Document:

Exhibit 10.3

 

THIS SECURED
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW. 
THIS SECURED PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE AND NEITHER THIS SECURED PROMISSORY NOTE
NOR ANY INTEREST HEREIN MAY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION AND QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

 

SECURED PROMISSORY NOTE

 

	
  $14,087,352.00

  	
   

  	
  November 5, 2003

  

 

For value received, the
undersigned, Aegis Communications Group, Inc., a Delaware corporation (the “Company”),
hereby PROMISES TO PAY to the order of Deutsche Bank AG London acting through
DB Advisors, LLC (the “Investor” and in its capacity as administrative
agent for each of its assignees hereunder, the “Administrative Agent”),
the principal sum of $14,087,352.00 together with interest in arrears from and
including the date hereof on the unpaid principal balance until such principal
balance is paid in full.  The Company
agrees to make all payments under this Secured Promissory Note to the order of
the Investor, in lawful money of the United States of America and in
immediately available funds, to such account or place as the Investor may
request in writing ten (10) Business Days (as defined herein) prior to any such
payment.  The Investor, together with
its assignees hereunder are collectively referred to as the “Noteholders”.  Terms used and not defined in the text of
this Secured Promissory Note have the meaning specified in Annex II to this
Secured Promissory Note or in the Purchase Agreement referred to below.

 

The Company agrees to pay
interest on the unpaid principal amount of this Secured Promissory Note until
such principal amount shall be paid in full, compounded quarterly, at a rate
per annum equal to 0.50% per annum above the rate of interest per annum (the “Eurodollar
Rate”) (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Telerate Page 3750 (or any successor page) as the London interbank offered
rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days
before the first day of each Interest Period (as defined below) for an amount
substantially equal to such unpaid amount and for a period equal to such
Interest Period (provided that, if for any reason such rate is not
available, the term “Eurodollar Rate” shall mean, for any Interest Period, the
rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two
Business Days prior to the first day of each Interest Period for a term comparable
to such Interest Period; provided, however,
if more than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates).  Each interest period shall be a period having a duration of three
months (an “Interest Period”). 
The initial Interest Period shall begin on the date hereof and each
subsequent Interest Period shall begin on the last day of the immediately
preceding Interest Period.  Interest
shall be payable in arrears at the end of each Interest Period as set forth in
the relevant provision below and shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. 
Notwithstanding any other provision of this Secured Promissory Note, the
Investor does not intend to charge, and the Company shall not be required to
pay, any interest or other fees or charges in excess of the maximum permitted
by applicable law; any payments in excess of such

 

 

maximum shall be credited to
reduce principal hereunder.  Except as
otherwise provided herein or in the Security Agreement (as defined below), all
payments received by the Administrative Agent hereunder will be applied first
to costs of collection, if any, then to accrued but unpaid interest and the
balance to principal (in each case, pro rata to each Noteholder according to
the interests of each Noteholder in and to the principal outstanding at such
time under this Secured Promissory Note).

 

The Company shall pay
interest on the amount of any principal, interest or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable on demand, at a rate per annum
equal at all times to two percent (2%) per annum above the rate per annum of
interest set forth in the immediately preceding paragraph (the “Default Rate”).

 

Principal
hereunder shall be payable in two installments as follows:

 

(a)                                  In an initial installment of $6,159,489.00 (the “Initial
Principal Payment”) payable on the earlier of (i) February 5, 2004
(the “Initial Principal Payment Final Maturity Date”) and (ii) the first
date that the Company has availability to receive any funds (“WFF
Availability”) under a credit facility for which Wells Fargo Foothill, Inc.
acts as the arranger and administrative agent or any other lender or group of
lenders (the “WFF Credit Agreements”); provided that if the
amount of WFF Availability on such date is less than the aggregate amount of
the Initial Principal Payment and any capitalized interest payable with respect
thereto (collectively, the “Outstanding Initial Principal”) and any
installment of principal due on that date under each other Secured Promissory
Note at such time (together with capitalized interest accrued thereunder), the
Company shall make a principal payment hereunder and under each other Secured
Promissory Note in a total amount equal to such WFF Availability, which payment
shall be paid to each Administrative Agent under each Secured Promissory Note
pro rata according to the amount of Outstanding Initial Principal outstanding
at such time under each Secured Promissory Note (and as defined therein) in
payment of the Outstanding Initial Principal under each such note (and as
defined therein), and shall make additional principal payments in such manner
on each date that WFF Availability is increased, until the total amount of
Outstanding Initial Principal under each Secured Promissory Note (and as
defined therein) is paid in full or, if it occurs first, the Initial Principal
Payment Final Maturity Date, on which date all Outstanding Initial Principal
shall be due and payable hereunder; and

 

(b)                                 In a second
installment of $7,927,863.00, payable in full on November 5, 2006.

 

Each installment of
principal shall be paid to the Administrative Agent for distribution to the
Noteholders by 11:00 A.M. (New York City time) on the date due.  Interest hereunder shall be payable to the
Administrative Agent for distribution to the Noteholders on the last day of
each Interest Period in arrears commencing on February 5, 2004 (each such
date being an “Interest Payment Date”) with a final payment of all
unpaid interest on the date principal is paid in full hereunder.  The Company shall have the option to pay
such interest in cash or to cause such interest to be capitalized on any such
Interest Payment Date and added to the principal amount of this Secured
Promissory Note, which additional amount shall bear interest and otherwise be
payable in accordance with the terms and conditions of this Secured Promissory
Note.

 

The Administrative Agent
shall have the right at any time to request that any or all capitalized
interest added to the principal amount of this Secured Promissory Note be
evidenced by a separate promissory note or notes in substantially the form of
this Secured Promissory Note.

 

2

 

If any day on which a
payment is due pursuant to the terms of this Secured Promissory Note is not a
Business Day, such payment shall be due on the next Business Day following such
date and interest shall accrue on the accrued and unpaid interest during such
extension of time; provided, that any such interest accruing for such
extension of time shall be due and payable on the immediately succeeding
Interest Payment Date.

 

This Secured Promissory Note
may be prepaid at any time, without premium or penalty, in whole or in part,
together with accrued interest to the date of such prepayment on the portion
prepaid.  All prepayments made shall be
recorded by the Administrative Agent and, prior to any transfer hereof,
indorsed on the grid attached as Annex I hereto, which is part of this Secured
Promissory Note; provided, that the failure of the Administrative Agent
to make any such recordation shall not affect the obligations of the Company under
this Secured Promissory Note.

 

This Secured Promissory Note
will be entitled to the benefits of and will be secured by the pledge, liens,
security, title, rights and security interests granted under a security
agreement to be made by the Company and its Subsidiaries in favor of a
collateral agent reasonably acceptable to the Noteholders and the Company (the
“Collateral Agent”) for the benefit of the Noteholders hereunder and
each other Noteholder (the “Security Agreement”), which Security
Agreement shall have terms substantially similar to the security provisions to
be contained in the loan documents entered into by the Company and lenders in
connection with the WFF Credit Agreements and will be subject to the terms of
an intercreditor agreement to be entered into between the lenders and the agent
under the WFF Credit Agreements, on the one hand, and the Noteholders, the
Administrative Agent and the Collateral Agent (in each case under each of the
Secured Promissory Notes), on the other hand (the “Intercreditor Agreement”
and, together with this Secured Promissory Note, each other Secured Promissory
Note, the Security Agreement and the Guaranty made by each of the Subsidiaries
of the Company and dated as of the date hereof (the “Guaranty”), the “Loan
Documents”), as each of the same may be amended, supplemented or renewed,
from time to time.

 

So long as any Obligation
under this Secured Promissory Note or any other Loan Document shall remain
unpaid, the Company will comply with the affirmative and negative covenants set
forth in Annex II to this Secured Promissory Note in accordance with the terms
of those covenants.  Notwithstanding the
foregoing, if and when the WFF Credit Agreements are entered into, if and to
the extent the affirmative and negative covenants and definitions of the
defined terms used in those covenants set forth in Annex II to this Secured
Promissory Note on the date on which this Secured Promissory Note is executed
and delivered to the Investor (the “Initial Covenants and Definitions”)
are inconsistent with the affirmative and negative covenants of the Company and
the definitions of the defined terms used in those affirmative and negative
covenants set forth in the WFF Credit Agreements (the “WFF Covenants and
Definitions”), the Initial Covenants and Definitions shall be amended and
restated in full so that the affirmative and negative covenants of the Company
set forth in Annex II hereto shall thereafter be substantially identical to the
WFF Covenants and Definitions, but with such modifications thereto as shall be
necessary to reflect the structural differences between the indebtedness
evidenced by this Secured Promissory Note and the indebtedness arising under
the WFF Credit Agreements, the differences between the Security Agreement and the
security arrangements in the WFF Credit Agreements, including the relative
seniority of each of the secured parties’ liens and security interests, and the
terms of the Intercreditor Agreement. 
Such amended and restated covenants and definitions shall be deemed to
have been effective from the time the WFF Credit Agreements are executed and
delivered.  The Company, the
Administrative Agent and the Noteholders will amend and restate the Initial
Covenants and Definitions without regard to whether the amended and restated
covenants will be more or less favorable to the Company than the Initial
Covenants and Definitions; provided,

 

3

 

further,
that if the amendment and restatement of the Initial Covenants and Definitions
is not adopted by the Company, the Administrative Agent and the Noteholders in
writing within ten Business Days after the execution and delivery of the WFF
Credit Agreements, upon the expiration of that period, the Initial Covenants
and Definitions shall be deemed to have been deleted from Annex II and the WFF
Covenants and Definitions shall be deemed, for all purposes, to have been
incorporated by reference into Annex II to this Secured Promissory Note, mutatis mutandis, as if fully set forth therein,
effective as of the time the WFF Credit Agreements are executed and delivered.

 

Upon the occurrence and
during the continuation of any Event of Default (as defined in Annex II
hereto), (i) the Administrative Agent, at the direction of the Required Noteholders,
may by notice to the Company, declare this Secured Promissory Note, all
interest thereon and all other amounts payable hereunder to be forthwith due
and payable, whereupon this Secured Promissory Note, all such interest and all
such other amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company and (ii) the Administrative Agent may
pursue all remedies available to it under the Loan Documents and applicable law
against the Company and the personal property that secures the Obligations,
from time to time and in such order as the Administrative Agent shall
determine.

 

Notwithstanding the
foregoing, if and when the WFF Credit Agreements are entered into, if and to
the extent the Events of Default and the definitions of the defined terms used
in the Events of Default provisions in Annex II to this Secured Promissory Note
on the date on which this Secured Promissory Note is executed and delivered to
the Investor (the “Initial Events of Default and Definitions”) are
inconsistent with the events of default and the definitions of the defined
terms used in those events of default set forth in the WFF Credit Agreements
(the “WFF Events of Default and Definitions”), the Initial Events of
Default and Definitions shall be amended and restated in full so that the
Events of Default of the Company set forth in Annex II hereto shall thereafter
be substantially identical to the WFF Events of Default and Definitions, but
with such modifications thereto as shall be necessary to reflect the structural
differences between the indebtedness evidenced by this Secured Promissory Note
and the indebtedness arising under the WFF Credit Agreements, the differences
between the Security Agreement and the security arrangements in the WFF Credit
Agreements, including the relative seniority of each of the secured parties’
liens and security interests, and the terms of the Intercreditor Agreement.  Such amended and restated Events of Default
and definitions shall be deemed to have been effective from the time the WFF
Credit Agreements are executed and delivered. 
The Company, the Administrative Agent and the Noteholders will amend and
restate the Initial Events of Default and Definitions without regard to whether
the amended and restated Events of Default will be more or less favorable to
the Company.  If that amendment and
restatement of the Initial Events of Default and Definitions is not adopted by
the Company, the Administrative Agent and the Noteholders in writing within ten
Business Days after the execution and delivery of the WFF Credit Agreements,
upon the expiration of that period, the Initial Events of Default and
Definitions shall be deemed to have been deleted and the WFF Events of Default
and Definitions shall be deemed, for all purposes, to have been incorporated by
reference into Annex II to this Secured Promissory Note, mutatis mutandis, as if fully set forth
therein, effective as of the time the WFF Credit Agreements are executed and
delivered.  Notwithstanding the
foregoing, the definition of Event of Default set forth in Annex II hereto
shall at all times include the occurrence of any Event of Default under, and as
defined in, the WFF Credit Agreements.

