are parties to the
particular Proceeding with respect to which Indemnitee is seeking
indemnification, the Independent Counsel referred to below shall become the
Reviewing Party; after a Change in Control, the Independent Counsel referred to
below shall become the Reviewing Party. 
With respect to all matters arising before a Change in Control for which
Independent Counsel shall be the Reviewing Party and all matters arising after a
Change in Control, in each case concerning the rights of Indemnitee to
indemnity payments and Expense Advances under this Agreement or any other
agreement or under applicable law or the Company’s certificate of incorporation
or bylaws now or hereafter in effect relating to indemnification for Indemnifiable
Events, the Company shall seek legal advice only from Independent Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld or delayed), and who has not otherwise performed services
for the Company or the Indemnitee (other than in connection with
indemnification matters) 

 

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within the last five years.  The
Independent Counsel shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee’s rights under this Agreement.  Such counsel, among other things, shall
render its written opinion to the Company and Indemnitee as to whether and to
what extent the Indemnitee should be permitted to be indemnified under
applicable law.  The Company agrees to
pay the reasonable fees of the Independent Counsel and to indemnify fully such
counsel against any and all expenses (including attorneys’ fees), claims,
liabilities, loss and damages arising out of or relating to this Agreement or
the engagement of Independent Counsel pursuant hereto.

 

4.             Indemnification Process and
Appeal.

 

(a)           Indemnification
Payment.  Indemnitee shall be
entitled to indemnification of Expenses, and shall receive payment thereof,
from the Company in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on the Company for indemnification, but in
no event later than thirty (30) business days after demand, unless the
Reviewing Party has given a written opinion to the Company that Indemnitee is
not entitled to indemnification under applicable law.  Indemnitee shall cooperate with the Reviewing
Party making a determination with respect to Indemnitee’s entitlement to
indemnification, including providing to the Reviewing Party upon reasonable
advance request any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to
Indemnitee and reasonably necessary to such determination.

 

(b)           Suit
to Enforce Rights.  Regardless of any
action by the Reviewing Party, if Indemnitee has not received full
indemnification within thirty (30) days after making a demand in accordance
with Section 4(a), Indemnitee shall have the right to enforce its
indemnification rights under this Agreement by commencing litigation in any
court in the State of Delaware having subject matter jurisdiction thereof seeking
an initial determination by the court or challenging any determination by the
Reviewing Party or any aspect thereof. 
The Company hereby consents to service of process and to appear in any
such proceeding.  Any determination by
the Reviewing Party not challenged by the Indemnitee shall be binding on the
Company and Indemnitee.  The Company
shall be precluded from asserting in any such proceeding that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court that the Company is bound by all the
provisions of this Agreement.  The remedy
provided for in this Section 4 shall be in addition to any other remedies
available to Indemnitee at law or in equity.

 

(c)           Defense
to Indemnification, Burden of Proof, and Presumptions.  It shall be a defense to any action brought
by Indemnitee against the Company to enforce this Agreement (other than an
action brought to enforce a claim for Expenses incurred in defending a
Proceeding in advance of its final disposition) that it is not permissible
under applicable law for the Company to indemnify Indemnitee for the amount
claimed.  In connection with any such
action or any determination by the Reviewing Party or otherwise as to whether
Indemnitee is entitled to be indemnified hereunder, the burden of proving such
a defense or determination shall be on the Company.  Neither the failure of the Reviewing Party or
the Company (including its Board, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action by Indemnitee that indemnification of the claimant is proper 

 

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under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Reviewing Party or Company (including its Board,
independent legal counsel or its stockholders) that the Indemnitee had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct.  For purposes of this Agreement,
the termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval), conviction or upon a plea
of nolo contendere or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.  For
purposes of any determination of good faith under any applicable standard of
conduct, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s
action is based on the records or books of account of the Company, including
financial statements, or on information supplied to Indemnitee by the officers
of the Company in the course of their duties, or on the advice of legal counsel
for the Company or the Board or counsel selected by any committee of the Board
or on information or records given or reports made to the Company by an
independent certified public accountant or by an appraiser, investment banker
or other expert selected with reasonable care by the Company or the Board or
any committee of the Board.  The
provisions of the preceding sentence shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct. 
The knowledge and/or actions, or failure to act, or any director, officer,
agent or employee of the Company shall not be imputed to Indemnitee for
purposes of determining the right to indemnification under this Agreement.

 

5.             Indemnification for Expenses
Incurred in Enforcing Rights.  The
Company shall indemnify Indemnitee against any and all Expenses that are
incurred by Indemnitee in connection with any action brought by Indemnitee for

 

(i)            indemnification
or advance payment of Expenses by the Company under this Agreement or any other
agreement or under applicable law or the Company’s certificate of incorporation
or bylaws now or hereafter in effect relating to indemnification for
Indemnifiable Events, and/or

 

(ii)           recovery
under directors’ and officers’ liability insurance policies maintained by the
Company; but only in the event that Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may
be.  In addition, the Company shall, if
so requested by Indemnitee, advance the foregoing Expenses to Indemnitee,
subject to and in accordance with Section 2(c).

 

6.             Notification and Defense of
Proceeding.

 

(a)           Notice.  Promptly after receipt by Indemnitee of
notice of the commencement of any Proceeding, Indemnitee shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company of the commencement thereof; but the omission so to notify the
Company will not relieve the Company from any liability that it may have to
Indemnitee, except as provided in Section 6(c).

 

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(b)           Defense.  With respect to any Proceeding as to which
Indemnitee notifies the Company of the commencement thereof, the Company will
be entitled to participate in the Proceeding at its own expense and except as
otherwise provided below, to the extent the Company so wishes, it may assume
the defense thereof with counsel reasonably satisfactory to Indemnitee.  After notice from the Company to Indemnitee
of its election to assume the defense of any Proceeding, the Company shall not
be liable to Indemnitee under this Agreement or otherwise for any Expenses
subsequently incurred by Indemnitee in connection with the defense of such
Proceeding other than reasonable costs of investigation or as otherwise
provided below.  Indemnitee shall have
the right to employ legal counsel in such Proceeding, but all Expenses related
thereto incurred after notice from the Company of its assumption of the defense
shall be at Indemnitee’s expense unless: (i) the employment of legal
counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee
has reasonably determined that there may be a conflict of interest between
Indemnitee and the Company in the defense of the Proceeding, (iii) after a
Change in Control, the employment of counsel by Indemnitee has been approved by
the Independent Counsel or (iv) the Company shall not in fact have
employed counsel to assume the defense of such Proceeding, in each of which
cases all Expenses of the Proceeding shall be borne by the Company.  The Company shall not be entitled to assume
the defense of any Proceeding brought by or on behalf of the Company, or as to
which Indemnitee shall have made the determination provided for in (ii) above
or under the circumstances provided for in (iii) and (iv) above.

 

(c)           Settlement
of Claims.  The Company shall not be
liable to indemnify Indemnitee under this Agreement or otherwise for any
amounts paid in settlement of any Proceeding effected without the Company’s
written consent, such consent not to be unreasonably withheld; provided,
however, that if a Change in Control has occurred, the Company shall be liable
for indemnification of Indemnitee for amounts paid in settlement if the
Independent Counsel has approved the settlement.  The Company shall not settle any Proceeding in
any manner that would impose any penalty or limitation on Indemnitee without
Indemnitee’s written consent.  The
Company shall not be liable to indemnify the Indemnitee under this Agreement
with regard to any judicial award if the Company was not given a reasonable and
timely opportunity as a result of Indemnitee’s failure to provide notice, at
its expense, to participate in the defense of such action, and the lack of such
notice materially prejudiced the Company’s ability to participate in defense of
such action.  The Company’s liability
hereunder shall not be excused if participation in the Proceeding by the
Company was barred by this Agreement.

 

7.             Establishment of Trust.  In the event of a Change in Control, the
Company shall, upon written request by Indemnitee, create a Trust for the
benefit of the Indemnitee and from time to time upon written request of
Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for, participating in, and/or
defending any Proceeding relating to an Indemnifiable Event.  The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by the
Independent Counsel.  The terms of the
Trust shall provide that (i) the Trust shall not be revoked or the
principal thereof invaded without the written consent of the Indemnitee, (ii) the
Trustee shall advance, within thirty (30) days of a request by the Indemnitee,
any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to
reimburse the Trust under the same circumstances for which the Indemnitee would
be required to reimburse the Company under 

 

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Section 2(c) of this Agreement), (iii) the Trust shall continue to
be funded by the Company in accordance with the funding obligation set forth
above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts
for which the Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise no later than thirty (30) days after notice pursuant to Section 4(a) and
(v) all unexpended funds in the Trust shall revert to the Company upon a final
determination by the Independent Counsel or a court of competent jurisdiction,
as the case may be, that the Indemnitee has been fully indemnified under the
terms of this Agreement.  The Trustee
shall be chosen by the Indemnitee. 
Nothing in this Section 7 shall relieve the Company of any of its
obligations under this Agreement.  All
income earned on the assets held in the Trust shall be reported as income by
the Company for federal, state, local and foreign tax purposes.  The Company shall pay all costs of
establishing and maintaining the Trust and shall indemnify the Trustee against
any and all expenses (including attorneys’ fees), claims, liabilities, loss and
damages arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.

 

8.             Non-Exclusivity.  The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company’s
certificate of incorporation, bylaws, applicable law or otherwise; provided,
however, that this Agreement shall supersede any prior indemnification
agreement between the Company and the Indemnitee.  To the extent that a change in applicable law
(whether by statute or judicial decision) permits greater indemnification than
would be afforded currently under the Company’s certificate of incorporation,
bylaws, applicable law or this Agreement, it is the intent of the parties that
Indemnitee enjoy by this Agreement the greater benefits so afforded by such
change.

 

9.             Liability Insurance.  To the extent the Company maintains an
insurance policy or policies providing general and/or directors’ and officers’
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.

 

10.           Period of Limitations.  No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or
personal or legal representatives after the expiration of two (2) years
from the date of accrual of such cause of action or such longer period as may
be required by state law under the circumstances.  Any claim or cause of action of the Company
or its Affiliate shall be extinguished and deemed released unless asserted by
the timely filing and notice of a legal action within such period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, the shorter period shall govern.

 

11.           Amendment of this Agreement.  No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto.  No waiver of any of the
provisions of this Agreement shall be binding unless in the form of a writing
signed by the party against whom enforcement of the waiver is sought, and no
such waiver shall operate as a waiver of any other provisions hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver.  Except as specifically provided herein, no
failure to exercise or any delay in exercising any right or remedy hereunder
shall constitute a waiver thereof.

 

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12.           Subrogation.  In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.

 

13.           No Duplication of Payments.  The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.

 

14.           Duration of Agreement.  This Agreement shall continue until and
terminate upon the later of (a) ten (10) years after the date that Indemnitee
shall have ceased to serve as a director or officer of the Company or (b) one (1) year after the
final termination of any Proceeding, including any appeal, then pending in
respect of which Indemnitee is granted rights of indemnification or advancement
of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 4(b) of this Agreement relating thereto.

 

15.           Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company), assigns, spouses, heirs and personal and legal
representatives.  The Company shall
require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all or a substantial
part, of the business and/or assets of the Company, by written agreement in
form and substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken
place.  The indemnification provided
under this Agreement shall continue as to Indemnitee for any action taken or
not taken while serving in an indemnified capacity pertaining to an
Indemnifiable Event even though Indemnitee may have ceased to serve in such
capacity at the time of any Proceeding.

 

16.           Severability.  If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void or otherwise unenforceable, (a) the remaining provisions shall remain
enforceable to the fullest extent permitted by law; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or
unenforceable.

 

17.           Contribution.  To the fullest extent permissible under
applicable law, whether or not the indemnification provided for in this
Agreement is available to Indemnitee for any reason whatsoever, the Company
shall pay all or a portion of the amount that would otherwise be incurred by
Indemnitee for Expenses in connection with any claim relating to an
Indemnifiable Event, as is deemed fair and reasonable in light of all of the
circumstances of such Proceeding in 

 

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order to reflect (i) the relative benefits received by the Company
and Indemnitee as a result of the event(s) and/or transaction(s) giving
cause to such Proceeding; and/or (ii) the relative fault of the Company
(and its directors, officers, employees and agents) and Indemnitee in
connection with such event(s) and/or transaction(s).

 

18.           Governing Law.  This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to its
principles of conflicts of laws.  The
Company and Indemnitee hereby irrevocably and unconditionally (i) agree
that any action or proceeding arising out of or in connection with this
Agreement may be brought in the Delaware Court of Chancery, (ii) consent
to submit to the jurisdiction of the Delaware Court of Chancery for purposes of
any action or proceeding arising out of or in connection with this Agreement, (iii)waive
any objection to the laying of venue of any such action or proceeding in the
Delaware Court of Chancery, and (iv) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Delaware
Court of Chancery has been brought in an improper or inconvenient forum.

 

19.           Notices.  All notices, demands and other communications
required or permitted hereunder shall be made in writing and shall be deemed to
have been duly given if delivered by hand, against receipt or mailed, postage
prepaid, certified or registered mail, return receipt requested and addressed
to the Company at:

 

Rosetta Stone Inc.

1101 Wilson Blvd.

Suite 1130

Arlington,
VA 22209
 Attention: General Counsel

 

and to Indemnitee at:

 

the address set forth below Indemnitee’s signature hereto.  Notice of change of address shall be
effective only when given in accordance with this Section.  All notices complying with this Section shall
be deemed to have been received on the date of hand delivery or on the third
business day after mailing.

 

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

 

* * * * *

 

10

 

IN WITNESS WHEREOF, the
parties hereto have duly executed and delivered this Agreement as of the day
specified above.

 

	
   

  	
  ROSETTA
  STONE INC.

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDEMNITEE,

  
	
   

  	
  an
  individual

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  «name»

  
	
   

  	
   

  
	
   

  	
  Address for
  notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
					

 

11Exhibit 10.9

	
   

  
	
   

  
	
   

  
	
   

  

 

CREDIT AGREEMENT

dated as of January 4, 2006

 

among

 

ROSETTA STONE HOLDINGS INC. 

as a Borrower,

 

THE OTHER PERSONS THAT JOIN THIS AGREEMENT AS A BORROWER 

FROM TIME TO TIME PURSUANT TO A BORROWER JOINDER AGREEMENT,

as Borrowers

 

THE FINANCIAL INSTITUTIONS PARTY HERETO, 

as Lenders,

 

and

 

MADISON CAPITAL FUNDING LLC, 

as Agent

	
   

  
	
   

  
	
   

  
	
   

  

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1.   

  	
   

  	
  Definitions; Interpretation 

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  1.2.

  	
   

  	
  Interpretation

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.   

  	
   

  	
  Credit Facilities

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1.

  	
   

  	
  Commitments

  	
   

  	
  15

  
	
   

  	
   

  	
  2.1.1.

  	
  Revolving Loan Commitments

  	
   

  	
  15

  
	
   

  	
   

  	
  2.1.2.

  	
  Term A Loan Commitments

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.2.

  	
   

  	
  Loan Procedures

  	
   

  	
  15

  
	
   

  	
   

  	
  2.2.1.

  	
  Loan Types

  	
   

  	
  15

  
	
   

  	
   

  	
  2.2.2.

  	
  Borrowing

  	
   

  	
  15

  
	
   

  	
   

  	
  2.2.3.

  	
  Conversion; Continuation

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.3.

  	
   

  	
  Letters of Credit

  	
   

  	
  16

  
	
   

  	
   

  	
  2.3.1.

  	
  Commitment

  	
   

  	
  16

  
	
   

  	
   

  	
  2.3.2.

  	
  Application

  	
   

  	
  17

  
	
   

  	
   

  	
  2.3.3.

  	
  Reimbursement Obligations

  	
   

  	
  17

  
	
   

  	
   

  	
  2.3.4.

  	
  Participations in Letters of Credit

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.4.

  	
   

  	
  Commitments Several

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.5.

  	
   

  	
  Certain Conditions

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.6.

  	
   

  	
  Loan Accounting

  	
   

  	
  19

  
	
   

  	
   

  	
  2.6.1.

  	
  Recordkeeping

  	
   

  	
  19

  
	
   

  	
   

  	
  2.6.2.

  	
  Notes

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.7.

  	
   

  	
  Interest

  	
   

  	
  19

  
	
   

  	
   

  	
  2.7.1.

  	
  Interest Rates

  	
   

  	
  19

  
	
   

  	
   

  	
  2.7.2.

  	
  Interest Payment Dates

  	
   

  	
  19

  
	
   

  	
   

  	
  2.7.3.

  	
  Setting and Notice of LIBOR Rates

  	
   

  	
  20

  
	
   

  	
   

  	
  2.7.4.

  	
  Computation of Interest

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.8.

  	
   

  	
  Fees

  	
   

  	
  20

  
	
   

  	
   

  	
  2.8.1.

  	
  Commitment Fee

  	
   

  	
  20

  
	
   

  	
   

  	
  2.8.2.

  	
  Letter of Credit Fees

  	
   

  	
  20

  
	
   

  	
   

  	
  2.8.3.

  	
  Agent’s Fees

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.9.

  	
   

  	
  Commitment Reduction

  	
   

  	
  21

  
	
   

  	
   

  	
  2.9.1.

  	
  Voluntary Reduction or Termination of Revolving Loan
  Commitment

  	
   

  	
  21

  
	
   

  	
   

  	
  2.9.2.

  	
  Mandatory Reduction of Revolving Loan Commitment

  	
   

  	
  21

  
	
   

  	
   

  	
  2.9.3.

  	
  All Reductions of Revolving Loan Commitment

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.10.

  	
   

  	
  Prepayment

  	
   

  	
  21

  
	
   

  	
   

  	
  2.10.1.

  	
  Voluntary Prepayment

  	
   

  	
  21

  
	
   

  	
   

  	
  2.10.2.

  	
  Mandatory Prepayment

  	
   

  	
  21

  
	
   

  	
   

  	
  2.10.3.

  	
  All Prepayments

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.11.

  	
   

  	
  Repayment

  	
   

  	
  22

  
	
   

  	
   

  	
  2.11.1.

  	
  Revolving Loans

  	
   

  	
  22

  
	
   

  	
   

  	
  2.11.2.

  	
  Term A Loan

  	
   

  	
  22

  

 

i

 

	
  2.12.

  	
   

  	
  Payment

  	
   

  	
  23

  
	
   

  	
   

  	
  2.12.1.

  	
  Making and Settlement of Payments

  	
   

  	
  23

  
	
   

  	
   

  	
  2.12.2.

  	
  Application of Payments and Proceeds

  	
   

  	
  23

  
	
   

  	
   

  	
  2.12.3.

  	
  Payment Dates

  	
   

  	
  25

  
	
   

  	
   

  	
  2.12.4.

  	
  Set-off

  	
   

  	
  25

  
	
   

  	
   

  	
  2.12.5.

  	
  Proration of Payments

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.13.

  	
   

  	
  Joinder and Joint and Several Liability

  	
   

  	
  25

  
	
   

  	
   

  	
  2.13.1.

  	
  Joinder of Opco Borrower

  	
   

  	
  25

  
	
   

  	
   

  	
  2.13.2.

  	
  Joint and Several

  	
   

  	
  25

  
	
   

  	
   

  	
  2.13.3.

  	
  Waivers by Borrowers

  	
   

  	
  26

  
	
   

  	
   

  	
  2.13.4.

  	
  Benefit of Joint and Several Obligations

  	
   

  	
  26

  
	
   

  	
   

  	
  2.13.5.

  	
  Subordination of Subrogation, Etc.

  	
   

  	
  26

  
	
   

  	
   

  	
  2.13.6.

  	
  Election of Remedies

  	
   

  	
  27

  
	
   

  	
   

  	
  2.13.7.

  	
  Limitation

  	
   

  	
  27

  
	
   

  	
   

  	
  2.13.8.

  	
  Contribution with Respect to Guaranty Obligations

  	
   

  	
  27

  
	
   

  	
   

  	
  2.13.9.

  	
  Liability Cumulative

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.   

  	
   

  	
  Yield Protection

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1.

  	
   

  	
  Taxes

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.2.

  	
   

  	
  Increased Cost

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.3.

  	
   

  	
  Inadequate or Unfair Basis

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.4.

  	
   

  	
  Change in Law

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.5.

  	
   

  	
  Funding Losses

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.6.

  	
   

  	
  Manner of Funding; Alternate Funding Offices

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.7.

  	
   

  	
  Mitigation of Circumstances; Replacement of Lenders

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.8.

  	
   

  	
  Conclusiveness of Statements; Survival

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.   

  	
   

  	
  Conditions Precedent

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1.

  	
   

  	
  Initial Credit Extension

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.1.

  	
  Capitalization; Adjusted EBITDA

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.2.

  	
  Initial Loans; Availability

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.3.

  	
  Closing Date Total Debt to EBITDA Ratio

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.4.

  	
  Prior Debt

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.5.

  	
  Related Transactions

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.6.

  	
  Fees

  	
   

  	
  32

  
	
   

  	
   

  	
  4.1.7.

  	
  Delivery of Loan Documents

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.2.

  	
   

  	
  All Credit Extensions

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.   

  	
   

  	
  Representations and Warranties

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.1.

  	
   

  	
  Organization

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.2.

  	
   

  	
  Authorization; No Conflict

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.3.

  	
   

  	
  Validity; Binding Nature

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.4.

  	
   

  	
  Financial Condition

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.5.

  	
   

  	
  No Material Adverse Change

  	
   

  	
  35

  

 

ii

 

	
  5.6.

  	
   

  	
  Litigation

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.7.

  	
   

  	
  Ownership of Properties; Liens

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.8.

  	
   

  	
  Capitalization

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.9.

  	
   

  	
  Pension Plans

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.10.

  	
   

  	
  Investment Company Act

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.11.

  	
   

  	
  Public Utility Holding Company Act

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.12.

  	
   

  	
  Margin Stock

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.13. 

  	
   

  	
  Taxes 

  	
   

  	
  37 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.14.

  	
   

  	
  Solvency

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.15.

  	
   

  	
  Environmental Matters

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.16.

  	
   

  	
  Insurance

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.17.

  	
   

  	
  Information

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.18.

  	
   

  	
  Proprietary Rights

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.19.

  	
   

  	
  Restrictive Provisions

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.20.

  	
   

  	
  Labor Matters

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.21.

  	
   

  	
  No Default

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.22.

  	
   

  	
  Related Agreements

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.23.

  	
   

  	
  Inactive Subsidiary

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.   

  	
   

  	
  Affirmative Covenants

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1.

  	
   

  	
  Information

  	
   

  	
  42

  
	
   

  	
   

  	
  6.1.1.

  	
  Annual
  Report

  	
   

  	
  42

  
	
   

  	
   

  	
  6.1.2.

  	
  Interim
  Reports

  	
   

  	
  42

  
	
   

  	
   

  	
  6.1.3.

  	
  Compliance
  Certificate and Excess Cash Flow Certificate

  	
   

  	
  42

  
	
   

  	
   

  	
  6.1.4.

  	
  Reports
  to SEC and Shareholders

  	
   

  	
  43

  
	
   

  	
   

  	
  6.1.5.

  	
  Notice
  of Default; Litigation; ER1SA and Other Matters

  	
   

  	
  43

  
	
   

  	
   

  	
  6.1.6.

  	
  Availability
  Certificate

  	
   

  	
  44

  
	
   

  	
   

  	
  6.1.7.

  	
  Management
  Report

  	
   

  	
  44

  
	
   

  	
   

  	
  6.1.8.

  	
  Projections

  	
   

  	
  44

  
	
   

  	
   

  	
  6.1.9.

  	
  Other
  Information

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.2.

  	
   

  	
  Books; Records; Inspections

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.3.

  	
   

  	
  Maintenance of Property; Insurance

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.4.

  	
   

  	
  Compliance with Laws; Payment of Taxes and Liabilities

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.5.

  	
   

  	
  Maintenance of Existence

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.6.

  	
   

  	
  Employee Benefit Plans

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.7.

  	
   

  	
  Environmental Matters

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.8.

  	
   

  	
  Intellectual Property

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.9.

  	
   

  	
  Further Assurances

  	
   

  	
  46

  

 

iii

 

	
  Section 7.   

  	
   

  	
  Negative Covenants

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1.

  	
   

  	
  Debt

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.2.

  	
   

  	
  Liens

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.3.

  	
   

  	
  Operating Leases

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.4.

  	
   

  	
  Restricted Payments

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.5.

  	
   

  	
  Mergers; Consolidations; Asset Sales

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.6.

  	
   

  	
  Modification of Organizational Documents

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.7.

  	
   

  	
  Use of Proceeds

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.8.

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.9.

  	
   

  	
  Inconsistent Agreements

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.10.

  	
   

  	
  Business
  Activities

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.11.

  	
   

  	
  Investments

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.12.

  	
   

  	
  Restriction
  of Amendments to Certain Documents

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.13.

  	
   

  	
  Fiscal
  Year

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.14.

  	
   

  	
  Financial
  Covenants

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.1.

  	
  Fixed
  Charge Coverage Ratio

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.2.

  	
  Interest
  Coverage Ratio

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.3.

  	
  [Intentionally
  Omitted]

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.4.

  	
  Total
  Debt to EBITDA Ratio

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.5.

  	
  EBITDA

  	
   

  	
  53

  
	
   

  	
   

  	
  7.14.6.

  	
  Capital
  Expenditures

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.15.

  	
   

  	
  Bank
  Accounts

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.16.

  	
   

  	
  Subsidiaries

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.   

  	
   

  	
  Events of Default; Remedies

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.1.

  	
   

  	
  Events of Default

  	
   

  	
  54

  
	
   

  	
   

  	
  8.1.1.

  	
  Non-Payment
  of Credit

  	
   

  	
  54

  
	
   

  	
   

  	
  8.1.2.

  	
  Default
  Under Other Debt

  	
   

  	
  54

  
	
   

  	
   

  	
  8.1.3.

  	
  Bankruptcy;
  Insolvency

  	
   

  	
  55

  
	
   

  	
   

  	
  8.1.4.

  	
  Non-Compliance
  with Loan Documents

  	
   

  	
  55

  
	
   

  	
   

  	
  8.1.5.

  	
  Representations;
  Warranties

  	
   

  	
  55

  
	
   

  	
   

  	
  8.1.6.

  	
  Pension
  Plans

  	
   

  	
  55

  
	
   

  	
   

  	
  8.1.7.

  	
  Judgments

  	
   

  	
  55

  
	
   

  	
   

  	
  8.1.8.

  	
  Invalidity
  of Collateral Documents

  	
   

  	
  56

  
	
   

  	
   

  	
  8.1.9.

  	
  Change
  of Control

  	
   

  	
  56

  
	
   

  	
   

  	
  8.1.10.

  	
  Activities
  of Parent and Holdings

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.2.

  	
   

  	
  Remedies

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 9.   

  	
   

  	
  Agent

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1.

  	
   

  	
  Appointment;
  Authorization

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.2.

  	
   

  	
  Delegation
  of Duties

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.3.

  	
   

  	
  Limited Liability 

  	
   

  	
  57

  

 

iv

 

	
  9.4.

  	
   

  	
  Reliance

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.5.

  	
   

  	
  Notice
  of Default

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.6.

  	
   

  	
  Credit
  Decision

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.7.

  	
   

  	
  Indemnification

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.8.

  	
   

  	
  Agent
  Individually

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.9.

  	
   

  	
  Successor
  Agent

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.10.

  	
   

  	
  Collateral
  Matters

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 10.   

  	
   

  	
  Miscellaneous

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1.

  	
   

  	
  Waiver;
  Amendments

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.2.

  	
   

  	
  Notices

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.3.

  	
   

  	
  Computations

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.4.

  	
   

  	
  Costs;
  Expenses

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.5.

  	
   

  	
  Indemnification
  by Borrowers

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.6.

  	
   

  	
  Marshaling;
  Payments Set Aside

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.7.

  	
   

  	
  Nonliability
  of Lenders

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.8.

  	
   

  	
  Assignments;
  Participations

  	
   

  	
  63

  
	
   

  	
   

  	
  10.8.1.

  	
  Assignments

  	
   

  	
  63

  
	
   

  	
   

  	
  10.8.2.

  	
  Participations

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.9.

  	
   

  	
  Confidentiality

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.10.

  	
   

  	
  Captions

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.11.

  	
   

  	
  Nature
  of Remedies

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.12. 

  	
   

  	
  Counterparts
  

  	
   

  	
  65 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.13. 

  	
   

  	
  Severability
  

  	
   

  	
  65 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.14.

  	
   

  	
  Entire
  Agreement

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.15. 

  	
   

  	
  Successors;
  Assigns 

  	
   

  	
  66 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.16.

  	
   

  	
  Governing
  Law

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.17.

  	
   

  	
  Forum
  Selection; Consent to Jurisdiction

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.18. 

  	
   

  	
  Waiver
  of Jury Trial 

  	
   

  	
  66 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.19. 

  	
   

  	
  Holdings
  as Agent for Borrowers 

  	
   

  	
  66 

  

 

v

 

	
  Annexes

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annex
  I

  	
   

  	
  Commitments and Pro Rata Shares

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annex
  II

  	
   

  	
  Addresses

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Assignment Agreement

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Compliance Certificate

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Form of Availability Certificate

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Form of Note

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Form of Borrowing Notice

  	
   

  	
   

  
	
  Exhibit F

  	
   

  	
  Form of Conversion/Continuation Notice

  	
   

  	
   

  
	
  Exhibit G

  	
   

  	
  Form of Borrower Joinder Agreement

  	
   

  	
   

  
	
  Exhibit H

  	
   

  	
  Form of Excess Cash Flow Certificate

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule
  4.1.4

  	
   

  	
  Prior Debt

  	
   

  	
   

  
	
  Schedule
  5.6

  	
   

  	
  Litigation

  	
   

  	
   

  
	
  Schedule
  5.8

  	
   

  	
  Capitalization

  	
   

  	
   

  
	
  Schedule
  5.13

  	
   

  	
  Taxes

  	
   

  	
   

  
	
  Schedule
  5.16

  	
   

  	
  Insurance

  	
   

  	
   

  
	
  Schedule
  5.18

  	
   

  	
  Proprietary Rights

  	
   

  	
   

  
	
  Schedule
  5.20

  	
   

  	
  Labor Matters

  	
   

  	
   

  
	
  Schedule
  7.1

  	
   

  	
  Existing Debt

  	
   

  	
   

  
	
  Schedule
  7.2

  	
   

  	
  Existing Liens

  	
   

  	
   

  
	
  Schedule
  7.11

  	
   

  	
  Existing Investments

  	
   

  	
   

  
	
  Schedule
  7.15

  	
   

  	
  Bank Accounts

  	
   

  	
   

  

 

vi

 

CREDIT AGREEMENT

 

Credit Agreement
dated as of January 4, 2006 (as amended, restated or otherwise modified
from time to time, this “Agreement”) among Rosetta Stone Holdings Inc.,
a Delaware corporation (“Holdings”), the other Persons that join this
Agreement as a borrower pursuant to a Borrower Joinder Agreement and become
party hereto from time to time (Holdings and such other Persons are referred to
hereinafter each individually as a “Borrower” and collectively as the “Borrowers”),
the financial institutions party hereto from time to time (together with their
respective successors and assigns, “Lenders”) and Madison Capital
Funding LLC (in its individual capacity, “Madison”), as Agent for all
Lenders.

 

In consideration
of the mutual agreements herein contained, the parties hereto agree as follows:

 

Section I.      Definitions; Interpretation.

 

1.1.           Definitions.

 

When used herein
the following terms shall have the following meanings:

 

Administrative
Borrower has the meaning set forth in Section 10.19.

 

Acceleration Event
means the occurrence of any of the following: (i) an Event of Default
under Section 8.1.3; (ii) an Event of Default under Section 8.1.1
and the termination of the Commitments: or (iii) any other Event of
Default under Section 8.1 and the election by the Required Lenders
to declare the Obligations to be due and payable or to terminate the Revolving
Loan Commitment.

 

Account
has the meaning set forth in the Guarantee and Collateral Agreement.

 

Account Debtor
means any Person who is obligated to Opco Borrower or any Subsidiary with
respect to any Account.

 

Acquisition
means any transaction or series of related transactions for the purpose of or
resulting, directly or indirectly, in (a) the acquisition of all or a
substantial portion of the assets of a Person, or of all or a substantial
portion of any business or division of a Person, (b) the acquisition of in
excess of 50% of the capital stock, partnership interests, membership interests
or equity of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (other than a Person that is already a Subsidiary).

 

Adjusted Working
Capital means the remainder of (a) the consolidated
current assets of Holdings and the Subsidiaries minus the amount of cash and
cash equivalents included in such consolidated current assets, minus (b) the
consolidated current liabilities of Holdings and the Subsidiaries minus the
amount of consolidated short-term Debt (including current maturities of
long-term Debt) of Holdings and the Subsidiaries included in such consolidated
current liabilities.

 

Affiliate
of any Person means (a) any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person, (b) any
officer or director of such Person and (c) with respect to any Lender, any
entity administered or managed by such Lender or an Affiliate or investment
advisor thereof which is engaged in making, purchasing, holding or otherwise
investing in commercial loans. A Person shall be deemed to be “controlled by”
any other Person if such Person possesses, directly or indirectly, power to
vote 10% or more of the securities (on a fully diluted basis) having ordinary
voting power for the election of directors or managers or power to direct or
cause the

 

1

 

direction of the
management and policies of such Person whether by contract or otherwise. Unless
expressly stated otherwise herein, neither Agent nor any Lender shall be deemed
an Affiliate of any Borrower or of any Subsidiary.

 

Agent
means Madison in its capacity as agent for all Lenders hereunder and any
successor thereto in such capacity.

 

Agreement
has the meaning set forth in the Preamble.