 

The Company agrees that,
upon the acceleration of this Secured Promissory Note following the occurrence
of an Event of Default that is not cured within the applicable cure period, the

 

4

 

Company shall pay to the
Administrative Agent, in addition to principal and accrued interest thereon,
all out-of-pocket costs of collection of the principal and accrued interest,
including, but not limited to, all reasonable out-of-pocket attorneys’ fees,
court costs, and other reasonable out-of-pocket costs and expenses of each
Noteholder Party related to the enforcement of payment of this Secured
Promissory Note.  Such amounts which are
not paid within 10 days after Administrative Agent’s written demand therefor
shall be added to the principal of this Secured Promissory Note and will bear
interest at the Default Rate.

 

Each Noteholder Party hereby
appoints and authorizes the Administrative Agent and the Collateral Agent
(each, an “Agent”) to take such action as agent on its behalf and to
exercise such powers and discretion under this Secured Promissory Note and the
other Loan Documents as are delegated to such Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto.  As to any matters not
expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of this Secured Promissory Note), no Agent shall be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Noteholders, and
such instructions shall be binding upon all Noteholder Parties; provided,
however, that no Agent shall be required to take any action that exposes
such Agent to personal liability or that is contrary to this Agreement or
applicable law.

 

Neither any Agent nor any of
their respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or
willful misconduct.  Without limitation
of the generality of the foregoing, each Agent:  (a) may consult with legal counsel (including counsel for any
Loan Party), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (b) makes no warranty or representation to any Noteholder Party and
shall not be responsible to any Noteholder Party for any statements, warranties
or representations (whether written or oral) made in or in connection with the
Loan Documents; (c) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
any Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (d) shall not be
responsible to any Noteholder Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (e) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

 

All notices and other
communications provided for under this Secured Promissory Note shall be in
writing (including by facsimile transmission) and mailed, faxed or delivered,
in accordance with the terms of the Secured Promissory Note and Warrant
Purchase Agreement, dated as of the date hereof, by and between the Company and
the Noteholders (the “Purchase Agreement”), in the case of the Company,
to: 7880 Bent Branch Drive, Suite 150, Irving, Texas 75063 Attention: Chief
Financial Officer, with copy to Chief Executive Officer at 7880 Bent Branch
Drive, Suite 150, Irving, Texas 75063), and, in the case of the Investor or
Administrative Agent, to: DB Advisors LLC, 280 Park Avenue, New York, New York
10017, Attention:
                                      
with a copy to:  Shearman & Sterling
LLP, 599 Lexington Avenue,

 

5

 

New York, New York  10022-6069, Facsimile: 
(212) 848-7179, Attention: 
Stephen M. Besen, Esq.

 

No amendment, waiver,
modification or supplement of any provision of this Secured Promissory Note,
nor consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing signed by the Company and
accepted and agreed to by the Required Lenders and then such amendment, waiver,
modification, supplement or consent shall be effective only in the specific
instance and for the specific purpose for which given.

 

This Secured Promissory Note
is governed by and construed in accordance with, the laws of the State of New
York.

 

This Secured Promissory Note
may be assigned, in whole or in part, from time to time, by the Investor
without the prior written consent of the Company.

 

This Secured Promissory Note
and the rights and obligations under this Secured Promissory Note are not
assignable or delegable, directly or indirectly, in whole or in part, by the
Company, without the prior written consent of the Investor; provided, however,
that the Company may transfer this Secured Promissory Note and the rights and
obligations under this Secured Promissory Note to any third party that has
acquired all or substantially all of the capital stock or ownership interest in
and to the Company (including by way of merger or consolidation) or to any
third party that has acquired all or substantially all of the assets of the
Company; provided that the Collateral (as defined in the Security Agreement) is
included in any such sale.  This Secured
Promissory Note shall be binding upon the Company, its permitted successors and
its assigns, and, in addition, shall inure to the benefit of and be enforceable
by each Noteholder and its successors and assigns.  Whenever possible this Secured Promissory Note and each provision
hereof shall be interpreted in such manner as to be effective, valid and
enforceable under applicable law.  If
and to the extent that any such provision of this Secured Promissory Note shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof, and any determination that the application of any provision hereof to
any person or under any circumstance is illegal and unenforceable shall not
affect the legality, validity and enforceability of such provision as it may be
applied to any other person or in any other circumstance.  All rights and remedies provided in this
Secured Promissory Note, the Guarantee, the Security Agreement or any law shall
be available to the Investor and shall be cumulative.

 

The Company hereby expressly
waives presentment, demand, and protest, notice of demand, dishonor and
nonpayment of this Secured Promissory Note, and all other notices or demands of
any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
Noteholders with respect to the time of payment or any other provision hereof
or of the Security Agreement.

 

No course of dealing between
the Company and the Investor or any other Noteholder or Noteholder Party and no
delay or failure in exercising any rights hereunder in respect thereof shall
operate as a waiver of any rights of any Noteholder Party.

 

This Secured Promissory
Note, and the indebtedness of the Company to the Investor evidenced hereby,
shall not be subject to any set-off, recoupment or counterclaim, each of which
is hereby expressly waived by the Company with respect to this Secured
Promissory Note and such indebtedness.

 

6

 

The Company hereby
irrevocably submits to the non-exclusive jurisdiction of any United States
Federal or New York State court sitting in New York City in any action or
proceeding arising out of or relating to this Secured Promissory Note and
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court and irrevocably waives
any objection it may now or hereafter have as to the venue of any such suit,
action or proceeding brought in such a court or that such court is an
inconvenient forum.  Nothing herein
shall limit the right of the Investor or any other Noteholder Party to bring
proceedings against the Company in the courts of any other jurisdiction.

 

THE COMPANY
HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURED PROMISSORY
NOTE.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  AEGIS COMMUNICATIONS
  GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Herman M. Schwarz

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Herman M. Schwarz

  	
   

  
	
   

  	
  Title:

  	
   

  	
  President and Chief
  Executive Officer

  	
   

  
							

 

7

 

Annex
I 

 

PREPAYMENTS

 

 

	
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  Amount Prepaid

  	
   

  	
  Unpaid Balance

  	
   

  	
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1

 

Annex II

 

Covenants, Events of Default and Related Definitions

 

1.  Definitions and
Interpretations

 

1.1 Definitions               As used in this Annex II, the following terms
shall have the following definitions:

 

“Account”
means an account (as that term is defined in the Code), and any and all
supporting obligations in respect thereof.

 

“Account
Debtor” means any Person who is obligated under, with respect to, or on
account of, an Account, chattel paper, or a General Intangible.

 

“Advances”
means the principal amounts outstanding and unpaid from time to time evidenced
by the Secured Promissory Note to which this Annex II is attached and any other
secured promissory note having the same terms as this secured promissory note
and issued simultaneously with the Secured Promissory Note to which this Annex
II is attached.

 

“Affiliate”
means, as applied to any Person, any other Person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.  For
purposes of this definition, “control” means the possession, directly or
indirectly through one or more intermediaries, of the power to direct the
management and policies of a Person, whether through the ownership of Stock, by
contract, or otherwise.

 

“Bankruptcy
Code” means title 11 of the United States Code, as in effect from time to
time.

 

“Board
of Directors” means the board of directors (or comparable managers) of the
Company or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

 

“Books”
means all of Company’s and its Subsidiaries’ now owned or hereafter acquired
books and records (including all of their Records indicating, summarizing, or
evidencing their assets (including the Collateral) or liabilities, all of
Company’s and its Subsidiaries’ Records relating to their business operations
or financial condition, and all of their goods or General Intangibles related
to such information).

 

“Business
Day” means any day that is not a Saturday, Sunday, or other day on which
banks are authorized or required to close in the state of New York or for
purposes of determining the interest rate hereunder, London.

 

“Capital
Expenditures” means, with respect to any Person for any period, the sum of
(a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed, and (b) to
the extent not covered by clause (a), the aggregate of all expenditures by such
Person and its Subsidiaries during such period to acquire by purchase or otherwise
the business or capitalized assets of, or the Capital Stock of, any other
Person.

 

2

 

“Capital
Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

“Capitalized
Lease Obligation” means that portion of the obligations under a Capital
Lease that is required to be capitalized in accordance with GAAP.

 

“Cash
Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof,
(b) marketable direct obligations issued by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within 1 year from the date of acquisition thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors
Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270
days from the date of creation thereof and, at the time of acquisition, having
a rating of at least A-1 from S&P or at least P-1 from Moody’s,
(d) certificates of deposit or bankers’ acceptances maturing within 1 year
from the date of acquisition thereof issued by any bank organized under the
laws of the United States or any state thereof having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000,
(e) demand Deposit Accounts maintained with any bank organized under the laws
of the United States or any state thereof so long as the amount maintained with
any individual bank is less than or equal to $100,000 and is insured by the
Federal Deposit Insurance Corporation, and (f) Investments in money market
funds substantially all of whose assets are invested in the types of assets
described in clauses (a) through (e) above.

 

“Change
of Control” means that (a) any “person” or “group” (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, more than 50%, of the equity interests of the Company,
or (b) a majority of the members of the Board of Directors do not constitute
Continuing Directors, or (d) the Company ceases to own, directly or indirectly,
and control 100% of the outstanding Stock of each of its Subsidiaries extant as
of the Closing Date.

 

“Code”
means the New York Uniform Commercial Code, as in effect from time to time.

 

“Collateral”
means all assets and interests in assets and proceeds thereof now owned or
hereafter acquired by the Company or its Subsidiaries in or upon which a Lien
is granted under any of the Loan Documents.

 

“Collateral
Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or
interests in Company’s or its Subsidiaries’ Books or Equipment, in each case,
in form and substance satisfactory to Collateral Agent.

 

“Compliance
Certificate” means a certificate in a form to be agreed by the Company and
the Administrative Agent delivered by the chief financial officer of the
Company to Administrative Agent.

 

“Continuing
Director” means (a) any member of the Board of Directors who was a director
(or comparable manager) of the Company on the date of execution of the Secured
Promissory Notes, and (b) any individual who becomes a member of the Board of
Directors after

 

3

 

the date of execution of the
Secured Promissory Notes if such individual was appointed or nominated for
election to the Board of Directors by a majority of the Continuing Directors,
but excluding any such individual originally proposed for election in
opposition to the Board of Directors in office on the date of execution of the
Secured Promissory Notes in an actual or threatened election contest relating
to the election of the directors (or comparable managers) of the Company and
whose initial assumption of office resulted from such contest or the settlement
thereof.

 

“Control
Agreement” means a control agreement, in form and substance satisfactory to
Collateral Agent, executed and delivered by the Company or one of its
Subsidiaries, Collateral Agent, and the applicable securities intermediary
(with respect to a Securities Account) or a bank (with respect to a Deposit
Account).

 

“Default”
means an event, condition, or default that, with the giving of notice, the
passage of time, or both, would be an Event of Default.

 

“Deposit
Account” means any deposit account (as that term is defined in the Code).

 

“EBITDA”
means, with respect to any fiscal period, the Company’s and its Subsidiaries’
consolidated net earnings (or loss), minus extraordinary gains and interest
income, plus interest expense, income taxes, and depreciation and amortization
for such period, as determined in accordance with GAAP, provided that,
for the first three calendar months occurring after the date of execution of
the Secured Promissory Notes, the Company may exclude from its calculation of
EBITDA any expenses incurred within ninety (90) days after the date of the
Secured Promissory Notes up to a maximum amount of $500,000.

 

“Environmental
Actions” means any complaint, summons, citation, notice, directive, order,
claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter, or other communication from any Governmental Authority, or
any third party involving violations of Environmental Laws or releases of
Hazardous Materials from (a) any assets, properties, or businesses of the
Company or any of its Subsidiaries, or any of their predecessors in interest,
(b) from adjoining properties or businesses, or (c) from or onto any facilities
which received Hazardous Materials generated by the Company or any of its
Subsidiaries, or any of their predecessors in interest.

 

“Environmental
Law” means any applicable federal, state, provincial, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on the Company or any
of its Subsidiaries, relating to the environment, employee health and safety,
or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution
Control Act, 33 USC § 1251 et  seq; the Toxic Substances
Control Act, 15 USC § 2601 et  seq; the Clean Air
Act, 42 USC § 7401 et  seq.; the Safe Drinking Water Act, 42
USC § 3803 et  seq.; the Oil Pollution Act of 1990, 33 USC
§ 2701 et  seq.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 USC § 11001 et  seq.; the
Hazardous Material Transportation Act, 49 USC § 1801 et  seq.;
and the Occupational Safety and Health Act, 29 USC §651 et  seq.
(to the extent it regulates occupational exposure to Hazardous Materials); any
state and local or foreign counterparts or equivalents, in each case as amended
from time to time.

 

4

 

“Environmental
Liabilities and Costs” means all liabilities, monetary obligations,
Remedial Actions, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.

 

“Environmental
Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities and Costs.

 

“Equipment”
means equipment (as that term is defined in the Code), and includes machinery,
machine tools, motors, furniture, furnishings, fixtures, vehicles (including
motor vehicles), computer hardware, tools, parts, and goods (other than
consumer goods, farm products, or Inventory), wherever located, including all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.

 

“Event
of Default” has the meaning set forth in Section 4 of this
Annex II.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as in effect from time to
time.

 

“FEIN”
means Federal Employer Identification Number.

 

“GAAP”
means generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.

 

“General
Intangibles” means general intangibles (as that term is defined in the
Code), including payment intangibles, contract rights, rights to payment,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trade secrets, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, insurance premium rebates, tax refunds, and tax
refund claims, and any and all supporting obligations in respect thereof, and
any other personal property other than Accounts, Deposit Accounts, goods,
Investment Property, and Negotiable Collateral.

 

“Governmental
Authority” means any federal, state, local, or other governmental or
administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.

 

“Hazardous
Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as “hazardous
substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or
any other formulation intended to define, list, or classify substances by
reason of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum,
or petroleum derived substances, natural gas, natural gas liquids, synthetic
gas, drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or
geothermal resources, (c) any flammable substances or explosives or any
radioactive materials, and (d) asbestos in any form or electrical equipment
that contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.

 

5

 

“Hedge
Agreement” means any and all agreements, or documents now existing or
hereafter entered into by Company or its Subsidiaries that provide for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Company’s or its Subsidiaries’
exposure to fluctuations in interest or exchange rates, loan, credit exchange,
security or currency valuations or commodity prices.

 

“Indebtedness”
means (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or
other obligations in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations as a
lessee under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of a Person or its Subsidiaries, irrespective of
whether such obligation or liability is assumed, (e) all obligations to pay the
deferred purchase price of assets (other than trade payables incurred in the
ordinary course of business and repayable in accordance with customary trade
practices), (f) all obligations owing under Hedge Agreements, and (g) any
obligation guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse)
any obligation of any other Person that constitutes Indebtedness under any of
clauses (a) through (f) above.

 

“Insolvency
Proceeding” means any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

 

“Interest
Expense” means, for any period, the aggregate of the interest expense of
the Company and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

 

“Inventory”
means inventory (as that term is defined in the Code).

 

“Investment”
means, with respect to any Person, any investment by such Person in any other
Person (including Affiliates) in the form of loans, guarantees, advances, or
capital contributions (excluding (a) commission, travel, and similar advances
to officers and employees of such Person made in the ordinary course of
business, and (b) bona fide
Accounts arising in the ordinary course of business consistent with past
practice), purchases or other acquisitions of Indebtedness, Stock, or all or
substantially all of the assets of such other Person (or of any division or
business line of such other Person), and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.

 

“Investment
Property” means investment property (as that term is defined in the Code),
and any and all supporting obligations in respect thereof.

 

“Lien”
means any interest in an asset securing an obligation owed to, or a claim by,
any Person other than the owner of the asset, irrespective of whether (a) such
interest is based on the common law, statute, or contract, (b) such interest is
recorded or perfected, and (c) such interest is contingent upon the occurrence
of some future event or events or the existence of some future circumstance or
circumstances.  Without limiting the
generality of the foregoing, the term “Lien” includes the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or trust

 

6

 

receipt, or from a lease,
consignment, or bailment for security purposes and also includes reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting
Real Property.

 

“Material
Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
(b) a material impairment of the Company’s or a Subsidiary of the
Company’s ability to perform its obligations under the Loan Documents to which
it is a party or of the Noteholder Parties’ ability to enforce the Obligations
or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Collateral Agent’s Liens with respect to the
Collateral as a result of an action or failure to act on the part of the
Company or a Subsidiary of the Company.

 

“Negotiable
Collateral” means letters of credit, letter of credit rights, instruments,
promissory notes, drafts, documents, and chattel paper (including electronic
chattel paper and tangible chattel paper), and any and all supporting
obligations in respect thereof.

 

“Noteholder”
or “Noteholders” means the Investor and each Person that becomes a
holder of the Secured Promissory Note to which this Annex II is attached or to
the owner of an undivided interest in the Secured Promissory Note to which this
Annex II is attached pursuant to the terms hereof for so long as the Investor
or such Person, as the case may be, shall be a holder hereof.

 

“Noteholder
Party” or “Noteholder Parties” means any or all of the Noteholders
and Agents, as the case may be.

 

 “Obligations” means all loans,
Advances, debts, principal, interest (including any interest that, but for the
commencement of an Insolvency Proceeding, would have accrued), premiums,
liabilities, obligations (including indemnification obligations), fees,
charges, costs, expenses of any of the Noteholders or the Agents payable by the
Company to any Noteholder Party under the Loan Documents and (including any
fees or expenses that, but for the commencement of an Insolvency Proceeding,
would have accrued), guaranties, covenants, and duties of any kind and
description owing by the Company to any of the Noteholder Parties pursuant to
or evidenced by the Loan Documents and irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including all interest not paid
when due and all costs and expenses of the Noteholder Parties payable by the
Company under the Loan Documents, by law, or otherwise.  Any reference herein to the Obligations
shall include all extensions, modifications, renewals, or alterations thereof,
both prior and subsequent to any Insolvency Proceeding.

 

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

 

“Permitted
Dispositions” means (a) sales or other dispositions of Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business,
(b) the use or transfer of money or Cash Equivalents in a manner that is not
prohibited by the terms of this Agreement or the other Loan Documents, and (c)
the licensing, on a non-exclusive basis, of patents, trademarks, copyrights,
and other intellectual property rights in the ordinary course of business.

 

“Permitted
Investments” means (a) Investments in cash and Cash Equivalents, (b)
Investments in negotiable instruments for collection, (c) advances made in
connection with

 

7

 

purchases of goods or
services in the ordinary course of business, and (d) Investments received in
settlement of amounts due to the Company or any Subsidiary of the Company
effected in the ordinary course of business or owing to the Company or any
Subsidiary of the Company as a result of Insolvency Proceedings involving an
Account Debtor or upon the foreclosure or enforcement of any Lien in favor of
the Company or any Subsidiary of the Company.

 

“Permitted
Liens” means (a) Liens held by Collateral Agent, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not
constitute an Event of Default hereunder and are the subject of Permitted
Protests, (c) Liens set forth on Schedule 3.2 to this Annex II, (d)
the interests of lessors under operating leases, (e) purchase money Liens or
the interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (f)
Liens arising by operation of law in favor of warehousemen, landlords,
carriers, mechanics, materialmen, laborers, or suppliers, incurred in the
ordinary course of the Company and its Subsidiaries’ business and not in
connection with the borrowing of money, and which Liens either (i) are for
sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(g) Liens arising from deposits made in connection with obtaining worker’s
compensation or other unemployment insurance, (h) Liens or deposits to secure
performance of bids, tenders, or leases incurred in the ordinary course of
business and not in connection with the borrowing of money, (i) Liens granted
as security for surety or appeal bonds in connection with obtaining such bonds
in the ordinary course of business, (j) Liens resulting from any judgment or
award that is not an Event of Default hereunder, (k) with respect to any Real
Property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof and (l) any
and all Liens granted in, created by or arising out of any WFF Credit
Agreements, which Liens may be senior and prior to any Lien in favor of the
Collateral Agent or Noteholders to secure the repayment and performance of the
Obligations.

 

“Permitted
Protest” means the right of Company or any of its Subsidiaries to protest
any Lien (other than any Lien that secures the Obligations), taxes (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the Books in such amount as is required under
GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Company or any of its Subsidiaries, as applicable, in good faith,
and (c) while any such protest is pending, there will be no impairment of
the enforceability, validity, or priority of any of the Collateral Agent’s
Liens.

 

“Permitted
Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the date of execution of the Secured
Promissory Notes in an aggregate amount outstanding at any one time not in
excess of $5,000,000.

 

“Person”
means natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, statutory
trusts, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.

 

“Projections”
means the Company’s forecasted (a) balance sheets, (b) profit and loss
statements, and (c) cash flow statements, all prepared on a consistent basis
with the Company’s historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.

 

8

 

“Purchase
Money Indebtedness” means Indebtedness (other than the Obligations, but
including Capitalized Lease Obligations), incurred at the time of, or within 20
days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.

 

“Real
Property” means any estates or interests in real property now owned or
hereafter acquired by the Company or a Subsidiary of the Company and the
improvements thereto.

 

“Record”
means information that is inscribed on a tangible medium or which is stored in
an electronic or other medium and is retrievable in perceivable form.

 

“Remedial
Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (d) conduct any other
actions authorized by 42 USC § 9601.

 

“Required
Noteholders” means, at any time, Noteholders owed or holding at least a
majority in interest of the aggregate principal amount of the Advances
outstanding at such time under this Secured Promissory Note.

 

“Required
Noteholders” means the Noteholders holding at least a majority in interest
of the aggregate principal amount of the Advances (as defined in each Secured
Promissory Note) outstanding at such time under each of the Secured Promissory
Notes.