 

Applicable Margin
means the applicable rate per annum corresponding to the applicable Total Debt
to EBITDA Ratio, all as set forth in the following table:

 

	
   

  	
   

  	
  Revolving Loans and the Term A Loan

  	
   

  
	
  Total Debt to EBITDA Ratio

  	
   

  	
  Base
  Rate

  	
   

  	
  LIBOR
  Rate

  	
   

  
	
  >
  1.50:1.00

  	
   

  	
  2.00

  	
  %

  	
  3.00

  	
  %

  
	
  < 1.50:1.00

  	
   

  	
  1.75

  	
  %

  	
  2.75

  	
  %

  

 

The Applicable Margin
shall be adjusted quarterly, to the extent applicable, on the date financial
statements are required to be delivered pursuant to Section 6.1.2(a) (or,
in the case of the last Fiscal Quarter of each Fiscal Year, Section 6.1.1)
after the end of each related Fiscal Quarter based on the Total Debt to EBITDA
Ratio as of the last day of such Fiscal Quarter. Notwithstanding the foregoing,
(a) until the date that the financial statements for the Fiscal Year
ending December 31, 2006 are required to be delivered pursuant to Section 6.1.2(a),
the Applicable Margin shall be the rates corresponding to the Total Debt to
EBITDA Ratio of 3 1.50:1.00 in the
foregoing table, (b) if Borrowers fail to deliver the financial statements
required by Section 6.1.1 or 6.1.2(a), as applicable, and
the related Compliance Certificate required by Section 6.1.3, by
the respective date required thereunder after the end of any related Fiscal
Quarter, the Applicable Margin shall be the rates corresponding to the Total
Debt to EBITDA Ratio of 3 1.50:1.00 in the
foregoing table until such financial statements and Compliance Certificate are
delivered, and (c) no reduction to the Applicable Margin shall become
effective at any time when an Event of Default has occurred and is continuing.

 

Applicable
Multiple means the maximum Total Debt to EBITDA Ratio
permitted under Section 7.14.4 as of the last day of the then most
recently ended Computation Period.

 

Assignment
Agreement means an agreement substantially in the form of Exhibit A.

 

Availability
Certificate means a certificate substantially in the form of Exhibit C.

 

Base Rate
means, for any day, the greater of (a) the rate of interest which is
identified as the “Prime Rate” and normally published in the Money Rates
section of The Wall Street Journal (or, if such rate ceases to be so
published, as quoted from such other generally available and recognizable
source as Agent may select) and (b) the sum of the Federal Funds Rate plus
0.5%. Any change in the Base Rate due to a change in such Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such change in
such Prime Rate or the Federal Funds Rate.

 

Base Rate Loan
means any Loan which bears interest at or by reference to the Base Rate.

 

Borrower
has the meaning set forth in the Preamble.

 

Borrower Joinder
Agreement means an agreement substantially in the form of Exhibit G.

 

2

 

Borrowing
Availability means, at the time of determination, an amount
equal to the lesser of (a) the Revolving Loan Commitment and (b) the
sum of (i) EBITDA for the most recently ended 12 month period multiplied
by the Applicable Multiple minus (ii) outstanding Total Debt as of such
date, in each case less such reserves and allowances as Agent deems necessary
in its reasonable discretion to protect or preserve the Collateral or the value
thereof.

 

Borrowing Notice
means a notice in substantially the form of Exhibit E.

 

Business Day
means any day on which commercial banks are open for commercial banking
business in Chicago, Illinois and New York, New York, and, in the case of a
Business Day which relates to a LIBOR Loan, on which dealings are carried on in
the London interbank eurodollar market.

 

Capital
Expenditures means all expenditures which, in accordance with
GAAP, would be required to be capitalized and shown on the consolidated balance
sheet of Holdings, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (a) from
insurance proceeds (or other similar recoveries) paid on account of the loss of
or damage to the assets being replaced or restored or (b) with cash awards
of compensation arising from the taking by eminent domain or condemnation of
the assets being replaced.

 

Capital Lease
means, with respect to any Person, any lease of (or other agreement conveying
the right to use) any real or personal property by such Person that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of such Person.

 

Cash Equivalent
Investment means, at any time, (a) any evidence of Debt,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, or
corporate demand notes, in each case (unless issued by a Lender or its holding
company) rated at least A-l by Standard & Poor’s Ratings Group or P-l
by Moody’s Investors Service. Inc., (c) any certificate of deposit (or
time deposit represented by a certificate of
deposit) or banker’s acceptance maturing not more than one year
after such time, or any overnight Federal Funds transaction that is issued or
sold by any Lender (or by a commercial banking institution that is a member of
the Federal Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000), (d) any repurchase agreement
entered into with any Lender (or commercial banking institution of the nature
referred to in clause (c) above) which (i) is secured by a fully
perfected security interest in any obligation of the type described in any of
clauses (a) through (c) above and (ii) has a market value at the
time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such Lender (or other commercial banking institution)
thereunder, (e) money market accounts or mutual funds which invest
exclusively in assets satisfying the foregoing requirements and (f) other
short term liquid investments approved in writing by Agent.

 

Closing Date
means the date on which all conditions precedent set forth in Section 4.1
have been satisfied or waived in writing by Agent and Lenders.

 

Closing, Date
Total Debt to EBITDA Ratio means, as of the Closing Date, the
ratio of (a) Total Debt as of such day (and after giving effect to the
initial Loans made hereunder) to (b) EBITDA as of such day, provided that,
solely in the case of calculating Closing Date Total Debt to EBITDA Ratio,
EBITDA shall be calculated by multiplying (i) EBITDA for the period from January 1,
2005 to September 30, 2005 by (ii) 1.336996.

 

Collateral
has the meaning set forth in the Guarantee and Collateral Agreement.

 

Collateral Access
Agreement means an agreement in form and substance reasonably
satisfactory to Agent pursuant to which a mortgagee or lessor of real property
on which Collateral is stored or

 

3

 

otherwise located, or a
warehouseman, processor or other bailee of Inventory or other property owned by
any Loan Party acknowledges the Liens of Agent and waives or subordinates any
Liens held by such Person on such property, and. in the case of any such
agreement with a mortgagee or lessor, permits Agent reasonable access to and
use of such real property during the continuance of an Event of Default to
assemble, complete and sell any Collateral stored or otherwise located thereon.

 

Collateral
Documents means, collectively, the Guarantee and Collateral
Agreement, each Mortgage, and each other agreement or instrument pursuant to or
in connection with which any Loan Party or any other Person grants a security
interest in any Collateral to Agent for the benefit of Lenders, each as
amended, restated or otherwise modified from time to time.

 

Commercial
Software means packaged commercially available software
programs generally available to the public which have been licensed to a Loan
Party pursuant to end-user licenses and which are used in a Loan Party’s
business but not a component of or incorporated into any Loan Party product.

 

Commitment
means, as to any Lender, such Lender’s Pro Rata Revolving Share of the
Revolving Loan Commitment and such Lender’s Pro Rata Term A Share of the Term A
Loan Commitment.

 

Commitment Fee
means the fee payable by Borrowers to Lenders pursuant to Section 2.8.1.

 

Company Software
means proprietary rights in the software for which Proprietary Rights are owned
by any Loan Party, including copyrights, trademarks, and trade secrets.

 

Compliance
Certificate means a certificate substantially in the form of Exhibit B.

 

Computation Period
means each period of four consecutive Fiscal Quarters ending on the last day of
a Fiscal Quarter.

 

Consolidated Net
Income means, with respect to Holdings and the Subsidiaries
for any period, the consolidated net income (or loss) of Holdings and the
Subsidiaries for such period, excluding any gains from Dispositions, any
extraordinary gains and any gains from discontinued operations.

 

Contingent
Obligation means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements
of instruments in the course of collection), or guarantees the payment of
dividends or other distributions upon the shares of any other Person. The
amount of any Person’s obligation in respect of any Contingent Obligation shall
(subject to any limitation set forth therein) be deemed to be the principal
amount of the debt, obligation or other liability supported thereby.

 

Controlled Group
means all members of a controlled group of corporations and all members of a
controlled group of trades or businesses (whether or not incorporated) under
common control which, together with Holdings, are treated as a single employer
under Section 414 of the IRC or Section 4001 of ERISA.

 

Conversion/Continuation
Notice means a notice in substantially the form of Exhibit F.

 

Debt
of any Person means, without duplication, (a) all indebtedness of such
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a
balance sheet of such Person in accordance with GAAP, (c) all obligations
of such Person to pay the

 

4

 

deferred purchase price
of property or services (excluding trade accounts payable in the ordinary
course of business and obligations with respect to post-closing adjustments and
other payments to be made under Sections 2.5, 2.6, 5.4, 5.5, 5.9 and 8.1 of the
Stock Purchase Agreement), (d) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person (with the amount thereof being measured as the fair
market value of such property), (e) all obligations, contingent or
otherwise, with respect to the undrawn amount of all letters of credit, the
drawn but not reimbursed amount of all letters of credit and banker’s
acceptances issued for the account of such Person (including the Letters of
Credit), (f) all Hedging Obligations of such Person, (g) all
Contingent Obligations of such Person, (h) all full recourse indebtedness
of any partnership of which such Person is a general partner, (i) all
earn-out and non-compete obligations to the extent such obligations are
required to be shown as liabilities of such Person in accordance with GAAP and (j) all
obligations of such Person under any synthetic lease transaction, where such
obligations are considered borrowed money indebtedness for tax purposes but the
transaction is classified as an operating lease in accordance with GAAP.

 

Default
means any event that, if it continues uncured, will, with the lapse of time or
the giving of notice or both, constitute an Event of Default.

 

Disposition
means, as to any asset or right of any Loan Party, (a) any sale, lease,
assignment or other transfer (other than to Opco Borrower or any of its
Domestic Subsidiaries), (b) any loss, abandonment, destruction or damage
thereof or (c) any actual or threatened condemnation, confiscation,
requisition, seizure or taking thereof, in each case described in clauses (a), (b) and
(c) above excluding (i) assets subject to a Disposition which are
repaired, restored or replaced within 180 days with assets performing the same
or a similar function, (ii) Dispositions in any Fiscal Year, the Net Cash
Proceeds of which do not in the aggregate exceed $100,000 and (iii) the
sale or other transfer of Inventory in the ordinary course of business.

 

Dollar
and $ mean lawful money of the United States of America.

 

Domestic
Subsidiary means any Subsidiary that is incorporated or
organized under the laws of a Slate within the United States of America or the
District of Columbia.

 

EBITDA
means, for any period, Consolidated Net Income for such period plus, to the
extent deducted in determining such Consolidated Net Income, the sum of (a) Interest
Expense, amortization or write-off of Debt discount. Debt issuance costs and
other fees and charges with respect to Debt, (b) income tax expense, (c) depreciation
and amortization for such period including but not limited to amortization of
intangibles, (d) any extraordinary or non-recurring non-cash expenses or
non-cash losses, including but not limited to non-cash losses on sales of
assets outside the ordinary course of business and write-downs of intangibles, (e) any
other non-cash expenses or non-cash losses, including but not limited to any
stock-based compensation expense, (f) transaction costs and other expenses
associated with the Related Transactions, including but not limited to legal
and advisory fees and incentives based on the performance of Opco Borrower, (g) management
fees paid to Sponsor (and/or any Affiliates of Sponsor) to the extent permitted
under Section 7.4 and (h) any purchase accounting adjustments
associated with the Related Transactions, including but not limited to
expensing in-process research and development, minus, to the extent not
otherwise deducted from Consolidated Net Income, any cash payments made in such
period related to any non-cash expenses deducted from Consolidated Net Income
during such period or prior periods. For the 12 month period following the
consummation of the Related Transactions, EBITDA may be adjusted, in an amount
acceptable to Agent, to reflect the impact, if any, of the non-cash purchase
price adjustments to the current deferred revenue balance and inventory
carrying value and other similar purchase price adjustments;

 

5

 

provided,
that, notwithstanding anything to the contrary contained herein, (i) EBITDA
for the month of December, 2005 shall be adjusted in a manner consistent with
the adjustments to EBITDA for the months of January, 2005 through November,
2005 set forth below, and (ii) for each of the calendar months listed
below, EBITDA shall be deemed to be the amount set forth below opposite such
month:

 

 

	
  Calendar Month

  	
   

  	
  EBITDA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January, 2005

  	
   

  	
  $

  	
  226,034

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  February, 2005

  	
   

  	
  $

  	
  29,164

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March, 2005

  	
   

  	
  $

  	
  371,522

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  April, 2005

  	
   

  	
  $

  	
  603,524

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May, 2005

  	
   

  	
  $

  	
  774,088

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June, 2005

  	
   

  	
  $

  	
  927,354

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  July, 2005

  	
   

  	
  $

  	
  817,535

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  August, 2005

  	
   

  	
  $

  	
  896,375

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September, 2005

  	
   

  	
  $

  	
  756,333

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  October, 2005

  	
   

  	
  $

  	
  974,064

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  November, 2005

  	
   

  	
  $

  	
  609,536

  	
   

  

 

ECF Percentage
means, for any fiscal year, 50% if the Total Debt to EBITDA Ratio equals or
exceeds 1.0:1.0 as of the last day of such fiscal year; and 0% if the Total
Debt to EBITDA Ratio is less than 1.0:1.0 as of the last day of such fiscal
year.

 

Embedded Products
means all products containing components that are subject to licenses,
sublicenses and other agreements as to which any Loan Party is a party and
pursuant to which any Loan Party is authorized to use any third party patents,
patent rights, trademarks, service marks, trade secrets or copyrights,
including software, which are distributed by a Loan Party or incorporated in
any existing product or service of a Loan Party.

 

Environmental
Claims means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law,
or for release or injury to the environment or any Person or property.

 

Environmental Laws
means all present or future federal, state or local laws, statutes, common law
duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to any matter arising out of or relating to health and safety, or
pollution or protection of the environment or workplace, including any of the
foregoing relating to the presence, use, production, generation, handling,
transport, treatment, storage, disposal, distribution, discharge, release,
control or cleanup of any Hazardous Substance.

 

ERISA
means the Employee Retirement Income Security Act of 1974, as amended.

 

Escrow Agreement
means the Escrow Agreement dated as of January 4, 2006 among Parent,
Holdings, Opco Borrower, Sponsor, Madison, Tom Adams, the holders of the
capital stock of Opco Borrower, Eugene Stoltzfus, and U.S. Bank Trust National
Association, as escrow agent.

 

6

 

Event of Default
means any of the events described in Section 8.1.

 

Excess Cash Flow
means, for any period, the remainder of (a) the sum of (i) EBITDA for
such period, plus (ii) any net decrease in Adjusted Working Capital during
such period, minus (b) the sum, without duplication, of (i) scheduled
repayments of principal of Term A Loan made during such period, plus (ii) voluntary
prepayments of the Term A Loan pursuant to Section 2.10.1 during
such period, plus (iii) cash payments (not financed with the proceeds of
Debt) made in such period with respect to Capital Expenditures permitted under Section 7.14.6.
plus (iv) all federal, state, local and foreign income taxes paid in cash
by Opco Borrower and the Subsidiaries, or paid in cash by Holdings on account
of the income of Opco Borrower and the Subsidiaries, during such period, plus (v) any
net increase in Adjusted Working Capital during such period, plus (vi) transaction
costs and other cash expenses associated with the Related Transactions, plus (vii) Interest
Expense paid in cash during such period, plus (viii) amounts paid in cash
during such period to repurchase or fund the repurchase of equity securities
pursuant to Section 7.4f(v), plus (ix) management fees paid to
Sponsor (and/or any Affiliates of Sponsor) during such period to the extent
permitted under Section 7.4.

 

Excess Cash Flow
Certificate means a certificate substantially in the form of Exhibit H.

 

Fairfield U.K.
means Fairfield & Sons Limited, a private limited company organized
under the laws of England and Wales.

 

Federal Funds Rate
means, for any day, a rate per annum (rounded upward to the nearest l/100th of
1%) equal to the rate published by the Federal Reserve Bank of New York on the
preceding Business Day or, if no such rate is so published, the average rate
per annum, as determined by Agent, quoted for overnight Federal Funds
transactions last arranged prior to such day by three (3) Federal Funds brokers
of recognized standing.

 

Fee Letter
means that certain amended and restated letter agreement dated as of even date
herewith by Agent and acknowledged by each Borrower, as further amended,
restated or otherwise modified from time to time.

 

Fiscal Quarter
means a fiscal quarter of a Fiscal Year.

 

Fiscal Year
means the fiscal year of Holdings and the Subsidiaries, which period shall be
the 12-month period ending on December 31 of each year.

 

Fixed Charge
Coverage Ratio means, for any Computation Period, the ratio
of (a) the total for such period of EBITDA minus the sum of all income
taxes and tax distributions described in Section 7.4 paid by
Holdings and the Subsidiaries and all Capital Expenditures to (b) the
sum for such period of (i) Interest Expense paid in cash by Holdings and
the Subsidiaries plus (ii) required payments of principal of Debt by
Holdings and the Subsidiaries (including the Term A Loan but excluding the
Revolving Loans) plus (iii) management fees paid to Sponsor (and/or any
Affiliates of Sponsor); provided, for purposes of calculating the Fixed Charge
Coverage Ratio for any Computation Period ending on or prior to September 30,
2006, (A) income taxes and tax distributions, Interest Expense paid in
cash, required payments of principal of Debt and management fees shall each be
deemed to be the actual amount for each such category for the period commencing
January 1, 2006 and ending on the last day of such Computation Period,
multiplied by (x) 4, for the Computation Period ending March 31,
2006, (y) 2, for the Computation Period ending June 30, 2006, and (z) 1.33,
for the Computation Period ending September 30, 2006, and (B) Capital
Expenditures shall be deemed to be the sum of (I) the actual amount of
Capital Expenditures (up to $1,000,000) incurred in the Fiscal Quarter ending March 31,
2006 in connection with the purchase of a parcel of real property and
improvements thereon in Harrisonburg, Virginia (such Capital Expenditure (up to
$1,000,000), the “Harrisonburg Real Property Expenditures”).

 

7

 

plus (II) the actual
amount of all other Capital Expenditures (excluding the Harrisonburg Real
Property Expenditures) for the period commencing January 1, 2006 and
ending on the last day of such Computation Period, multiplied by (1) 4,
for the Computation Period ending March 31, 2006, (2) 2, for the
Computation Period ending June 30, 2006, and (3) 1.33, for the
Computation Period ending September 30, 2006.

 

Foreign Subsidiary means any Subsidiary that is not incorporated or organized under the
laws of a State within the United States of America or the District of
Columbia.

 

FRB means the
Board of Governors of the Federal Reserve System or any successor thereto.

 

GAAP means
generally accepted accounting principles in effect in the United States of
America set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to the
circumstances as of the date of determination.

 

Guarantee and Collateral Agreement means the Guarantee and Collateral Agreement
dated as of the Closing Date by each Loan Party signatory thereto in favor of
Agent and Lenders, as amended, restated or otherwise modified from time to
time.

 

Harrisonburg Real Property Expenditures has the meaning set forth in the definition
of Fixed Charge Coverage Ratio.

 

Hazardous Substances means hazardous waste, hazardous substance, pollutant, contaminant,
toxic substance, oil, hazardous material, chemical or other substance regulated
by any Environmental Law.

 

Hedging Obligation means, with respect to any Person, any liability of such Person under
any interest rate, currency or commodity swap agreement, cap agreement or
collar agreement, and any other agreement or arrangement designed to protect a
Person against fluctuations in interest rates, currency exchange rates or commodity
prices. The amount of any Person’s obligation in respect of any Hedging
Obligation shall be deemed to be the incremental obligation that would be
reflected in the financial statements of such Person in accordance with GAAP.

 

Holdings has
the meaning set forth in the Preamble.

 

Holdings Promissory Note means that certain Promissory Note dated January 4, 2006 issued by
Holdings and guaranteed by Parent, in the amount of $51,924,177.00 in cash,
12,238 shares of Class A Common Stock of Parent and 111,031 shares of Class B
Convertible Preferred Stock of Parent, due and payable in full on January 5,
2006.

 

Inactive Subsidiary means Language Success!, Inc., a Virginia corporation.

 

Intellectual Property has the meaning set forth in the Guarantee and Collateral Agreement.

 

Interest Coverage
Ratio means, for any Computation Period, the ratio of (a) EBITDA
for such Computation Period to (b) Interest Expense paid in cash by
Holdings and the Subsidiaries for such Computation Period; provided, for
purposes of calculating the Interest Coverage Ratio for any Computation Period
ending on or prior to September 30, 2006. Interest Expense shall be deemed
to be the actual amount of Interest Expense for the period commencing January 1,
2006 and ending on the last day

 

8

 

of such Computation
Period, multiplied by (i) 4, for the Computation Period ending March 31,
2006, (ii) 2, for the Computation Period ending June 30, 2006, and (iii) 1.33,
for the Computation Period ending September 30, 2006.

 

Interest Expense
means for any period the consolidated interest expense of Holdings and the
Subsidiaries for such period (including all imputed interest on Capital
Leases).

 

Interest Period
means, as to any LIBOR Loan, the period commencing on the date such Loan is
borrowed or continued as, or converted into, a LIBOR Loan and ending on the
date one, two, three or six months thereafter, as selected by Administrative
Borrower pursuant to Section 2.2.2 or 2.2.3, as the case may
be; provided, that: (a) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be extended to the
following Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day; (b) any Interest Period
that begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall end on the last Business
Day of the calendar month at the end of such Interest Period; (c) Administrative
Borrower may not select any Interest Period for a Revolving Loan which would
extend beyond the scheduled Termination Date; and (d) Administrative
Borrower may not select any Interest Period for the Term A Loan if, after
giving effect to such selection, the aggregate principal amount of the Term A
Loan having Interest Periods ending after any date on which an installment of
the Term A Loan is scheduled to be repaid would exceed the aggregate principal
amount of the Term A Loan scheduled to be outstanding after giving effect to
such repayment.

 

Inventory has
the meaning set forth in the Guarantee and Collateral Agreement.

 

Investment
means, with respect to any Person, (a) the purchase of any debt or equity
security of any other Person, (b) the making of any loan or advance to any
other Person, (c) becoming obligated with respect to a Contingent
Obligation in respect of obligations of any other Person (other than travel and
similar advances to employees in the ordinary course of business) or (d) the
making of an Acquisition. The amount of any Investment of any Loan Party in any
Subsidiary shall be determined on a GAAP basis, thus meaning that the amount of
any such Investment shall be adjusted for net income and losses of such
Subsidiary, reduced by the amount of cash dividends paid by such Subsidiary and
increased by loans, advances and equity contributions by such Loan Party to
such Subsidiary (provided, that for any period, only those items of income
included in the calculation of EBITDA for such period, and only those items of
expenses deducted in determining EBITDA for such period, shall be taken into
account in the calculation of losses of such Subsidiary for such period).

 

Investment Affiliate means, with respect to Sponsor, any fund or investment vehicle that (a) is
organized by Sponsor for the purpose of making equity or debt investments in
one or more companies and (b) is controlled by Sponsor. For purposes of
this definition “control” means the power to direct or cause the direction of
management and policies of a Person, whether by contract or otherwise.

 

IRC means the
Internal Revenue Code of 1986, as amended.

 

Issuing Lender
means Madison, or such other financial institution approved by Agent and
specified to Administrative Borrower by Agent.

 

Legal Costs
means, with respect to any Person, (a) all reasonable fees and charges of
any counsel, accountants, auditors, appraisers, consultants and other
professionals to such Person, (b) the reasonable allocable cost of
internal legal services of such Person and all reasonable disbursements of such
internal counsel and (c) all court costs and similar legal expenses.

 

9

 

Lenders
has the meaning set forth in the Preamble.

 

Letter of Credit
has the meaning set forth in Section 2.3.1.

 

Letter of Credit
Fee means the fee payable by Borrowers to Lenders pursuant to
Section 2.8.2.

 

LIBOR Loan
means any Loan which bears interest at a rate determined by reference to the
LIBOR Rate.

 

LIBOR Rate
means, with respect to any LIBOR Loan for any Interest Period, a rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to (i) the
offered rate for deposits in Dollars for the applicable Interest Period and for
the amount of the applicable LIBOR Loan that appears on Telerate Page 3750
at 11:00 a.m. London time (or, if not so appearing, as published in the “Money
Rates” section of The Wall Street Journal or another national
publication selected by Agent) two Business Days prior to the first day of such
Interest Period, divided by (ii) the sum of one minus the daily average
during such Interest Period of the aggregate maximum reserve requirement
(expressed as a decimal) then imposed under Regulation D of the FRB for “Eurocurrency
Liabilities” (as defined therein).

 

Lien
means, with respect to any Person, any interest granted by such Person in any
real or personal property, asset or other right owned or being purchased or
acquired by such Person which secures payment or performance of any obligation
and shall include any mortgage, lien, encumbrance, charge or other security
interest of any kind, whether arising by contract, as a matter of law, by
judicial process or otherwise.

 

Loan Documents
means this Agreement, the Notes, the Letters of Credit, the Collateral
Documents, the Fee Letter, and all documents, instruments and agreements
delivered in connection with the foregoing, all as amended, restated or
otherwise modified from time to time.

 

Loan Party
means Parent, Holdings, Opco Borrower and each other Domestic Subsidiary.

 

Loans
means Revolving Loans and the Term A Loan.

 

Madison
has the meaning set forth in the Preamble.

 

Margin Stock
means any “margin stock” as defined in Regulation T, U or X of the FRB.

 

Material Adverse
Effect means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business or properties of the Loan Parties taken as a whole, (b) a material
impairment of the ability of any Loan Party to perform any of its Obligations
under any Loan Document or (c) a material adverse effect upon the Lien of
Agent on any substantial portion of the Collateral under the Collateral
Documents or upon the legality, validity, binding effect or enforceability
against any Loan Party of any Loan Document.

 

Maximum Capital
Expenditures Limit means an amount equal to $3,000,000.

 

Mortgage
means a mortgage, deed of trust, leasehold mortgage or similar instrument
granting Agent a Lien on a real property interest of any Loan Party, each as
amended, restated or otherwise modified from time to time.

 

Multiemployer
Pension Plan means a multiemployer plan, as defined in Section 4001(a)(3) of
ERISA, to which any Loan Party or any member of the Controlled Group may have
any liability.

 

10

 

Net Cash Proceeds
means:

 

(a) with respect to any Disposition, the aggregate cash proceeds
(including cash proceeds received pursuant to policies of insurance and by way
of deferred payment of principal pursuant to a note, installment receivable or
otherwise, but only as and when received) received by Holdings or any
Subsidiary pursuant to such Disposition net of (i) the reasonable direct
costs relating to such Disposition (including sales commissions and legal,
accounting and investment banking fees, commissions and expenses), (ii) any
portion of such proceeds deposited in an escrow account pursuant to the
documentation relating to such Disposition (provided that such amounts shall be
treated as Net Cash Proceeds upon their release from such escrow account to the
Holdings or the applicable Subsidiary), (iii) taxes paid or reasonably
estimated by Holdings to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), (iv) amounts required to be applied to the repayment of any
Debt secured by a Lien prior to the Lien of Agent on the asset subject to such
Disposition and (v) with respect to any Disposition described in clause (b) or
(c) of the definition thereof, all money actually applied within 180 days
to repair, replace or reconstruct damaged property or property affected by
loss, destruction, damage, condemnation, confiscation, requisition, seizure or
taking, all of the costs and expenses reasonably incurred in connection with
the collection of such proceeds, award or other payments, and any amounts
retained by or paid to parties having superior rights to such proceeds, awards
or other payments; and

 

(b) with respect to any issuance of
equity securities not permitted by Section 7.10(a), (b) or
(c), the aggregate cash proceeds received by Holdings or any Subsidiary
pursuant to such issuance, net of the reasonable direct costs relating to such
issuance (including reasonable sales and underwriter’s commission).

 

Note means a
promissory note substantially in the form of Exhibit D, as the same
may be amended, restated or otherwise modified from time to time.

 

Note Payment Account means deposit account number 1000037861696 of Holdings located at
SunTrust Bank.

 

Obligations
means all liabilities, indebtedness and obligations (monetary (including
post-petition interest, allowed or not) or otherwise) of any Loan Party under
this Agreement, any other Loan Document, any Collateral Document or any other
document or instrument executed in connection herewith or therewith (excluding
the Related Agreements) and all Hedging Obligations permitted hereunder which
are owed to any Lender or its Affiliate, in each case howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, now
or hereafter existing, or due or to become clue.

 

Opco Borrower
means Fairfield & Sons, Ltd., a Virginia corporation, which does
business under the fictitious name of Fairfield Language Technologies.

 

Operating Lease
means any lease of (or other agreement conveying the right to use) any real or
personal property by Holdings or any Subsidiary, as lessee, other than any
Capital Lease.

 

Paid in Full
means, with respect to any Obligations, (a) the payment in full in cash
and performance of all such Obligations, (b) the termination of all
Commitments relating to such Obligations and (c) in connection with the
termination of the Revolving Loan Commitment, either (i) the cancellation
and return to Agent of all Letters of Credit or (ii) the cash
collateralization of all Letters of Credit in accordance with the terms of this
Agreement.

 

11

 

Parent means
Rosetta Stone Inc., a Delaware corporation.

 

PBGC means the
Pension Benefit Guaranty Corporation and any entity succeeding to any or all of
its functions under ERISA.

 

Pension Plan
means a “pension plan”, as such term is defined in Section 3(2) of
ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which any Loan Party or any member of the Controlled
Group may have any liability, including any liability by reason of having been
a substantial employer within the meaning of Section 4063 of ERISA at any
time during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.

 

Person means
any natural person, corporation, partnership, trust, limited liability company,
association, governmental authority or unit, or any other entity, whether
acting in an individual, fiduciary or other capacity.

 

Prior Debt
means the Debt listed on Schedule 4.1.4.

 

Proprietary Rights means (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part. revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade
names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all
mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).

 

Pro Rata Revolving Share means, with respect to any Lender, the applicable percentage (as
adjusted from time to time in accordance with the terms hereof) specified
opposite such Lender’s name on Annex I which corresponds to the Revolving
Loan Commitment, which percentage shall be with respect to Revolving
Outstandings if the Revolving Loan Commitment has terminated.

 

Pro Rata Share
means, with respect to any Lender, the applicable percentage (as adjusted from
time to time in accordance with the terms hereof) obtained by dividing (a) the
sum of (i) such Lender’s Pro Rata Revolving Share of the Revolving Loan
Commitment (or if the Revolving Loan Commitment has terminated, such Lender’s
Pro Rata Revolving Share of the Revolving Outstandings) and (ii) such
Lender’s Pro Rata Term A Share of the Term A Loan Commitment (or if the Term A
Commitment has terminated, such Lender’s Pro Rata Term A Share of the Term A
Loan) by (b) the Total Loan Commitment.

 

Pro Rata Term A
Loan Share means, with respect to any Lender, the applicable
percentage (as adjusted from time to time in accordance with the terms hereof)
specified opposite such Lender’s name on Annex I which corresponds to
the Term A Loan Commitment, which percentage shall be with respect to the Term
A Loan if the  Term A Loan
Commitment has terminated.

 

12

 

Purchase
Money Debt Limit means (i) $500,000, if EBITDA for the
previous Fiscal Year is less than $12,000,000, (ii) $1,000,000, if EBITDA
for the previous Fiscal Year equals or exceeds $12,000,000 but is less than
$16,000,000, (iii) $1,500,000, if EBITDA for the previous Fiscal Year
equals or exceeds $16,000,000 but is less than $20,000,000, or (iv) $2,000,000,
if EBITDA for the previous Fiscal Year equals or exceeds $20,000,000.

 

Registration
Rights Agreement means the Registration Rights Agreement
dated as of January 4, 2006 among Parent, Madison and certain other
shareholders of Parent.

 

Related
Agreements means the Stock Purchase Agreement, the Escrow
Agreement, the Registration Rights Agreement, the Shareholders Agreement and
the Subscription Agreement.

 

Related
Fund means (a) any fund, trust or similar entity that
invests in commercial loans in the ordinary course of business and is advised
or managed by (i) a Lender, (ii) an affiliate of a Lender, (iii) the
same investment advisor that manages a Lender or (iv) an affiliate of an
investment advisor that manages a Lender or (b) any finance company,
insurance company or other financial institution which temporarily warehouses
Loans for any Lender or any Person described in clause (a) above.

 

Related
Transactions means the transactions contemplated by the
Related Agreements.

 

Required
Lenders means Lenders having Pro Rata Shares the aggregate
Dollar equivalent amount of which equals or exceeds 66 2/3% of the Revolving
Loan Commitment (or, if the Revolving Loan Commitments have been terminated,
Revolving Outstandings) and the outstanding Term A Loan, collectively.

 

Revolving
Loan Commitment means $4,000,000, as reduced from time to
time pursuant to the terms hereof.

 

Revolving
Loans has the meaning set forth in Section 2.1.1.

 

Revolving
Outstandings means, at any time, the sum of (a) the
aggregate principal amount of all outstanding Revolving Loans, plus (b) the
Stated Amount of all Letters of Credit.

 

Shareholders
Agreement means the Shareholders Agreement dated as of January 4,
2006 among Parent, Madison and certain other shareholders of Parent.

 

Short
Term Kiosk Leases means those Operating Leases with a lease
term of not greater than one year which pertain to the lease of real or
personal property at kiosk sales locations of any Loan Party.

 

Sponsor
means collectively ABS Capital Partners IV, L.P., ABS Capital Partners IV-A,
L.P., ABS Capital Partners IV Offshore, L.P., ABS Capital Partners IV Special
Offshore, L.P. and Norwest Equity Partners VIII, L.P.

 

Stated
Amount means, with respect to any Letter of Credit at any
date of determination, (a) the maximum aggregate amount available for
drawing thereunder under any and all circumstances, plus (b) the aggregate
amount of all unreimbursed payments and disbursements under such Letter of
Credit.