 

“SEC”
means the United States Securities and Exchange Commission and any successor
thereto.

 

“Noteholder”
means a “Noteholder” as defined in each of the Secured Promissory Notes.

 

“Secured
Promissory Note” means this Secured Promissory Note and each other secured
promissory note issued by the Company as of the date hereof.

 

“Securities
Account” means a “securities account” as that term is defined in the Code.

 

“Solvent”
means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such
Person’s debts.

 

“Stock”
means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

 

“Subsidiary”
of a Person means a corporation, partnership, limited liability company, or
other entity in which that Person directly or indirectly owns or controls the
shares of

 

9

 

Stock having ordinary voting
power to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited liability
company, or other entity.

 

“United
States” means the United States of America.

 

“WFF
Credit Agreements” means the loan documents, including loan agreements,
promissory notes and security agreements entered into by the Company and
lenders for which Well Fargo Foothill, Inc. acts as the arranger and
administrative agent or any other lender or group of lenders in connection with
the extension of credit to the Company and/or one or more of its Subsidiaries
by such lender or group of lenders and any related agreements, documents and
instruments, including intercreditor agreements.

 

1.2  Accounting
Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.  When used herein, the term “financial statements” shall include
the notes and schedules thereto. 
Whenever the term “the Company and its Subsidiaries” or the term
“Company” is used in respect of a financial covenant or a related definition,
it shall be understood to mean the Company and its Subsidiaries on a consolidated
basis unless the context clearly requires otherwise.

 

1.3  Code.  Any terms used
in this Annex II that are defined in the Code shall be construed and defined as
set forth in the Code unless otherwise defined herein.

 

2.                   Affirmative Covenants

 

The
Company covenants and agrees that, until the payment in full of the
Obligations, the Company and its Subsidiaries shall and shall cause each of
their respective Subsidiaries to do all of the following:

 

2.1  Accounting
System.  Maintain a system of accounting that enables
the Company and its Subsidiaries to produce financial statements in accordance
with GAAP and maintain records pertaining to the Collateral that contain
information as from time to time reasonably may be requested by Collateral
Agent.

 

2.2  Financial
Statements, Reports, Certificates.  Deliver to Administrative
Agent, with copies to each Noteholder:

 

(a)  as soon as available, but in any event
within 30 days (45 days in the case of a month that is the end of one of the
Company’s fiscal quarters) after the end of each month during each of the
Company’s fiscal years,

 

(i)  a
company prepared consolidated balance sheet, income statement, and statement of
cash flow covering the Company’s and its Subsidiaries’ operations during such
period,

 

(ii)  a
certificate signed by the chief financial officer of the Company to the effect
that:

 

A.  the
financial statements delivered hereunder have been prepared in accordance with
GAAP (except for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present in all

 

10

 

material
respects the financial condition of the Company and its Subsidiaries,

 

B.  there
does not exist any condition or event that constitutes a Default or Event of
Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action the
Company and its Subsidiaries have taken, are taking, or propose to take with
respect thereto), and

 

(iii) for each quarter that is the date on which a financial
covenant in Section 3.17 is to be tested, a Compliance Certificate
demonstrating, in reasonable detail, compliance at the end of such period with
the applicable financial covenants contained in Section 3.17,

 

(b)  as soon as available, but in any event
within 90 days after the end of each of the Company’s fiscal years,

 

(i) 
financial statements of the Company and its Subsidiaries for each such
fiscal year, audited by the Company’s independent certified public accountants
as of the original issuance date of the Secured Promissory Notes or such other
independent certified public accountants reasonably acceptable to
Administrative Agent and certified, without any qualifications, by such
accountants to have been prepared in accordance with GAAP (such audited
financial statements to include a balance sheet, income statement, and
statement of cash flow and, if prepared, such accountants’ letter to
management), and

 

(ii)  a
certificate of such accountants addressed to Administrative Agent and the
Lenders stating that such accountants do not have knowledge of the existence of
any Default or Event of Default under Section 3.17,

 

(c)  as soon as available, but in any event
within 30 days prior to the start of each of the Company’s fiscal years, copies
of the Company’s Projections, in form and substance (including as to scope and
underlying assumptions) satisfactory to Administrative Agent, in its sole
discretion, for the forthcoming three years, year by year, and for the
forthcoming fiscal year, month by month, certified by the chief financial
officer of the Company as being such officer’s good faith best estimate of the
financial performance of the Company and its Subsidiaries during the period
covered thereby,

 

(d)  if and when filed by the Company with the SEC,

 

(i)  the
Company’s quarterly reports on Form 10-Q, annual reports on Form 10-K and
current reports on Form 8-K,

 

(ii)  any
other filings made by the Company with the SEC,

 

(iii)  copies
of the Company and its Subsidiaries’ federal income tax returns, and any
amendments thereto, filed with the Internal Revenue Service, and

 

(iv)  any
other information that is provided by the Company to its shareholders
generally,

 

11

 

(e)  if and when filed by the Company or any
Subsidiary of the Company and as requested by Administrative Agent,
satisfactory evidence of payment of applicable excise taxes in each
jurisdiction in which (i) the Company or any Subsidiary of the Company conducts
business or is required to pay any such excise tax, (ii) where the Company’s or
any Subsidiary of the Company’s failure to pay any such applicable excise tax
would result in a Lien on the properties or assets of the Company or such
Subsidiary, or (iii) where the Company’s or any Subsidiary of the Company’s
failure to pay any such applicable excise tax reasonably could be expected to
result in a Material Adverse Change,

 

(f)  as soon as the Company has knowledge of any
event or condition that constitutes a Default or an Event of Default, notice
thereof and a statement of the curative action that the Company and its
Subsidiaries propose to take with respect thereto,

 

(g)  promptly after the commencement thereof, but
in any event within five days after the service of process with respect thereto
on the Company or any Subsidiary of the Company, notice of all actions, suits,
or proceedings brought by or against the Company or any Subsidiary of the
Company before any Governmental Authority which, if determined adversely to
such Borrower or such Subsidiary, reasonably could be expected to result in a
Material Adverse Change, and

 

(h)  upon the request of Administrative Agent,
any other report reasonably requested relating to the financial condition of
the Company and its Subsidiaries or their Subsidiaries.

 

In
addition to the financial statements referred to above, the Company and its
Subsidiaries agree that no Subsidiary of the Company will have a fiscal year
different from that of the Company.  the
Company and its Subsidiaries agree to cooperate with Administrative Agent to
allow Administrative Agent to consult with their independent certified public
accountants if Administrative Agent reasonably requests the right to do so and
that, in such connection, their independent certified public accountants are
authorized to communicate with Administrative Agent and to release to
Administrative Agent whatever financial information concerning the Company and
its Subsidiaries or their Subsidiaries that Administrative Agent reasonably may
request.

 

2.3  Returns. 
Cause returns and allowances as between the Company and its Subsidiaries
and their Subsidiaries and their Account Debtors, to be on the same basis and
in accordance with the usual customary practices of the Company and its
Subsidiaries and their Subsidiaries, as they exist at the time of the execution
and delivery of this Agreement.

 

2.4 
Maintenance of Properties.  Maintain and preserve all of
their properties which are necessary or useful in the proper conduct to their
business and not obsolete in good working order and condition, ordinary wear
and tear excepted, and comply at all times with the provisions of all leases to
which it is a party as lessee, so as to prevent any loss or forfeiture thereof
or thereunder.

 

2.5  Taxes. 
Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against the Company and its
Subsidiaries, their Subsidiaries, or any of their respective assets to be paid
in full, before delinquency or before the expiration of any extension period,
except to the extent that the validity of such assessment or tax shall be the
subject of a Permitted Protest.  The
Company and its Subsidiaries will and will cause their Subsidiaries to make
timely payment or deposit of all tax payments and withholding taxes required of
them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish Administrative

 

12

 

Agent with proof
satisfactory to Administrative Agent indicating that the Company or the
Subsidiary of the Company, as the case may be, has made such payments or
deposits.

 

2.6 
Insurance.  (a)  At the Company and its Subsidiaries’ expense,
maintain insurance respecting the Company’s and its Subsidiaries’ assets
wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. 
The Company and its Subsidiaries also shall maintain business
interruption, public liability, and product liability insurance.  All such policies of insurance shall be in
such amounts and with such insurance companies as are reasonably satisfactory
to Collateral Agent.  The Company and
its Subsidiaries shall deliver copies of all such policies to Collateral Agent
with a satisfactory lender’s loss payable endorsement naming Collateral Agent
as sole loss payee or additional insured, as appropriate, with respect to any
losses of the Collateral.  Each policy
of insurance or endorsement shall contain a clause requiring the insurer to
give not less than 30 days prior written notice to Collateral Agent in the
event of cancellation of the policy for any reason whatsoever.

 

(b)  The Company shall give Collateral Agent
prompt notice of any loss covered by such insurance.  Collateral Agent shall have the exclusive right to adjust any
losses claimed under any such insurance policies with respect to Collateral in
excess of $50,000 (or in any amount after the occurrence and during the
continuation of an Event of Default), without any liability to the Company and
its Subsidiaries whatsoever in respect of such adjustments, except to the
extent the Company or any of its Subsidiaries suffers any loss or damage as a
direct result of the gross negligence or willful malfeasance of the Collateral
Agent.  Any monies received as payment
for any loss of any of the Collateral under any insurance policy mentioned above
(other than liability insurance policies) or as payment of any award or
compensation for condemnation or taking by eminent domain of any of the
Collateral, shall be paid over to Collateral Agent to be applied at the option
of the Required Noteholders either to the prepayment of the Obligations under
each of the Secured Promissory Notes (pro rata according to the interests of
each Noteholder in and to the principal outstanding at such time under the
Secured Promissory Notes) or shall be disbursed to the Company under staged
payment terms reasonably satisfactory to the Required Noteholders for
application to the cost of repairs, replacements, or restorations. Any such
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction.

 

(c)  The Company and its Subsidiaries shall not,
and shall not suffer or permit their Subsidiaries to, take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 2.7, unless Collateral
Agent is included thereon as named insured with the loss payable to Collateral
Agent under a lender’s loss payable endorsement or its equivalent.  The Company immediately shall notify
Collateral Agent whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and copies of such policies promptly shall be provided to Collateral Agent.

 

2.7  Location
of Inventory and Equipment.  Keep the Company and its
Subsidiaries’ and their Subsidiaries’ Equipment only at the locations
identified on Schedule 2.7 to this Annex II and their chief
executive offices only at the locations identified on said Schedule 2.7; provided,
however, that Company may amend Schedule 2.7 so long as such
amendment occurs by written notice to Collateral Agent not less than 30 days
prior to the date on which such Equipment is moved to such new location or such
chief executive office is relocated, so long as such new location is within the
continental United States, and so long as, at the time of such written

 

13

 

notification, the Company or
its Subsidiary provides Collateral Agent a Collateral Access Agreement with
respect thereto.

 

2.8  Compliance
with Laws.  Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change.

 

2.9  Leases.  Pay
when due all rents and other amounts payable under any leases to which the
Company or any Subsidiary of the Company is a party or by which the Company’s
or any Subsidiary of the Company’s properties and assets are bound, unless such
payments are the subject of a Permitted Protest.

 

2.10. 
Existence.  At all times preserve and keep in full force
and effect the Company’s and each Subsidiary of the Company’s valid existence
and good standing and any rights and franchises material to their businesses.

 

2.11 
Environmental.  (a) Keep any property either owned or
operated by the Company or any Subsidiary of the Company free of any
Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens, (b)
comply, in all material respects, with Environmental Laws and provide to
Administrative Agent documentation of such compliance which Administrative
Agent reasonably requests, (c) promptly notify Administrative Agent of any
release of a Hazardous Material of any reportable quantity from or onto
property owned or operated by the Company or any Subsidiary of the Company and
take any Remedial Actions required to abate said release or otherwise to come
into compliance with applicable Environmental Law, and (d) promptly, but in any
event within five days of its receipt thereof, provide Administrative Agent
with written notice of any of the following: 
(i) notice that an Environmental Lien has been filed against any of the
real or personal property of the Company or any Subsidiary of the Company, (ii)
commencement of any Environmental Action or notice that an Environmental Action
will be filed against the Company or any Subsidiary of the Company, and (iii)
notice of a violation, citation, or other administrative order which reasonably
could be expected to result in a Material Adverse Change.

 

2.12 
Disclosure Updates.  Promptly and in no event
later than five Business Days after obtaining knowledge thereof, notify
Administrative Agent if any written information, exhibit, or report furnished
to the Noteholders contained any untrue statement of a material fact or omitted
to state any material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which made.  The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not
cure or remedy the effect of the prior untrue statement of a material fact or
omission of any material fact nor shall any such notification have the affect
of amending or modifying this Agreement or any of the Schedules hereto.

 

2.13  Formation
of Subsidiaries.  At the time that the Company or any
Subsidiary of the Company forms any direct or indirect Subsidiary or acquires any
direct or indirect Subsidiary after the Closing Date, the Company or such
existing Subsidiary shall (a) cause such new Subsidiary to provide to
Administrative Agent a Guaranty Supplement (as defined in the Guaranty) and
joinder to the Security Agreement, together with such other security documents,
as well as appropriate UCC-1 financing statements, all in form and substance
satisfactory to Collateral Agent (including being sufficient to grant
Collateral Agent a first priority Lien (subject to Permitted Liens) in and to
the assets of such newly formed or acquired Subsidiary), (b) provide to
Collateral Agent a pledge

 

14

 

agreement and appropriate
certificates and powers or UCC-1 financing statements, hypothecating all of the
direct or beneficial ownership interest in such new Subsidiary, in form and
substance satisfactory to Collateral Agent, and (c) provide to Collateral Agent
all other documentation, including one or more opinions of counsel satisfactory
to Collateral Agent, which in its opinion is appropriate with respect to the
execution and delivery of the applicable documentation referred to above
(including policies of title insurance or other documentation with respect to
all property subject to a Mortgage). 
Any document, agreement, or instrument executed or issued pursuant to
this Section 2.13 shall be a Loan Document.

 

Notwithstanding
anything to the contrary in this Section 2 of this Annex II, in no event
shall the Company or any Subsidiary of the Company be required to make any
disclosure of information or provide any information, including any financial
statements, to the Administrative Agent or any Noteholder if, pursuant to
Regulation FD promulgated under the Securities Act of 1933, as amended, the
Company would be required to make any disclosure of that information in a
circumstance in which, or at a time at which, the Company reasonably determines
such disclosure would be adverse to the best interest of the Company and its
Subsidiaries or the best interest of its stockholders or if the disclosure of
that information would include the disclosure of non-GAAP financial measures as
contemplated by Regulation G of the SEC.

 

3. 
Negative Covenants.

 

The
Company covenants and agrees that, until the payment in full of the
Obligations, the Company and its Subsidiaries will not and will not permit any
of their respective Subsidiaries to do any of the following:

 

3.1 
Indebtedness.  Create, incur, assume, suffer to exist,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:

 

(a)  Indebtedness evidenced by the Secured
Promissory Notes;

 

(b)  Indebtedness set forth on Schedule 3.1
to this Annex II;

 

(c)  Permitted Purchase Money Indebtedness;

 

(d)  refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this Section 3.1
(and continuance or renewal of any Permitted Liens associated therewith) so
long as: (i) the terms and conditions of such refinancings, renewals, or
extensions do not, in Administrative Agent’s judgment, materially impair the
prospects of repayment of the Obligations by the Company and its Subsidiaries
or materially impair the Company and its Subsidiaries’ creditworthiness, (ii)
such refinancings, renewals, or extensions do not result in an increase in the
then extant principal amount of, or interest rate with respect to, the
Indebtedness so refinanced, renewed, or extended or add one or more borrowers
as liable with respect thereto if such additional borrowers were not liable
with respect to the original Indebtedness, (iii) such refinancings, renewals,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions, that, taken as a whole, are materially more burdensome or
restrictive to the Company or any of its Subsidiaries, (iv) if the Indebtedness
that is refinanced, renewed, or extended was subordinated in right of payment
to the Obligations, then the terms and conditions of the refinancing, renewal,
or extension Indebtedness must be include subordination terms and conditions

 

15

 

that are at least as
favorable to the Noteholders as those that were applicable to the refinanced,
renewed, or extended Indebtedness, and (v) the Indebtedness that is refinanced,
renewed, or extended is not recourse to any Person that is liable on account of
the Obligations other than those Persons which were obligated with respect to
the Indebtedness that was refinanced, renewed, or extended;

 

(e) 
Indebtedness under the WFF Credit Agreements;

 

(f) 
endorsement of instruments or other payment items for deposit; and

 

(g)  Indebtedness composing Permitted
Investments.

 

3.2  Liens. 
Create, incur, assume, or suffer to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind (expressly including,
without limitation, Real Property), whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens (including Liens
that are replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced, renewed, or extended under Section 3.1(d)
of this Annex II and so long as the replacement Liens only encumber those
assets that secured the refinanced, renewed, or extended Indebtedness).

 

3.3 
Restrictions on Fundamental Changes.

 

(a)  Enter into any merger, consolidation,
reorganization or recapitalization, or reclassify its Stock.

 

(b)  Liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution).

 

(c)  Other than in Permitted Dispositions,
convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
assets.

 

3.4  Disposal
of Assets.  Other than in Permitted Dispositions or, in
any twelve month period in the ordinary course of business consistent with past
practices, assets having a book value on the Books of the Company of up to $100,000
in the aggregate, convey, sell, lease, license, assign, transfer, or otherwise
dispose of any of the assets of the Company or any Subsidiary of the Company.

 

3.5  Change
Name.  Change the Company’s or any Subsidiary of
the Company’s name, FEIN, organizational identification number, state of
organization, or organizational identity; provided, however, that
the Company or a Subsidiary of the Company may change its name upon at least 30
days prior written notice by Company to Collateral Agent of such change and so
long as, at the time of such written notification, such Borrower or such
Subsidiary provides any financing statements necessary to perfect and continue
perfected Collateral Agent’s Liens.

 

3.6  Nature of
Business.  Make any change in the principal nature of
their business.

 

3.7 
Prepayments and Amendments.  Except in connection with a
refinancing permitted by Section 3.1(d) of this Annex II,

 

16

 

(a)  prepay, redeem, defease, purchase, or
otherwise acquire any Indebtedness of the Company or any Subsidiary of the
Company, other than the Obligations in accordance with this Agreement, or

 

(b)  directly or indirectly, amend, modify,
alter, increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness permitted under Section 3.1(b) or (c) of this Annex
II.

 

3.8  Change of
Control.  Cause, permit, or suffer, directly or
indirectly, any Change of Control.

 

3.9  Distributions. 
Other than distributions or declaration and payment of dividends by the
Company to another Borrower or by a Subsidiary of the Company to the Company,
make any distribution or declare or pay any dividends (in cash or other
property, other than common Stock) on, or purchase, acquire, redeem, or retire
any of the Company’s Stock, of any class, whether now or hereafter outstanding.

 

3.10 
Accounting Methods.  Modify or change their fiscal
year or their method of accounting (other than as may be required to conform to
GAAP or to conform to more commonly used principles that are a part of GAAP) or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of the Company and its Subsidiaries’ or their
Subsidiaries’ accounting records without said accounting firm or service bureau
agreeing to provide Administrative Agent information regarding the Company and
its Subsidiaries’ and their Subsidiaries’ financial condition.

 

3.11 
Investments.  Except for Permitted Investments, directly
or indirectly, make or acquire any Investment, or incur any liabilities
(including contingent obligations) for or in connection with any Investment.

 

3.12 
Transactions with Affiliates. 
Directly or indirectly enter into or permit to exist any transaction
with any Affiliate of the Company, other than one of the Company’s wholly owned
Subsidiaries, except for transactions that are in the ordinary course of the
Company and its Subsidiaries’ business, upon fair and reasonable terms, that
are fully disclosed to Administrative Agent, and that are no less favorable to
the Company and its Subsidiaries than would be obtained in an arm’s length
transaction with a non-Affiliate.

 

3.13 
Suspension.  Suspend or go out of a substantial portion
of their business.

 

3.14 
Compensation.  Increase the annual fee or per-meeting fees
paid to the members of its Board of Directors during any year by more than 15%
over the prior year; pay or accrue total cash compensation, during any year, to
its officers and senior management employees in an aggregate amount in excess
of 115% of that paid or accrued in the prior year.

 

3.15  Equipment
with Bailees.  Store the Equipment of the Company and its
Subsidiaries or their Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party without Collateral Agent’s prior written
consent.

 

17

 

3.16  Financial
Covenants.

 

(a)  Minimum of
EBITDA.   Fail to maintain or achieve  at least the required amount set forth in
the following table for the applicable period ending in the month set forth
opposite thereto:

 

	
  Applicable Amount

  	
   

  	
  Applicable Period

  
	
  $

  	
  1,500,000

  	
   

  	
  Quarter ended March 31, 2004

  
	
  $

  	
  2,000,000

  	
   

  	
  Quarter ended June 30, 2004

  
	
  $

  	
  2,200,000

  	
   

  	
  Quarter ended September 30, 2004

  
	
  $

  	
  2,400,000

  	
   

  	
  Quarter ended December 31, 2004

  

 

EBITDA
shall be measured on a quarter-end basis. 
Administrative Agent and the Company shall establish required minimum
EBITDA amounts for quarter occurring after December 31, 2004 on the basis
of projections and business plans for such periods prepared and delivered by
the Company and its Subsidiaries and accepted by Administrative Agent in its
Permitted Discretion, but in any event in amounts not less than the amount
required for the quarter ending December 31, 2004.

 

(b)  Capital
Expenditures.  Make capital
expenditures of a total of $10,000,000, which capital expenditures are financed
through the incurrence of Indebtedness or pursuant to Capital Leases or in the
fiscal years set forth in the following table, make capital expenditures from
operating cash flow in excess of the amount set forth in the following table
for the applicable period:

 

	
  Fiscal Year 2004

  	
   

  	
  Fiscal Year 2005

  	
   

  	
  Fiscal Year 2006

  
	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  4,000,000

  
								

 

3.17  Billing
Practices.  Modify or change their billing practices.

 

3.18  Change of
Officers.   Permit any change in the holders of the
offices of President and Chief Executive Officer and Chief Financial Officer
unless the individual named to any such office is satisfactory to
Administrative Agent in its Permitted Discretion.