 

Stock
Purchase Agreement means the Stock Purchase Agreement dated
as of January 4, 2006 by and among Opco Borrower, Holdings, Parent, the
shareholders of Opco Borrower, Tom Adams and, solely for the purposes of Section 7.7
thereof, Eugene Stoltzfus, as the Shareholders’ Representative.

 

13

 

Subscription
Agreement means the Subscription Agreement dated as of January 4,
2006 among Parent, Sponsor, Madison and certain individual purchasers.

 

Subsidiary
means, with respect to any Person, a corporation, partnership, limited
liability company or other entity of which such Person owns, directly or
indirectly, such number of outstanding shares or other equity interests as to
have more than 50% of the ordinary voting power for the election of directors
or other managers of such corporation, partnership, limited liability company
or other entity. Unless the context otherwise requires, each reference to
Subsidiaries herein shall be a reference to Subsidiaries of Holdings.

 

Term
A Loan Commitment means $ 17,000,000.

 

Term
A Loan Maturity Date means January 4, 2011 or such
earlier date on which the Commitments terminate pursuant to Section 8.

 

Term
A Loan has the meaning set forth in Section 2.1.2.

 

Termination
Date means January 4, 2011 or such earlier date on which
the Revolving Loan Commitment terminates pursuant to Section 2.9 or
8.

 

Total
Debt means all Debt (other than Debt described in clause (g) of
the definition thereof unless reflected on the balance sheet of Holdings as a
liability in accordance with GAAP) of Holdings and the Subsidiaries, determined
on a consolidated basis.

 

Total
Debt to EBITDA Ratio means, as of the last day of any Fiscal
Quarter, the ratio of (a) Total Debt as of such day to (b) EBITDA for
the Computation Period ending on such day.

 

Total
Loan Commitment means at any date of determination, the sum
of (i) the Revolving Loan Commitment at such date (or if the Revolving
Loan Commitment has terminated, the Revolving Outstandings) plus (ii) the
outstanding principal balance of the Term A Loan at such date.

 

Wholly-Owned
Subsidiary means, as to any Person, another Person all of the
equity interests of which (except directors’ qualifying shares) are at the time
directly or indirectly owned by such Person and/or another Wholly-Owned
Subsidiary of such Person.

 

1.2.           Interpretation.

 

In
the case of this Agreement and each other Loan Document, (a) the meanings
of defined terms are equally applicable to the singular and plural forms of the
defined terms; (b) Annex, Exhibit, Schedule and Section references
are to such Loan Document unless otherwise specified; (c) the term “including”
is not limiting and means “including but not limited to”; (d) in the
computation of periods of time from a specified date to a later specified date,
the word “from” means “from and including”; the words “to” and “until” each
mean “to but excluding”, and the word “through” means “to and including”; (e) unless
otherwise expressly provided in such Loan Document, (i) references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications thereto, but only to the extent
such amendments and other modifications are not prohibited by the terms of any
Loan Document, and (ii) references to any statute or regulation shall be
construed as including all statutory and regulatory provisions amending,
replacing, supplementing or interpreting such statute or regulation; (f) this
Agreement and the other Loan Documents may use several different limitations,
tests or measurements to regulate the same or similar matters, all of which are
cumulative and each shall be performed in accordance with its terms; and (g) this
Agreement and the other Loan Documents are the result of negotiations among and
have been reviewed by counsel to Agent, Borrowers, Lenders and the

 

14

 

other parties hereto and
thereto and are the products of all parties; accordingly, they shall not be
construed against Agent or Lenders merely because of Agent’s or Lenders’
involvement in their preparation.

 

Section 2.                 Credit
Facilities.

 

2.1.           Commitments.

 

On
and subject to the terms and conditions of this Agreement, each Lender,
severally and for itself alone, agrees as follows:

 

2.1.1.                Revolving
Loan Commitments.

 

Each
Lender will make loans to Borrowers on a revolving basis (“Revolving Loans”)
from time to time until the Termination Date in such Lender’s applicable Pro
Rata Revolving Share of such aggregate amounts as Administrative Borrower may
request from all Lenders; provided, that after giving effect to such Revolving
Loans, the Revolving Outstandings will not at any time exceed Borrowing
Availability. No Revolving Loans shall be made until Opco Borrower becomes a
Borrower hereunder and all proceeds of Revolving Loans shall be remitted to
Opco Borrower. Borrowers may repay the Revolving Loans from time to time
without prior notice and without penalty or premium (but subject to the
provisions of Section 3.5).

 

2.1.2.                Term
A Loan Commitments.

 

Each
Lender agrees to make a loan to Borrowers (all of such loans, collectively the “Term
A Loan”) on the Closing Date in such Lender’s applicable Pro Rata Term A
Share of the Term A Loan Commitment. The Commitments of Lenders to make the
Term A Loan shall terminate concurrently with the making of the Term A Loan on
the Closing Date. Any portion of the Term A Loan which is repaid or prepaid by
Borrowers, in whole or in part, may not be reborrowed.

 

2.2.           Loan
Procedures.

 

2.2.1.                Loan
Types.

 

Each
Loan shall be either a Base Rate Loan or a LIBOR Loan, as Administrative
Borrower shall specify in the related notice of borrowing or conversion
pursuant to Section 2.2.2 or 2.2.3. Base Rate Loans and
LIBOR Loans may be outstanding at the same time, provided that not more than
five different Interest Periods shall exist among outstanding LIBOR Loans at
any one time. All borrowings, conversions and repayments of Revolving Loans
shall be effected so that each Lender will have a ratable share (according to
its Pro Rata Revolving Share) of all Revolving Loans and all Interest Periods
of LIBOR Loans.

 

2.2.2.                Borrowing.

 

Administrative
Borrower shall give written notice or telephonic notice (followed immediately
by written confirmation thereof) to Agent of each proposed borrowing of a
Revolving Loan not later than (a) in the case of a Base Rate borrowing,
11:00 a.m. Chicago time on the proposed date of such borrowing, and (b) in
the case of a LIBOR borrowing. 11:00 a.m. Chicago time at least three
Business Days prior to the proposed date of such borrowing. Each such notice
shall be effective upon receipt by Agent, shall be irrevocable, and shall
specify, in the form of a Borrowing Notice, the date, amount and type of
borrowing and, in the case of a LIBOR borrowing, the initial Interest Period
therefor. Promptly upon receipt of such notice, Agent shall advise each Lender
with a Revolving Loan Commitment thereof in writing. Not later than 1:00 p.m.
Chicago time on the date of a proposed

 

15

 

Revolving Loan borrowing,
each Lender with a Revolving Loan Commitment shall provide Agent at the office
specified by Agent with immediately available funds covering such Lender’s
applicable Pro Rata Revolving Share of such borrowing and, so long as Agent has
not received written notice that the conditions precedent set forth in Section 4
with respect to such borrowing have not been satisfied, Agent shall pay over
the funds received by Agent to Opco Borrower on the requested borrowing date.
Each borrowing shall be on a Business Day. Each Base Rate borrowing shall be in
an aggregate amount of at least $100,000 and an integral multiple of $50,000,
and each LIBOR borrowing shall be in an aggregate amount of at least $100,000
and an integral multiple of at least $50,000.

 

2.2.3.                Conversion;
Continuation.

 

(a) Subject
to Section 2.2.1, Administrative Borrower may, upon irrevocable
written notice to Agent in accordance with clause (b) below, elect (i) as
of any Business Day, to convert any Loans (or any part thereof in an aggregate
amount of not less than $100,000 or a higher integral multiple of $50,000) into
Loans of the other type or (ii) as of the last day of the applicable
Interest Period, to continue any LIBOR Loans having Interest Periods expiring
on such day (or any part thereof in an aggregate amount not less than $100,000
or a higher integral multiple of $50,000) for a new Interest Period; provided,
that any conversion of a LIBOR Loan on a day other than the last day of an
Interest Period therefor shall be subject to Section 3.5.

 

(b) Administrative
Borrower shall give written or telephonic notice (followed immediately by
written confirmation thereof) to Agent of each proposed conversion or
continuation not later than (i) in the case of conversion into Base Rate
Loans, 11:00 a.m. Chicago time on the proposed date of such conversion and
(ii) in the case of conversion into or continuation of LIBOR Loans, 11:00 a.m.
Chicago time at least three Business Days prior to the proposed date of such
conversion or continuation, specifying in each case in the form of a
Conversion/Continuation Notice: (i) the proposed date of conversion or
continuation; (ii) the aggregate amount of Loans to be converted or
continued; (iii) the type of Loans resulting from the proposed conversion
or continuation; and (iv) in the case of conversion into, or continuation
of, LIBOR Loans, the duration of the requested Interest Period therefor.

 

(c) If upon
the expiration of any Interest Period applicable to LIBOR Loans, Administrative
Borrower has failed to select timely a new Interest Period to be applicable to
such LIBOR Loans. Administrative Borrower shall be deemed to have elected to
convert such LIBOR Loans into Base Rate Loans effective on the last day of such
Interest Period.

 

(d) Agent
will promptly notify each applicable Lender of its receipt of a notice of
conversion or continuation pursuant to this Section 2.2.3 or, if no
timely notice is provided by Administrative Borrower, of the details of any
automatic conversion.

 

2.3.           Letters
of Credit.

 

2.3.1.                Commitment.

 

At the request of
Administrative Borrower, Issuing Lender will issue from time to time before the
date which is 30 days prior to the Termination Date either (at Issuing Lender’s
election) (a) standby letters of credit and/or (b) participation
agreements confirming payment to issuers (reasonably acceptable to Issuing
Lender) of standby letters of credit, in each case for the account of Opco
Borrower and containing terms and conditions which are consistent with this
Agreement and reasonably satisfactory to Issuing Lender (each such letter of
credit or participation agreement, a “Letter of Credit”). After giving
effect to each such issuance, (i) the aggregate Stated Amount of all Letters of Credit shall not
at any time exceed $1,000,000 and (ii) Revolving Outstandings will not at
any time exceed Borrowing Availability. No Letter of Credit shall be issued
until Opco Borrower becomes a Borrower hereunder.

 

16

 

2.3.2                 Application.

 

Administrative
Borrower shall give notice to Agent and Issuing Lender of the proposed issuance
of each Letter of Credit on a Business Day which is at least ten Business Days
(or such lesser number of days as Agent and Issuing Lender shall agree) prior
to the proposed date of issuance of such Letter of Credit. Each such notice
shall be accompanied by a Letter of Credit application in Issuing Lender’s form
(or, as the case may be, in the form of application of the underlying letter of
credit), duly executed by Opco Borrower and in all respects satisfactory to
Agent and Issuing Lender, together with such other documentation as Agent or
Issuing Lender may request in support thereof, it being understood that each
Letter of Credit application (or, as the case may be, form of application of
underlying letter of credit) shall specify, among other things, the date on
which the proposed Letter of Credit is to be issued, and the expiration date of
such Letter of Credit (which shall not be later than the earlier to occur of (a) one
year after the date of issuance thereof and (b) 15 days prior to the
scheduled Termination Date). So long as Issuing Lender has not received written
notice that the conditions precedent set forth in Section 4 with
respect to the issuance of such Letter of Credit have not been satisfied,
Issuing Lender shall issue (or cause to be issued) such Letter of Credit on the
requested issuance date. Issuing Lender shall promptly advise Agent of the
issuance of each Letter of Credit and of any amendment thereto, extension
thereof or event or circumstance changing the amount available for drawing thereunder.
In the event of any inconsistency between the terms of any Letter of Credit
application and the terms of this Agreement, the terms of this Agreement shall
control. Issuing Lender shall deliver to Agent upon its request a list of all
outstanding Letters of Credit issued by Issuing Lender, together with such
information related thereto as Agent may reasonably request.

 

2.3.3.                Reimbursement Obligations.

 

(a) Borrowers
hereby unconditionally and irrevocably agree to reimburse Issuing Lender for
each payment or disbursement made by Issuing Lender under any Letter of Credit
honoring any demand for payment made thereunder, in each case on the date that
such payment or disbursement is made. Issuing Lender shall promptly notify
Administrative Borrower and Agent whenever any demand for payment is made under
any Letter of Credit; provided, that the failure of Issuing Lender to so notify
Administrative Borrower shall not affect the rights of Issuing Lender or
Lenders in any manner whatsoever. Any amount not reimbursed on the date of such
payment or disbursement (whether or not through the making of a Loan pursuant
to Section 2.3.4) shall bear interest from the date of such payment
or disbursement to the date that Issuing Lender is reimbursed by Borrowers
therefor, payable on demand, at the interest rate per annum from time to time
in effect for Revolving Loans which are Base Rate Loans.

 

(b) Borrowers’
reimbursement obligations hereunder shall be irrevocable and unconditional
under all circumstances, including (i) any lack of validity or
enforceability of any Letter of Credit, this Agreement or any other Loan
Document, (ii) the existence of any claim, set-off, defense or other right
which any Loan Party may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), Agent, Issuing Lender, any Lender or
any other Person, whether in connection with any Letter of Credit, this
Agreement, any other Loan Document, the transactions contemplated herein or any
unrelated transactions (including any underlying transaction between any Loan
Party and the beneficiary named in any Letter of Credit), (iii) the
validity, sufficiency or genuineness of any document which Issuing Lender (or,
as applicable, the issuer of any underlying letter of credit) has determined
complies on its face with the terms of the applicable Letter of Credit (or. if
applicable, underlying letter of credit), even if such document should later
prove to have been forged, fraudulent, invalid or insufficient in any respect
or any statement therein shall have been untrue or inaccurate in any respect,
or (iv) the surrender or impairment of any security for  the performance or observance of any of
the terms hereof.

 

17

 

2.3.4.                Participations in Letters of Credit.

 

(a) Concurrently
with the issuance of each Letter of Credit, Issuing Lender shall be deemed to
have sold and transferred to each other Lender with a Revolving Loan
Commitment, and each other Lender with a Revolving Loan Commitment shall be
deemed irrevocably and unconditionally to have purchased and received from
Issuing Lender, without recourse or warranty, an undivided interest and
participation, to the extent of such Lender’s Pro Rata Revolving Share, in such
Letter of Credit and Borrowers’ reimbursement obligations with respect thereto.
If Borrowers do not pay any reimbursement obligation when due, then Borrowers
shall be deemed to have immediately requested that Lenders with a Revolving
Loan Commitment make a Revolving Loan which is a Base Rate Loan in a principal
amount equal to such reimbursement obligation. Agent shall promptly notify
Lenders that have a Revolving Loan Commitment of such deemed request and,
without the necessity of compliance with the requirements of Section 2.2.2
or 4.2, each such Lender shall make available to Agent its Pro Rata
Revolving Share of such Loan. The proceeds of such Loan shall be paid over by
Agent to Issuing Lender for the account of Borrowers in satisfaction of such
reimbursement obligations.

 

(b) If Issuing
Lender makes any payment or disbursement under any Letter of Credit and (i) Borrowers
have not reimbursed Issuing Lender in full for such payment or disbursement in
accordance with Section 2.3.3, (ii) a Revolving Loan may not
be made pursuant to Section 2.3.4(a) or (iii) any
reimbursement received by Issuing Lender from Borrowers is or must be returned
or rescinded upon or during any bankruptcy or reorganization of any Loan Party
or otherwise, each other Lender with a Revolving Loan Commitment shall be
irrevocably and unconditionally obligated to pay to Agent for the account of
Issuing Lender its Pro Rata Revolving Share of such payment or disbursement
(but no such payment shall diminish the Obligations of Borrowers under Section 2.3.3).
Upon notice from Issuing Lender to Agent that it has not received any such
amount, Agent shall promptly notify each such other Lender thereof. To the
extent any such Lender shall not have made such amount available to Agent by
2:00 p.m. Chicago time on the Business Day on which such Lender receives
notice from Agent of such payment or disbursement (it being understood that any
such notice received after 12:00 noon Chicago time on any Business Day shall be
deemed to have been received on the next following Business Day), such Lender
agrees to pay interest on such amount to Agent for Issuing Lender’s account
forthwith on demand, for each day from the date such amount was to have been
delivered to Agent to the date such amount is paid, at a rate per annum equal
to (x) for the first 3 days after demand, the Federal Funds Rate from time
to time in effect and (y) thereafter, the Base Rate from time to time in
effect for Revolving Loans. Any such Lender’s failure to make available to
Agent its Pro Rata Revolving Share of any such payment or disbursement shall
not relieve any other Lender of its obligation hereunder to make available to
Agent such other Lender’s Pro Rata Revolving Share of such payment, but no
Lender shall be responsible for the failure of any other Lender to make
available to Agent such other Lender’s Pro Rata Revolving Share of any such
payment or disbursement.

 

2.4.           Commitments Several.

 

The failure of any
Lender to make a requested Loan on any date shall not relieve any other Lender
of its obligation (if any) to make a Loan on such date, but no Lender shall be
responsible for the failure of any other Lender to make any Loan to be made by
such other Lender.

 

2.5.           Certain Conditions.

 

Notwithstanding
any other provision of this Agreement, no Lender shall have an obligation to
make any Loan, or to permit the continuation of or any conversion into any
LIBOR Loan, and Issuing Lender shall not have any obligation to issue any
Letter of Credit, if an Event of Default or Default exists.

 

18

 

2.6.           Loan Accounting.

 

2.6.1.                Recordkeeping.

 

Agent, on behalf
of each Lender, shall record in its records the date and amount of each Loan
made by each Lender, each repayment or conversion thereof and, in the case of
each LIBOR Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttably presumptive evidence of the principal amount of the Loans owing and
unpaid. The failure to so record any such amount or any error in so recording
any such amount shall not, however, limit or otherwise affect the Obligations
of Borrowers hereunder or under any Note to repay the principal amount of the
Loans hereunder, together with all interest accruing thereon.

 

2.6.2.                Notes.

 

At the request of
any Lender, the Loans of such Lender shall be evidenced by a Note, with
appropriate insertions, payable to the order of such Lender in a face principal
amount equal to the sum of such Lender’s Pro Rata Share of the Total Loan
Commitment and payable in such amounts and on such dates as are set forth
herein.

 

2.7.           Interest.

 

2.7.1.                Interest Rates.

 

Borrowers promise
to pay interest on the unpaid principal amount of each Loan for the period
commencing on the date of such Loan until such Loan is paid in full as follows:
(a) at all times while such Loan is a Base Rate Loan, at a rate per annum
equal to the sum of the Base Rate from time to time in effect plus the
Applicable Margin from time to time in effect; and (b) at all times while
such Loan is a LIBOR Loan, at a rate per annum equal to the sum of the LIBOR
Rate applicable to each Interest Period for such Loan plus the Applicable
Margin from time to time in effect; provided, that (i) at any time an Event
of Default exists, if requested by Required Lenders, the Applicable Margin
corresponding to each Loan shall be increased by two percentage points per
annum (and, in the case of Obligations not subject to an Applicable Margin,
such Obligations shall bear interest at the Base Rate applicable to Revolving
Loans plus the Applicable Margin plus two percentage points per annum), (ii) any
such increase may thereafter be rescinded by Required Lenders, notwithstanding Section 10.1
and (iii) upon the occurrence of an Event of Default under Section 8.1.1
or 8.1.3, any such increase described in the foregoing clause (i) shall
occur automatically. In no event shall interest payable by Borrowers to Agent
and Lenders hereunder exceed the maximum rate permitted under applicable law,
and if any such provision of this Agreement is in contravention of any such law,
such provision shall be deemed modified to limit such interest to the maximum
rate permitted under such law.

 

2.7.2.                Interest
Payment Dates.

 

Accrued interest on
each Base Rate Loan shall be payable in arrears on the first day of each
calendar month and at maturity. Accrued interest on each LIBOR Loan shall be
payable on the last day of each Interest Period relating to such Loan (and, in
the case of a LIBOR Loan with an Interest Period in excess of 3 months, on the
last day of each 3-month interval of such Interest Period), upon a prepayment
of such Loan in accordance with Section 2.10 and at maturity in
cash. After maturity and at any time an Event of Default exists, all accrued
interest on all Loans shall be payable in cash on demand at the rates specified
in Section 2.7.1.

 

19

 

2.7.3.                Setting and
Notice of LIBOR Rates.

 

The applicable
LIBOR Rate for each Interest Period shall be determined by Agent, and notice
thereof shall be given by Agent promptly to Administrative Borrower and each
Lender. Each determination of the applicable LIBOR Rate by Agent shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error. Agent shall, upon written request of Administrative Borrower or any
Lender, deliver to Administrative Borrower or such Lender a statement showing
the computations used by Agent in determining any applicable LIBOR Rate hereunder.

 

2.7.4.                Computation of
Interest.

 

Interest shall be
computed for the actual number of days elapsed on the basis of a year of (a) 360
days for interest calculated at the LIBOR Rate and (b) 365 or 366 days, as
the case may be, for interest calculated at the Base Rate. The applicable
interest rate for each Base Rate Loan shall change simultaneously with each
change in the Base Rate.

 

2.8.           Fees.

 

2.8.1.                Commitment Fee.

 

For the period
from the Closing Date to the Termination Date, Borrowers agree to pay to Agent,
for the account of each Lender according to such Lender’s Pro Rata Revolving
Share (as adjusted from time to time), a Commitment Fee equal to 0.50% per
annum multiplied by the amount by which the Revolving Loan Commitment exceeds
the average daily Revolving Outstandings. The Commitment Fee shall be payable
in arrears on the first day of each calendar quarter and on the Termination
Date for any period then ending for which the Commitment Fee shall not have
previously been paid. The Commitment Fee shall be computed for the actual
number of days elapsed on the basis of a year of 360 days.

 

2.8.2.                Letter of
Credit Fees.

 

(a) Borrowers
agree to pay to Agent, for the account of each Lender according to such Lender’s
Pro Rata Revolving Share (as adjusted from time to time), a Letter of Credit
Fee equal to the Applicable Margin in effect from time to time for Revolving
Loans which are LIBOR Loans multiplied by the Stated Amount of each Letter of
Credit. Each Letter of Credit Fee shall be payable in arrears on the first day
of each calendar quarter and on the Termination Date (or such later date on
which such Letter of Credit expires or is terminated) for the period from the
date of the issuance of each Letter of Credit (or the last day on which the
Letter of Credit Fee was paid with respect thereto) to the date such payment is
due or, if earlier, the date on which such Letter of Credit expired or was
terminated. Each Letter of Credit Fee shall be computed for the actual number
of days elapsed on the basis of a year of 360 days.

 

(b) In
addition, with respect to each Letter of Credit, Borrowers agree to pay to
Issuing Lender, for its own account, (i) such fees and expenses as Issuing
Lender customarily requires (or, as the case may be, is required to pay to the
issuer of the letter of credit) in connection with the issuance, negotiation,
processing and/or administration of letters of credit in similar situations and
(ii) a letter of credit fronting fee in the amount and at the times agreed
to by Borrowers and Issuing Lender.

 

2.8.3.                Agent’s Fees.

 

Borrowers agree to
pay to Agent, for its accounts, on the Closing Date and on certain other dates
pursuant to the Fee Letter and as otherwise agreed to from time to time by
Borrowers and Agent, fees in the amounts agreed to between Borrowers and Agent.

 

20

 

2.9.           Commitment Reduction.

 

2.9.1.                Voluntary
Reduction or Termination of Revolving Loan Commitment.

 

Borrowers may from
time to time, after the Term A Loan has been Paid in Full and on at least five
Business Days’ prior written notice received by Agent (which shall promptly
advise each Lender thereof), permanently reduce the Revolving Loan Commitment
to an amount not less than the Revolving Outstandings. Any such reduction shall
be in an amount not less than $1,000,000 or a higher integral multiple of
$500,000. Concurrently with any reduction of the Revolving Loan Commitment to
zero, Borrowers shall pay all interest on the Revolving Loans, all commitment
fees and all letter of credit fees and shall cash collateralize in full all
Obligations arising with respect to the Letters of Credit in a manner
reasonably acceptable to Agent.

 

2.9.2.                Mandatory
Reduction of Revolving Loan Commitment.

 

On the date of any
mandatory prepayment pursuant to Section 2.10.2(a), the Revolving
Loan Commitment shall be permanently reduced by the amount of such mandatory
prepayment applied to prepay the Revolving Loans pursuant to Section 2.10.2(a).

 

2.9.3.                All Reductions
of Revolving Loan Commitment.

 

All reductions of
the Revolving Loan Commitment shall reduce the Revolving Loan Commitments pro
rata among Lenders according to their respective Pro Rata Revolving Shares.

 

2.10.         Prepayment.

 

2.10.1.              Voluntary
Prepayment.

 

Borrowers may from
time to time, on at least one Business Day’s written notice or telephonic
notice (followed immediately by written confirmation thereof) to Agent (which
shall promptly advise each Lender thereof) not later than 11:00 a.m.
Chicago time on such day, prepay the Term A Loan in whole or in part without
penalty or premium (but subject to the provisions of Section 3.5  hereof). Such notice to Agent shall
specify the Loans to be prepaid and the date and amount of prepayment. Any such
partial prepayment shall be in an amount equal to $500,000 or a higher integral
multiple of $100,000.

 

2.10.2.              Mandatory
Prepayment.

 

(a) Borrowers
shall (x) prepay the Term A Loan (in the order set forth in Section 2.10.3)
until paid in full and (y) thereafter repay the Revolving Loans in each case,
at the following times and in the following amounts:

 

(i)        concurrently with the
receipt by Holdings or any Subsidiary of any Net Cash Proceeds (or to the
extent such Loan Party may wish to reinvest such Net Cash Proceeds, on or
before the end of the 180 day period described in the definition of Net Cash
Proceeds) from any Disposition, in an amount equal lo such Net Cash Proceeds;

 

(ii)       concurrently with the
receipt by Parent, Holdings or any Subsidiary of any Net Cash Proceeds from any
issuance of its equity securities (other than equity securities that are issued
pursuant to Section 7.10(a) or to equity holders of Parent and
the proceeds of which are used to fund an Acquisition approved by Agent in an
amount equal to such Net Cash Proceeds), in an amount equal to such Net Cash
Proceeds; and

 

21

 

(iii)      within 120 days after the
end of each Fiscal Year (commencing with Fiscal Year ending December 31,
2006), in an amount equal to the ECF Percentage of Excess Cash Flow for such
Fiscal Year.

 

(b) If on any
day the Revolving Outstandings exceed Borrowing Availability, whether pursuant
to a reduction of the Revolving Loan Commitment pursuant to Section 2.9.2
or otherwise, Borrowers shall immediately prepay Revolving Loans and/or cash
collateralize the outstanding Letters of Credit in a manner acceptable to
Agent, or do a combination of the foregoing, in an amount sufficient to
eliminate such excess.

 

2.10.3.              All Prepayments.

 

(a) Any
prepayment of a LIBOR Loan on a day other than the last day of an Interest
Period therefor shall include interest on the principal amount being repaid and
shall be subject to Section 3.5.
All prepayments of a Loan shall be applied first to that portion of
such Loan comprised of Base Rate Loans and then to that portion of such Loan
comprised of LIBOR Loans, in direct order of Interest Period maturities. All
prepayments of the Term A Loan shall be applied pro rata to the remaining
installments thereof.

 

2.11.         Repayment.

 

2.11.1.              Revolving Loans.

 

The Revolving
Loans shall be paid, for the account of each Lender according to its Pro Rata
Revolving Share, in full on the Termination Date.

 

2.11.2.              Term A Loan.

 

The Term A Loan
shall be paid, for the account of each Lender according to its Pro Rata Term A
Share thereof, in the installments and on the dates set forth below:

 

	
  Date

  	
   

  	
  Installment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2006

  	
   

  	
  $

  	
  284,750

  	
   

  
	
  June 30,
  2006

  	
   

  	
  $

  	
  284,750

  	
   

  
	
  September 30,
  2006

  	
   

  	
  $

  	
  284,750

  	
   

  
	
  December 31,
  2006

  	
   

  	
  $

  	
  284,750

  	
    

  
	
  March 31,
  2007

  	
   

  	
  $

  	
  637,500

  	
   

  
	
  June 30,
  2007

  	
   

  	
  $

  	
  637,500

  	
   

  
	
  September 30,
  2007

  	
   

  	
  $

  	
  637,500

  	
   

  
	
  December 31,
  2007

  	
   

  	
  $

  	
  637,500

  	
   

  
	
  March 31,
  2008

  	
   

  	
  $

  	
  850,000

  	
   

  
	
  June 30,
  2008

  	
   

  	
  $

  	
  850,000

  	
   

  
	
  September 30,
  2008

  	
   

  	
  $

  	
  850,000

  	
   

  
	
  December 31,
  2008

  	
   

  	
  $

  	
  850,000

  	
   

  
	
  March 31,
  2009

  	
   

  	
  $

  	
  1,062,500

  	
   

  
	
  June 30,
  2009

  	
   

  	
  $

  	
  1,062,500

  	
   

  
	
  September 30,
  2009

  	
   

  	
  $

  	
  1,062,500

  	
   

  
	
  December 31,
  2009

  	
   

  	
  $

  	
  1,062,500

  	
   

  
	
  March 31,
  2010

  	
   

  	
  $

  	
  1,415,250

  	
   

  
	
  June 30,
  2010

  	
   

  	
  $

  	
  1,415,250

  	
   

  
	
  September 30,
  2010

  	
   

  	
  $

  	
  1,415,250

  	
   

  
	
  Term A Loan
  Maturity Date

  	
   

  	
  $

  	
  1,415,250

  	
   

  

 

22

 

Notwithstanding the
foregoing, the outstanding principal balance of the Term A Loan shall be paid
in full on the Term A Loan Maturity Date.

 

2.12.         Payment.

 

2.12.1.              Making and
Settlement of Payments.

 

All payments of
principal of or interest on the Notes, and of all fees, shall be made by
Borrowers to Agent without setoff, recoupment or counterclaim and in
immediately available funds at the office specified by Agent not later than
12:00 noon Chicago time on the date due, and funds received after that hour
shall be deemed to have been received by Agent on the following Business Day.
Agent shall promptly remit to each Lender its share of all principal payments
received in collected funds by Agent for the account of such Lender. On the
first Business Day of each week or more frequently as Agent may elect (each
such day being a “Settlement Date”). Agent will notify each Lender with
a Revolving Loan Commitment in writing of the amount of such Lender’s actual
share of the Revolving Loans as of the close of business of the Business Day
immediately preceding the Settlement Date. In the event that payments are
necessary to adjust the amount of such Lender’s actual share of the Revolving
Loans to equal such Lender’s Pro Rata Revolving Share of the Revolving Loans as
of any Settlement Date, such Lender will pay to Agent, or Agent will pay to
such Lender (as applicable) the amount necessary in same day funds by wire
transfer to the other’s account not later than 2:00 p.m. Chicago time on
the first Business Day following the Settlement Date. On the first Business Day
of each month (each, an “Interest Settlement Date”). Agent will notify
each Lender in writing of the amount of such Lender’s applicable (i) Pro
Rata Revolving Share of interest and fees on the Revolving Outstandings and
Revolving Loan Commitment and (ii) Pro Rata Term A Loan Share of interest
and fees on the Term A Loan as of the end of the last day of the immediately
preceding month. Provided that such Lender has made all payments required to be
made by it under this Agreement. Agent will pay to such Lender, by wire
transfer to such Lender’s account not later than 2:00 p.m. Chicago time on
the next Business Day following the Interest Settlement Date, such Lender’s Pro
Rata Revolving Share and Pro Rata Term A Loan Share, as applicable, of interest
and fees, in each instance, received by Agent for the immediately preceding
month. All payments under Section 3.2 shall be made by Borrowers
directly to Lender entitled thereto.

 

2.12.2.              Application of Payments
and Proceeds.

 

(a) Except as
set forth in Section 2.10.2 and Section 2.10.3. and
subject to the provisions of Sections 2.12.2(b) and 2.12.2(c) below,
each payment of principal shall be applied to such Loans as Administrative
Borrower shall direct by notice to be received by Agent on or before the date
of such payment or, in the absence of such notice, as Agent shall determine in
its discretion. Concurrently with each remittance to any Lender of its share of
any such payment. Agent shall advise such Lender as to the application of such
payment.

 

(b) If an
Acceleration Event shall have occurred and be continuing, notwithstanding
anything herein or in any other Loan Document to the contrary, Agent shall
apply all or any part of payments in respect of the Obligations and proceeds of
Collateral, in each case as received by Agent, to the payment of the
Obligations in the following order:

 

(i)        FIRST, to the payment of
all fees, costs, expenses and indemnities due and owing to Agent under this
Agreement or any other Loan Document, and any other Obligations owing to Agent
in respect of sums advanced by Agent to preserve or protect the Collateral or
to preserve or protect its security interest in the Collateral (whether or not
such Obligations are then due and owing to Agent), until paid in full;

 

23

 

(ii)       SECOND, to the payment of
all fees, costs, expenses and indemnities due and owing to Lenders, pro rata
based on each Lender’s Pro Rata Share thereof, until paid in full;

 

(iii)      THIRD, to the payment of all
accrued and unpaid interest due and owing to Lenders, pro rata based on each
Lender’s Pro Rata Share thereof, until paid in full;

 

(iv)      FOURTH, to the payment of
all principal of the Loans due and owing and to cash collateralize Obligations
in respect of outstanding Letters of Credit in a manner consistent with the
provisions of Section 8.2, pro rata based on each Lender’s Pro Rata
Share thereof, until paid in full;

 

(v)       FIFTH, to the payment of
all Hedging Obligations due and owing to any Lender or its Affiliates, pro rata
in accordance with each Lender’s (or one of its Affiliate’s) share thereof,
until paid in full; and

 

(vi)      SIXTH, to the payment of all
other Obligations owing to each Lender, pro rata based on each Lender’s Pro
Rata Share thereof, until paid in full.