 

4. 
EVENTS OF DEFAULT.

 

Any
one or more of the following events shall constitute an event of default (each,
an “Event of Default”) under the Secured Promissory Notes:

 

4.1  If the Company and its Subsidiaries fail to
pay within 5 calendar days of the date when due and payable or when declared
due and payable, all or any portion of the Obligations other than the principal
amount payable under the Secured Promissory Notes (whether of interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees, charges and expense reimbursements
due the Noteholders or other amounts constituting Obligations);

 

4.2  If the Company and its Subsidiaries fail to
pay when due and payable or when declared due and payable, all or any portion
of the principal amount payable under the Secured Promissory Notes;

 

4.3  If the Company and its Subsidiaries fail to
perform, keep, or observe any term, provision, covenant or agreement contained
in any of the Loan Documents and, except for those

 

18

 

covenants set forth in
Sections 2.7 or 2.11 or Section 3, such failure continues for a period of
30 days or more after the earlier of (a) the date on which the Company first
receives notice of such failure from the Administrative Agent or a Noteholder
and (b) the first date on which an executive officer of the Company has actual
awareness of such failure.

 

4.4  If any material portion of the Company’s or
any Subsidiary of the Company’s assets is attached, seized, subjected to a writ
or distress warrant, levied upon, or comes into the possession and control of
any third Person;

 

4.5  If an Insolvency Proceeding is commenced by
the Company or any Subsidiary of the Company;

 

4.6  If an Insolvency Proceeding is commenced
against the Company or any Subsidiary of the Company, and any of the following
events occur:  (a) the applicable
Borrower or Subsidiary consents to the institution of the Insolvency Proceeding
against it, (b) the petition commencing the Insolvency Proceeding is not
timely controverted, (c) the petition commencing the Insolvency Proceeding
is not dismissed within 60 calendar days of the date of the filing thereof,
(d) an interim trustee is appointed to take possession of all or any
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, the Company or any Subsidiary of the
Company, or (e) an order for relief shall have been entered therein;

 

4.7  If the Company or any Subsidiary of the
Company is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs;

 

4.8  If a notice of Lien, levy, or assessment is
filed of record with respect to the Company’s or any Subsidiary of the
Company’s assets by the United States, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien, whether choate or otherwise, upon the
Company’s or any Subsidiary of the Company’s assets and the same is not paid
before such payment is delinquent unless any such Lien is a Permitted Lien or
any such Lien, levy or assessment is and continues to be the subject of a
Permitted Protest;

 

4.9  If a judgment or other claim becomes a Lien
(other than a Permitted Lien) upon any material portion of the Company’s or any
Subsidiary of the Company’s properties or assets ;

 

4.10  If there is a default in the WFF Credit
Agreements, any other Secured Promissory Note or any material agreement to
which the Company or any Subsidiary of the Company is a party (other than any
customer contract) and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of the applicable
Borrower’s or Subsidiary’s obligations thereunder, or to terminate such
agreement, which termination is reasonably likely to have a Material Adverse
Change;

 

4.11  If the Company or any Subsidiary of the
Company makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

 

4.12  If any misstatement or misrepresentation
exists now or hereafter in any warranty, representation, statement, or Record
made to the Noteholders by the Company, any Subsidiary of

 

19

 

the Company, provided,
however, that if the misstatement or misrepresentation is in any warranty,
representation, statement or Record that is not itself qualified as to
materiality, such misstatement or misrepresentation must be as to a material
misstatement or misrepresentation;

 

4.13  If any of the Loan Documents that purports
to create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby; or

 

4.14  Any material provision of any Loan Document
shall at any time for any reason be declared to be null and void, or the
validity or enforceability thereof shall be contested by the Company or any
Subsidiary of the Company, or a proceeding shall be commenced by the Company or
any Subsidiary of the Company, or by any Governmental Authority having
jurisdiction over the Company or any Subsidiary of the Company, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary of the Company shall deny that it has any liability or obligation
purported to be created under any Loan Document.

 

20Exhibit 10.4

 

THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW.  THIS SECURED PROMISSORY NOTE HAS BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND NEITHER
THIS SECURED PROMISSORY NOTE NOR ANY INTEREST HEREIN MAY BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION AND QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.

 

SECURED PROMISSORY NOTE

 

 

	
  $14,143,815.00

  	
   

  	
  November 5, 2003

  

 

For value received, the
undersigned, Aegis Communications Group, Inc., a Delaware corporation (the “Company”),
hereby PROMISES TO PAY to the order of Essar Global Limited (the “Investor”
and in its capacity as administrative agent for each of its assignees
hereunder, the “Administrative Agent”), the principal sum of
$14,143,815.00 together with interest in arrears from and including the date
hereof on the unpaid principal balance until such principal balance is paid in
full.  The Company agrees to make all
payments under this Secured Promissory Note to the order of the Investor, in
lawful money of the United States of America and in immediately available
funds, to such account or place as the Investor may request in writing ten (10)
Business Days (as defined herein) prior to any such payment.  The Investor, together with its assignees
hereunder are collectively referred to as the “Noteholders”.  Terms used and not defined in the text of
this Secured Promissory Note have the meaning specified in Annex II to this
Secured Promissory Note or in the Purchase Agreement referred to below.

 

The Company agrees to pay
interest on the unpaid principal amount of this Secured Promissory Note until
such principal amount shall be paid in full, compounded quarterly, at a rate
per annum equal to 0.50% per annum above the rate of interest per annum (the “Eurodollar
Rate”) (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two
Business Days before the first day of each Interest Period (as defined below)
for an amount substantially equal to such unpaid amount and for a period equal
to such Interest Period (provided that, if for any reason such rate is
not available, the term “Eurodollar Rate” shall mean, for any Interest Period,
the rate of interest per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London
time) two Business Days prior to the first day of each Interest Period for a
term comparable to such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates). 
Each interest period shall be a period having a duration of three months
(an “Interest Period”).  The initial
Interest Period shall begin on the date hereof and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest
Period.  Interest shall be payable in
arrears at the end of each Interest Period as set forth in the relevant
provision below and shall be calculated on the basis of actual number of days
elapsed and a year of 360 days. 
Notwithstanding any other provision of this Secured Promissory Note, the
Investor does not intend to charge, and the Company shall not be required to
pay, any interest or other fees or charges in excess of the maximum permitted
by applicable law; any payments in excess of such maximum shall be credited to
reduce principal hereunder.  Except as
otherwise provided herein or

 

 

in
the Security Agreement (as defined below), all payments received by the
Administrative Agent hereunder will be applied first to costs of collection, if
any, then to accrued but unpaid interest and the balance to principal (in each
case, pro rata to each Noteholder according to the interests of each Noteholder
in and to the principal outstanding at such time under this Secured Promissory
Note).

 

The Company shall pay
interest on the amount of any principal, interest or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable on demand, at a rate per annum
equal at all times to two percent (2%) per annum above the rate per annum of
interest set forth in the immediately preceding paragraph (the “Default Rate”).

 

Principal
hereunder shall be payable in two installments as follows:

 

(a)           In an
initial installment of $6,184,177.00 (the “Initial Principal Payment”) payable on the earlier of
(i) February 5, 2004 (the “Initial Principal Payment Final Maturity Date”)
and (ii) the first date that the Company has availability to receive any funds
(“WFF Availability”) under a credit facility for which Wells Fargo
Foothill, Inc. acts as the arranger and administrative agent or any other
lender or group of lenders (the “WFF Credit Agreements”); provided
that if the amount of WFF Availability on such date is less than the aggregate
amount of the Initial Principal Payment and any capitalized interest payable
with respect thereto (collectively, the “Outstanding Initial Principal”)
and any installment of principal due on that date under each other Secured
Promissory Note at such time (together with capitalized interest accrued
thereunder), the Company shall make a principal payment hereunder and under each
other Secured Promissory Note in a total amount equal to such WFF Availability,
which payment shall be paid to each Administrative Agent under each Secured
Promissory Note pro rata according to the amount of Outstanding Initial
Principal outstanding at such time under each Secured Promissory Note (and as
defined therein) in payment of the Outstanding Initial Principal under each
such note (and as defined therein), and shall make additional principal
payments in such manner on each date that WFF Availability is increased, until
the total amount of Outstanding Initial Principal under each Secured Promissory
Note (and as defined therein) is paid in full or, if it occurs first, the
Initial Principal Payment Final Maturity Date, on which date all Outstanding
Initial Principal shall be due and payable hereunder; and

 

(b)           In a second installment of $7,959,638.00, payable in full on November
5, 2006.

 

Each installment of
principal shall be paid to the Administrative Agent for distribution to the
Noteholders by 11:00 A.M. (New York City time) on the date due.  Interest hereunder shall be payable to the
Administrative Agent for distribution to the Noteholders on the last day of
each Interest Period in arrears commencing on February 5, 2004 (each such date
being an “Interest Payment Date”) with a final payment of all unpaid
interest on the date principal is paid in full hereunder.  The Company shall have the option to pay
such interest in cash or to cause such interest to be capitalized on any such
Interest Payment Date and added to the principal amount of this Secured
Promissory Note, which additional amount shall bear interest and otherwise be
payable in accordance with the terms and conditions of this Secured Promissory
Note.

 

The Administrative Agent
shall have the right at any time to request that any or all capitalized
interest added to the principal amount of this Secured Promissory Note be
evidenced by a separate promissory note or notes in substantially the form of
this Secured Promissory Note.

 

2

 

If any day on which a
payment is due pursuant to the terms of this Secured Promissory Note is not a
Business Day, such payment shall be due on the next Business Day following such
date and interest shall accrue on the accrued and unpaid interest during such
extension of time; provided, that any such interest accruing for such
extension of time shall be due and payable on the immediately succeeding
Interest Payment Date.

 

This Secured Promissory Note
may be prepaid at any time, without premium or penalty, in whole or in part,
together with accrued interest to the date of such prepayment on the portion
prepaid.  All prepayments made shall be
recorded by the Administrative Agent and, prior to any transfer hereof, indorsed
on the grid attached as Annex I hereto, which is part of this Secured
Promissory Note; provided, that the failure of the Administrative Agent
to make any such recordation shall not affect the obligations of the Company
under this Secured Promissory Note.

 

This Secured Promissory Note
will be entitled to the benefits of and will be secured by the pledge, liens,
security, title, rights and security interests granted under a security
agreement to be made by the Company and its Subsidiaries in favor of a collateral
agent reasonably acceptable to the Noteholders and the Company (the “Collateral
Agent”) for the benefit of the Noteholders hereunder and each other
Noteholder (the “Security Agreement”), which Security Agreement shall
have terms substantially similar to the security provisions to be contained in
the loan documents entered into by the Company and lenders in connection with
the WFF Credit Agreements and will be subject to the terms of an intercreditor
agreement to be entered into between the lenders and the agent under the WFF
Credit Agreements, on the one hand, and the Noteholders, the Administrative
Agent and the Collateral Agent (in each case under each of the Secured
Promissory Notes), on the other hand (the “Intercreditor Agreement” and,
together with this Secured Promissory Note, each other Secured Promissory Note,
the Security Agreement and the Guaranty made by each of the Subsidiaries of the
Company and dated as of the date hereof (the “Guaranty”), the “Loan
Documents”), as each of the same may be amended, supplemented or renewed,
from time to time.