 

(c) If an
Event of Default shall have occurred and be continuing but an Acceleration
Event shall not exist, notwithstanding anything herein or in any other Loan
Document to the contrary, Agent shall apply all or any part of payments in
respect of the obligations and proceeds of Collateral, in each case as received
by Agent, to the payment of the Obligations in such order as Agent may elect.
In the absence of a specific determination by Agent, payments in respect of the
Obligations and proceeds of Collateral received by Agent shall be applied in
the following order;

 

(i)        FIRST, to the payment of
all fees, costs, expenses and indemnities due and owing to Agent under this
Agreement or any other Loan Document, and any other Obligations owing to Agent
in respect of sums advanced by Agent to preserve or protect the Collateral or
to preserve or protect its security interest in the Collateral (whether or not
such Obligations are then due and owing to Agent), until paid in full:

 

(ii)       SECOND, to the payment of
all fees, costs, expenses and indemnities due and owing to Lenders, pro rata
based on each Lender’s Pro Rata Share thereof, until paid in full;

 

(iii)      THIRD, to the payment of all
accrued and unpaid interest due and owing to Lenders, pro rata based on each
Lender’s Pro Rata Share thereof, until paid in full;

 

(iv)      FOURTH, to the payment of
all principal of Loans then due and owing, pro rata based on each Lender’s Pro
Rata Share thereof, until paid in full;

 

(v)       FIFTH, to the payment of
Revolving Loans not then due and owing, pro rata based on each Lender’s Pro
Rata Revolving Share thereof, until paid in full;

 

(vi)      SIXTH, to cash collateralize
Obligations consisting of the Term A Loan not yet due and owing and Letters of
Credit (in the case of such Letters of Credit, in a manner consistent with the
provisions of Section 8.2), pro rata based on each Lender’s Pro
Rata Share thereof, until paid in full;

 

(vii)     SEVENTH, to the payment of
all Hedging Obligations then due and owing to any Lender or its Affiliates, pro
rata in accordance with each Lender’s (or one of its Affiliate’s) share
thereof, until paid in full; and

 

(viii)    EIGHTH, to the payment of all
other Obligations owing to each Lender, pro rata based on each Lender’s Pro
Rata Share thereof, until paid in full.

 

24

 

In
the event payments in respect of the Obligations and proceeds of collateral
received by Agent are applied in the manner provided for in clause (vi) of
this Section 2.l2.2(c) as a result of an Event of Default and
such Event of Default is subsequently waived in writing by Agent, the cash
collateral held by Agent pursuant to such clause (vi) shall be released by
Agent to Opco Borrower so long as no Event of Default shall then exist or would
be caused thereby.

 

2.12.3.              Payment Dates.

 

If
any payment of principal or interest with respect to any of the Loans, or of
any fees, falls due on a day which is not a Business Day, then such due date
shall be extended to the immediately following Business Day (unless, in the
case of a LIBOR Loan, such immediately following Business Day is the first
Business Day of a calendar month, in which case such due date shall be the
immediately preceding Business Day) and, in the case of principal, additional
interest shall accrue and be payable for the period of any such extension.

 

2.12.4.              Set-off.

 

Borrowers
agree that Agent and each Lender and its Affiliates have all rights of set-off
and bankers’ lien provided by applicable law, and in addition thereto,
Borrowers agree that at any time an Event of Default has occurred and is
continuing, Agent and each Lender may apply to the payment of any Obligations
of Borrowers hereunder, whether or not then due, any and all balances, credits,
deposits, accounts or moneys of Borrowers then or thereafter with Agent or such
Lender. Notwithstanding the foregoing, no Lender shall exercise any rights
described in the preceding sentence without the prior written consent of Agent.

 

2.12.5.              Proration of
Payments.

 

If
any Lender shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of set-off or otherwise, on account of (a) principal
of or interest on an Loan, but excluding (i) any payment pursuant to Section 3.1,
3.2. 3.7 or 10.8 and (ii) payments of interest on any
Base Rate Loan referred to in the last sentence of Section 3.4, or (b) its
participation in any Letter of Credit) in excess of its applicable Pro Rata
Revolving Share or Pro Rata Term A Share, respectively, of payments and other
recoveries obtained by all Lenders on account of principal of and interest on
such Revolving Loans or Term A Loan (or such participation) then held by them,
then such Lender shall purchase from the other Lenders such participations in
the Loans or sub-participations in Letters of Credit held by them as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery.

 

2.13.         Joinder and Joint and
Several Liability.

 

2.13.1.              Joinder of Opco
Borrower.

 

Immediately after
the consummation of the acquisition by Holdings of Opco Borrower. Holdings
agrees to cause Opco Borrower to execute and deliver a Borrower Joinder
Agreement and Opco Borrower will become a Borrower hereunder.

 

2.13.2.              Joint and Several.

 

Each
Borrower hereby agrees that such Borrower is jointly and severally liable for
the full and prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of.

 

25

 

all Obligations owed or
hereafter owing to Agent and Lenders by each other Borrower. Each Borrower
agrees that its obligation hereunder shall not be discharged until payment and
performance, in full, of the Obligations has occurred, and that its obligations
under this Section 2.13 shall be absolute and unconditional,
irrespective of, and unaffected by,

 

(a) the genuineness, validity, regularity,
enforceability or any future amendment of or change in, this Agreement, any
other Loan Document or any other agreement, document or instrument to which any
Borrower is or may become a party;

 

(b) the absence of any action to enforce this
Agreement (including this Section 2.13) or any other Loan Document
or the waiver or consent by Agent and Lenders with respect to any of the provisions
thereof;

 

(c) the existence, value or condition of, or
failure to perfect its Lien against, any security for the Obligations or any
action, or the absence of any action, by Agent and Lenders in respect thereof
(including the release of any such security);

 

(d) the insolvency of any Loan Party; or

 

(e) any other action or circumstances that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor.

 

2.13.3.              Waivers by
Borrowers.

 

Each
Borrower expressly waives all rights it may have now or in the future under any
statute, or at common law, or at law or in equity, or otherwise, to compel
Agent or Lenders to marshal assets or to proceed in respect of the Obligations
against any other Loan Party, any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Borrower. It is agreed among each
Borrower, Agent and Lenders that the foregoing waivers are of the essence of the
transaction contemplated by this Agreement and the other Loan Documents and
that, but for the provisions of this Section 2.13 and such waivers,
Agent and Lenders would decline to enter into this Agreement.

 

2.13.4.              Benefit of Joint
and Several Obligations.

 

Each
Borrower agrees that the provisions of this Section 2.13 are for
the benefit of Agent and Lenders and their respective successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between
any other Borrower and Agent or Lenders, the obligations of such other Borrower
under the Loan Documents.

 

2.13.5.              Subordination of
Subrogation, Etc.

 

Notwithstanding
anything to the contrary in this Agreement or in any other Loan Document, each
Borrower hereby expressly and irrevocably subordinates to payment of the
Obligations any and all rights at law or in equity to subrogation,
reimbursement, exoneration, contribution, indemnification or set off and any
and all defenses available to a surety, guarantor or accommodation co-obligor
with respect to am other Loan Party until the Obligations are indefeasibly paid
in full in cash. Each Borrower acknowledges and agrees that this subordination
is intended to benefit Agent and Lenders and shall not limit or otherwise
affect such Borrower’s liability hereunder or the enforceability of this Section 2.13,
and that Agent, Lenders and their respective successors and assigns are
intended third party beneficiaries of the waivers and agreements set forth in
this Section 2.13.5.

 

26

 

2.13.6.              Election
of Remedies.

 

If Agent or any Lender may, under applicable law,
proceed to realize its benefits under any of the Loan Documents giving Agent or
such Lender a Lien upon any Collateral, whether owned by any Borrower or by any
other Person, either by judicial foreclosure or by non-judicial sale or
enforcement. Agent or any Lender may, at its sole option, determine which of
its remedies or rights it may pursue without affecting any of its rights and
remedies under this Section 2.13. If, in the exercise of any of its
rights and remedies, Agent or any Lender shall forfeit any of its rights or
remedies, including its right to enter a deficiency judgment against any
Borrower or any other Person, whether because of any applicable laws pertaining
to “election of remedies” or the like, each Borrower hereby consents to such
action by Agent or such Lender, even if such action by Agent or such Lender
shall result in a full or partial loss of any rights of subrogation that each
Borrower might otherwise have had but for such action by Agent or such Lender.

 

2.13.7.              Limitation.

 

(a) Notwithstanding any provision herein
contained to the contrary, each Borrower’s liability under this Section 2.13
shall be limited to an amount not to exceed as of any date of determination the
amount that could be claimed by Agent and Lenders from such Borrower under this
Section 2.13 without rendering such claim voidable or avoidable
under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Borrower’s right of contribution and indemnification from each
other Borrower under Section 2.13.8.

 

2.13.8.              Contribution
with Respect to Guaranty Obligations.

 

(a) To the extent that
any Borrower shall make a payment under this Section 2.13 of all or
any of the Obligations (other than Loans made to that Borrower for which it is
primarily liable) (a “Guarantor Payment”) that, taking into account all other
Guarantor Payments then previously or concurrently made by any other Borrower,
exceeds the amount that such Borrower would otherwise have paid if each
Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion that such Borrower’s “Allocable Amount” (as defined
below) (as determined immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of each of the Borrowers as determined immediately
prior to the making of such Guarantor Payment, then, following indefeasible
payment in full in cash of the Obligations and termination of the Commitments,
such Borrower shall be entitled to receive contribution and indemnification payments
from, and be reimbursed by each other Borrower for the amount of such excess,
pro rata based upon their respective Allocable Amounts in effect immediately
prior to such Guarantor Payment.

 

(b) As of any date of
determination, the “Allocable Amount” of any Borrower shall be equal to the
maximum amount of the claim that could then be recovered from such Borrower
under this Section 2.13 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under
any applicable state Uniform Fraudulent Transfer Act. Uniform Fraudulent
Conveyance Act or similar statute or common law.

 

(c) This Section 2.13.8
is intended only to define the relative rights of Borrowers and nothing set
forth in this Section 2.13.8 is intended to or shall impair the
obligations of Borrowers, jointly and severally, to pay any amounts as and when
the same shall become due and payable in accordance with the terms of this
Agreement, including Section 2.13.2. Nothing contained in this Section 2.13.8
shall limit the liability of any Borrower to pay the Loans made directly or
indirectly to that Borrower and accrued interest, fees and expenses with
respect thereto for which such Borrower shall be primarily liable.

 

27

 

(d) The parties hereto acknowledge that the
rights of contribution and indemnification hereunder shall constitute assets of
each Borrower to which such contribution and indemnification is owing.

 

(e) The rights of the indemnifying Borrowers
against other Loan Parties under this Section 2.13.8 shall be
exercisable upon the full and indefeasible payment of the Obligations and the
termination of the Commitments.

 

2.13.9.              Liability
Cumulative.

 

The
liability of Borrowers under this Section 2.13 is in addition to
and shall be cumulative with all liabilities of each Borrower to Agent and
Lenders under this Agreement and the other Loan Documents to which such
Borrower is a party or in respect of any Obligations or obligation of the other
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.

 

Section 3.                 Yield Protection.

 

3.1.           Taxes.

 

(a) All payments of principal and interest on the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future income, excise, stamp,
documentary, property or franchise taxes and other taxes, fees, duties, levies,
withholdings or other charges of any nature whatsoever imposed by any taxing
authority, excluding (i) taxes imposed on or measured by any Lender’s net
income by the jurisdiction under which such Lender is organized or conducts
business, (ii) any branch profit taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which a Lender
is located and (iii) in the case of any foreign Lender, any withholding
tax that is imposed on amounts payable to such foreign Lender at the time such
foreign Lender becomes a party to this Agreement (all non-excluded items being
called “Taxes”). If any withholding or deduction from any payment to be
made by any Borrower hereunder is required in respect of any Taxes pursuant to
any applicable law, rule or regulation, then Borrowers will: (i) pay
directly to the relevant authority the full amount required to be so withheld
or deducted; (ii) promptly forward to Agent an official receipt or other
documentation satisfactory to Agent evidencing such payment to such authority;
and (iii) pay to Agent for the account of Lenders such additional amount
or amounts as is necessary to ensure that the net amount actually received by
each Lender will equal the full amount such Lender would have received had no
such withholding or deduction been required. If any Taxes are directly asserted
against Agent or any Lender with respect to any payment received by Agent or
such Lender hereunder. Agent or such Lender may pay such Taxes and Borrowers
will promptly pay such additional amounts (including any penalty, interest or
expense) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such Person would have received had such Taxes not been
asserted so long as such amounts have accrued on or after the day which is 180
days prior to the date on which Agent or such Lender first made demand
therefor; provided, that if the event giving rise to such costs or reductions
has retroactive effect, such ISO day period shall be extended to include the
period of retroactive effect. If any payment is made by any Borrower pursuant
to this Section 3.1 to or for the benefit of any Lender and such
Lender thereafter obtains a credit against, or relief from or repayment of any
Tax in respect of which such payment was made, such Lender shall refund such
amount to the Opco Borrower.

 

(b) If Borrowers fail to pay any Taxes when due
to the appropriate taxing authority or fails to remit to Agent, for the account
of the respective Lenders, the required receipts or other required documentary
evidence. Borrowers shall indemnity Lenders for any incremental Taxes, interest
or

 

28

 

penalties that may become
payable by any Lender as a result of any such failure. For purposes of this Section 3.1.
a distribution hereunder by Agent or any Lender to or for the account of any
Lender shall be deemed a payment by Borrowers.

 

(c) Each
Lender that (i) is organized under the laws of a jurisdiction other than
the United States of America and (ii)(A) is a party hereto on the Closing
Date or (B) becomes an assignee of an interest under this Agreement under Section 10.8.1
after the Closing Date (unless such Lender was already a Lender hereunder immediately
prior to such assignment) shall execute and deliver to Administrative Borrower
and Agent one or more (as Administrative Borrower or Agent may reasonably
request) Forms W-8ECI, W-8BEN, W-81MY (as applicable) or other applicable form,
certificate or document prescribed by the United States Internal Revenue
Service certifying as to such Lender’s entitlement to exemption from
withholding or deduction of Taxes. In addition, each such Lender shall deliver
replacement forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Lender. No Borrower shall be required to pay
additional amounts to any Lender pursuant to this Section 3.1 to
the extent that the obligation to pay such additional amounts would not have
arisen but for the failure of such Lender to comply with this paragraph.

 

3.2.           Increased Cost.

 

(a) If, after the Closing Date, the adoption of,
or any change in, any applicable law, rule or regulation, or any change in
the interpretation or administration of any applicable law, rule or
regulation by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency: (i) shall
impose, modify or deem applicable any reserve (including any reserve imposed by
the FRB, but excluding any reserve included in the determination of the LIBOR
Rate pursuant to Section 2.7), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any Lender; or (ii) shall impose on any Lender any other
condition affecting its LIBOR Loans, its Note or its obligation to make LIBOR
Loans; and the result of anything described in clauses (i) above and (ii) is
to increase the cost to (or to impose a cost on) such Lender of making or
maintaining any LIBOR Loan, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under its Note with respect
thereto, then upon demand by such Lender (which demand shall be accompanied by
a statement setting forth the basis for such demand and a calculation of the
amount thereof in reasonable detail, a copy of which shall be furnished to
Agent and Administrative Borrower), Borrowers shall pay directly to such Lender
such additional amount as will compensate such Lender for such increased cost
or such reduction, so long as such amounts have accrued on or after the day
which is 180 days prior to the date on which such Lender first made demand
therefor; provided, that if the event giving rise to such costs or reductions
has retroactive effect, such 180 day period shall be extended to include the
period of retroactive effect.

 

(b) If any Lender shall reasonably determine that
any change in, or the adoption or phase-in of, any applicable law, rule or
regulation regarding capital adequacy, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
the compliance by any Lender or any Person controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender’s or such
controlling Person’s capital as a consequence of such Lender’s obligations
hereunder or under any Letter of Credit to a level below that which such Lender
or such controlling Person could have achieved but for such change, adoption,
phase-in or compliance (taking into consideration such Lender’s or such
controlling Person’s policies with respect to capital adequacy) by an amount
deemed by such Lender or such controlling Person to be material, then from time
to time, upon demand by such Lender (which demand shall be accompanied by a
statement

 

29

 

setting forth the basis
for such demand and a calculation of the amount thereof in reasonable detail, a
copy of which shall be furnished to Agent and Administrative Borrower),
Borrowers shall pay to such Lender such additional amount as will compensate
such Lender or such controlling Person for such reduction, so long as such
amounts have accrued on or after the day which is 180 days prior to the date on
which such Lender first made demand therefor; provided, that if the event
giving rise to such costs or reductions has retroactive effect, such 180 day
period shall be extended to include the period of retroactive effect.

 

3.3.           Inadequate or Unfair
Basis.

 

If
Agent reasonably determines (which determination shall be binding and
conclusive on Borrowers) that, by reason of circumstances affecting the
interbank eurodollar market, adequate and reasonable means do not exist for
ascertaining the applicable LIBOR Rate, then Agent shall promptly notify the
Lenders and Administrative Borrower thereof and, so long as such circumstances shall
continue, (a) no Lender shall be under any obligation to make or convert
any Base Rate Loans into LIBOR Loans and (b) on the last day of the
current Interest Period for each LIBOR Loan, such Loan shall, unless then
repaid in full, automatically convert to a Base Rate Loan.

 

3.4.           Change in Law.

 

If
any change in, or the adoption of any new, law or regulation, or any change in
the interpretation of any applicable law or regulation by any governmental or
other regulatory body charged with the administration thereof, would make it
(or in the good faith judgment of any Lender cause a substantial question as to
whether it is) unlawful for any Lender to make, maintain or fund LIBOR Loans,
then such Lender shall promptly notify each of the other parties hereto and, so
long as such circumstances shall continue, (a) such Lender shall have no
obligation to make or convert any Base Rate Loan into a LIBOR Loan (but shall
make Base Rate Loans concurrently with the making of LIBOR Loans or conversion
of Base Rate Loans into LIBOR Loans by Lenders which are not so affected, in
each case in an amount equal to the amount of LIBOR Loans which would be made
or converted into by such Lender at such time in the absence of such
circumstances) and (b) on the last day of the current Interest Period for
each LIBOR Loan of such Lender (or, in any event, on such earlier date as may
be required by the relevant law, regulation or interpretation), such LIBOR Loan
shall, unless then repaid in full, automatically convert to a Base Rate Loan.
Each Base Rate Loan made by a Lender which, but for the circumstances described
in the foregoing sentence, would be a LIBOR Loan shall remain outstanding for
the period corresponding to the Interest Period originally applicable to such
LIBOR Loan absent such circumstances.

 

3.5.           Funding Losses.

 

Borrowers
hereby agree that upon demand by any Lender (which demand shall be accompanied
by a statement setting forth the basis for the amount being claimed, a copy of
which shall be furnished to Agent and Administrative Borrower), Borrowers will
indemnify such Lender against any net loss or expense which such Lender may
sustain or incur (including any net loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund or maintain any LIBOR Loan), as reasonably determined by such Lender,
as a result of (a) any payment, prepayment or conversion of any LIBOR Loan
of such Lender on a date other than the last day of an Interest Period for such
Loan (including any conversion pursuant to Section 3.4) or (b) any
failure of any Borrower to borrow, convert or continue any Loan on a date
specified therefor in a notice of borrowing, conversion or continuation
pursuant to this Agreement. For the purposes of this Section 3.5.
all determinations shall be made as if such Lender had actually funded and
maintained each LIBOR Loan during each Interest Period for such Loan through
the purchase of deposits having a maturity corresponding to such Interest
Period and bearing an interest rate equal to the LIBOR Rate for such Interest
Period.

 

30

 

3.6.           Manner of Funding;
Alternate Funding Offices.

 

Notwithstanding
any provision of this Agreement to the contrary, each Lender shall be entitled
to fund and maintain its funding of all or any part of its Loans in any manner
it may determine at its sole discretion. Each Lender may, if it so elects,
fulfill its commitment to make any LIBOR Loan by causing any branch or
Affiliate of such Lender to make such Loan; provided that in such event for the
purposes of this Agreement such Loan shall be deemed to have been made by such
Lender and the obligation of Borrowers to repay such Loan shall nevertheless be
to such Lender and shall be deemed held by it, to the extent of such Loan, for
the account of such branch or Affiliate.

 

3.7.           Mitigation of
Circumstances; Replacement of Lenders.

 

(a) Each Lender shall promptly notify
Administrative Borrower and Agent of any event of which it has knowledge which
will result in, and will use reasonable commercial efforts available to it (and
not, in such Lender’s sole judgment, otherwise disadvantageous to such Lender)
to mitigate or avoid, (i) any obligation by Borrowers to pay any amount
pursuant to Section 3.1 or 3.2 or (ii) the occurrence
of any circumstances described in Section 3.3 or 3.4 (and,
if any Lender has given notice of any such event described in clause (i) or
(ii) above and thereafter such event ceases to exist, such Lender shall
promptly so notify Administrative Borrower and Agent). Without limiting the
foregoing, each Lender will designate a different funding office if such
designation will avoid (or reduce the cost to Borrowers of) any event described
in clause (i) or (ii) above and such designation would not, in such
Lender’s sole judgment, be otherwise disadvantageous to such Lender.

 

(b) If (i) any Borrower becomes obligated to
pay additional amounts to any Lender pursuant to Section 3.1 or 3.2,
or any Lender gives notice of the occurrence of any circumstances described in Section 3.3
or 3.4, (ii) any Lender does not consent to any matter requiring
its consent under Section 10.1 when the Required Lenders have
otherwise consented to such matter or (iii) any Lender with a Revolving
Loan Commitment defaults in its obligation to make Revolving Loans under Section 2.1.1,
then Borrowers may within 90 days thereafter designate another bank which is
acceptable to Agent and Issuing Lender in their reasonable discretion (such
other bank being called a “Replacement Lender”) to purchase the Loans of
such Lender and such Lender’s rights hereunder, without recourse to or warranty
by, or expense to, such Lender, for a purchase price equal to the outstanding
principal amount of the Loans payable to such Lender plus any accrued but
unpaid interest on such Loans and all accrued but unpaid fees owed to such
Lender and any other amounts payable to such Lender under this Agreement, and
to assume all the obligations of such Lender hereunder, and, upon such purchase
and assumption (pursuant to an Assignment Agreement), such Lender shall no
longer be a party hereto or have any rights hereunder (other than rights with
respect to indemnities and similar rights applicable to such Lender prior to
the date of such purchase and assumption) and shall be relieved from all
obligations to Borrowers hereunder, and the Replacement Lender shall succeed to
the rights and obligations of such Lender hereunder.

 

3.8.           Conclusiveness of Statements;
Survival.

 

Determinations
and statements of any Lender pursuant to Section 3.1, 3.2, 3.3,
3.4 or 3.5 shall be conclusive absent demonstrable error. Lenders
may use reasonable averaging and attribution methods in determining
compensation under Sections 3.1, 3.2 and 3.5, and the
provisions of such Sections shall survive repayment of the Loans, cancellation
of the Notes, expiration or termination of the Letters of Credit and
termination of this Agreement.

 

31

 

Section 4.                 Conditions Precedent.

 

The
obligation of each Lender to make its Loans and of issuing Lender to issue
Letters of Credit is subject to the following conditions precedent:

 

4.1.           Initial Credit
Extension.

 

The
obligation of Lenders to make the initial Loans and the obligation of Issuing
Lender to issue the initial Letter of Credit hereunder (whichever first occurs)
is, in addition to the conditions precedent specified in Section 4.2,
subject to the following conditions precedent, each of which shall be
satisfactory in all respects to Agent:

 

4.1.1.                Capitalization;
Adjusted EBITDA.

 

Holdings
has received cash equity contributions from Parent (and Parent has received
such cash equity contributions from Sponsor and its Investment Affiliates and
co-investors (including Madison)) in an amount not less than $46,000,000.
Annualized EBITDA, as adjusted by adjustments satisfactory to Agent, for the 9
month period ending September 30, 2005 shall not be less than $6,500,000
(EBITDA for such period shall be annualized by multiplying (i) EBITDA for
the period from January 1, 2005 to September 30, 2005 by (ii) 1.336996.

 

4.1.2.                Initial Loans;
Availability.

 

No
Revolving Loans and Letters of Credit shall be advanced or issued (as
applicable) on the Closing Date, and after giving effect to the consummation of
the Related Transactions and funding of the initial Loans on the Closing Date,
cash on hand of Opco Borrower shall not be less than $4,500,000.

 

4.1.3.                Closing Date
Total Debt to EBITDA Ratio.

 

The
Closing Date Total Debt to EBITDA Ratio as of the Closing Date shall not exceed
2.75:1.00.

 

4.1.4.                Prior Debt.

 

The
Prior Debt has been (or concurrently with the initial borrowing will be) paid
in full.

 

4.1.5.                Related
Transactions.

 

Holdings
has completed (or concurrently with the initial credit extension hereunder will
complete) the Related Transactions in accordance with the terms of the Related
Agreements (without any amendment thereto or waiver thereunder unless consented
to by Lenders).

 

4.1.6.                Fees.

 

Borrowers
shall have paid all fees, costs and expenses due and payable under this
Agreement and the other Loan Documents on the Closing Date.

 

4.1.7.                Delivery of
Loan Documents.

 

Borrowers
shall have delivered the following documents in form and substance satisfactory
to Agent in the exercise of its reasonable discretion (and, as applicable, duly
executed and dated the Closing Date or an earlier date satisfactory to Agent):

 

32

 

(a) Agreement. This Agreement.

 

(b) Notes. Notes, for each Lender
requesting a Note.

 

(c) Collateral Documents. The Guarantee
and Collateral Agreement, all other Collateral Documents, and all instruments,
documents, certificates and agreements executed or delivered pursuant thereto
(including intellectual property assignments and pledged Collateral, with
undated irrevocable transfer powers executed in blank).

 

(d) Financing Statements. Properly
completed Uniform Commercial Code financing statements and other filings and
documents required by law or the Loan Documents to provide Agent perfected
Liens (subject only to Liens permitted pursuant to Section 7.2) in
the Collateral.

 

(e) Lien Searches. Copies of Uniform
Commercial Code search reports listing all effective financing statements filed
against any Loan Party, with copies of such financing statements.

 

(f) Mortgages.
Mortgages providing Agent perfected Liens (subject only to Liens permitted
pursuant to Section 7.2)  in
the real property Collateral, with ALTA loan title insurance policies issued by
insurers reasonably acceptable to Agent, ALTA surveys and such Hood and/or
earthquake insurance as Agent may reasonably request.

 

(g) Collateral
Access Agreements. Collateral Access Agreements reasonably requested by
Agent with respect to the Collateral.

 

(h) Payoff;
Release. Payoff letters evidencing repayment in full of all Prior Debt,
termination of all agreements relating thereto and the release of all Liens
granted in connection therewith, with Uniform Commercial Code or other
appropriate termination statements and documents effective to evidence the
foregoing.

 

(i) Availability
Certificate. Availability Certificate reflecting required information as of
a date not more than 5  days prior
to the Closing Date.

 

(j) Letter
of Direction. A letter of direction containing funds flow information, with
respect to the proceeds of the Loans on the Closing Date.

 

(k) Authorization
Documents. For each Loan Party, such Person’s (i) charter (or similar
formation document), certified by the appropriate governmental authority, (ii) good
standing certificates in its state of incorporation (or formation) and in each
other state requested by Agent, (iii) bylaws (or similar governing
document), (iv) resolutions of its board of directors (or similar
governing body) approving and authorizing such Person’s execution, delivery and
performance of the Loan Documents to which it is party and the transactions
contemplated thereby, and (v) signature and incumbency certificates of its
officers executing any of the Loan Documents, all certified by its secretary or
an assistant secretary (or similar officer) as being in full force and effect
without modification.

 

(l) Opinions
of Counsel. Opinions of counsel for each Loan Party, including local
counsel reasonably requested by Agent, and all other opinions issued pursuant
to the Related Transactions, and Borrowers hereby request such counsel to
deliver such opinions and authorizes Agent and Lenders to rely thereon.

 

(m) Insurance.
Certificates or other evidence of insurance in effect as required by Section 6.3(b),
with endorsements naming Agent as lenders’ loss payee and/or additional
insured, as applicable.

 

33

 

(n) Financials.
The financial statements, projections and pro forma balance sheet described in Section 5.4.

 

(o) Environmental
Reports. Environmental site assessment reports for all real property
collateral reasonably requested by Agent, prepared by environmental engineers
reasonably satisfactory to Agent.

 

(p) Consents.
Evidence that all necessary consents, permits and approvals (governmental or
otherwise) required for the execution, delivery and performance by each Loan
Party of the Loan Documents and the Related Transactions have been duly
obtained and are in full force and effect.

 

(q) Certified
Documents. Copies of the Related Agreements (including a consent to the
collateral assignment of rights and indemnities under the appropriate Related
Agreements in favor of Agent and Lenders) certified by Holdings’ secretary or
an assistant secretary (or similar officer) as being in true, accurate and
complete.

 

(r) Other
Documents. Such other certificates, documents and agreements as Agent or
any Lender may reasonably request.

 

4.2.           All Credit
Extensions.

 

The
obligation of each Lender to make each Loan and of Issuing Lender to issue each
Letter of Credit is subject to the additional conditions precedent that (unless
such conditions are waived by the Agent and Required Lenders), both before and
after giving effect to any borrowing and the issuance of any Letter of Credit, (a) the
representations and warranties of each Borrower and each other Loan Party set
forth in this Agreement and the other Loan Documents shall be true and correct
in all material respects with the same effect as if then made (except to the
extent stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date) and (b) no Event of Default or Default shall have then occurred and
be continuing. Each request by Administrative Borrower for the making of a Loan
or the issuance of a Letter of Credit shall be deemed to constitute a
representation and warranty by each Borrower that the conditions precedent set
forth in Section 4.2 will be satisfied at the time of the making of
such Loan or the issuance of such Letter of Credit.

 

Section 5.                 Representations and Warranties.

 

To
induce Agent and Lenders to enter into this Agreement and to induce Lenders to
make Loans and to issue and participate in Letters of Credit hereunder, each
Borrower represents and warrants to Agent and Lenders that, both before and
after giving effect to the Related Transactions and after giving effect to the
Borrower Joinder Agreement executed by Opco Borrower:

 

5.1.           Organization.

 

Holdings is
a corporation validly existing and in good standing under the laws of the State
of Delaware; Opco Borrower is a corporation validly existing and in good
standing under the laws of the Commonwealth of Virginia; each other Loan Party
is validly existing and in good standing (to the extent applicable) under the
laws of the jurisdiction of its organization; and each Loan Party is duly
qualified to do business in each jurisdiction where, because of the nature of
its activities or properties, such qualification is required, except for such
jurisdictions where the failure to so qualify could not reasonably be expected
to have a Material Adverse Effect.

 

34

 

5.2.           Authorization; No
Conflict.

 

Each Loan
Party is duly authorized to execute and deliver each Loan Document and each
Related Agreement to which it is a party, each Borrower is duly authorized to
borrow monies hereunder, and each Loan Party is duly authorized to perform its
Obligations under each Loan Document to which it is a party. The execution, delivery
and performance by each Borrower of this Agreement and by each Loan Party of
each Loan Document to which it is a party, and the borrowings by Borrowers
hereunder, do not and will not (a) require any consent or approval of any
governmental agency or authority (other than any consent or approval which has
been obtained and is in full force and effect), (b) conflict with (i) any
provision of applicable law, (ii) the charter, by-laws or other
organizational documents of any Loan Party or (iii) any agreement,
indenture, instrument or other document, or any judgment, order or decree,
which is binding upon any Loan Party or any of their respective properties or (c) require,
or result in, the creation or imposition of any Lien on any asset of any Loan
Party (other than Liens in favor of Agent created pursuant to the Collateral
Documents).

 

5.3.           Validity; Binding
Nature.

 

Each
of this Agreement and each other Loan Document to which any Loan Party is a
party is the legal, valid and binding obligation of such Person, enforceable
against such Person in accordance with its terms, subject to bankruptcy,
insolvency and similar laws affecting the enforceability of creditors’ rights
generally and to general principles of equity.

 

5.4.           Financial Condition.

 

(a) The audited consolidated financial statements
of Opco Borrower and the Subsidiaries as at its Fiscal Years ending December 31,
2003 and December 31, 2004, and the unaudited consolidated financial
statements of Opco Borrower and the Subsidiaries as at September 30, 2005,
copies of each of which have been delivered pursuant hereto, were prepared in
accordance with GAAP (subject, in the case of such unaudited statements, to the
absence of footnotes and to normal year-end adjustments) and present fairly the
consolidated financial condition of such Persons as at such dates and the
results of their operations for the periods then ended.

 

(b) The consolidated financial projections
(including an operating budget and a cash flow budget) of Holdings and the
Subsidiaries for the three year period commencing January 1, 2006
delivered to Agent and Lenders on or prior to the Closing Date (i) were
prepared by Opco Borrower in good faith and (ii) were prepared in
accordance with assumptions for which Opco Borrower had, as of the Closing
Date, a reasonable basis; provided, however, that the projections do not
reflect (x) purchase accounting adjustments and (y) expenses related
to the Related Transactions or the financing pursuant to the Loan Documents.
The accompanying consolidated pro forma balance sheet of Holdings and the
Subsidiaries based on Opco Borrower’s November 30, 2005 balance sheet has
been adjusted to give effect to the consummation of the Related Transactions
and the financings contemplated hereby as if such transactions had occurred on
such date; provided, however, that (x) the excess of the purchase price
paid in the Related Transactions over the net assets of Opco Borrower’s
pre-closing balance sheet is reflected as goodwill, and (y) the fair value
adjustments to assets and liabilities under GAAP are not reflected in such
balance sheet. It is understood and agreed that the financial projections
delivered to Agent and Lenders contain estimates which Borrowers believe to be
reasonable, but shall not represent guarantees of future performance in
accordance therewith.

 

5.5.           No Material Adverse
Change.

 

Since December 31,
2004, there has been no material adverse change in the financial condition,
operations, assets, business or properties of the Loan Parties taken as a
whole.

 

35

 

5.6.           Litigation.

 

No
litigation (including derivative actions), arbitration proceeding or
governmental investigation or proceeding is pending or, to any Borrower’s
knowledge, threatened against any Loan Party which could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect,
except as set forth in Schedule 5.6. As of the Closing Date, other than
any liability incident to such litigation or proceedings, no Loan Party has any
material Contingent Obligations not listed on Schedule 7.1.

 

5.7.           Ownership of
Properties; Liens.

 

Each
Loan Party owns good and, in the case of real property, marketable title to all
of its properties and assets, real and personal, tangible and intangible, of
any nature whatsoever (including patents, trademarks, trade names, service
marks and copyrights), free and clear of all Liens, charges and claims
(including infringement claims with respect to patents, trademarks, service
marks, copyrights and the like), except as permitted by Section 1.2.

 

5.8.           Capitalization.

 

All
issued and outstanding equity securities of each Loan Party is duly authorized
and validly issued, fully paid, non-assessable, and free and clear of all Liens
other than those in favor of Agent, and such securities were issued in
compliance with all applicable state and federal laws concerning the issuance
of securities. Schedule 5.8 sets forth the authorized equity securities
of each Loan Party as of the Closing Date. All of the issued and outstanding
equity of Parent is owned as set forth on Schedule 5.8 as of the Closing
Date, all of the issued and outstanding equity of Holdings is owned by Parent,
all of the issued and outstanding equity of Opco Borrower is owned by Holdings,
and all of the issued and outstanding equity of each other Subsidiary is,
directly or indirectly, owned by Borrowers. As of the Closing Date, except as
set forth on Schedule 5.8, there are no pre-emptive or other outstanding
rights, options, warrants, conversion rights or other similar agreements or
understandings for the purchase or acquisition of any equity interests of any
Loan Party.

 

5.9.           Pension Plans.

 

During
the twelve-consecutive-month period prior to the Closing Date or the making of
any Loan or the issuance of any Letter of Credit, (i) no steps have been
taken to terminate any Pension Plan and (ii) no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under Section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which could result in
the incurrence by any Loan Party of any material liability, fine or penalty.
All contributions (if any) have been made to any Multiemployer Pension Plan
that are required to be made by any Loan Party or any other member of the
Controlled Group under the terms of the plan or of any collective bargaining
agreement or by applicable law; neither any Loan Party nor any member of the
Controlled Group has withdrawn or partially withdrawn from any Multiemployer
Pension Plan, incurred any withdrawal liability with respect to any such plan
or received notice of any claim or demand for withdrawal liability or partial
withdrawal liability from any such plan, and no condition has occurred which,
if continued, could result in a withdrawal or partial withdrawal from any such
plan, and neither any Loan Party nor any member of the Controlled Group has
received any notice that any Multiemployer Pension Plan is in reorganization, that
increased contributions may be required to avoid a reduction in plan benefits
or the imposition of any excise tax, that any such plan is or has been funded
at a rate less than that required under Section 412 of the IRC, that any
such plan is or may be terminated, or that any such plan is or may become
insolvent.

 

36

 

5.10.    
Investment Company Act.

 

Neither any
Borrower nor any other Loan Party is an “investment company” or a company “controlled”
by an “investment company” or a “subsidiary” of an “investment company”, within
the meaning of the Investment Company Act of 1940.

 

5.11.    
Public Utility Holding Company Act.

 

Neither any
Borrower nor any other Loan Party is a “holding company”, or a “subsidiary
company” of a “holding company”, or an “affiliate” of a “holding company” or of
a “subsidiary company” of a “holding company”, within the meaning of the Public
Utility Holding Company Act of 1935.

 

5.12.    
Margin Stock.

 

Neither any
Borrower nor any other Loan Party is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock and no proceeds of any Loan or drawings
under any Letter of Credit will be used to purchase or carry any Margin Stock
or to extend credit to others for the purpose of purchasing or carrying any
Margin Stock,

 

5.13.    
Taxes.

 

Each
Loan Party has filed all tax returns and reports required by law to have been
filed by it and has paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books and except as
otherwise disclosed on Schedule 5.13.

 

5.14.    
Solvency.

 

On the
Closing Date, and immediately prior to and after giving effect to the issuance
of each Letter of Credit and each borrowing hereunder and the use of the
proceeds thereof, with respect to each Loan Party, individually, (a) the
fair value of its assets is greater than the amount of its liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated, (b) the present fair saleable value
of its assets is not less than the amount that will be required to pay the
probable liability on its debts as they become absolute and matured, (c) it
is able to realize upon its assets and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business, (d) it does not intend to, and does not
believe that it will, incur debts or liabilities beyond its ability to pay as
such debts and liabilities mature and (e) it is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which its property would constitute unreasonably small capital.

 

5.15.    
Environmental Matters.

 

The
on-going operations of each Loan Party comply in all respects with all
Environmental Laws, except such non-compliance which could not (if enforced in
accordance with applicable law) reasonably be expected to result in a Material
Adverse Effect. Each Loan Party has obtained, and maintained in good standing,
all licenses, permits, authorizations and registrations required under any
Environmental Law and necessary for their respective ordinary course
operations, and each Loan Party is in compliance with all material terms and
conditions thereof, except in each case, where the failure to do so could not
reasonably be expected to result in material liability to any Loan Party and
could not reasonably be expected to result in a Material Adverse Effect. No
Loan Party or any of its properties or operations is subject to any outstanding
written order from or agreement with any Federal, state or local governmental

 

37

 

authority, nor subject to
any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Substance. There are no
Hazardous Substances or other conditions or circumstances existing with respect
to any property, or arising from operations prior to the Closing Date, of any
Loan Party that could reasonably be expected to result in a Material Adverse
Effect. No Loan Party has any underground storage tanks that are not properly
registered or permitted under applicable Environmental Laws or that are leaking
or disposing of Hazardous Substances.

 

5.16.     Insurance.

 

Each Loan Party
and its properties are insured with financially sound and reputable insurance
companies which are not Affiliates of any Loan Party, in such amounts, with
such deductibles and covering such risks as are customarily carried by
companies engaged in similar businesses and owning similar properties in
localities where such Loan Party operates. A true and complete listing of such
insurance as of the Closing Date, including issuers, coverages and deductibles,
is set forth on Schedule 5.16.

 

5.17.    
Information.

 

All information
heretofore or contemporaneously herewith furnished in writing by any Loan Party
to Agent or any Lender for purposes of or in connection with this Agreement and
the transactions contemplated hereby is, and all written information hereafter
furnished by or on behalf of any Loan Party to Agent or any Lender pursuant
hereto or in connection herewith will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and
none of such information is or will be incomplete by omitting to state any
material fact necessary to make such information not misleading in light of the
circumstances under which made (it being recognized by Agent and Lenders that
any projections and forecasts provided by Holdings are based on good faith
estimates and assumptions believed by Holdings to be reasonable as of the date
of the applicable projections or assumptions and that actual results during the
period or periods covered by any such projections and forecasts may differ from
projected or forecasted results).

 

5.18.    
Proprietary Rights.

 

(a) Each Loan Party owns, or is licensed, or
otherwise possesses legally enforceable rights, to use. sell or license, as
applicable, all Proprietary Rights used or held for use in the business of such
Loan Party, except where any such failure could not reasonably be expected to
have a Material Adverse Effect. Schedule 5.18(a) contains a
complete and correct list as of the Closing Date of all of each Loan Party’s
patents and patent applications; trademark and service mark registrations and
applications for registration thereof; domain names; copyright registrations
and applications for registration thereof; and material computer software owned
or used by each Loan Party (excluding Commercial Software). Each Loan Party has
delivered to Agent correct and complete copies of all such patents,
registrations and applications and has made available to Agent correct and
complete copies of all written documentation evidencing ownership and
prosecution (if applicable) of each such item. Each Loan Party has licenses for
all Commercial Software used in its business and no Loan Party has any
obligation to pay fees, royalties and other amounts at any time pursuant to any
such license.

 

(b) Schedule 5.18(b) sets forth a
compete list as of the Closing Date of all (excluding Commercial Software) (i) licenses,
sublicenses and other agreements as to which any Loan Party is a party (as
licensor, licensee or otherwise) and pursuant to which any Loan Party or any
other Person is authorized to use, sell, distribute or license any Proprietary
Rights and (ii) licenses, sublicenses or other agreements with resellers
and distributors that grant any rights to use or modify and resell or
sublicense any Loan Party software products. Opco Borrower or the applicable
Loan Party has delivered to Agent correct and complete copies of all such
licenses, sublicenses and agreements (as amended to date). No

 

38

 

Loan Party is in
violation, in any material respect, of any such license, sublicense or agreement,
and such license, sublicense and agreement will continue to be legal, valid,
binding, enforceable and in full force and effect following the Closing Date.
Except as described on Schedule 5.18(b), as of the Closing Date no
vendor contract with a supplier is material to any Loan Party.

 

(c) Except for
Commercial Software and Embedded Products for which the applicable Loan Party
has valid non-exclusive licenses, each Loan Party is the sole and exclusive
owner of the Proprietary Rights (free and clear of any Liens) used by it, and
has sole and exclusive rights to the use and distribution therefor or the
material covered thereby in connection with the services or products in respect
of which such Proprietary Rights are currently being used, sold, licensed or
distributed. Except as set forth on Schedule 5.18(c), no open source or
public library software, including any version of any software licensed
pursuant to any GNU public license, is, in whole or in part, embodied or
incorporated, in any manner, into any Loan Party software products. Schedule
5.18(c) lists all (excluding Commercial Software) Embedded Products (other
than Embedded Products for which the applicable Loan Party has a valid
non-exclusive license). Opco Borrower or the applicable Loan Party has
delivered to Agent correct and complete copies of all such licenses,
sublicenses and agreements (as amended to date). No Loan Party is in violation
of any such license, sublicense or agreement except for such violations which
could not reasonably be expected to result in a Material Adverse Effect, and
each such license, sublicense and agreement will continue to be legal, valid,
binding, enforceable and in full force and effect following the Closing Date.
As of the Closing Date, no Loan Party is contractually obligated to pay
compensation to any third party with respect to any Proprietary Rights, except
pursuant to the agreements disclosed on Schedule 5.18(c).

 

(d) Except as disclosed
on Schedule 5.18(d), as of the Closing Date (i) no Loan Party has
infringed on any intellectual property rights of any third party and (ii) none
of the Proprietary Rights infringes on any intellectual property rights of any
third party, in either case, except for such infringements that could not
reasonably be expected to have a Material Adverse Effect.

 

(e) Except as disclosed
on Schedule 5.18(e), as of the Closing Date no claims with respect to
the Proprietary Rights are pending or, to the knowledge of any Loan Party,
threatened against any Loan Party or, to the knowledge of any Loan Party, any
other Person, (i) alleging that the manufacture, sale, licensing or use of
any Proprietary Rights as now manufactured, sold, licensed or used by any Loan
Party or any third party infringes on any intellectual property rights of any
third party, (ii) against the use by any Loan Party or any third party of
any technology, know-how or computer software used in any Loan Party’s business
as currently conducted or (iii) challenging the ownership by any Loan
Party, or the validity or effectiveness, of any such Proprietary Rights.

 

(f) Except as disclosed
on Schedule 5.18(f), as of the Closing Date no Loan Party has entered
into any agreement under which such Loan Party is restricted, and is not
otherwise restricted, (i) from selling, licensing or otherwise
distributing any products to any class or type of customers or through any type
of channel in any geographic area or during any period of time, or (ii) from
combining, incorporating, embedding or bundling or allowing others to combine,
incorporate, embed or bundle any of its products with those of another party.
Opco Borrower or the applicable Loan Party has delivered to Agent correct and
complete copies of all such agreements (as amended to date).

 

(g) Each Loan Party has
taken all reasonable security measures to safeguard and maintain its property
rights in all Proprietary Rights owned by such Loan Party. All officers,
employees and consultants of each Loan Party who have access to proprietary
information have executed and delivered to such Loan Party an agreement
regarding the protection of proprietary information, and the assignment to or
ownership by such Loan Party of all Proprietary Rights arising from the
services performed for such Loan Party by such Persons. No current or prior
officer, employee or consultant of any Loan Party claims, and no Loan Party is
aware of any grounds to assert a claim to or any ownership

 

39

 

interest in, any
Proprietary Right as a result of having been involved in the development of
such property while employed by or consulting to any Loan Party or otherwise.
Except as disclosed on Schedule 5.18(g) and except for Embedded
Products or Commercial Software, all of the computer software products within
the Proprietary Rights owned by any Loan Party have been developed by employees
of such Loan Party within the scope of their employment, as a “work made for
hire” and was directed by such Loan Party to work on Company Software, or by
consultants who have assigned all rights to such products to such Loan Party
and whose names are listed on Schedule 5.18(g) or have otherwise
been assigned to or licensed for such use by such Loan Party.

 

(h) [Intentionally
Omitted].

 

(i) 
Except for language content errors (mistranslations) which occur and are
corrected in the ordinary course of business, there are no material defects in
any Loan Party’s software products and such products shall perform in
accordance with related documentation and promotional material supplied by any
Loan Party, and there are no material errors in any end-user documentation,
internal notes and memos, technical documentation, drawings, flow charts,
diagrams, source language statements, demo disks, benchmark test results, and
other written materials related to, associated with or used or produced in the
development of such Loan Party’s software products. Except as disclosed on Schedule
5.18(i), computer software included in the Proprietary Rights does not
contain any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead
device,” “virus” (as these terms are commonly used in the computer software
industry), or other software routines designed to permit unauthorized access,
to disable or erase software or data, or to perform any other similar type of
functions.

 

(j) 
As of the Closing Date, except as described in Schedule 5.18(j), no
government funding or university or college facilities were used in the
development of the computer software programs or applications owned by any Loan
Party.

 

(k) Opco
Borrower or another Loan Party has delivered to Agent complete and accurate
records of each Loan Party with respect to software fixes (including fixes
currently in process), problem lists and maintenance of Company Software. Schedule
5.18(k) lists all warranty claims (including any pending claims) related to
Company Software and the nature of such claims as of the Closing Date. Except
as set forth on Schedule 5.18(k), as of the Closing Date no Loan Party
has made oral or written representations or warranties with respect to its
products or services.

 

(l) The
Proprietary Rights of each Loan Party that are sold or licensed to customers of
the applicable Loan Party are and have at all times been in compliance with all
Laws applicable thereto, except for such instances of non-compliance which
could not reasonably be expected to have a Material Adverse Effect.

 

5.19.    
Restrictive Provisions.

 

No
Loan Party is a party to any agreement or contract or subject to any
restriction contained in its operative documents which could reasonably be
expected to have a Material Adverse Effect.

 

5.20.    
Labor Matters.

 

Except
as set forth on Schedule 5.20, no Loan Party is subject to any labor or
collective bargaining agreement. There are no existing or threatened strikes,
lockouts or other labor disputes involving any Loan Party that singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect. Hours
worked by and payment made to employees of the Loan Parties are not in
violation of the Fair Labor Standards Act or any other applicable law, rule or
regulation dealing with such matters, other than violations which could not
reasonable be expected to have a Material Adverse Effect.

 

40

 

5.21.     No Default.

 

No
Event of Default or Default exists or would result from the incurrence by any
Loan Party of any Debt hereunder or under any other Loan Document.

 

5.22.     Related Agreements.

 

Borrowers
have furnished Agent a true and correct copy of each of the Related Agreements.
Each Borrower and, to each Borrower’s actual knowledge, each other party to the
Related Agreements (other than any Lender signatory thereto or any natural
person), has duly taken all necessary organizational action to authorize the
execution, delivery and performance of the Related Agreements and the
consummation of transactions contemplated thereby. As of the Closing Date, the
Related Transactions have been consummated (or are being consummated
substantially contemporaneously with the initial credit extension hereunder) in
accordance with the terms of the Related Agreements. The Related Transactions
will comply with all applicable legal requirements, and all necessary
governmental, regulatory, creditor, shareholder, partner and other material
consents, approvals and exemptions required to be obtained by a Loan Party and,
to each Borrower’s actual knowledge, each other party to the Related Agreements
(other than any Lender signatory thereto) in connection with the Related
Transactions will be, prior to consummation of the Related Transactions, duly
obtained and will be in full force and effect. As of the date of the Related
Agreements, all applicable waiting periods with respect to the Related
Transactions will have expired without any action being taken by any competent
governmental authority which restrains, prevents or imposes material adverse
conditions upon the consummation of the Related Transactions. The execution and
delivery of the Related Agreements did not, and the consummation of the Related
Transactions will not, violate any statute or regulation of the United States
(including any securities law) or of any state or other applicable
jurisdiction, or any order, judgment or decree of any court or governmental
body binding on any Loan Party or, to each Borrower’s actual knowledge, any
other party to the Related Agreements (other than any Lender signatory
thereto), or result in a breach of, or constitute a default under, any material
agreement, indenture, instrument or other document, or any judgment, order or
decree, to which any Loan Party is a party or by which any Loan Party is bound
or, to each Borrower’s actual knowledge, to which any other party to the
Related Agreements (other than any Lender signatory thereto) is a party or by
which any such party is bound. As of the Closing Date, no statement or
representation made in the Related Agreements by any Loan Party or, to each
Borrower’s actual knowledge, any other Person (other than any Lender signatory
thereto), contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not misleading as of the time that such statement or representation is
made.

 

5.23.     Inactive Subsidiary.

 

The
Inactive Subsidiary has been dissolved (such that the assets and liabilities of
the Inactive Subsidiary are now assets and liabilities of Opco Borrower) in
accordance with applicable laws.

 

Section 6.    
Affirmative Covenants.

 

Until the
expiration or termination of the Commitments and thereafter until all
Obligations (other than contingent indemnification obligations to the extent no
claim giving rise thereto has been asserted) of Borrowers and the other Loan
Parties hereunder and under the other Loan Documents are paid in full and all
Letters of Credit have been terminated, each Borrower agrees that, unless at
any time Required Lenders shall otherwise expressly consent in writing, it
will:

 

41

 

6.1.    
Information.

 

Furnish
to Agent and each Lender;

 

6.1.1.     Annual Report.

 

Promptly
when available and in any event within (a) 150 days after the close of the
Fiscal Year ending December 31, 2005, and (b) 120 days after the
close of each other Fiscal Year: (i) a copy of the annual audit report of Holdings and the Subsidiaries for
such Fiscal Year, including therein a consolidated balance sheet and statement
of earnings and cash flows of Holdings and the Subsidiaries as at the end of
such Fiscal Year, certified without qualification (except for qualifications
relating to changes in accounting principles or practices reflecting changes in
generally accepted principles of accounting and required or approved by
Holdings’ independent certified public accountants) by independent auditors of
recognized standing selected by Holdings and reasonably acceptable to Agent,
together with (A) a written statement from such accountants to the effect
that in making the examination necessary for the signing of such annual audit
report by such accountants, nothing came to their attention that caused them to
believe that Borrowers were not in compliance with any provision of Section 7.1,
7.3, 7.4 or 7.14 insofar as such provision relates to
accounting matters or, if something has come to their attention that caused
them to believe that Borrowers were not in compliance with any such provision,
describing such non-compliance in reasonable detail and (B) a comparison
with the previous Fiscal Year; and (ii) a consolidating balance sheet of
Holdings and the Subsidiaries as of the end of such Fiscal Year and
consolidating statements of earnings and cash flows for Holdings and the
Subsidiaries for such Fiscal Year, together with a comparison of actual results
for such Fiscal Year with the budget for such Fiscal Year, each certified by
the chief financial officer of Holdings.

 

6.1.2.     Interim Reports.

 

(a) Promptly when available and in any event
within 45 days after the end of each month (commencing with November, 2005),
consolidated and consolidating balance sheets of Holdings and the Subsidiaries
as of the end of such month, together with consolidated and consolidating
statements of earnings and a consolidated and consolidating statement of cash
flows for such month and for the period beginning with the first day of such
Fiscal Year and ending on the last day of such month, together with a
comparison with the corresponding period of the previous Fiscal Year and a
comparison with the budget for such period of the current Fiscal Year,
certified by the chief financial officer of Holdings.

 

(b) Promptly when available and in any event
within 45 days after the end of each Fiscal Quarter (or within 45 days of the
end of each month if requested by Agent), a written statement of Holdings’
management setting forth a discussion of Holdings’ financial condition, changes
in financial condition and results of operations.

 

6.1.3.     Compliance
Certificate and Excess Cash Flow Certificate.

 

(a) Contemporaneously
with the furnishing of a copy of each annual audit report pursuant to Section 6.1.1
and each set of financial statements pursuant to Section 6.1.2(a) for
the last month of a Fiscal Quarter a duly completed Compliance Certificate,
with appropriate insertions, dated the date of such annual report or such
quarterly statements, and signed by the chief financial officer of Holdings,
containing a computation of each of the financial ratios and restrictions set
forth in Section 7.14 and to the effect that such officer has not
become aware of any Event of Default or Default that has occurred and is
continuing or, if there is any such event, describing it and the steps, if any,
being taken to cure it.

 

42

 

(b) Contemporaneously with the making of the
Excess Cash Flow payment required by Section 2.10.2(a), a duly
completed Excess Cash Flow Certificate, with appropriate insertions, signed by
the chief financial officer or the vice president of finance of Opco Borrower,
calculating the Excess Cash Flow payment then being made.

 

6.1.4.     Reports to SEC and
Shareholders.

 

Promptly upon the tiling or sending thereof, copies of
(a) all regular, periodic or special reports of each Loan Party filed with
the Securities Exchange Commission, (b) all registration statements of
each Loan Party filed with the Securities Exchange Commission (other than on Form S-8)
and (c) all proxy statements or other communications made to security
holders generally.

 

6.1.5.     Notice of Default;
Litigation; ER1SA and Other Matters.

 

Promptly upon becoming aware of any of the following,
written notice describing the same and the steps being taken by the applicable
Loan Party affected thereby with respect thereto:

 

(a) the occurrence of an Event of Default or a
Default;

 

(b) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by any Borrower to Lenders
which has been instituted or, to the knowledge of any Borrower, is threatened
against any Loan Party or to which any of the properties of any thereof is
subject which could reasonably be expected to have a Material Adverse Effect;

 

(c) the institution of any steps by any member of
the Controlled Group or any other Person to terminate any Pension Plan, or the
failure of any member of the Controlled Group to make a required contribution
to any Pension Plan (if such failure is sufficient to give rise to a Lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in the
requirement that any Loan Party furnish a bond or other security to the PBGC or
such Pension Plan, or the occurrence of any event with respect to any Pension
Plan or Multiemployer Pension Plan which could result in the incurrence by any
member of the Controlled Group of any material liability, fine or penalty
(including any claim or demand for withdrawal liability or partial withdrawal
from any Multiemployer Pension Plan), or any material increase in the
contingent liability of any Loan Party with respect to any post-retirement
welfare plan benefit, or any notice that any Multiemployer Pension Plan is in
reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of an excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the IRC, that any such plan is or may be terminated, or that any such plan
is or may become insolvent:

 

(d) any cancellation or material change in any
insurance maintained by any Loan Party:

 

(e) any Loan Party becomes contractually
obligated to pay compensation to any third party with respect to any
Proprietary Rights used in connection with any services or products sold, licensed
or distributed by any Loan Party;

 

(f) any Loan Party infringes on any intellectual
property rights of any third party or any third party infringes on the
Proprietary Rights of any Loan Party;

 

(g) the institution or threat of institution of
any claim with respect to the Proprietary Rights against any Loan Party or any
other Person, (i) alleging that the manufacture, sale, licensing or use of
any Proprietary Rights as manufactured, sold, licensed or used by any Loan
Party or any third party infringes on any intellectual property rights of any
third party, (ii) against the use by any Loan Party or

 

43

 

any third party of any
technology, know-how or computer software used in any Loan Party’s business or (iii) challenging
the ownership by any Loan Party, or the validity or effectiveness, of any such
Proprietary Rights; or

 

(h) any other event (including (i) any
violation of any Environmental Law or the assertion of any Environmental Claim
or (ii) the enactment or effectiveness of any law, rule or
regulation) which could reasonably be expected lo have a Material Adverse
Effect.

 

6.1.6.     Availability
Certificate.

 

Within 45 days of the end of each month, an
Availability Certificate dated as of the end of the most recently ended month
and executed by a chief financial officer of Administrative Borrower on behalf
of all Borrowers: provided that at any time an Event of Default exists. Agent
may require Administrative Borrower to deliver Availability Certificates more
frequently.

 

6.1.7.     Management Report.

 

Promptly upon receipt thereof, copies of all detailed
financial and management reports submitted to any Loan Party by independent
auditors in connection with each annual or interim audit made by such auditors
of the books of any Loan Party.

 

6.1.8.     Projections.

 

As soon as practicable, and in any event prior to the
commencement of each Fiscal Year, financial projections for Holdings and the
Subsidiaries for such Fiscal Year (including monthly operating and cash flow
budgets) prepared in a manner consistent with the projections delivered by
Holdings to Agent prior to the Closing Date or otherwise in a manner reasonably
satisfactory to Agent, accompanied by a certificate of a chief financial
officer of Holdings on behalf of all Borrowers to the effect that (a) such
projections were prepared by Holdings in good faith, (b) Holdings has a
reasonable basis for the assumptions contained in such projections and (c) such
projections have been prepared in accordance with such assumptions.

 

6.1.9.     Other Information.

 

Promptly from time to time, such other information
concerning any Loan Party as any Lender or Agent may reasonably request.

 

6.2.    
Books; Records: Inspections.

 

Keep, and cause
each other Loan Party to keep, its books and records in accordance with sound
business practices sufficient to allow the preparation of financial statements
in accordance with GAAP; permit, and cause each other Loan Party to permit,
Agent (accompanied by any Lender) or any representative thereof to inspect the
properties and operations of such Loan Party; and permit, and cause each other
Loan Party to permit, at any reasonable time and with reasonable notice (or at
any time without notice if an Event of Default exists), Agent (accompanied by
any Lender) or any representative thereof to visit any or all of its offices,
to discuss its financial matters with its officers and its independent auditors
(and each Borrower hereby authorizes such independent auditors to discuss such
financial mailers with any Lender or Agent or any representative thereof), and
to examine (and photocopy extracts from) any of its books or other records; and
permit, and cause each other Loan Party to permit, Agent and its
representatives to inspect the Collateral and other tangible assets of such
Loan Party, and to inspect, audit, check and make copies of and extracts from
the books, records, computer data, computer programs, journals, orders,
receipts, correspondence and other data relating to any Collateral. All
out-of-pocket

 

44

 

expenses of Agent
incurred in connection with such inspections or audits shall be at Borrowers’
expense, provided that so long as no Event of Default or Default exists,
Borrowers shall not be required to reimburse Agent for such out-of-pocket
expenses more frequently than once each Fiscal Year.

 

6.3.     Maintenance of
Property; Insurance.

 

(a) Keep, and cause each other Loan Party to
keep, all property useful and necessary in the business of the Loan Parties in
good working order and condition, ordinary wear and tear excepted.

 

(b) Maintain, and cause each other Loan Party to
maintain, with responsible insurance companies, such insurance coverage as
shall be required by all laws, governmental regulations and court decrees and
orders applicable to it and such other insurance, to such extent and against
such hazards and liabilities, as is customarily maintained by companies
similarly situated. Upon request of Agent or any Lender, Administrative
Borrower shall furnish to Agent or such Lender a certificate setting forth in
reasonable detail the nature and extent of all insurance maintained by each
Loan Party. Borrowers shall cause each issuer of an insurance policy to provide
Agent with an endorsement (i) showing Agent as a loss payee with respect
to each policy of property or casualty insurance and naming Agent as an
additional insured with respect to each policy of liability insurance, (ii) providing
that 30 days’ notice will be given to Agent prior to any cancellation of, or
reduction or change in coverage provided by or other material modification to
such policy and (iii) reasonably acceptable in all other respects to
Agent. Borrowers shall execute and deliver to Agent a collateral assignment, in
form and substance satisfactory to Agent, of each business interruption
insurance policy maintained by the Loan Parties.

 

(c) Unless Borrowers provide Agent with evidence
of the continuing insurance coverage required by this Agreement, Agent may
purchase insurance at Borrowers’ expense to protect Agent’s and Lenders’
interests in the Collateral. This insurance may, but need not, protect each
Loan Party’s interests. The coverage that Agent purchases may, but need not,
pay any claim that is made against any Loan Party in connection with the
Collateral. Borrowers may later cancel any insurance purchased by Agent, but
only after providing Agent with evidence that Borrowers have obtained the
insurance coverage required by this Agreement. If Agent purchases insurance for
the Collateral, as set forth above, Borrowers will be responsible for the costs
of that insurance, including interest and any other charges that may be imposed
with the placement of the insurance, until the effective date of the cancellation
or expiration of the insurance and the costs of the insurance may be added to
the principal amount of the Loans owing hereunder.

 

6.4.     Compliance with Laws;
Payment of Taxes and Liabilities.

 

(a) Comply,
and cause each other Loan Party to comply, in all material respects with all
applicable laws, rules, regulations, decrees, orders, judgments, licenses and
permits, except where failure to comply could not reasonably be expected to
have a Material Adverse Effect; (b) without limiting clause (a) above,
ensure, and cause each other Loan Party to ensure, that no person who owns a
controlling interest in or otherwise controls a Loan Party is or shall be (i) listed
on the Specially Designated Nationals and Blocked Person List maintained by the
Office of Foreign Assets Control (“OFAC”). Department of the Treasury,
and/or any other similar lists maintained by OFAC pursuant to any authorizing
statute, Executive Order or regulation or (ii) a person designated under Section 1(b),
(c) or (d) or Executive Order No. 13224 (September 23,
2001), any related enabling legislation or any other similar Executive Orders; (c) without
limiting clause (a) above, comply and cause each other Loan Party to
comply, with all applicable Bank Secrecy Act and anti-money laundering laws and
regulations and (d) pay, and cause each other Loan Party to pay, prior to
delinquency, all taxes and other governmental charges against it or any of its
property, as well as claims of any kind which, if unpaid, could become a Lien
on any of its property; provided that the foregoing shall not require any Loan
Party to pay any such tax or charge so long as it

 

45

 

shall contest the
validity thereof in good faith by appropriate proceedings and shall set aside
on its books adequate reserves with respect thereto in accordance with GAAP.

 

6.5.     Maintenance
of Existence.

 

Maintain
and preserve, and (subject to Section 7.5) cause each other Loan
Party to maintain and preserve, (a) its existence and good standing in the
jurisdiction of its organization and (b) its qualification to do business
and good standing in each jurisdiction where the nature of its business makes
such qualification necessary, other than any such jurisdiction where the
failure to be qualified or in good standing could not reasonably be expected to
have a Material Adverse Effect.

 

6.6.     Employee Benefit Plans.

 

Maintain,
and cause each other Loan Party to maintain, each Pension Plan in substantial
compliance with all applicable requirements of law and regulations.

 

6.7.     Environmental Matters.

 

If any release or disposal of
Hazardous Substances shall occur or shall have occurred on any real property or
any other assets of any Loan Party, cause, or direct the applicable Loan Party
to cause, the prompt containment and removal of such Hazardous Substances and
the remediation of such real properly or other assets as is necessary to comply
with all Environmental Laws and to preserve the value of such real property or
other assets. Without limiting the generality of the foregoing, each Borrower
shall, and shall cause each other Loan Party to, comply with each valid Federal
or state judicial or administrative order requiring the performance at any real
property by any Loan Party of activities in response to the release or
threatened release of a Hazardous Substance (provided that no Loan Party shall
be required to comply with any such order while it is being diligently
contested in good faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP shall be maintained).

 

6.8.     Intellectual Property.

 

Notify,
and cause each other Loan Party to notify, Agent whenever such Loan Party,
either by itself or through any agent, employee, licensee or designee, shall
intend to file an application for the registration of any Intellectual Property
with the United States Patent and Trademark Office, the United States Copyright
Office or any similar office or agency in any other country or any political
subdivision thereof, and concurrently with the filing of such application.
Borrower shall or shall cause such Loan Party to cause a security agreement (in
form and substance satisfactory to Agent) to be executed and delivered,
evidencing Agent’s and Lenders’ security interest in such Intellectual
Property, subject to such application being tiled in the applicable filing
office. Upon the request of Agent, Borrower shall, or shall cause such Loan
Party, to execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as Agent may request to evidence Agent’s and
Lenders’ security interest in any Copyright, Patent or Trademark (as each such
term is defined in the Guarantee and Collateral Agreement) and the goodwill and
general intangibles of such Borrower or other Loan Party relating thereto or
represented thereby. Borrowers shall, and shall cause each other Loan Party to,
cause the representations and warranties set forth in Section 5.18
to be true and correct in all material respects at all times (except to the
extent that such representations and warranties relate to an earlier date, in
which case such representations and warranties were true and correct in all
material respects as of such date).

 

6.9.     Further Assurances.

 

Take,
and cause each other Loan Party to take, such actions as are necessary or as
Agent or the Required Lenders may reasonably request from time to time to
ensure that the Obligations of each

 

46

 

Borrower and each other
Loan Party under the Loan Documents are secured by a first priority perfected
Lien in favor of Agent (subject only to the Liens permitted by Section 7.2)
in substantially all of the assets (other than leasehold interests) of each
Borrower and each Loan Party (as well as all equity interests of each Borrower
and each Domestic Subsidiary and 65% of all equity interests of each Foreign
Subsidiary) and guaranteed by each Loan Party other than Borrowers (including,
promptly upon the acquisition or creation thereof, any Domestic Subsidiary
acquired or created after the Closing Date), in each case including (a) the
execution and delivery of guaranties, security agreements, pledge agreements,
mortgages, deeds of trust, financing statements and other documents, and the
filing or recording of any of the foregoing and (b) the delivery of
certificated securities and other Collateral with respect to which perfection
is obtained by possession.