 

So long as any Obligation
under this Secured Promissory Note or any other Loan Document shall remain
unpaid, the Company will comply with the affirmative and negative covenants set
forth in Annex II to this Secured Promissory Note in accordance with the terms
of those covenants.  Notwithstanding the
foregoing, if and when the WFF Credit Agreements are entered into, if and to
the extent the affirmative and negative covenants and definitions of the defined
terms used in those covenants set forth in Annex II to this Secured Promissory
Note on the date on which this Secured Promissory Note is executed and
delivered to the Investor (the “Initial Covenants and Definitions”) are
inconsistent with the affirmative and negative covenants of the Company and the
definitions of the defined terms used in those affirmative and negative
covenants set forth in the WFF Credit Agreements (the “WFF Covenants and
Definitions”), the Initial Covenants and Definitions shall be amended and
restated in full so that the affirmative and negative covenants of the Company
set forth in Annex II hereto shall thereafter be substantially identical to the
WFF Covenants and Definitions, but with such modifications thereto as shall be
necessary to reflect the structural differences between the indebtedness
evidenced by this Secured Promissory Note and the indebtedness arising under
the WFF Credit Agreements, the differences between the Security Agreement and
the security arrangements in the WFF Credit Agreements, including the relative
seniority of each of the secured parties’ liens and security interests, and the
terms of the Intercreditor Agreement. 
Such amended and restated covenants and definitions shall be deemed to
have been effective from the time the WFF Credit Agreements are executed and
delivered.  The Company, the
Administrative Agent and the Noteholders will amend and restate the Initial
Covenants and Definitions without regard to whether the amended and restated
covenants will be more or less favorable to the Company than the Initial
Covenants and Definitions; provided, further, that if the
amendment and restatement of the Initial Covenants and Definitions is not

 

3

 

adopted by the Company, the Administrative
Agent and the Noteholders in writing within ten Business Days after the
execution and delivery of the WFF Credit Agreements, upon the expiration of
that period, the Initial Covenants and Definitions shall be deemed to have been
deleted from Annex II and the WFF Covenants and Definitions shall be deemed,
for all purposes, to have been incorporated by reference into Annex II to this
Secured Promissory Note, mutatis mutandis, as
if fully set forth therein, effective as of the time the WFF Credit Agreements
are executed and delivered.

 

Upon the occurrence and
during the continuation of any Event of Default (as defined in Annex II
hereto), (i) the Administrative Agent, at the direction of the Required
Noteholders, may by notice to the Company, declare this Secured Promissory
Note, all interest thereon and all other amounts payable hereunder to be
forthwith due and payable, whereupon this Secured Promissory Note, all such
interest and all such other amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company and (ii) the
Administrative Agent may pursue all remedies available to it under the Loan
Documents and applicable law against the Company and the personal property that
secures the Obligations, from time to time and in such order as the
Administrative Agent shall determine.

 

Notwithstanding the
foregoing, if and when the WFF Credit Agreements are entered into, if and to
the extent the Events of Default and the definitions of the defined terms used
in the Events of Default provisions in Annex II to this Secured Promissory Note
on the date on which this Secured Promissory Note is executed and delivered to
the Investor (the “Initial Events of Default and Definitions”) are
inconsistent with the events of default and the definitions of the defined
terms used in those events of default set forth in the WFF Credit Agreements
(the “WFF Events of Default and Definitions”), the Initial Events of
Default and Definitions shall be amended and restated in full so that the
Events of Default of the Company set forth in Annex II hereto shall thereafter
be substantially identical to the WFF Events of Default and Definitions, but
with such modifications thereto as shall be necessary to reflect the structural
differences between the indebtedness evidenced by this Secured Promissory Note
and the indebtedness arising under the WFF Credit Agreements, the differences
between the Security Agreement and the security arrangements in the WFF Credit
Agreements, including the relative seniority of each of the secured parties’
liens and security interests, and the terms of the Intercreditor
Agreement.  Such amended and restated
Events of Default and definitions shall be deemed to have been effective from
the time the WFF Credit Agreements are executed and delivered.  The Company, the Administrative Agent and
the Noteholders will amend and restate the Initial Events of Default and
Definitions without regard to whether the amended and restated Events of
Default will be more or less favorable to the Company.  If that amendment and restatement of the
Initial Events of Default and Definitions is not adopted by the Company, the
Administrative Agent and the Noteholders in writing within ten Business Days
after the execution and delivery of the WFF Credit Agreements, upon the
expiration of that period, the Initial Events of Default and Definitions shall
be deemed to have been deleted and the WFF Events of Default and Definitions
shall be deemed, for all purposes, to have been incorporated by reference into
Annex II to this Secured Promissory Note, mutatis
mutandis, as if fully set forth therein, effective as of the time
the WFF Credit Agreements are executed and delivered.  Notwithstanding the foregoing, the definition of Event of Default
set forth in Annex II hereto shall at all times include the occurrence of any
Event of Default under, and as defined in, the WFF Credit Agreements.

 

The Company agrees that,
upon the acceleration of this Secured Promissory Note following the occurrence
of an Event of Default that is not cured within the applicable cure period, the
Company shall pay to the Administrative Agent, in addition to principal and
accrued interest

 

4

 

thereon, all out-of-pocket costs of
collection of the principal and accrued interest, including, but not limited
to, all reasonable out-of-pocket attorneys’ fees, court costs, and other
reasonable out-of-pocket costs and expenses of each Noteholder Party related to
the enforcement of payment of this Secured Promissory Note.  Such amounts which are not paid within 10
days after Administrative Agent’s written demand therefor shall be added to the
principal of this Secured Promissory Note and will bear interest at the Default
Rate.

 

Each Noteholder Party hereby
appoints and authorizes the Administrative Agent and the Collateral Agent
(each, an “Agent”) to take such action as agent on its behalf and to
exercise such powers and discretion under this Secured Promissory Note and the
other Loan Documents as are delegated to such Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto.  As to any matters not
expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of this Secured Promissory Note), no Agent shall be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Noteholders, and
such instructions shall be binding upon all Noteholder Parties; provided,
however, that no Agent shall be required to take any action that exposes
such Agent to personal liability or that is contrary to this Agreement or
applicable law.

 

Neither any Agent nor any of
their respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or
willful misconduct.  Without limitation
of the generality of the foregoing, each Agent:  (a) may consult with legal counsel (including counsel for any
Loan Party), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (b) makes no warranty or representation to any Noteholder Party and
shall not be responsible to any Noteholder Party for any statements, warranties
or representations (whether written or oral) made in or in connection with the
Loan Documents; (c) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
any Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (d) shall not be responsible
to any Noteholder Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (e) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

 

All notices and other
communications provided for under this Secured Promissory Note shall be in
writing (including by facsimile transmission) and mailed, faxed or delivered,
in accordance with the terms of the Secured Promissory Note and Warrant
Purchase Agreement, dated as of the date hereof, by and between the Company and
the Noteholders (the “Purchase Agreement”), in the case of the Company,
to: 7880 Bent Branch Drive, Suite 150, Irving, Texas 75063 Attention: Chief
Financial Officer, with copy to Chief Executive Officer at 7880 Bent Branch
Drive, Suite 150, Irving, Texas 75063), and, in the case of the Investor or
Administrative Agent, to: DB Advisors LLC, 280 Park Avenue, New York, New York
10017,
Attention:                                  
with a copy to:  Shearman & Sterling
LLP, 599 Lexington Avenue, New York, New York 10022-6069, Facsimile:  (212) 848-7179, Attention:  Stephen M. Besen, Esq.

 

5

 

No amendment, waiver,
modification or supplement of any provision of this Secured Promissory Note,
nor consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing signed by the Company and
accepted and agreed to by the Required Lenders and then such amendment, waiver,
modification, supplement or consent shall be effective only in the specific
instance and for the specific purpose for which given.

 

This Secured Promissory Note
is governed by and construed in accordance with, the laws of the State of New
York.

 

This Secured Promissory Note
may be assigned, in whole or in part, from time to time, by the Investor
without the prior written consent of the Company.

 

This Secured Promissory Note
and the rights and obligations under this Secured Promissory Note are not
assignable or delegable, directly or indirectly, in whole or in part, by the
Company, without the prior written consent of the Investor; provided, however,
that the Company may transfer this Secured Promissory Note and the rights and
obligations under this Secured Promissory Note to any third party that has
acquired all or substantially all of the capital stock or ownership interest in
and to the Company (including by way of merger or consolidation) or to any
third party that has acquired all or substantially all of the assets of the
Company; provided that the Collateral (as defined in the Security Agreement) is
included in any such sale.  This Secured
Promissory Note shall be binding upon the Company, its permitted successors and
its assigns, and, in addition, shall inure to the benefit of and be enforceable
by each Noteholder and its successors and assigns.  Whenever possible this Secured Promissory Note and each provision
hereof shall be interpreted in such manner as to be effective, valid and
enforceable under applicable law.  If
and to the extent that any such provision of this Secured Promissory Note shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof, and any determination that the application of any provision hereof to
any person or under any circumstance is illegal and unenforceable shall not
affect the legality, validity and enforceability of such provision as it may be
applied to any other person or in any other circumstance.  All rights and remedies provided in this
Secured Promissory Note, the Guarantee, the Security Agreement or any law shall
be available to the Investor and shall be cumulative.

 

The Company hereby expressly
waives presentment, demand, and protest, notice of demand, dishonor and
nonpayment of this Secured Promissory Note, and all other notices or demands of
any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
Noteholders with respect to the time of payment or any other provision hereof
or of the Security Agreement.

 

No course of dealing between
the Company and the Investor or any other Noteholder or Noteholder Party and no
delay or failure in exercising any rights hereunder in respect thereof shall
operate as a waiver of any rights of any Noteholder Party.

 

This Secured Promissory
Note, and the indebtedness of the Company to the Investor evidenced hereby,
shall not be subject to any set-off, recoupment or counterclaim, each of which
is hereby expressly waived by the Company with respect to this Secured
Promissory Note and such indebtedness.

 

The Company hereby
irrevocably submits to the non-exclusive jurisdiction of any United States
Federal or New York State court sitting in New York City in any action or
proceeding arising

 

6

 

out of or relating to this Secured Promissory
Note and hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court and irrevocably waives
any objection it may now or hereafter have as to the venue of any such suit,
action or proceeding brought in such a court or that such court is an
inconvenient forum.  Nothing herein
shall limit the right of the Investor or any other Noteholder Party to bring
proceedings against the Company in the courts of any other jurisdiction.

 

THE COMPANY
HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURED PROMISSORY
NOTE.

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AEGIS COMMUNICATIONS
  GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/
  Herman M. Schwarz

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Herman
  M. Schwarz

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President
  and Chief Executive Officer

  
							

 

7

 

Annex
I 

 

PREPAYMENTS

 

	
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  Unpaid Balance

  	
   

  	
  Notation Made By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

1

 

Annex II

 

Covenants, Events of Default and Related Definitions

 

1.  Definitions and
Interpretations

 

1.1 Definitions     As used in this Annex II, the following terms shall have the following
definitions:

 

“Account”
means an account (as that term is defined in the Code), and any and all
supporting obligations in respect thereof.

 

“Account
Debtor” means any Person who is obligated under, with respect to, or on
account of, an Account, chattel paper, or a General Intangible.

 

“Advances”
means the principal amounts outstanding and unpaid from time to time evidenced
by the Secured Promissory Note to which this Annex II is attached and any other
secured promissory note having the same terms as this secured promissory note
and issued simultaneously with the Secured Promissory Note to which this Annex
II is attached.

 

“Affiliate”
means, as applied to any Person, any other Person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.  For
purposes of this definition, “control” means the possession, directly or
indirectly through one or more intermediaries, of the power to direct the
management and policies of a Person, whether through the ownership of Stock, by
contract, or otherwise.

 

“Bankruptcy
Code” means title 11 of the United States Code, as in effect from time to
time.