 

Section 7. Negative
Covenants.

 

Until
the expiration or termination of the Commitments and thereafter until all
Obligations (other than contingent indemnification obligations to the extent no
claim giving rise thereto has been asserted) of Borrowers and the other Loan
Parties hereunder and under the other Loan Documents are paid in full and all Letters
of Credit have been terminated, each Borrower agrees that, unless at any time
Required Lenders shall otherwise expressly consent in writing, it will:

 

7.1.    
Debt.

 

Not,
and not permit any other Loan Party to, create, incur, assume or suffer to exist
any Debt, except:

 

(a) Obligations under this Agreement and the
other Loan Documents;

 

(b) Debt (other than Debt incurred to finance the
Harrisonburg Real Property Expenditures) secured by Liens permitted by Section 7.2(d),
and extensions, renewals and refinancings thereof (provided that the aggregate
amount of all such Debt at any time outstanding during a Fiscal Year shall not
exceed the Purchase Money Debt Limit); and Debt in an aggregate amount not to
exceed $1,000,000 incurred on or prior to March 31, 2006 to finance the
Harrisonburg Real Property Expenditures (which may also be secured by Liens
permitted by Section 7.2(d)), and extensions, renewals and refinancings
thereof (without increase in the amount thereof);

 

(c) Debt of any Domestic Subsidiary owing to any
Loan Party subject to the limitations set forth in Section 7.11(1),
and Debt of Opco Borrower owing to any Loan Party; provided that such Debt
shall be evidenced by a demand note in form and substance reasonably
satisfactory to Agent and pledged and delivered to Agent pursuant to the
Guarantee and Collateral Agreement as additional collateral security for the
Obligations, and the obligations under such demand note shall be subordinated
to the Obligations hereunder in a manner reasonably satisfactory to Agent;

 

(d) Hedging Obligations of a Lender or an
Affiliate thereof for bona tide hedging purposes and not for speculation;

 

(e) Debt described on Schedule 7.1 as of
the Closing Date, and any extension, renewal or refinancing thereof so long as
the principal amount thereof is not increased;

 

(f) Contingent
Obligations arising with respect to customary indemnification obligations in
favor of purchasers in connection with dispositions permitted under Section 7.5;

 

(g) Debt
of Parent payable to officers, directors, managers (that are natural persons)
and employees of Opco Borrower or its Subsidiaries or their assigns, estates or
heirs, issued to repurchase

 

47

 

equity securities of
Parent held by such payee in accordance with and subject to the limitations set
forth in Section 7.4(v);

 

(h) Debt
of Fairfield U.K. owing to Opco Borrower, subject to the limitations set forth
in Section 7.11(j); and

 

(i) other
Debt, in addition to the Debt listed above, in an aggregate outstanding amount
not at any time exceeding $100,000.

 

7.2.    
Liens.

 

Not,
and not permit any other Loan Party to, create or permit to exist any Lien on
any of its real or personal properties, assets or rights of whatsoever nature
(whether now owned or hereafter acquired), except:

 

(a) Liens for taxes or other governmental charges
not at the time delinquent or thereafter payable without penalty or being
diligently contested in good faith by appropriate proceedings and, in each
case, for which it maintains adequate reserves in accordance with GAAP and the
execution or other enforcement of which is effectively stayed;

 

(b) Liens arising in the ordinary course of
business (such as (i) Liens of carriers, warehousemen, mechanics,
landlords and materialmen and other similar Liens imposed by law and (ii) Liens
incurred in connection with worker’s compensation, unemployment compensation
and other types of social security (excluding Liens arising under ERISA) or in
connection with surety bonds, bids, performance bonds and similar obligations)
for sums not overdue or being diligently contested in good faith by appropriate
proceedings and not involving any deposits or advances or borrowed money or the
deferred purchase price of property or services and, in each case, for which it
maintains adequate reserves in accordance with GAAP and the execution or other
enforcement of which is effectively stayed;

 

(c) Liens described on Schedule 7.2 as of
the Closing Date;

 

(d) subject to the limitation set forth in Section 7.1(b),
(i) Liens arising in connection with Capital Leases (and attaching only to
the property being leased), (ii) Liens existing on property at the time of
the acquisition thereof by Opco Borrower or any Subsidiary (and not created in
contemplation of such acquisition) and (iii) Liens that constitute
purchase money Liens on any property securing debt incurred for the purpose of
financing all or any part of the cost of acquiring such property, provided that
any such Lien attaches to such property within 60 days of the acquisition
thereof and attaches solely to the property so acquired and all proceeds
thereof;

 

(e) attachments, appeal bonds, judgments and
other similar Liens, for sums not exceeding $250,000 arising in connection with
court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;

 

(f) easements, rights of way, restrictions, minor
defects or irregularities in title and other similar Liens not interfering in
any material respect with the ordinary conduct of the business of Opco Borrower
or any Subsidiary;

 

(g) Liens
arising under the Loan Documents; and

 

48

 

(h) the replacement, extension
or renewal of any Lien permitted by clause (c) or (d) above upon or
in the same property subject thereto arising out of the extension, renewal or
replacement of the Debt secured thereby (without increase in the amount thereof).

 

7.3.     Operating Leases.

 

Not
permit the aggregate amount of all rental payments under Operating Leases
(other than Short Term Kiosk Leases) made (or scheduled to be made) by Holdings
and its Subsidiaries (on a consolidated basis) to exceed $1,500,000 in any
Fiscal Year and not permit the average (calculated on a per kiosk basis) per
annum amount of rental payments under Short Term Kiosk Leases made (or
scheduled to be made) by Holdings and its Subsidiaries to exceed $65,000 at any
time.

 

7.4.     Restricted Payments.

 

Not,
and not permit any other Loan Party to, (a) make any dividend or other
distribution to any of its equity holders (other than distributions in the form
of equity), (b) purchase or redeem any of its equity interests or any
warrants, options or other rights in respect thereof (including, without
limitation, redeem the Class B Preferred Stock of Parent as provided for
in the Parent’s Amended and Restated Certificate of Incorporation), or (c) pay
any management fees or similar fees to any of its equity holders or any
Affiliate thereof or (d) make any redemption, prepayment (whether
mandatory or optional), defeasance, repurchase or any other payment in respect
of any Debt that is subordinated to the Obligations (other than intercompany
Debt permitted by Section 7.1(c) to the extent such payments
are permitted by the subordination terms of such Debt) or (e) set aside
funds for any of the foregoing. Notwithstanding the foregoing, (i) any
Subsidiary may pay dividends or make other distributions to Opco Borrower or to
a domestic Wholly-Owned Subsidiary of Opco Borrower; (ii) Opco Borrower
may make distributions to Holdings (and Holdings may distribute the same to
Parent) to permit Holdings or Parent, as applicable, to pay federal and state
income taxes then due and owing by Holdings or Parent, as applicable (or Parent’s
equity holders), so long as the amount of such distributions shall not be
greater, nor the receipt by Opco Borrower of tax benefits less, than they would
have been had Opco Borrower not filed consolidated income tax returns with such
Person, (iii) so long as no Event of Default or Default exists or would
result therefrom, Opco Borrower may pay management fees to Sponsor (and/or any
Affiliates of Sponsor) in an aggregate amount not exceeding $500,000 in any
Fiscal Year; (iv) so long as no Event of Default exists or would be caused
thereby, Opco Borrower may make dividends or other distributions to Holdings
(and Holdings may distribute the same to Parent) in any Fiscal Year ending on or
after December 31, 2007 to permit Parent to make dividends or other
distributions to any of its equity holders in an amount by which Excess Cash
Flow for the previous Fiscal Year exceeds Capital Expenditures made in such
Fiscal Year in excess of the Maximum Capital Expenditures Limit, provided
EBITDA for the previous Fiscal Year equals or exceeds $12,000,000 and the Total
Debt (after making such dividend or distribution) to EBITDA Ratio for the most
recent Computation Period is less than 1.0:1.0, (v) Opco Borrower may make
distributions to Holdings (and Holdings may make distributions to Parent) to
permit Holdings or Parent, as applicable, to pay franchise taxes and other
similar licensing expenses, legal fees and audit and tax preparation fees
incurred for the benefit of Opco Borrower and in the ordinary course of
business in an amount not to exceed $100,000 in the aggregate in any Fiscal
Year, (vi) Opco Borrower may make distributions to Holdings (and Holdings
may make distributions to Parent) to permit Parent to repurchase its equity
securities (or to pay promissory notes issued by Parent to repurchase its
equity securities), in each case from any officers, directors, managers (that
are natural persons) and employees of Opco Borrower or its Subsidiaries or
their assigns, estates or heirs upon the death, disability, retirement or
termination of employment or engagement of such Persons, in an amount not to
exceed $250,000 in the aggregate in any Fiscal Year and $1,000,000 in the
aggregate after the Closing Date, as long as no Default or Event of Default
exists or would result therefrom (as determined, in respect of Section 7.14,
on a pro forma basis as of the last date for which monthly or annual financial
statements have been delivered pursuant to Section 6.1), (vii) Opco
Borrower may make distributions to Holdings (and Holdings may

 

49

 

make distributions to
Parent) in an amount equal to any proceeds received by Opco Borrower or any of
its Subsidiaries as beneficiary of any life insurance policies covering any
officer, director, manager or employee of Opco Borrower or any of its
Subsidiaries, as long as no Default or Event of Default exists or would result
therefrom (as determined, in respect of Section 7.14, on a pro
forma basis as of the last date for which monthly or annual financial
statements have been delivered pursuant to Section 6.1) and only to
the extent (A) such distributions are utilized by Parent to repurchase its
equity securities from the estate or heirs of the officer, director, manager or
employee who is the subject of such insurance policies and (B) Opco
Borrower or the applicable Subsidiary shall have executed and delivered to
Agent a collateral assignment, in form and substance satisfactory to Agent, of
such life insurance policy maintained by Opco Borrower or such Subsidiary, and (viii) distributions
may be made by Holdings or Opco Borrower with respect to its obligations under
Sections 2.5, 2.6, 5.4, 5.5, 5.9 and 8.1 of the Stock Purchase Agreement.
Without limiting anything contained in this Section 7.4, any
redemption of the Class B Preferred Stock of Parent as provided for in the
Parent’s Amended and Restated Certificate of Incorporation shall only be made
with the prior written consent of the Required Lenders.

 

7.5.    
Mergers; Consolidations; Asset Sales.

 

(a) Not, and not permit any other Loan Parry to,
be a party to any merger or consolidation, except for any such merger or
consolidation of any Subsidiary into Opco Borrower or any domestic Wholly-Owned
Subsidiary of Opco Borrower.

 

(b) Not, and not permit any other Loan Party to,
sell, transfer, dispose of, convey or lease any of its assets or equity
interests, or sell or assign with or without recourse any receivables, except
for (i) sales of inventory in the ordinary course of business, (ii) sales
and dispositions of assets (excluding any equity interests of any Borrower or
any Subsidiary) for at least fair market value (as determined by the Board of
Directors of Opco Borrower) so long as the net book value of all assets sold or
otherwise disposed of in any Fiscal Year does not exceed 10% of the net book
value of the property, plant and equipment of Opco Borrower and the
Subsidiaries as of the last day of the preceding Fiscal Year and (iii) dispositions
of assets by a Wholly-Owned Subsidiary of any Borrower to Opco Borrower or a
domestic Wholly-Owned Subsidiary of Opco Borrower that is a Loan Party.
Notwithstanding the foregoing, any Loan Party may sell, transfer or dispose of
assets based upon its own reasonable determination of fair market value (and
without an Opco Borrower Board of Director’s determination) provided that the
aggregate book value of all assets sold, transferred or otherwise disposed of
in this manner shall not exceed $100,000 in any Fiscal Year.

 

7.6.    
Modification of Organizational Documents.

 

Not
permit the charter, by-laws or other organizational documents of any Loan Party
to be amended or modified in any way which could reasonably be expected to
materially adversely affect the interests of Agent or any Lender.

 

7.7.    
Use of Proceeds.

 

Use
the proceeds of the Loans, and the Letters of Credit, solely to finance the
Related Transactions and to pay certain fees and expenses associated therewith,
for working capital, for Capital Expenditures and for other general business
purposes of Holdings and the Subsidiaries (including, without limitation, fees
and expenses incurred in connection with the Related Agreements and the Loan
Documents); and not use or permit any proceeds of any Loan to be used, either
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of “purchasing or carrying” any Margin Stock.

 

50

 

7.8.    
Transactions with Affiliates.

 

Not,
and not permit any other Loan Party to, enter into, or cause, suffer or permit
to exist any transaction, arrangement or contract with any of its other
Affiliates, which is on terms which are less favorable than are obtainable from
any Person which is not one of its Affiliates (excluding transactions
specifically permitted under this Agreement).

 

7.9.    
Inconsistent Agreements.

 

Not,
and not permit any other Loan Party to, enter into any agreement containing any
provision which would (a) be violated or breached by any borrowing by any
Borrower hereunder or by the performance by any Loan Party of any of its
Obligations hereunder or under any other Loan Document. (b) prohibit any
Loan Party from granting to Agent and Lenders a Lien on any of its assets or (c) create
or permit to exist or become effective any encumbrance or restriction on the
ability of any other Loan Party to (i) pay dividends or make other
distributions to any Borrower or any other Subsidiary, or pay any Debt owed to
any Borrower or any other Subsidiary, (ii) make loans or advances to any
Borrower or any other Loan Party or (iii) transfer any of its assets or
properties to any Loan Party other than (A) customary restrictions and
conditions contained in agreements relating to the sale of any assets of the
Borrower or any Subsidiary or all or a substantial part of the equity
securities of any Subsidiary pending such sale, provided such restrictions and
conditions apply only to the assets or Subsidiary to be sold and such sale is
permitted under this Agreement. (B) restrictions or conditions imposed by
any agreement relating to purchase money Debt, Capital Leases and other secured
Debt permitted by this Agreement if such restrictions or conditions apply only
to the property or assets securing such Debt, and (C) customary provisions
in leases and other contracts restricting the assignment thereof.

 

7.10.    
Business Activities.

 

Not,
and not permit any other Loan Party to, engage in any line of business other
than the businesses engaged in on the Closing Date and businesses reasonably
related thereto (including, without limitation, cultural instruction, reading
instruction, speech comparison and recognition technology, language practice
and experience and language travel services). Not, and not permit any other
Loan Party to, issue any equity interest other than (a) any issuance of
shares of Parent’s common equity securities pursuant to any employee or
director option or stock purchase program, benefit plan or compensation
program, (b) any issuance of shares of Parent’s common equity securities
in connection with an Acquisition approved by Agent, (c) any issuance by a
Subsidiary to Opco Borrower or another Subsidiary in accordance with Section 7.4
and any issuance by a Loan Party in accordance with Section 7.4(a),
or (d) any issuance by Parent which does not result in an Event of Default
under Section 8.1.9 hereof.

 

7.11.    
Investments.

 

Not,
and not permit any other Loan Party to. make or permit to exist any Investment
in any other Person or create or establish any Subsidiary, except the
following:

 

(a) contributions by Parent to Holdings, and
contributions by any Borrower to the capital of any Wholly-Owned Subsidiary in
existence on the Closing Date that is also a Domestic Subsidiary, or by any
Subsidiary to the capital of any other Wholly-Owned Subsidiary in existence on
the Closing Date that is also a Domestic Subsidiary, so long as the recipient
of any such capital contribution has guaranteed the Obligations (or is a
Borrower hereunder) and such guaranty is (or such Borrower Obligations are)
secured by a pledge of all of its equity interests and substantially all of its
real and personal property, in each case in accordance with Section 6.9;

 

(b) Investments
constituting Debt permitted by Section 7.1(c);

 

51

 

(c) Contingent Obligations constituting Debt
permitted by Section 7.1 or Liens permitted by Section 7.2;

 

(d) Cash Equivalent Investments;

 

(e) bank deposits in the ordinary course of business;

 

(f) Investments
in securities of Account Debtors received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
Account Debtors;

 

(g) Investments
listed on Schedule 7.11 as of the Closing Date;

 

(h) any purchase or other acquisition by Opco
Borrower or any Wholly-Owned Subsidiary that is also a Domestic Subsidiary of
the assets or equity interests of any Domestic Subsidiary;

 

(i) any
Acquisition approved by Agent;

 

(j) Investments in Fairfield U.K., so long as the
aggregate amount of such Investments does not exceed $1,500,000 at any time
outstanding;

 

(k) Investments consisting of loans to officers
and employees of any of Borrowers or Subsidiaries in an amount not to exceed
$250,000 in the aggregate at any time outstanding;

 

(l) Holdings and/or Opco Borrower may establish
up to two (2) Domestic Subsidiaries and may make Investments in such
Domestic Subsidiaries, so long as the aggregate amount of such Investments does
not exceed $3,000,000 at any time outstanding, provided that (i) Agent
shall receive ten Business Days’ prior written notice of Opco Borrower’s
intention to form such Domestic Subsidiary, (ii) on the date of
incorporation or other formation, no Default or Event of Default exists or would
result therefrom, and (iii) Opco Borrower complies, and causes such
Domestic Subsidiary to comply, with the provisions set forth in Section 6.9
hereof;

 

(m) Investments in Foreign Subsidiaries
(excluding Fairfield U.K.) operated as sales, distribution or production
offices (such production to be limited to localization, translation and
production of Opco Borrower’s products and not content creation or other
product development), so long as the aggregate amount of such Investments do
not exceed $1,000,000 (the “Initial Cap”) at any time outstanding, provided
that the Initial Cap shall increase by an additional $1,000,000 per Fiscal Year
if EBITDA for the previous Fiscal Year equals or exceeds $12,000,000 and the
Total Debt (after making such Investment) to EBITDA Ratio for the most recent
Computation Period is less than 1.0:1.0; provided further that at no time shall
the Investment permitted by this clause (m) exceed $3,500,000 in the
aggregate at any time outstanding; and

 

(n) other Investments in an amount not to exceed
$100,000 during the term of this Agreement.

 

7.12.     Restriction of
Amendments to Certain Documents.

 

Not
amend or otherwise modify, or waive any rights under any Related Agreement,
other than immaterial amendments, modifications and waivers not adverse to the
interests of Agent or any Lender.

 

7.13.     Fiscal Year.

 

Not
change its Fiscal Year.

 

52

 

7.14.    
Financial Covenants.

 

7.14.1.     Fixed Charge
Coverage Ratio.

 

Not
permit the Fixed Charge Coverage Ratio for any Computation Period ending on or
after March 31, 2006 to be less than 1.10:1.00.

 

7.14.2.     Interest Coverage
Ratio.

 

Not
permit the Interest Coverage Ratio for any Computation Period ending on or
after March 31, 2006 to be less than 3.00:1.00.

 

7.14.3.     [Intentionally
Omitted].

 

7.14.4.     Total Debt to
EBITDA Ratio.

 

Not
permit the Total Debt to EBITDA Ratio as of the last day of any Computation
Period to exceed the applicable ratio set forth below for such Computation Period:

 

	
  Computation

  Period Ending

  	
   

  	
  Total Debt to

  EBITDA Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2006, June 30, 2006 and September 30, 2006 

  	
   

  	
  2.75:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2006, March 31, 2007, June 30, 2007 and September 30, 2007 

  	
   

  	
  2.50:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2007 and the last day of each Fiscal Quarter thereafter 

  	
   

  	
  2.25:1.00

  	
   

  

 

7.14.5.
EBITDA.

 

Not
permit EBITDA for any Computation Period to be less than the applicable amount
set forth below for such Computation Period:

 

	
  Computation

  Period Ending

  	
   

  	
  EBITDA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2006, June 30, 2006 and September 30, 2006 

  	
   

  	
  $

  	
  6,500,000 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2006, March 31, 2007, June 30, 2007 and September 30, 2007 

  	
   

  	
  $

  	
  8,000,000 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2007, March 31, 2008, June 30, 2008 and September 30, 2008 

  	
   

  	
  $

  	
  9,000,000 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2008, March 31, 2009, June 30, 2009, September 30, 2009 and
  December 31, 2009 

  	
   

  	
  $

  	
  10,000,000 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2010 and the last day of  each Fiscal
  Quarter thereafter 

  	
   

  	
  $

  	
  11,000,000 

  	
   

  

 

53

 

7.14.6.    
Capital Expenditures.

 

Not
permit the aggregate amount of all Capital Expenditures made by Opco Borrower
and its Subsidiaries in any Fiscal Year to exceed the Maximum Capital
Expenditures Limit, provided that so long as no Event of Default or Default
exists or would result therefrom, Loan Parties may make Capital Expenditures in
any Fiscal Year ending on or after December 31, 2007 in excess of the
Maximum Capital Expenditures Limit only so long as the aggregate amount of such
excess Capital Expenditures does not exceed the amount by which Excess Cash
Flow for the previous Fiscal Year exceeds the amount of dividends or other
distributions pursuant to Section 7.4(iv) for such Fiscal Year.

 

7.15.     Bank Accounts.

 

Not, and not permit any other Loan Party, to maintain
or establish any new bank accounts other than the bank accounts set forth on Schedule
7.15 and such other bank accounts which have collectively an average daily
balance (calculated over the most recently ended calendar month) of less than
$75,000 without prior written notice to Agent and unless Agent or such Loan
Party and the bank at which the account is to be opened enter into a tri-party
agreement regarding such bank account pursuant to which such bank acknowledges
the security interest and control of Agent in such bank account and agrees to
limit its set-off rights on terms satisfactory to Agent; provided however that
the Note Payment Account shall not be subject to the foregoing requirements
until such time as the Holdings Promissory Note has been paid in full.

 

7.16.     Subsidiaries.

 

Not, and not permit any other Loan Party, to establish
or acquire any Subsidiary, except as permitted by Sections 7.11(l) or
7.1l(m).

 

Section 8.    
Events of Default; Remedies.

 

8.1.     Events of Default.

 

Each of the
following shall constitute an Event of Default under this Agreement:

 

8.1.1.     Non-Payment of
Credit.

 

Default in the payment when due of the principal of
any Loan; or default, and continuance thereof for 2 days, in the payment when
due of any interest, fee, reimbursement obligation with respect to any Letter
of Credit or other amount payable by any Loan Party hereunder or under any
other Loan Document.

 

8.1.2.     Default Under Other
Debt.

 

Any default shall occur under the terms applicable to
any Debt of any Loan Party in an aggregate amount (for all such Debt so
affected and including undrawn committed or available amounts and amounts owing
to all creditors under any combined or syndicated credit arrangement) exceeding
$250,000 and such default shall (a) consist of the failure to pay such
Debt when due, whether by acceleration or otherwise, or (b) accelerate the
maturity of such Debt or permit the holder or holders thereof, or any trustee
or agent for such holder or holders, to cause such Debt to become due and
payable

 

54

 

(or require any Loan
Party to purchase or redeem such Debt or post cash collateral in respect
thereof) prior to its expressed maturity.

 

8.1.3.     Bankruptcy;
Insolvency.

 

Any Loan Party becomes insolvent or generally fails to pay,
or admits in writing its inability or refusal to pay, debts as they become due;
or any Loan Party applies for, consents to, or acquiesces in the appointment of
a trustee, receiver or other custodian for such Loan Party or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application. consent or acquiescence, a trustee, receiver or
other custodian is appointed for any Loan Party or for a substantial part of
the property of any thereof and is not discharged within 60 days; or any
bankruptcy, reorganization, debt arrangement, or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution or liquidation proceeding,
is commenced in respect of any Loan Party, and if such case or proceeding is
not commenced by such Loan Party, it is consented to or acquiesced in by such
Loan Party, or remains for 60 days undismissed; or any Loan Party takes any
action to authorize, or in furtherance of, any of the foregoing.

 

8.1.4.     Non-Compliance with
Loan Documents.

 

(a) Failure
by any Borrower to comply with or to perform any covenant set forth in Sections
6.1.1, 6.1.2, 6.1.3, 6.1.4, 6.l.5(a), 6.1.6,
6.1.8, 6.3(b) and (c), 6.5, 6.7, 6.8 and 7; or (b) failure
by any Loan Party to comply with or to perform any other provision of this
Agreement or any other Loan Document applicable to it (and not constituting an
Event of Default under any other provision of this Section 8) and
continuance of such failure described in this clause (b) for 30 days
following the earlier of (a) any Loan Party receiving written notice
thereof or (b) any Loan Party acquiring actual knowledge thereof.

 

8.1.5.     Representations;
Warranties.

 

Any
representation or warranty made by any Loan Party herein or any other Loan
Document is untrue or misleading in any material respect, or any schedule,
certificate, financial statement, report, notice or other writing furnished by
any Loan Party to Agent or any Lender in connection herewith is untrue or
misleading in any material respect on the date as of which the facts therein
set forth are stated or certified.

 

8.1.6.     Pension Plans.

 

(a) Institution
of any steps by any Person to terminate a Pension Plan if as a result of such
termination any Loan Party or any member of the Controlled Group could be
required to make a contribution to such Pension Plan, or could incur a
liability or obligation to such Pension Plan, in excess of $250,000; (b) a
contribution failure occurs with respect to any Pension Plan sufficient to give
rise to a Lien under Section 302(f) of ERISA; or (c) there shall
occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan
and the withdrawal liability (without unaccrued interest) to Multiemployer
Pension Plans as a result of such withdrawal (including any outstanding
withdrawal liability that any Loan Party or any member of the Controlled Group
have incurred on the date of such withdrawal) exceeds $250,000.

 

8.1.7.     Judgments.

 

Final
judgments which exceed an aggregate of $250,000 shall be rendered against any
Loan Party and shall not have been paid, discharged or vacated or had execution
thereof stayed pending appeal within 30 days after entry or filing of such judgments.

 

55

 

8.1.8.     Invalidity of
Collateral Documents.

 

Any
Collateral Document shall cease to be in full force and effect in any material
respect (other than as a result of any action or inaction on the part of the
Agent or the Lenders or as a result of a release of Collateral or any Loan
Party in accordance with the terms of the Loan Documents); or any Loan Party
(or any Person by, through or on behalf of any Loan Party) shall contest in any
manner the validity, binding nature or enforceability of any Collateral
Document.

 

8.1.9.     Change of Control.

 

(a) Sponsor
and its Investment Affiliates shall collectively cease to, directly or
indirectly, own and control at least (i) 51% of the equity interests of
Parent or (ii) that percentage of the outstanding voting equity interests
of Parent necessary at all times to elect (through contract, ownership of
voting securities or otherwise) a majority of the board of directors (or
similar governing body) of Parent and to direct the management policies and
decisions of Parent, (b) any Person or “group” (within the meaning of Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934 as in effect on the Closing
Date) other than Sponsor or any of its Investment Affiliates shall have
acquired a greater beneficial ownership in Parent’s voting equity interests
than that held collectively by Sponsor and its Investment Affiliates, (c) a
majority of Parent’s board of directors (or similar governing body) shall cease
to consist of the directors (or similar parties) of Parent on the Closing Date
(after giving effect to the Related Transactions) and other directors (or
similar parties) whose nomination for election to Parent’s board of directors
(or similar governing body) is recommended by at least a majority of the
foregoing described directors (or similar parties), (d) Parent shall cease
to directly own and control 100% of each class of the outstanding equity
interests of Holdings, (e) Holdings shall cease to directly own and
control 100% of each class of the outstanding equity interests of Opco Borrower
or (f) Opco Borrower shall cease to, directly or indirectly, own and
control 100% of each class of the outstanding equity interests of each
Subsidiary.

 

8.1.10.     Activities of
Parent and Holding.

 

(a) Except
in connection with the performance of its obligations under the Related
Agreements, Parent (i) conducts any business other than its ownership of
equity securities of Holdings, or (ii) incurs any Debt or liabilities other
than Obligations under this Agreement and the other Loan Documents and
liabilities incidental to the conduct of its business as a holding company or (b) Holdings
(i) conducts any business other than its ownership of equity securities of
Opco Borrower and such other Domestic Subsidiaries permitted under Section 7.11(1) hereof,
or (ii) incurs any Debt or liabilities other than Obligations under this
Agreement and the other Loan Documents and liabilities incidental to the
conduct of its business as a holding company.

 

8.2.    
Remedies.

 

If
any Event of Default described in Section 8.1.3 shall occur, the
Commitments shall immediately terminate and the Loans and all other Obligations
shall become immediately due and payable and Borrowers shall become immediately
obligated to cash collateralize all Letters of Credit in a manner acceptable to
Agent, all without presentment, demand, protest or notice of any kind; and, if
any other Event of Default shall occur and be continuing, Agent (upon the
written request of Required Lenders) shall declare the Commitments to be
terminated in whole or in part and/or declare all or any part of the Loans and
other Obligations to be due and payable and/or demand that Borrowers
immediately cash collateralize all or any Letters of Credit in a manner
acceptable to Agent, whereupon the Commitments shall immediately terminate (or
be reduced, as applicable) and/or the Loans and other Obligations shall become
immediately due and payable (in whole or in part, as applicable) and/or Borrowers
shall immediately become obligated to cash collateralize the Letters of Credit
(all or any, as applicable) in a manner acceptable to Agent, all without
presentment, demand, protest or notice of any kind. Agent shall

 

56

 

promptly advise
Administrative Borrower of any such declaration, but failure to do so shall not
impair the effect of such declaration. Notwithstanding the foregoing, the
effect as an Event of Default of any event described in Section 8.1.1
may only be waived by the written concurrence of each Lender, and the effect as
an Event of Default of any other event described in this Section 8
may be waived by the written concurrence of Required Lenders. Any cash
collateral delivered hereunder shall be held by Agent (without liability for
interest thereon) and applied to Obligations arising in connection with any
drawing under a Letter of Credit. After the expiration or termination of all
Letters of Credit, such cash collateral shall be applied by Agent to any
remaining Obligations and any excess shall be delivered to Administrative
Borrower for the benefit of Borrowers or as a court of competent jurisdiction
may elect.

 

Section 9.    
Agent.

 

9.1.     Appointment:
Authorization.

 

(a) Each Lender hereby irrevocably appoints,
designates and authorizes Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, Agent
shall not have any duty or responsibility except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent.

 

(b) Issuing Lender shall act on behalf of Lenders
(according to their Pro Rata Revolving Share) with respect to any Letters of
Credit issued by it and the documents associated therewith. Issuing Lender
shall have all of the benefits and immunities (i) provided to Agent in
this Section 9 with respect to any acts taken or omissions suffered
by Issuing Lender in connection with Letters of Credit issued by it or proposed
to be issued by it and the applications and agreements for letters of credit
pertaining to such Letters of Credit as fully as if the term “Agent”, as used
in this Section 9, included Issuing Lender with respect to such
acts or omissions and (ii) as additionally provided in this Agreement with
respect to Issuing Lender.

 

9.2.     Delegation of Duties.

 

Agent
may execute any of its duties under this Agreement or any other Loan Document
by or through agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.

 

9.3.     Limited Liability.

 

None
of Agent or any of its directors, officers, employees or agents shall (a) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except to the extent resulting from its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction), or (b) be responsible in any manner to any Lender for any
recital, statement, representation or warranty made by any Loan Party or
Affiliate of any Loan Party, or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
Agent under or in connection with, this Agreement or any other Loan Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document (or the creation, perfection or
priority of any Lien or security interest therein).

 

57

 

or for any failure of any
Loan Party or any other party to any Loan Document to perform its Obligations
hereunder or thereunder. Agent shall not be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party or
Affiliate of any Loan Party.

 

9.4.     Reliance.

 

Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document believed by
it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to any Loan Party), independent accountants and other
experts selected by Agent. Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of Required Lenders (or all
Lenders if expressly required hereunder) as it deems appropriate and, if it so
requests, confirmation from Lenders of their obligation to indemnify Agent
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
or any other Loan Document in accordance with a request or consent of Required
Lenders (or all Lenders if expressly required hereunder) and such request and
any action taken or failure to act pursuant thereto shall be binding upon each
Lender.

 

9.5.     Notice of Default.

 

Agent
shall not be deemed to have knowledge or notice of the occurrence of any Event
of Default or Default except with respect to defaults in the payment of
principal, interest and fees required to be paid to Agent for the account of
Lenders, unless Agent shall have received written notice from a Lender or
Administrative Borrower referring to this Agreement, describing such Event of
Default or Default and stating that such notice is a “notice of default”. Agent
will notify Lenders of its receipt of any such notice or any such default in
the payment of principal, interest and fees required to be paid to Agent for
the account of Lenders. Agent shall take such action with respect to such Event
of Default or Default as may be requested by Required Lenders in accordance
with Section 8; provided that unless and until Agent has received
any such request. Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Event of Default or
Default as it shall deem advisable or in the best interest of Lenders.

 

9.6.     Credit Decision.

 

Each
Lender acknowledges that Agent has not made any representation or warranty to
it. and that no act by Agent hereafter taken, including any review of the
affairs of the Loan Parties, shall be deemed to constitute any representation
or warranty by Agent to any Lender. Each Lender represents to Agent that it
has, independently and without reliance upon Agent and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Loan Parties, and made its own
decision to enter into this Agreement and to extend credit to Borrowers
hereunder. Each Lender also represents that it will, independently and without
reliance upon Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition and creditworthiness of the Loan Parties. Except
for notices, reports and other documents expressly herein required to be
furnished to Lenders by Agent. Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning

 

58

 

the business, prospects,
operations, property, financial or other condition or creditworthiness of any
Loan Party which may come into the possession of Agent.

 

9.7.     Indemnification.

 

Whether
or not the transactions contemplated hereby are consummated, each Lender shall
indemnify upon demand Agent and its directors, officers, employees and agents
(to the extent not reimbursed by or on behalf of Borrowers and without limiting
the obligation of Borrowers to do so), based on such Lender’s Pro Rata Share,
from and against any and all actions, causes of action, suits, losses,
liabilities, damages and expenses, including Legal Costs, except to the extent
any thereof result from the applicable Person’s own gross negligence or willful
misconduct, as determined by a court of competent jurisdiction. Without
limitation of the foregoing, each Lender shall reimburse Agent upon demand for
its ratable share of any costs or out-of-pocket expenses (including Legal
Costs) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in respect
of rights or responsibilities under, this Agreement, any other Loan Document,
or any document contemplated by or referred to herein, to the extent that Agent
is not reimbursed for such expenses by or on behalf of Borrowers. The
undertaking in this Section 9.7 shall survive repayment of the
Loans, cancellation of the Notes, expiration or termination of the Letters of
Credit, any foreclosure under, or modification, release or discharge of, any or
all of the Collateral Documents, termination of this Agreement and the
resignation or replacement of Agent.

 

9.8.     Agent Individually.

 

Madison
and its Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with any Loan Party and any Affiliate of any Loan Party as though Madison were
not Agent hereunder and without notice to or consent of any Lender. Each Lender
acknowledges that, pursuant to such activities, Madison or its Affiliates may
receive information regarding Loan Parties or their Affiliates (including
information that may be subject to confidentiality obligations in favor of any
such Loan Party or such Affiliate) and acknowledge that Agent shall be under no
obligation to provide such information to them. With respect to their Loans (if
any). Madison and its Affiliates shall have the same rights and powers under
this Agreement as any other Lender and may exercise the same as though Madison
were not Agent, and the terms “Lender” and “Lenders” include Madison and its
Affiliates, to the extent applicable, in their individual capacities.

 

9.9.     Successor Agent.

 

Agent
may resign as Agent at any time upon 30 days’ prior notice to Lenders. If Agent
resigns under this Agreement, Required Lenders shall, with (so long as no Event
of Default exists) the consent of Administrative Borrower (which shall not be
unreasonably withheld or delayed), appoint from among Lenders a successor agent
for Lenders. If no successor agent is appointed prior to the effective date of
the resignation of Agent, Agent may appoint, on behalf after consulting with
Lenders and (so long as no Event of Default exists) Administrative Borrower, a
successor agent from among Lenders. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term “Agent” shall mean
such successor agent, and the retiring Agent’s appointment, powers and duties
as Agent shall be terminated. After any retiring Agent’s resignation hereunder
as Agent, the provisions of this Section 9 and Sections 10.4
and 10.5 shall continue to inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent’s notice of resignation, the retiring Agent’s
resignation shall nevertheless

 

59

 

thereupon become
effective and Lenders shall perform all of the duties of Agent hereunder until
such time, if any, as Required Lenders appoint a successor agent as provided
for above.

 

9.10.       Collateral
Matters.

 

Lenders
irrevocably authorize Agent, at its option and in its discretion, (a) to
release any Lien granted to or held by Agent under any Collateral Document (i) when
all Obligations have been Paid in Full; (ii) constituting property sold or
to be sold or disposed of as part of or in connection with any sale or other
disposition permitted hereunder (it being agreed and understood that Agent may
conclusively rely without further inquiry on a certificate of an officer of
Administrative Borrower as to the sale or other disposition of property being
made in compliance with this Agreement); or (iii) subject to Section 10.1,
if approved, authorized or ratified in writing by Required Lenders; or (b) to
subordinate its interest in any Collateral to any holder of a Lien on such
Collateral which is permitted by clause (d)(i) or (d)(iii) of Section 7.2
(it being understood that Agent may conclusively rely on a certificate from
Administrative Borrower in determining whether the Debt secured by any such
Lien is permitted by Section 7. 1(b)). Upon request by Agent at any
time. Lenders will confirm in writing Agent’s authority to release, or
subordinate its interest in, particular types or items of Collateral pursuant
to this Section 9.10.

 

Section 10. Miscellaneous.

 

10.1.       Waiver;
Amendments.

 

No
delay on the part of Agent or any Lender in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise by any of them of any right, power or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or remedy. No
amendment, modification or waiver of, or consent with respect to, any provision
of this Agreement, the Notes or any of the other Loan Documents shall in any
event be effective unless the same shall be in writing and approved by Lenders
having aggregate Pro Rata Shares of not less than the aggregate Pro Rata Shares
expressly designated herein with respect thereto or, in the absence of such
designation as to any provision of this Agreement, by Required Lenders, and
then any such amendment, modification, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
amendment, modification, waiver or consent shall increase any Commitment,
extend the date scheduled for payment of any principal of (except as set forth
below) or interest on the Loans or any fees or other amounts payable hereunder
or under the other Loan Documents or reduce the principal amount of any Loan,
the amount or rate of interest thereon (provided, that Required Lenders may
rescind an imposition of default interest pursuant to Section 2.7.1)
or any fees or other amounts payable hereunder or under the other Loan
Documents, without, in each case, the consent of each Lender affected thereby.
No amendment, modification, waiver or consent shall release any party from its
guaranty under the Guarantee and Collateral Agreement or all or substantially
all of the Collateral granted under the Collateral Documents, the definition of
Required Lenders, change any provision of this Section 10.1. amend
the provisions of Section 2.12.2 or reduce the aggregate Pro Rata
Share required to effect any amendment, modification, waiver or consent,
without, in each case, the consent of all Lenders. No provision of Sections
2.10.2 or 2.10.3 with respect to the timing or application of
mandatory prepayments of the Loans shall be amended, modified or waived without
the consent of Lenders having a majority of the aggregate Pro Rata Shares of
the Term A Loan. No provision of Section 9 or other provision of
this Agreement affecting Agent in its capacity as such shall be amended,
modified or waived without the consent of Agent. No provision of this Agreement
relating to the rights or duties of Issuing Lender in its capacity as such
shall be amended, modified or waived without the consent of Issuing Lender.

 

60

 

10.2.       Notices.

 

Except
as otherwise provided in Sections 2.2.2 and 2.2.3, all notices
hereunder shall be in writing (including facsimile transmission) and shall be
sent to the applicable party at its address shown on Annex II or at such
other address as such party may, by written notice received by the other
parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when sent; notices
sent by mail shall be deemed to have been given three Business Days after the
date when sent by registered or certified mail, postage prepaid; and notices
sent by hand delivery or overnight courier service shall be deemed to have been
given when received. For purposes of Sections 2.2.2 and 2.2.3,
Agent shall be entitled to rely on telephonic instructions from any person that
Agent in good faith believes is an authorized officer or employee of
Administrative Borrower, and Borrowers shall hold Agent and each other Lender
harmless from any loss, cost or expense resulting from any such reliance.
Borrowers and Lenders each hereby acknowledge that, from time to time, Agent
may deliver information and notices to Lenders using the internet service “Intralinks”.
Each Borrower and each Lender hereby agree that Agent may, in its discretion,
utilize Intralinks for such purpose.

 

10.3.       Computations.

 

Unless
otherwise specifically provided herein, any accounting term used in this
Agreement (including in Section 7.14 or any related definition)
shall have the meaning customarily given such term in accordance with GAAP, and
all financial computations (including pursuant to Section 7.14 and
the related definitions, and with respect to the character or amount of any
asset or liability or item of income or expense, or any consolidation or other
accounting computation) hereunder shall be computed in accordance with GAAP
consistently applied; provided that, subject to the last sentence of this Section 10.3,
if Administrative Borrower notifies Agent that Administrative Borrower wishes
to amend any covenant in Section 7.14 (or any related definition)
to eliminate or to take into account the effect of any change in GAAP on the
operation of such covenant (or if Agent notifies Administrative Borrower that
Required Lenders wish to amend Section 7.14 (or any related
definition) for such purpose), then Borrowers’ compliance with such covenant
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant (or related definition) is amended in a manner satisfactory to
Borrowers and Required Lenders. The explicit qualification of terms or
computations by the phrase “in accordance with GAAP” shall in no way be
construed to limit the foregoing. Notwithstanding the forgoing provisions of
this Section 10.3, Holdings and its Subsidiaries will continue to
expense (and not capitalize) all research and development costs and expenses
and, in the event GAAP shall require any research and development costs or
expenses be capitalized, Holdings and its Subsidiaries will continue to expense
such costs and expenses for purposes of Section 7.14 and the
related definitions.

 

10.4.       Costs;
Expenses.

 

Borrowers
agree to pay on demand all reasonable out-of-pocket costs and expenses of Agent
(including Legal Costs) in connection with the preparation, execution,
syndication, delivery and administration (including perfection and protection
of Collateral) of this Agreement, the other Loan Documents and all other
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith (including any proposed or actual amendment, supplement or
waiver to any Loan Document), and all reasonable out-of-pocket costs and
expenses (including Legal Costs) incurred by Agent and each Lender after an
Event of Default in connection with the collection of the Obligations and
enforcement of this Agreement, the other Loan Documents or any such other
documents. In addition, Borrowers agree to pay, and to save Agent and Lenders
harmless from all liability for, any fees of Borrowers’ auditors in connection
with any reasonable exercise by Agent and Lenders of their rights pursuant to Section 6.2.
All Obligations provided for in this Section 10.4 shall survive
repayment of the

 

61

 

Loans, cancellation of
the Notes, expiration or termination of the Letters of Credit and termination
of this Agreement).

 

10.5.       Indemnification
by Borrowers.

 

In
consideration of the execution and delivery of this Agreement by Agent and
Lenders and the agreement to extend the Commitments provided hereunder,
Borrowers hereby agree to indemnify, exonerate and hold Agent, each Lender and
each of the officers, directors, employees, Affiliates and agents of Agent and
each Lender (each a “Lender Party”) free and harmless from and against
any and all actions, causes of action, suits, losses, liabilities, damages and
expenses, including Legal Costs (collectively, the “Indemnified Liabilities”),
incurred by Lender Parties or any of them as a result of, or arising out of, or
relating to (a) any tender offer, merger, purchase of equity interests,
purchase of assets (including the Related Transactions) or other similar
transaction financed or proposed to be financed in whole or in part, directly
or indirectly, with the proceeds of any of the Loans, (b) the use,
handling, release, emission, discharge, transportation, storage, treatment or
disposal of any Hazardous Substance at any property owned or leased by any Loan
Party, (c) any violation of any Environmental Laws with respect to
conditions at any property owned or leased by any Loan Party or the operations
conducted thereon, (d) the investigation, cleanup or remediation of
offsite locations at which any Loan Party or their respective predecessors are
alleged to have directly or indirectly disposed of Hazardous Substances or (e) the
execution, delivery, performance or enforcement of this Agreement or any other
Loan Document by any Lender Party, except to the extent any such Indemnified
Liabilities result from the applicable Lender Party’s own gross negligence or
willful misconduct as determined by a court of competent jurisdiction. If and
to the extent that the foregoing undertaking may be unenforceable for any
reason, Borrowers hereby agree to make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. All Obligations provided for in this Section 10.5
shall survive repayment of the Loans, cancellation of the Notes, expiration or
termination of the Letters of Credit, any foreclosure under, or any
modification, release or discharge of, any or all of the Collateral Documents
and termination of this Agreement.

 

10.6.       Marshaling;
Payments Set Aside.

 

Neither
Agent nor any Lender shall be under any obligation to marshal any assets in
favor of any Borrower or any other Person or against or in payment of any or
all of the Obligations. To the extent that any Borrower makes a payment or
payments to Agent or any Lender, or Agent or any Lender enforces its Liens or
exercises its rights of set-off, and such payment or payments or the proceeds
of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by Agent or any Lender in
its discretion) to be repaid to a trustee, receiver or any other party in
connection with any bankruptcy, insolvency or similar proceeding, or otherwise,
then (a) to the extent of such recovery, the obligation hereunder or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred and (b) each Lender severally agrees to pay to
Agent upon demand its ratable share of the total amount so recovered from or
repaid by Agent to the extent paid to such Lender.

 

10.7.       Nonliability
of Lenders.

 

The
relationship between Borrowers on the one hand and Lenders and Agent on the
other hand shall be solely that of borrower and lender. Neither Agent nor any
Lender shall have any fiduciary responsibility to Borrowers. Neither Agent nor
any Lender undertakes any responsibility to Borrowers to review or inform any
Borrower of any matter in connection with any phase of any Borrower’s business
or operations. Execution of this Agreement by Borrowers constitutes a full,
complete and irrevocable release of any and all claims which Borrowers may have
at law or in equity in respect of all prior

 

62

 

discussions and
understandings, oral or written, relating to the subject matter of this
Agreement and the other Loan Documents. Neither Agent nor any Lender shall have
any liability with respect to, and Borrowers hereby waive, release and agree
not to sue for, any special, indirect, punitive or consequential damages or
liabilities.

 

10.8.       Assignments;
Participations.

 

10.8.1.    Assignments.

 

(a) Any Lender may at any time assign to one or
more Persons (any such Person, an “Assignee”) all or any portion of such
Lender’s Loans and Commitments, with the prior written consent of Agent,
Issuing Lender (for an assignment of the Revolving Loans and the Revolving Loan
Commitment) and, so long as no Event of Default exists, Administrative Borrower
(which consents shall not be unreasonably withheld or delayed and shall not be
required for an assignment by a Lender to a Lender or an Affiliate of a Lender
or a Related Fund of a Lender). Except as Agent may otherwise agree, any such
assignment (other than any assignment by a Lender to a Lender or an Affiliate
or Related Fund of a Lender) shall be in a minimum aggregate amount equal to
$3,000,000 or, if less, the Commitment or the principal amount of the Loan
being assigned. Borrowers and Agent shall be entitled to continue to deal
solely and directly with such Lender in connection with the interests so
assigned to an Assignee until Agent shall have received and accepted an
effective Assignment Agreement executed, delivered and fully completed by the
applicable parties thereto and a processing fee of $3,500 to be paid by the
Lender to whom such interest is assigned; provided, that no such fee shall be
payable in connection with any assignment by a Lender to a Lender or an
Affiliate or Related Fund of a Lender. No assignment may be made to any Person
if at the time of such assignment Borrowers would be obligated to pay any
greater amount under Section 3 to the Assignee than Borrowers are
then obligated to pay to the assigning Lender under such Sections (and if any
assignment is made in violation of the foregoing, Borrowers will not be
required to pay such greater amounts). Any attempted assignment not made in
accordance with this Section 10.8.1 shall be treated as the sale of
a participation under Section 10.8.2. Administrative Borrower shall
be deemed to have granted its consent to any assignment requiring its consent
hereunder unless Administrative Borrower has expressly objected to such
assignment within three Business Days after written notice thereof.

 

(b) From and after the date on which the
conditions described above have been met, (i) such Assignee shall be
deemed automatically to have become a party hereto and, to the extent that
rights and obligations hereunder have been assigned to such Assignee pursuant
to such Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and (ii) the assigning Lender, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, shall be released from its rights (other than its indemnification rights)
and obligations hereunder. Upon the request of the Assignee (and, as
applicable, the assigning Lender) pursuant to an effective Assignment
Agreement, Borrowers shall execute and deliver to Agent for delivery to the
Assignee (and, as applicable, the assigning Lender) a Note in the principal
amount of the Assignee’s Pro Rata Share of the Revolving Loan Commitment plus
the principal amount of the Assignee’s Term A Loan (and, as applicable, a Note
in the principal amount of the Pro Rata Share of the Revolving Loan Commitment
retained by the assigning Lender plus the principal amount of the Term A Loan
retained by the assigning Lender). Each such Note shall be dated the effective
date of such assignment. Upon receipt by the assigning Lender of such Note, the
assigning Lender shall return to Administrative Borrower on behalf of the
Borrowers any prior Note held by it.

 

(c) Agent, acting solely for this purpose as an
agent of Borrowers, shall maintain at one of its offices in the United States a
copy of each Assignment Agreement delivered to it and a register for the
recordation of the names and addresses of each Lender, and the Commitments of,
and principal amount of the Loans owing to, such Lender pursuant to the terms
hereof. The entries in such register

 

63

 

shall be rebuttably
presumptive evidence of the matters recited therein, and Borrowers, Agent and
Lenders may treat each Person whose name is recorded therein pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. Such register shall be available for
inspection by any Borrower and any Lender, at any reasonable time upon
reasonable prior notice to Agent.

 

(d) Notwithstanding
the foregoing provisions of this Section 10.8.1 or any other
provision of this Agreement, any Lender may at any time assign all or any
portion of its Loans and its Note (i) as collateral security to a Federal
Reserve Bank or, as applicable, to such Lender’s trustee for the benefit of its
investors (but no such assignment shall release any Lender from any of its
obligations hereunder) and (ii) to (w) an Affiliate of such Lender
which is at least 50% owned (directly or indirectly) by such Lender or by its
direct or indirect parent company, (x) its direct or indirect parent
company, (y) to one or more other Lenders or (z) to a Related Fund.

 

10.8.2.    Participations.

 

Any
Lender may at any time sell to one or more Persons participating interests in
its Loans, Commitments or other interests hereunder (any such Person, a “Participant”).
In the event of a sale by a Lender of a participating interest to a
Participant, (a) such Lender’s obligations hereunder shall remain
unchanged for all purposes, (b) Borrowers and Agent shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights
and obligations hereunder and (c) all amounts payable by Borrowers shall
be determined as if such Lender had not sold such participation and shall be
paid directly to such Lender. No Participant shall have any direct or indirect
voting rights hereunder except with respect to any event described in Section 10.1
expressly requiring the unanimous vote of all Lenders or, as applicable, all
affected Lenders. Each Lender agrees to incorporate the requirements of the
preceding sentence into each participation agreement which such Lender enters
into with any Participant. Each Borrower agrees that if amounts outstanding
under this Agreement are due and payable (as a result of acceleration or
otherwise), each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement and
with respect to any Letter of Credit to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement; provided that such right of set-off shall be subject to the
obligation of each Participant to share with Lenders, and Lenders agree to
share with each Participant, as provided in Section 2.12.5. Each
Borrower also agrees that each Participant shall be entitled to the benefits of
Section 3 as if it were a Lender (provided that no Lender and its
Participant(s) shall receive any greater compensation pursuant to Section 3
than would have been paid to the participating Lender if no participation(s) had
been sold).

 

10.9.       Confidentiality.

 

Agent and each
Lender agree to use commercially reasonable efforts (equivalent to the efforts
Agent or such Lender applies to maintain the confidentiality of its own
confidential information) to maintain as confidential all information provided
to them by any Loan Party and designated as confidential, except that Agent and
each Lender may disclose such information (a) to Persons employed or
engaged by Agent or such Lender or any of their Affiliates (including
collateral managers of Lenders) in evaluating, approving, structuring or
administering the Loans and the Commitments; (b) to any assignee or
participant or potential assignee or participant that has agreed to comply with
the covenant contained in this Section 10.9 (and any such assignee
or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a) above);
(c) as required or requested by any federal or state regulatory authority
or examiner, or any insurance industry association, or as reasonably believed
by Agent or such Lender to be compelled by any court decree, subpoena or legal
or administrative order or process; (d) as, on the advice of Agent’s or
such Lender’s counsel, is required by law; (e) in connection with the
exercise of any right or remedy under the Loan Documents or in connection with
any litigation to which Agent or such Lender is a party; (f) to any

 

64

 

nationally recognized
rating agency or investor of a Lender that requires access to information about
a Lender’s investment portfolio in connection with ratings issued or investment
decisions with respect to such Lender; (g) that ceases to be confidential
through no fault of Agent or any Lender; (h) to a Person that is an
investor or prospective investor in a Securitization that agrees that its
access to information regarding the Borrowers and the Loans and Commitments is
solely for purposes of evaluating an investment in such Securitization and who
agrees to treat such information as confidential; or (i) to a Person that
is a trustee, collateral manager, servicer, noteholder or secured party in a
Securitization in connection with the administration, servicing and reporting
on the assets serving as collateral for such Securitization. For purposes of
this Section, “Securitization” means a public or private offering by a
Lender or any of its Affiliates or their respective successors and assigns, of
securities which represent an interest in, or which are collateralized, in
whole or in part, by the Loans or the Commitments. Notwithstanding the
foregoing. Borrowers consent to the publication by Agent or any Lender of a
tombstone or similar advertising material relating to the financing
transactions contemplated by this Agreement, and Agent reserves the right to
provide to industry trade organizations information necessary and customary for
inclusion in league table measurements.

 

10.10.     Captions.

 

Captions used in
this Agreement are for convenience only and shall not affect the construction
of this Agreement.

 

10.11.     Nature
of Remedies.

 

All Obligations of
Borrowers and rights of Agent and Lenders expressed herein or in any other Loan
Document shall be in addition to and not in limitation of those provided by
applicable law. No failure to exercise and no delay in exercising, on the part
of Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.

 

10.12.     Counterparts.

 

This Agreement may
be executed in any number of counterparts and by the different parties hereto
on separate counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement. Receipt by telecopy of any executed signature page to this
Agreement or any other Loan Document shall constitute effective delivery of
such signature page.

 

10.13.     Severability.

 

The illegality or
unenforceability of any provision of this Agreement or any instrument or
agreement required hereunder shall not in any way affect or impair the legality
or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.

 

10.14.     Entire
Agreement.

 

This Agreement,
together with the other Loan Documents, embodies the entire agreement and
understanding among the parties hereto and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof (except as relates
to the fees described in Section 2.8.3) and any prior arrangements
made with respect to the payment by Borrowers of (or any indemnification for)
any fees, costs or expenses payable to or incurred (or to be incurred) by or on
behalf of Agent or Lenders.

 

65

 

10.15.     Successors;
Assigns.

 

This
Agreement shall be binding upon Borrowers, Lenders and Agent and their
respective successors and assigns, and shall inure to the benefit of Borrowers,
Lenders and Agent and the successors and assigns of Lenders and Agent. No other
Person shall be a direct or indirect legal beneficiary of, or have any direct
or indirect cause of action or claim in connection with, this Agreement or any
of the other Loan Documents. No Borrower may assign or transfer any of its
rights or Obligations under this Agreement without the prior written consent of
Agent and each Lender.

 

10.16.     Governing
Law.

 

THIS
AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.

 

10.17.     Forum
Selection; Consent to Jurisdiction.

 

ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH BORROWER HEREBY EXPRESSLY
AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.

 

10.18.     Waiver
of Jury Trial.

 

EACH
BORROWER, AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT,
ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN
CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

10.19.     Holdings
as Agent for Borrowers.

 

Each Borrower
hereby irrevocably appoints Holdings as the borrowing agent and
attorney-in-fact for all Borrowers (“Administrative Borrower”) which
appointment shall remain in full

 

66

 

force
and effect unless and until Agent shall have received prior written notice
signed by each Borrower that such appointment has been revoked and that another
Borrower has been appointed Administrative Borrower.

 

[Signature pages follow]

 

67

 

The parties
hereto have caused this Agreement to be duly executed and delivered by their
duly authorized officers as of the date first set forth above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Title:

  	
  CEO and President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MADISON CAPITAL FUNDING LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
   

  
								

 

Signature Page to
Credit Agreement

 

 

The parties hereto have
caused this Agreement to be duly executed and delivered by their duly
authorized officers as of the date first set forth above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MADISON CAPITAL FUNDING LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Title:

  	
   

  	
  Managing Director

  	
   

  
								

 

 

Signature Page to
Credit Agreement

 

 

ANNEX I

 

Commitments and Pro Rata Shares

 

	
  Lender

  	
   

  	
  Revolving
  

  Commitment 

  Amount

  	
   

  	
  Pro Rata
  Share

  	
   

  	
  Term A
  Loan 

  Commitment

  	
   

  	
  Pro Rata
  Share

  	
   

  
	
  Madison Capital
  Funding LLC

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  100

  	
  %

  	
  $

  	
  17,000,000

  	
   

  	
  100

  	
  %

  
	
  TOTALS

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  100

  	
  %

  	
  $

  	
  17,000,000

  	
   

  	
  100

  	
  %

  

 

I-1

 

Annex II

 

Addresses

 

	
  Rosetta Stone Holdings
  Inc.

  
	
  135 West Market
  Street

  
	
  Harrisonburg,
  Virginia 22801

  
	
  Attention: 

  	
  Tom Adams

  
	
  Telephone: 

  	
  (540) 432-6166,
  ext. 3226

  
	
  Telecopy:

  	
  (703) 991-5843

  

 

 

Madison Capital Funding
LLC, 

as Agent and a Lender

 

Address for Notices:

 

	
  30 South Wacker Drive

  
	
  Suite 3700

  
	
  Chicago, Illinois 60606

  
	
  Attention:

  	
  Fairfield Technologies
  Account Manager

  
	
  Telephone: 

  	
  (312) 596-6900

  
	
  Telecopy: 

  	
  (312) 596-6950

  

 

 

Address for Payments:

 

	
  Bank:

  	
  LaSalle Bank National
  Association

  
	
  ABA #:

  	
  071000505

  
	
  Account #: 

  	
  5800299108

  
	
  Reference: 

  	
  Madison Capital Funding
  LLC

  
	
  Address: 

  	
  Chicago, Illinois 60603

  

 

II-1

 

 

Exhibit A

 

Form of
Assignment Agreement

 

This Assignment
Agreement (this “Assignment Agreement”) is entered into as of
                
by and between the Assignor named on the signature page hereto (“Assignor”)
and the Assignee named on the signature page hereto (“Assignee”).
Reference is made to the Credit Agreement dated as of January 4, 2006 (as
amended or otherwise modified from time to time, the “Credit Agreement”)
among Rosetta Stone Holdings Inc. (“Holdings”), the other Borrowers
party thereto from time to time, the financial institutions party thereto from
time to time, as Lenders, and Madison Capital Funding LLC, as Agent.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Credit Agreement.

 

Assignor and
Assignee agree as follows:

 

1.         Assignor hereby sells and assigns to
Assignee, and Assignee hereby purchases and assumes from Assignor the interests
set forth on the schedule attached hereto, in and to Assignor’s rights and
obligations under the Credit Agreement and the other Loan Documents as of the
Effective Date (as defined below). Such purchase and sale is made without
recourse, representation or warranty except as expressly set forth herein.

 

2.         Assignor (i) represents
that as of the Effective Date, that it is the legal and beneficial owner of the
interests assigned hereunder free and clear of any adverse claim, (ii) makes
no other representation or warranty and assumes no responsibility with respect
to any statement, warranties or representations made in or in connection with
the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any Loan Documents
or any other instrument or document furnished pursuant thereto; and (iii) makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or any other Person or the performance or
observance by any Loan Party of its Obligations under the Credit Agreement or
the Loan Documents or any other instrument or document furnished pursuant
thereto.

 

3.         Assignee (i) represents
and warrants that it is legally authorized to enter into this Assignment
Agreement; (ii) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant thereto and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment Agreement: (iii) agrees that it will, independently and
without reliance upon Agent, Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iv) appoints and authorizes Agent to take such action as agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender: (vi) represents
that on the date of this Assignment Agreement it is not presently aware of any
facts that would cause it to make a claim under the Credit Agreement; and (vii) if
organized under the laws of a jurisdiction outside the United States, attaches
the forms prescribed by the Internal Revenue Service of the United States, which
have been duly executed, certifying as to Assignee’s exemption from United
States withholding taxes with respect to all payments to be made to Assignee
under the Agreement or such other documents as are necessary to indicate that
all such payments are subject to such tax at a rate reduced by an applicable
tax treaty.

 

A-1

 

4.         The effective date for
this Assignment Agreement shall be as set forth on the schedule attached hereto
(the “Effective Date”). Following the execution of this Assignment
Agreement, it will be delivered to Agent for acceptance and recording by Agent
pursuant to the Credit Agreement.

 

5.         Upon such acceptance and recording,
from and after the Effective Date, (i) Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment Agreement, have
the rights and obligations of a Lender thereunder and (ii) Assignor shall,
to the extent provided in this Assignment Agreement, relinquish its rights
(other than indemnification rights) and be released from its obligations under
the Credit Agreement.

 

6.         Upon such acceptance
and recording, from and after the Effective Date, Agent shall make all payments
in respect of the interest assigned hereby (including payments of principal,
interest, fees and other amounts) to Assignee. Assignor and Assignee shall make
all appropriate adjustments in payments for periods prior to the Effective Date
with respect to the making of this assignment directly between themselves.

 

7.         THIS ASSIGNMENT AND
ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.

 

8.         This Assignment may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Assignment. Receipt by telecopy of any executed signature page to
this Assignment shall constitute effective delivery of such signature page.

 

A-2

 

The parties hereto
have caused this Agreement to be executed and delivered as of the date first
written above.

 

	
   

  	
   

  	
   

  	
  ASSIGNOR:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  ASSIGNEE:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [Consented
  to:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [Madison
  Capital Funding LLC, 

  as Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  ]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [[Rosetta
  Stone Holdings Inc.]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  ]

  
						

 

A-3

 

Schedule to Assignment Agreement

 

	
  Assignor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Assignee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
   

  

 

Credit Agreement dated as
of January 4, 2006 among Rosetta Stone Holdings Inc., as a Borrower, the
other Borrowers party thereto from time to time, the financial institutions
party thereto from time to time, as Lenders, and Madison Capital Funding LLC,
as Agent

 

Interests Assigned:

 

	
  Commitment/Loan

  	
   

  	
  Revolving Loan

  Commitment

  	
   

  	
  Term A Loan

  	
   

  
	
  Assignor Amounts

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Amounts Assigned

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assignee Amounts
  (post-assignment)

  	
   

  	
  $

  	
   

  	
  $

  	
   

  

 

Assignee Information:

 

	
  Address for
  Notices:

  	
   

  	
  Address for
  Payments:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Bank:

  	
   

  
	
  Attention:

  	
   

  	
   

  	
  ABA #: 

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
  Account #: 

  	
   

  
	
  Telecopy:

  	
   

  	
   

  	
  Reference: 

  	
   

  

 

A-4

 

Exhibit B

 

Form of Compliance Certificate

 

Please refer to
the Credit Agreement dated as of January 4, 2006 (as amended or otherwise
modified from time to time, the “Credit Agreement”) among the undersigned
(“Holdings”), as a  Borrower,
the other Borrowers party thereto, the financial institutions party thereto and
Madison Capital Funding LLC, as Agent. This certificate (this “Certificate”),
together with supporting calculations attached hereto, is delivered to Agent
and Lenders pursuant to the terms of the Credit Agreement. Terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement.

 

Enclosed herewith
is a copy of the [annual audited/monthly] report
of Holdings as at                         
(the “Computation Date”), which report fairly presents in all material
respects the financial condition and results of operations (subject to the absence of footnotes and to normal year-end adjustments)] of
Holdings as of the Computation Date and has been prepared in accordance with
GAAP consistently applied.

 

Holdings hereby
certifies and warrants that the computations set forth on the schedule attached
hereto correspond to the ratios and/or financial restrictions contained in the
Credit Agreement and such computations are true and correct as at the
Computation Date.

 

Holdings further
certifies that the representations and warranties set forth in Section 5.18
of the Credit Agreement are true and correct in all material respects as of the
Computation Date, except to the extent that such representations and warranties
relate to an earlier date, in which case such representations and warranties
were true and correct in all material respects as of such date.

 

Holdings further
certifies that no applications for the registration of any copyrights, patents
or trademarks have been filed by any Loan Party with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof since [the Closing Date/the date of the last Compliance
Certificate] [other than
                                              ].

 

Holdings further
certifies that no Event of Default or Default has occurred and is continuing.

 

Holdings has
caused this Certificate to be executed and delivered by its officer thereunto
duly authorized on
                          .

 

 

	
   

  	
   

  	
   

  	
  Rosetta Stone Holdings Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
						

 

B-1

 

	
  Schedule to Compliance Certificate 

  Dated as of
                      

  
	
   

  
	
  A.

  	
  Section 7.14.1 - Minimum Fixed Charge Coverage
  Ratio

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  Consolidated Net Income

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Plus: 

  Interest Expense, amortization or write-off of Debt discount, Debt issuance
  costs and other fees and charges with respect to Debt 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  income tax expense

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  depreciation and amortization

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  any extraordinary or non-recurring non-cash expenses
  or non-cash losses

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  any other non-cash expenses or non-cash losses

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  transaction costs and other expenses associated with
  the Related Transactions

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  management fees paid to Sponsor (and/or any
  Affiliates of Sponsor) permitted under Section 7.4

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  any purchase accounting adjustments associated with
  the Related Transactions minus, to the extent not otherwise deducted from
  Consolidated Net Income, any cash payments related to any non-cash expenses
  deducted from Consolidated Net Income during such period or prior periods

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  solely for the 12 month period following the
  consummation of the Related Transactions, adjustments in an amount acceptable
  to Agent to reflect the impact, if any, of the non-cash purchase price
  adjustments to the current deferred revenue balance and inventory carrying
  value and other similar purchase price

  	
   

  	
  $

  	
   

  

 

B-2

 

	
   

  	
   

  	
  adjustments:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Total (EBITDA)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Income taxes and tax distributions paid

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.

  	
  Capital Expenditures

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.

  	
  Sum of (4) and (5)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.

  	
  Remainder of (3) minus (6)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.

  	
  Interest Expense paid in cash

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.

  	
  Required payments of principal of Debt (including
  Term A Loan but excluding Revolving Loans)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.

  	
  Management fees paid to Sponsor (and/or any
  Affiliates of Sponsor)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.

  	
  Sum of (8), (9) and (10)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.

  	
  Ratio of (7) to (11)

  	
   

  	
      to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.

  	
  Minimum Required

  	
   

  	
      to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
  Section 7.14.2 - Minimum Interest Coverage
  Ratio

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  EBITDA

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  (from Item A(3) above)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Interest Expense paid in cash

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Ratio of (1) to (2)

  	
   

  	
      to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Minimum required

  	
   

  	
      to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
  Section 7.14.4 - Maximum Total Debt to EBITDA
  Ratio

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  Total Debt

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  EBITDA

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  (from Item A(3) above)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Ratio of (l) to (2)

  	
   

  	
      to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Maximum allowed

  	
   

  	
      to 1

  

 

B-3

 

	
  D.

  	
  Section 7.14.5-Minimum EBITDA

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  EBITDA

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  (from Item A(3) above)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Minimum required

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
  Section 7.14.6 - Capital Expenditures

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  Capital Expenditures for the Fiscal Year

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Maximum Permitted Capital Expenditures

  	
   

  	
  $

  	
   

  

 

B-4

 

Exhibit C

 

Form of Availability Certificate

 

Please refer to
the Credit Agreement dated as of January 4, 2006 (as amended or otherwise
modified from time to time, the “Credit Agreement”) among the
undersigned (“Administrative Borrower”), the other Borrowers party
thereto from time to time, the financial institutions party thereto from time
to time, as Lenders, and Madison Capital Funding LLC, as Agent. This
certificate (this “Certificate”), together with supporting calculations
attached hereto, is delivered to Agent and Lenders pursuant to the terms of the
Credit Agreement. Capitalized terms used but not otherwise defined herein shall
have the same meanings herein as in the Credit Agreement.

 

Administrative
Borrower hereby certifies and warrants that at the close of business on
                                
(the “Calculation Date”), Borrowing Availability was
$                            ,
computed as set forth on the schedule attached hereto.

 

Administrative
Borrower has caused this Certificate to be executed and delivered by its
officer thereunto duly authorized on
                              .

 

 

	
   

  	
   

  	
   

  	
  Rosetta Stone Holdings Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
						

 

C-1

 

	
  Schedule to Availability Certificate

  
	
  Dated as of
                          

  
	
   

  
	
  1.

  	
  EBITDA [As
  defined under Item A(3) from Exhibit B to the Credit  Agreement, calculated on a trailing 12 month
  basis]*

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2. 

  	
  The maximum Total Debt to EBITDA Ratio permitted
  under Section 7.14.4 of the Credit Agreement as of the last day of the then
  most recently ended Computation Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Item 1 multiplied by Item 2

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Total Debt

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Item 3 minus Item 4

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Lesser of Item 5 and Revolving Loan Commitment

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Reserves and Allowances

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Borrowing Availability [Item 6 minus Item 7]

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Revolving Outstandings

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Net Availability [Excess
  of Item 8 over Item 9]

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Required Prepayment [Excess
  of Item 9 over Item 8]

  	
   

  	
  $

  	
   

  

 

*For
purposes of the Availability Certificate delivered pursuant to Section 4.1(i) of
the Credit Agreement, EBITDA shall be deemed to be the total EBITDA for the
period commencing January 1, 2005 and ending on November 30, 2005,
multiplied by 1.0909091.

 

C-2

 

Exhibit D

 

Form of Note

 

 

	
  $                          

  	
  Chicago,
  Illinois

  

 

[Each of] the
undersigned ([each, a] “Borrower” [and collectively, the “Borrowers”),
for value received, promises to pay to the order of
                        
(“Lender”) at the principal office of Madison Capital Funding LLC (the “Agent”)
in Chicago, Illinois the aggregate unpaid amount of all Loans made to
Borrower[s] by Lender pursuant to the Credit Agreement referred to below, such
principal amount to be payable on the dates set forth in the Credit Agreement.

 

Borrower[s]
further promise[s] to pay interest on the unpaid principal amount of each Loan
from the date of such Loan until such Loan is paid in full, payable at the rate(s) and
at the time(s) set forth in the Credit Agreement. Payments of both
principal and interest are to be made in lawful money of the United States of
America.

 

This Note
evidences indebtedness incurred under, and is subject to the terms and
provisions of, the Credit Agreement, dated as of January 4, 2006 (as
amended or otherwise modified from time to time, the “Credit Agreement”;
terms not otherwise defined herein are used herein as defined in the Credit
Agreement), among Borrower[s], the other Borrowers party thereto from time to
time, the financial institutions (including Lender) party thereto from time to
time and Agent, to which Credit Agreement reference is hereby made for a
statement of the terms and provisions under which this Note may or must be paid
prior to its due date or its due date accelerated.

 

This Note is made
under and governed by the laws of the State of Illinois applicable to contracts
made and to be performed entirely within such State.

 

 

	
   

  	
  [Borrower[s]]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

D-1

 

Exhibit E

 

Form of Notice of Borrowing

 

Please refer to the Credit Agreement dated as of January 4,
2006 (as amended or otherwise modified from time to time, the “Credit
Agreement”) among the undersigned (“Administrative Borrower”), the
other Borrowers party thereto from time to time, the financial institutions
party thereto from time to time, as Lenders, and Madison Capital Funding LLC,
as Agent. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Credit Agreement. This notice is given
pursuant to Section 2.2.2 of the Credit Agreement. Administrative
Borrower hereby requests a borrowing under the Credit Agreement as follows:

 

The aggregate amount of the proposed borrowing is $                    .
The requested borrowing date for the proposed borrowing (which is a Business
Day) is
                  ,
        . The Revolving Loans comprising
the proposed Borrowing are [Base Rate]
[LIBOR] Loans. The duration of the Interest Period for each LIBOR
Loan made as part of the proposed Borrowing, if applicable, is
                    
months (which shall be 1, 2, 3 or 6).

 

Administrative Borrower
has caused this Notice to be executed and delivered by its officer thereunto
duly authorized on
                              .

 

 

	
   

  	
  Rosetta Stone Holdings
  Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

E-1

 

Exhibit F

 

Form of
Notice of Conversion/Continuation

 

Please  refer to the Credit Agreement, dated as of
January 4, 2006 as amended or otherwise modified from time to time, the “Credit
Agreement”), among the undersigned (“Administrative Borrower”), the
other Borrowers party thereto from time to time, the financial institutions
party thereto from time to time, as Lenders, and Madison Capital Funding LLC,
as Agent. This notice is given pursuant to Section 2.2.3 of the
Credit Agreement. Capitalized terms used herein but not otherwise defined shall
have the meanings ascribed thereto in the Credit Agreement. Administrative
Borrower hereby requests a [conversion][continuation]
of the [Term A Loan][Revolving
Loans] as follows:

 

The date of the proposed [conversion]
[continuation] is
                    ,
           (which shall be a  Business Day). The aggregate amount of the
[Term A Loan] [Revolving Loans] proposed
to be [converted] [continued] is
$                      . [Specify which part is to be converted and which part
is to be continued, if appropriate.] The Loans to be [continued] [converted] are [Base Rate Loans] [LIBOR Loans] and the
Loans resulting from the proposed [conversion]
[continuation] will be [Base Rate
Loans] [LIBOR Loans].  The
duration of the requested Interest Period for each LIBOR Loan made as part of
the proposed [conversion] [continuation] is
                        
months (which shall be 1, 2, 3 or 6).

 

Administrative Borrower has caused
this Notice to be executed and delivered by its officer thereunto duly
authorized on
                        .

 

 

	
   

  	
  Rosetta Stone Holdings
  Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

F-1

 

Exhibit G

 

Form of Borrower Joinder Agreement

 

This Borrower Joinder Agreement dated as of
                  ,
2006 is by and among
                                          ,
a                                       
(“Company”), Rosetta Stone Holdings Inc., a Delaware corporation (“Holdings”
and, together with Company, each individually a “Borrower”, and
individually and collectively, jointly and severally, the “Borrowers”),
and Madison Capital Funding LLC, as Agent for all Lenders.

 

WHEREAS, Holdings, Lenders and Agent have
entered into a Credit Agreement (as hereinafter defined) dated as of January 4,
2006; and

 

WHEREAS,
Company desires to join Holdings as a Borrower (as such term is defined in the
Credit Agreement) under the Credit Agreement;

 

NOW THEREFORE, the parties hereto hereby
agree as follows:

 

Section 1.                                                  Definitions.
Capitalized terms used in this Borrower Joinder Agreement, unless otherwise
defined herein, shall have the meaning ascribed to such terms in that certain Credit
Agreement, dated as of January 4, 2006, among Holdings, the other
Borrowers from time to time party thereto, the “Lenders” identified
therein and Agent (as amended, modified or supplemented, the “Credit
Agreement”).

 

Section 2.                                                 Joinder.
Subject to the terms and conditions of this Borrower Joinder Agreement, Company
is hereby joined in the Credit Agreement as a Borrower, and Company hereby
agrees to be bound by the terms and conditions (including without limitation
all of the representations and warranties and covenants) of each Loan Document
to which a Borrower is a party, including without limitation the Credit
Agreement, as Borrower, in each case as if Company were a direct signatory
thereto. In furtherance of the preceding sentence, without limiting any
provision of any Loan Document to which Company is now becoming a party as a
Borrower, and in accordance with the terms of the Loan Documents, Company
agrees to be jointly and severally liable with Holdings for the Loans and other
Obligations.

 

Section 3.                                                 Effectiveness.
This Borrower Joinder Agreement shall be effective upon the execution and
delivery hereof by the parties hereto.

 

Section 4.                                                 Representations
and Warranties. Company represents and warrants to Agent and each Lender
that both before and after giving effect to the consummation of this Borrower
Joinder Agreement (i) each of the representations and warranties of
Company set forth in the Credit Agreement and the other Loan Documents are
true, correct and complete in all material respects as of the date hereof, and (ii) no
Default or Event of Default has, or will have, occurred and is, or will be,
continuing. After the execution and delivery by Company of this Borrower
Joinder Agreement, Company shall thereafter make the representations and warranties
as a Borrower at the times required by the Credit Agreement.

 

Section 5.                                                Scope.
Except as expressly modified by this Borrower Joinder Agreement, the Credit
Agreement and all of the other Loan Documents shall remain in full force and
effect as executed.

 

G-1

 

IN WITNESS
WHEREOF, this Borrower Joinder Agreement has been duly executed as of the date
first above written.

 

	
   

  	
                                          ,
  a                         

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ROSETTA
  STONE HOLDINGS INC., a Delaware

  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MADISON
  CAPITAL FUNDING LLC,

  as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
  Title

  	
   

  
							

 

G-2

 

Exhibit H

 

Form of Excess Cash Flow Certificate

 

Date:
                  ,
200   

 

Please refer to
the Credit Agreement dated as of January 4, 2006 (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”)
among the undersigned (together with its respective successors and assigns, the
“Opco Borrower”). Rosetta Stone Holdings Inc., as a Borrower, the financial
institutions party thereto, as Lenders, and Madison Capital Funding LLC, as
Agent. This certificate (this “Certificate”), together with supporting
calculations attached hereto, is delivered to Agent and Lenders pursuant to the
terms of the Credit Agreement. Terms used but not otherwise defined herein are
used herein as defined in the Credit Agreement.

 

The officer
executing this Certificate is a chief financial officer of the Opco Borrower
and as such is duly authorized to execute and deliver this Certificate on
behalf of Opco Borrower. By executing this Certificate such officer hereby
certifies to Agent and Lenders that:

 

(a) set forth
on Schedule 1 attached hereto is a correct calculation of Excess Cash
Flow for the year ended December 31, 200    and a correct
calculation of the required prepayment of

 

$
                                  ;

 

(b) Schedule
1 attached hereto is based on the audited financial statements which have
been delivered to Agent in accordance with Section 6.1.1 of the
Credit Agreement.

 

IN WITNESS
WHEREOF, Borrower has caused this Certificate to be executed by its chief
financial officer this
                
day of
                      ,
200   .

 

 

	
   

  	
  FAIRFIELD &
  SONS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:  Chief Financial Officer

  
				

 

H-1

 

Schedule 1

to

Excess Cash Flow Certificate

 

	
  Excess
  Cash Flow is defined as follows:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EBITDA
  (from item A(3) of Exhibit B) 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  Plus:

  	
   

  	
  Decrease
  in Adjusted Working Capital

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less:
  

  	
   

  	
  Scheduled principal
  payments made with respect to Term A Loan

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voluntary principal
  payments made with respect to Term A Loan

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash payments (not
  financed by Debt) made with respect to Capital Expenditures permitted by
  Credit Agreement

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Federal, state, local
  and foreign income taxes paid in cash

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Increase in Adjusted
  Working Capital 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Transaction costs and
  cash expenses associated with Related Transactions 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Interest Expense paid
  in cash 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Amounts permitted by
  the Credit Agreement to be paid to repurchase equity securities 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Management fees paid to
  Sponsor (and/or any Affiliates of Sponsor) to the extent permitted under Section 7.4
  

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Excess
  Cash Flow 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  Total
  Debt to EBITDA Ratio (from item C(3) of Exhibit B)

  	
   

  	
  :1

  
	
   

  	
   

  	
   

  
	
  Prepayment
  percent

  	
   

  	
  %

  
	
   

  	
   

  	
   

  
	
  Prepayment
  amount 

  	
   

  	
  $

  	
   

  
							

 

H-2

 

Decrease (increase) in
Adjusted Working Capital, for the purposes of the calculation of Excess Cash
Flow, means the following:

 

	
   

  	
   

  	
  Beg. of Period

  	
   

  	
  End of Period

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  current assets:

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less: cash

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   cash equivalents

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjusted current
  assets

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  current liabilities:

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less: short-term
  Debt (including current portion of long-term Debt)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjusted current
  liabilities

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjusted Working
  Capital (adjusted consolidated current assets minus adjusted consolidated
  current liabilities)

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Decrease
  (Increase) in Adjusted Working Capital (beginning of period minus end of
  period Adjusted Working Capital)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

H-3

 

AMENDMENT NO. 1 TO CREDIT AGREEMENT

 

This AMENDMENT NO.
1 TO CREDIT AGREEMENT (this “Amendment”) is dated as of August 2,
2007 and is entered into by and among Rosetta Stone Holdings Inc., a Delaware
corporation (“Holdings”), Rosetta Stone Ltd. (formerly known as
Fairfield & Sons, Ltd.), a Virginia corporation, which does business
under the fictitious name of Fairfield Language Technologies (“Company”
and, together with Holdings, each individually a “Borrower”, and
individually and collectively, jointly and severally, the “Borrowers”),
the financial institutions (together with their respective successors and
assigns, “Lenders”) party to the Credit Agreement (as hereinafter
defined), and Madison Capital Funding LLC, agent for all Lenders (“Agent”).

 

W I T N E S S E T H:

 

WHEREAS,
Borrowers, Agent and Lenders are parties to that certain Credit Agreement dated
as of January 4, 2006 (as amended, modified and supplemented from time to
time, the “Credit Agreement”; capitalized terms not otherwise defined
herein have the definitions provided therefore in the Credit Agreement); and

 

WHEREAS, Borrowers
have requested that Agent and Lenders amend the Credit Agreement in certain
respects as set forth herein;

 

NOW THEREFORE, in
consideration of the mutual conditions and agreements set forth in the Credit
Agreement and this Amendment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

 

1.                                Amendment.
Subject to the satisfaction of the conditions set forth in Section 2
below, and in reliance on the representations set forth in Section 3
below, the Credit Agreement is amended as follows:

 

(a)                           The
definition of EBITDA set forth in Section 1.1 of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:

 

EBITDA
means, for any period, Consolidated Net Income for such period plus, to the
extent deducted in determining such Consolidated Net Income, the sum of (a) Interest
Expense, amortization or write-off of Debt discount, Debt issuance costs and
other fees and charges with respect to Debt, (b) income tax expense, (c) depreciation
and amortization for such period including but not limited to amortization of
intangibles, (d) any extraordinary or non-recurring non-cash expenses or
non-cash losses, including but not limited to non-cash losses on sales of
assets outside the ordinary course of business and write-downs of intangibles, (e) any
other non-cash expenses or non-cash losses, including but not limited to any
stock-based compensation expense, (f) transaction costs and other expenses
associated with the Related Transactions, including but not limited to legal
and advisory fees and incentives based on the performance of Opco Borrower, (g) management
fees paid to Sponsor (and/or any Affiliates of Sponsor) to the extent permitted
under Section 7.4 and (h) purchase accounting adjustments
associated with the Related Transactions in connection with the expensing of
in-process research and development and to current deferred revenue, minus, to
the extent not otherwise deducted from Consolidated Net Income, any cash
payments made in such period related to any non-cash expenses deducted from
Consolidated Net Income during such period or prior periods.

 

 

(b)                          Section 6.1.1
of the Credit Agreement is hereby amended and restated in its entirety to read
as follows:

 

6.1.1                 Annual
Report.

 

Promptly when
available and in any event within (a) 220 days after the close of the
Fiscal Year ending December 31, 2006, and (b) 120 days after the
close of each other Fiscal Year: (i) a copy of the annual audit report of
Parent and the Subsidiaries for such Fiscal Year, including therein a
consolidated balance sheet and statement of earnings and cash flows of Parent
and the Subsidiaries as at the end of such Fiscal Year, certified without
qualification (except for qualifications relating to changes in accounting
principles or practices reflecting changes in generally accepted principles of
accounting and required or approved by Parents’ independent certified public
accountants) by independent auditors of recognized standing selected by Parent
and reasonably acceptable to Agent, together with (A) a written statement
from such accountants to the effect that in making the examination necessary
for the signing of such annual audit report by such accountants, nothing came
to their attention that caused them to believe that Borrowers were not in
compliance with any provision of Section 7.1, 7.3, 7.4
or 7.14 insofar as such provision relates to accounting matters or, if
something has come to their attention that caused them to believe that
Borrowers were not in compliance with any such provision, describing such
non-compliance in reasonable detail and (B) a comparison with the previous
Fiscal Year; and (ii) a consolidating balance sheet of Parent and the
Subsidiaries as of the end of such Fiscal Year and consolidating statements of
earnings and cash flows for Parent and the Subsidiaries for such Fiscal Year,
together with a comparison of actual results for such Fiscal Year with the
budget for such Fiscal Year, each certified by the chief financial officer of
Parent.

 

2.                                Conditions
to Effectiveness. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by
Agent), each to be in form and substance satisfactory to Agent:

 

(a)                           Agent
shall have received a fully executed copy of this Amendment, together with the
Consent and Reaffirmation attached hereto;

 

(b)                          Agent
shall have been reimbursed for all reasonable costs, fees and expenses incurred
by Agent or Lenders in connection with the preparation, execution,
administration or enforcement of this Amendment;

 

(c)                           all
proceedings taken in connection with the transactions contemplated by this
Amendment and all documents, instruments and other legal matters incident
thereto shall be satisfactory to Agent and its legal counsel; and

 

(d)                          no
Default or Event of Default shall have occurred and be continuing.

 

3.                                Representations
and Warranties. To induce Agent and Lenders to enter into this Amendment,
Borrowers represent and warrant to Agent and Lenders that:

 

(a)                           the
execution, delivery and performance of this Amendment has been duly authorized
by all requisite corporate action on the part of such Borrower and that this
Amendment has been duly executed and delivered by such Borrower;

 

2

 

(b)                          each
of the representations and warranties set forth in Section 5 of the Credit
Agreement, are true and correct in all material respects as of the date hereof
(except to the extent they relate to an earlier date, in which case they shall
have been true and correct in all material respects as of such earlier date);
and

 

(c)                           no
Default or Event of Default has occurred and is continuing.

 

4.                                Severability.
Any provision of this Amendment held by a court of competent jurisdiction to be
invalid or unenforceable shall not impair or invalidate the remainder of this
Amendment and the effect thereof shall be confined to the provision so held to
be invalid or unenforceable.

 

5.                                References.
Any reference to the Credit Agreement contained in any document, instrument or
Credit Agreement executed in connection with the Credit Agreement shall be
deemed to be a reference to the Credit Agreement as modified by this Amendment.

 

6.                                Counterparts.
This Amendment may be executed in one or more counterparts, each of which shall
constitute an original, but all of which taken together shall be one and the
same instrument. Delivery of an executed counterpart of a signature page of
this Amendment by facsimile or other electronic transmission shall be effective
as delivery of a manually executed counterpart of this Amendment.

 

7.                                Release.
Execution of this Amendment by Borrowers constitutes a full, complete and
irrevocable release of any and all claims which Borrowers may have at law or in
equity in respect of all prior discussions and understandings, oral or written,
relating to the subject matter of this Amendment. Neither Agent nor any Lender
shall have any liability with respect to, and Borrowers hereby waive, release
and agree not to sue for, any special, indirect, punitive or consequential
damages or liabilities.

 

8.                                Ratification.
The terms and provisions set forth in this Amendment shall modify and supersede
all inconsistent terms and provisions of the Credit Agreement and shall not be
deemed to be a consent to the modification or waiver of any other term or
condition of the Credit Agreement. Except as expressly modified and superseded
by this Amendment, the terms and provisions of the Credit Agreement are
ratified and confirmed and shall continue in full force and effect.

 

9.                                Governing
Law. This Amendment shall be a contract made under and governed by the laws
of the State of Illinois, without regard to conflict of laws principles that
would require the application of laws other than those of the state of
Illinois. Whenever possible each provision of this Amendment shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Amendment shall be prohibited by or invalid under such 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 Amendment.

 

[Signature Page Follows]

 

3

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed
under seal and delivered by their respective duly authorized officers on the
date first written above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title

  	
  CFO

  
				

 

 

	
   

  	
  ROSETTA STONE LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title

  	
  CFO

  
				

 

 

	
   

  	
  MADISON CAPITAL FUNDING
  LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title 

  	
   

  
				

 

 

Amendment No. 2 to
Credit Agreement

 

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed
under seal and delivered by their respective duly authorized officers on the
date first written above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title 

  	
   

  
					

 

 

	
   

  	
  ROSETTA STONE LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title 

  	
   

  
				

 

 

	
   

  	
  MADISON CAPITAL FUNDING
  LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title 

  	
  Managing Director

  
				

 

 

Amendment No. 2 to
Credit Agreement

 

 

CONSENT AND REAFFIRMATION

 

Rosetta Stone
Inc., a Delaware corporation (“Parent”), hereby (i) acknowledges receipt
of a copy of the foregoing Amendment No. 2 to Credit Agreement (the “Amendment”);
(ii) consents to each Borrower’s execution and delivery of the Amendment; (iii) agrees
to be bound by the Amendment; and (iv) reaffirms that the Loan Documents
to which it is a party (and its obligations thereunder) shall continue to
remain in full force and effect. Although Parent has been informed of the
matters set forth herein and have acknowledged and agreed to same, Parent
understands that Agent and Lenders have no obligation to inform Parent of such
matters in the future or to seek Parent’s acknowledgment or agreement to future
amendments, waivers or consents, and nothing herein shall create such a duty.

 

This Consent and
Reaffirmation shall be a contract made under and governed by the laws of the
State of Illinois, without regard to conflict of laws principles that would
require the application of laws other than those of the state of Illinois.

 

IN WITNESS
WHEREOF, Parent has executed this Consent and Reaffirmation on and as of the
date of the Amendment.

 

 

	
   

  	
  ROSETTA STONE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title

  	
  CFO

  
				

 

 

Consent
and Reaffirmation to Amendment No. 2 to Credit Agreement

 

 

WAIVER AND
AMENDMENT NO. 2 TO CREDIT AGREEMENT

 

This WAIVER AND AMENDMENT NO. 2 TO CREDIT AGREEMENT (this “Amendment”)
is dated as of April 23, 2008 and is entered into by and among Rosetta
Stone Holdings Inc., a Delaware corporation (“Holdings”), Rosetta Stone
Ltd. (formerly known as Fairfield & Sons, Ltd.), a Virginia
corporation (“Company” and, together with Holdings, each individually a “Borrower”,
and individually and collectively, jointly and severally, the “Borrowers”),
the financial institutions (together with their respective successors and
assigns, “Lenders”) party to the Credit Agreement (as hereinafter
defined), and Madison Capital Funding LLC, agent for all Lenders (“Agent”).

 

W I T N E S
S E T H:

 

WHEREAS, Borrowers, Agent and Lenders are parties to that certain
Credit Agreement dated as of January 4, 2006 (as amended, modified and
supplemented from time to time, the “Credit Agreement”; capitalized
terms not otherwise defined herein have the definitions provided therefore in
the Credit Agreement);

 

WHEREAS, Borrower has advised Agent and Lenders that Events of Default
exist under Section 8.1.4 of the Credit Agreement arising as a result of (i) Borrowers
failing to comply with the minimum Fixed Charge Coverage Ratio for the
Computation Periods ending March 31, 2007, June 30, 2007 and September 30,
2007, each of which constitutes a breach of Section 7.14.1 of the Credit
Agreement, (ii) Borrowers failing to comply with the Maximum Capital
Expenditures Limit for the Computation Periods ending March 31, 2007, June 30,
2007, September 30, 2007 and December 31, 2007, each of which
constitutes a breach of Section 7.14.6 of the Credit Agreement, and (iii) Borrowers
failing to comply with the timing requirements of Section 6.8 relating to
notification of, and filing with respect to, new patents and trademarks for
time periods prior to the date hereof (the foregoing Events of Default
collectively the “Existing Events of Default”); and

 

WHEREAS, Borrower has requested that Agent and Lenders waive the
Existing Events of Default and amend the Credit Agreement in certain respects
as set forth herein;

 

NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Credit Agreement and this Amendment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

1.  Waiver. Subject to the
satisfaction of the conditions set forth in Section 3 below, and in
reliance on the representations set forth in Section 4 below, Agent and
Lenders hereby waive the Existing Events of Default. This is a limited waiver
and shall not be deemed to constitute a waiver of any other Event of Default or
any future breach of the Credit Agreement or any of the other Loan Documents or
any other requirements of any provision of the Credit Agreement or any other
Loan Documents.

 

2.  Amendment. Subject to
the satisfaction of the conditions set forth in Section 3 below, and in
reliance on the representations set forth in Section 4 below, the Credit
Agreement is amended as follows:

 

(a)  The definition of Maximum Capital Expenditure limit set forth
in Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:

 

Maximum Capital Expenditures Limit means an amount equal to $9,000,000.

 

 

(b)  Section 7.14
of the Credit Agreement is hereby amended and restated in its entirety to read
as follows:

 

7.14.                 Financial
Covenants.

 

7.14.1           Fixed
Charge Coverage Ratio.

 

Not permit the
Fixed Charge Coverage Ratio for any Computation Period ending on or after December 31,
2008 to be less than 1.25:1.00.

 

7.14.2           Interest
Coverage Ratio.

 

Not permit the
Interest Coverage Ratio for any Computation Period ending on or after March 31,
2007 to be less than 5.00:1.00.

 

7.14.3           [Intentionally
Omitted].

 

7.14.4           Total
Debt to EBITDA Ratio.

 

Not permit the
Total Debt to EBITDA Ratio as of the last day of any Computation Period to
exceed the applicable ratio set forth below for such Computation Period:

 

	
  Computation

  Period Ending

  	
   

  	
  Total Debt to

  EBITDA Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2008

  	
   

  	
  1.40:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 30,
  2008

  	
   

  	
  1.30:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September 30,
  2008 and the last day of each Fiscal Quarter thereafter

  	
   

  	
  1.25:1.00

  	
   

  

 

7.14.5           EBITDA.

 

Not permit EBITDA
for any Computation Period to be less than the applicable amount set forth
below for such Computation Period:

 

	
  Computation

  Period Ending

  	
   

  	
  EBITDA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31,
  2008

  	
   

  	
  $

  	
  11,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 30,
  2008

  	
   

  	
  $

  	
  12,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September 30,
  2008

  	
   

  	
  $

  	
  13,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2008 and the last day of each Fiscal Quarter thereafter

  	
   

  	
  $

  	
  15,000,000

  	
   

  

 

2

 

7.14.6           Capital
Expenditures.

 

Not permit the
aggregate amount of all Capital Expenditures made by Opco Borrower and its
Subsidiaries in any Fiscal Year to exceed the Maximum Capital Expenditures
Limit, provided that so long as no Event of Default or Default exists or would
result therefrom, Loan Parties may make Capital Expenditures in any Fiscal Year
ending on or after December 31, 2007 in excess of the Maximum Capital
Expenditures Limit only so long as the aggregate amount of such excess Capital
Expenditures does not exceed the amount by which Excess Cash Flow for the
previous Fiscal Year exceeds the amount of dividends or other distributions
pursuant to Section 7.4(iv) for such Fiscal Year.

 

3.                           Conditions
to Effectiveness. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by
Agent), each to be in form and substance satisfactory to Agent:

 

(a)                      Agent shall
have received a fully executed copy of this Amendment, together with the
Consent and Reaffirmation attached hereto;

 

(b)                     Borrowers
shall have paid an amendment fee in the amount of $25,000 as referred to in Section 5
hereof, and Agent shall have been reimbursed for all reasonable costs, fees and
expenses incurred by Agent or Lenders in connection with the preparation,
execution, administration or enforcement of this Amendment;

 

(c)                      all
proceedings taken in connection with the transactions contemplated by this
Amendment and all documents, instruments and other legal matters incident
thereto shall be satisfactory to Agent and its legal counsel; and

 

(d)                     no Default or
Event of Default (other than the Existing Events of Default) shall have
occurred and be continuing.

 

4.                           Representations
and Warranties. To induce Agent and Lenders to enter into this Amendment,
Borrowers represent and warrant to Agent and Lenders that:

 

(a)                      the
execution, delivery and performance of this Amendment has been duly authorized
by all requisite corporate action on the part of such Borrower and that this Amendment
has been duly executed and delivered by such Borrower;

 

(b)                     each of the
representations and warranties set forth in Section 5 of the Credit
Agreement, are true and correct in all material respects as of the date hereof
(except to the extent they relate to an earlier date, in which case they shall
have been true and correct in all material respects as of such earlier date);
and

 

(c)                      no Default
or Event of Default (other than the Existing Events of Default) has occurred
and is continuing.

 

5.                           Amendment
Fee. Borrowers agrees to pay Agent for the pro rata benefit of the Lenders
an amendment fee in the amount of $25,000, which shall be fully earned and
payable on the date hereof.

 

3

 

6                              Severability.
Any provision of this Amendment held by a court of competent jurisdiction to be
invalid or unenforceable shall not impair or invalidate the remainder of this
Amendment and the effect thereof shall be confined to the provision so held to
be invalid or unenforceable.

 

7.                           References.
Any reference to the Credit Agreement contained in any document, instrument or
Credit Agreement executed in connection with the Credit Agreement shall be
deemed to be a reference to the Credit Agreement as modified by this Amendment.

 

8.                           Counterparts.
This Amendment may be executed in one or more counterparts, each of which shall
constitute an original, but all of which taken together shall be one and the
same instrument. Delivery of an executed counterpart of a signature page of
this Amendment by facsimile or other electronic transmission shall be effective
as delivery of a manually executed counterpart of this Amendment.

 

9.                           Release.
Execution of this Amendment by Borrowers constitutes a full, complete and
irrevocable release of any and all claims which Borrowers may have at law or in
equity in respect of all prior discussions and understandings, oral or written,
relating to the subject matter of this Amendment. Neither Agent nor any Lender
shall have any liability with respect to, and Borrowers hereby waive, release
and agree not to sue for, any special, indirect, punitive or consequential
damages or liabilities.

 

10.                     Ratification.
The terms and provisions set forth in this Amendment shall modify and supersede
all inconsistent terms and provisions of the Credit Agreement and shall not be
deemed to be a consent to the modification or waiver of any other term or
condition of the Credit Agreement. Except as expressly modified and superseded
by this Amendment, the terms and provisions of the Credit Agreement are
ratified and confirmed and shall continue in full force and effect.

 

11.                     Governing
Law. This Amendment shall be a contract made under and governed by the laws
of the State of Illinois, without regard to conflict of laws principles that would
require the application of laws other than those of the state of Illinois.
Whenever possible each provision of this Amendment shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Amendment shall be prohibited by or invalid under such 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 Amendment.

 

[Signature Page Follows]

 

4

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed
under seal and delivered by their respective duly authorized officers on the
date first written above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title 

  	
  CFO

  
					

 

 

	
   

  	
  ROSETTA STONE LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title 

  	
  CFO

  
				

 

 

	
   

  	
  MADISON CAPITAL FUNDING
  LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title 

  	
   

  
				

 

 

Waiver and Amendment No. 2
to Credit Agreement

 

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed
under seal and delivered by their respective duly authorized officers on the
date first written above.

 

 

	
   

  	
  ROSETTA STONE HOLDINGS
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title

  	
   

  
				

 

 

	
   

  	
  ROSETTA STONE LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
  Title

  	
   

  
				

 

 

	
   

  	
  MADISON CAPITAL FUNDING
  LLC, 

  as Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title

  	
  Vice President

  
				

 

 

Waiver
and Amendment No. 2 to Credit Agreement

 

 

CONSENT AND REAFFIRMATION

 

Rosetta Stone
Inc., a Delaware corporation (“Parent”), hereby (i) acknowledges receipt
of a copy of the foregoing Waiver and Amendment No. 2 to Credit Agreement
(the “Amendment”); (ii) consents to each Borrower’s execution and delivery
of the Amendment; (iii) agrees to be bound by the Amendment; and (iv) reaffirms
that the Loan Documents to which it is a party (and its obligations thereunder)
shall continue to remain in full force and effect. Although Parent has been
informed of the matters set forth herein and have acknowledged and agreed to
same, Parent understands that Agent and Lenders have no obligation to inform
Parent of such matters in the future or to seek Parent’s acknowledgment or
agreement to future amendments, waivers or consents, and nothing herein shall
create such a duty.

 

This Consent and
Reaffirmation shall be a contract made under and governed by the laws of the
State of Illinois, without regard to conflict of laws principles that would
require the application of laws other than those of the state of Illinois.

 

IN WITNESS
WHEREOF, Parent has executed this Consent and Reaffirmation on and as of the
date of the Amendment.

 

 

	
   

  	
  ROSETTA STONE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ [ILLEGIBLE]

  
	
   

  	
  Title

  	
  CFO

  
				

 

 

Consent
and Reaffirmation toWaiver and Amendment No. 2 to Credit Agreement

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