 

“Board
of Directors” means the board of directors (or comparable managers) of the
Company or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

 

“Books”
means all of Company’s and its Subsidiaries’ now owned or hereafter acquired
books and records (including all of their Records indicating, summarizing, or
evidencing their assets (including the Collateral) or liabilities, all of
Company’s and its Subsidiaries’ Records relating to their business operations
or financial condition, and all of their goods or General Intangibles related
to such information).

 

“Business
Day” means any day that is not a Saturday, Sunday, or other day on which
banks are authorized or required to close in the state of New York or for
purposes of determining the interest rate hereunder, London.

 

“Capital
Expenditures” means, with respect to any Person for any period, the sum of
(a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed, and (b) to
the extent not covered by clause (a), the aggregate of all expenditures by such
Person and its Subsidiaries during such period to acquire by purchase or
otherwise the business or capitalized assets of, or the Capital Stock of, any
other Person.

 

2

 

“Capital
Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

“Capitalized
Lease Obligation” means that portion of the obligations under a Capital
Lease that is required to be capitalized in accordance with GAAP.

 

“Cash
Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof,
(b) marketable direct obligations issued by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within 1 year from the date of acquisition thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors
Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270
days from the date of creation thereof and, at the time of acquisition, having
a rating of at least A-1 from S&P or at least P-1 from Moody’s,
(d) certificates of deposit or bankers’ acceptances maturing within 1 year
from the date of acquisition thereof issued by any bank organized under the
laws of the United States or any state thereof having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000,
(e) demand Deposit Accounts maintained with any bank organized under the laws
of the United States or any state thereof so long as the amount maintained with
any individual bank is less than or equal to $100,000 and is insured by the
Federal Deposit Insurance Corporation, and (f) Investments in money market
funds substantially all of whose assets are invested in the types of assets
described in clauses (a) through (e) above.

 

“Change
of Control” means that (a) any “person” or “group” (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, more than 50%, of the equity interests of the Company,
or (b) a majority of the members of the Board of Directors do not constitute
Continuing Directors, or (d) the Company ceases to own, directly or indirectly,
and control 100% of the outstanding Stock of each of its Subsidiaries extant as
of the Closing Date.

 

“Code”
means the New York Uniform Commercial Code, as in effect from time to time.

 

“Collateral”
means all assets and interests in assets and proceeds thereof now owned or
hereafter acquired by the Company or its Subsidiaries in or upon which a Lien
is granted under any of the Loan Documents.

 

“Collateral
Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or
interests in Company’s or its Subsidiaries’ Books or Equipment, in each case,
in form and substance satisfactory to Collateral Agent.

 

“Compliance
Certificate” means a certificate in a form to be agreed by the Company and
the Administrative Agent delivered by the chief financial officer of the
Company to Administrative Agent.

 

“Continuing
Director” means (a) any member of the Board of Directors who was a director
(or comparable manager) of the Company on the date of execution of the Secured
Promissory Notes, and (b) any individual who becomes a member of the Board of
Directors after

 

3

 

the date of execution of the Secured
Promissory Notes if such individual was appointed or nominated for election to
the Board of Directors by a majority of the Continuing Directors, but excluding
any such individual originally proposed for election in opposition to the Board
of Directors in office on the date of execution of the Secured Promissory Notes
in an actual or threatened election contest relating to the election of the
directors (or comparable managers) of the Company and whose initial assumption
of office resulted from such contest or the settlement thereof.

 

“Control
Agreement” means a control agreement, in form and substance satisfactory to
Collateral Agent, executed and delivered by the Company or one of its
Subsidiaries, Collateral Agent, and the applicable securities intermediary
(with respect to a Securities Account) or a bank (with respect to a Deposit
Account).

 

“Default”
means an event, condition, or default that, with the giving of notice, the
passage of time, or both, would be an Event of Default.

 

“Deposit
Account” means any deposit account (as that term is defined in the Code).

 

“EBITDA”
means, with respect to any fiscal period, the Company’s and its Subsidiaries’
consolidated net earnings (or loss), minus extraordinary gains and interest
income, plus interest expense, income taxes, and depreciation and amortization
for such period, as determined in accordance with GAAP, provided that,
for the first three calendar months occurring after the date of execution of
the Secured Promissory Notes, the Company may exclude from its calculation of
EBITDA any expenses incurred within ninety (90) days after the date of the
Secured Promissory Notes up to a maximum amount of $500,000.

 

“Environmental
Actions” means any complaint, summons, citation, notice, directive, order,
claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter, or other communication from any Governmental Authority, or
any third party involving violations of Environmental Laws or releases of
Hazardous Materials from (a) any assets, properties, or businesses of the
Company or any of its Subsidiaries, or any of their predecessors in interest,
(b) from adjoining properties or businesses, or (c) from or onto any facilities
which received Hazardous Materials generated by the Company or any of its
Subsidiaries, or any of their predecessors in interest.

 

“Environmental
Law” means any applicable federal, state, provincial, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on the Company or any
of its Subsidiaries, relating to the environment, employee health and safety,
or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution
Control Act, 33 USC § 1251 et  seq; the Toxic Substances Control
Act, 15 USC § 2601 et  seq; the Clean Air Act, 42 USC § 7401 et
seq.; the Safe Drinking Water Act, 42 USC § 3803 et  seq.;
the Oil Pollution Act of 1990, 33 USC § 2701 et  seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC
§ 11001 et  seq.; the Hazardous Material Transportation Act,
49 USC § 1801 et  seq.; and the Occupational Safety and
Health Act, 29 USC §651 et  seq. (to the extent it regulates
occupational exposure to Hazardous Materials); any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.

 

4

 

“Environmental
Liabilities and Costs” means all liabilities, monetary obligations,
Remedial Actions, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.

 

“Environmental
Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities and Costs.

 

“Equipment”
means equipment (as that term is defined in the Code), and includes machinery,
machine tools, motors, furniture, furnishings, fixtures, vehicles (including
motor vehicles), computer hardware, tools, parts, and goods (other than
consumer goods, farm products, or Inventory), wherever located, including all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.

 

“Event
of Default” has the meaning set forth in Section 4 of this Annex II.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as in effect from time to
time.

 

“FEIN”
means Federal Employer Identification Number.

 

“GAAP”
means generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.

 

“General
Intangibles” means general intangibles (as that term is defined in the
Code), including payment intangibles, contract rights, rights to payment,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trade secrets, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer disks
or tapes, software, literature, reports, catalogs, insurance premium rebates,
tax refunds, and tax refund claims, and any and all supporting obligations in
respect thereof, and any other personal property other than Accounts, Deposit
Accounts, goods, Investment Property, and Negotiable Collateral.

 

“Governmental
Authority” means any federal, state, local, or other governmental or
administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.

 

“Hazardous
Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or
explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per million.

 

5

 

“Hedge
Agreement” means any and all agreements, or documents now existing or
hereafter entered into by Company or its Subsidiaries that provide for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Company’s or its Subsidiaries’
exposure to fluctuations in interest or exchange rates, loan, credit exchange,
security or currency valuations or commodity prices.

 

“Indebtedness”
means (a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations as a lessee under
Capital Leases, (d) all obligations or liabilities of others secured by a Lien
on any asset of a Person or its Subsidiaries, irrespective of whether such
obligation or liability is assumed, (e) all obligations to pay the deferred
purchase price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade practices),
(f) all obligations owing under Hedge Agreements, and (g) any obligation
guaranteeing or intended to guarantee (whether directly or indirectly
guaranteed, endorsed, co-made, discounted, or sold with recourse) any
obligation of any other Person that constitutes Indebtedness under any of
clauses (a) through (f) above.

 

“Insolvency
Proceeding” means any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

 

“Interest
Expense” means, for any period, the aggregate of the interest expense of
the Company and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

 

“Inventory”
means inventory (as that term is defined in the Code).

 

“Investment”
means, with respect to any Person, any investment by such Person in any other
Person (including Affiliates) in the form of loans, guarantees, advances, or
capital contributions (excluding (a) commission, travel, and similar advances
to officers and employees of such Person made in the ordinary course of
business, and (b) bona fide
Accounts arising in the ordinary course of business consistent with past
practice), purchases or other acquisitions of Indebtedness, Stock, or all or
substantially all of the assets of such other Person (or of any division or
business line of such other Person), and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.

 

“Investment
Property” means investment property (as that term is defined in the Code),
and any and all supporting obligations in respect thereof.

 

“Lien”
means any interest in an asset securing an obligation owed to, or a claim by, any
Person other than the owner of the asset, irrespective of whether (a) such
interest is based on the common law, statute, or contract, (b) such interest is
recorded or perfected, and (c) such interest is contingent upon the occurrence
of some future event or events or the existence of some future circumstance or
circumstances.  Without limiting the
generality of the foregoing, the term “Lien” includes the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust

 

6

 

receipt, or from a lease, consignment, or
bailment for security purposes and also includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases, and other title exceptions and encumbrances affecting Real Property.

 

“Material
Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
(b) a material impairment of the Company’s or a Subsidiary of the
Company’s ability to perform its obligations under the Loan Documents to which
it is a party or of the Noteholder Parties’ ability to enforce the Obligations
or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Collateral Agent’s Liens with respect to the
Collateral as a result of an action or failure to act on the part of the
Company or a Subsidiary of the Company.

 

“Negotiable
Collateral” means letters of credit, letter of credit rights, instruments,
promissory notes, drafts, documents, and chattel paper (including electronic
chattel paper and tangible chattel paper), and any and all supporting
obligations in respect thereof.

 

“Noteholder”
or “Noteholders” means the Investor and each Person that becomes a
holder of the Secured Promissory Note to which this Annex II is attached or to
the owner of an undivided interest in the Secured Promissory Note to which this
Annex II is attached pursuant to the terms hereof for so long as the Investor
or such Person, as the case may be, shall be a holder hereof.

 

“Noteholder
Party” or “Noteholder Parties” means any or all of the Noteholders
and Agents, as the case may be.

 

“Obligations”
means all loans, Advances, debts, principal, interest (including any interest
that, but for the commencement of an Insolvency Proceeding, would have
accrued), premiums, liabilities, obligations (including indemnification
obligations), fees, charges, costs, expenses of any of the Noteholders or the
Agents payable by the Company to any Noteholder Party under the Loan Documents
and (including any fees or expenses that, but for the commencement of an
Insolvency Proceeding, would have accrued), guaranties, covenants, and duties
of any kind and description owing by the Company to any of the Noteholder
Parties pursuant to or evidenced by the Loan Documents and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all interest not paid when due and all costs and expenses of the
Noteholder Parties payable by the Company under the Loan Documents, by law, or
otherwise.  Any reference herein to the
Obligations shall include all extensions, modifications, renewals, or
alterations thereof, both prior and subsequent to any Insolvency Proceeding.

 

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

 

“Permitted
Dispositions” means (a) sales or other dispositions of Equipment that is substantially
worn, damaged, or obsolete in the ordinary course of business, (b) the use or
transfer of money or Cash Equivalents in a manner that is not prohibited by the
terms of this Agreement or the other Loan Documents, and (c) the licensing, on
a non-exclusive basis, of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of business.

 

“Permitted
Investments” means (a) Investments in cash and Cash Equivalents, (b)
Investments in negotiable instruments for collection, (c) advances made in
connection with

 

7

 

purchases of goods or services in the
ordinary course of business, and (d) Investments received in settlement of
amounts due to the Company or any Subsidiary of the Company effected in the
ordinary course of business or owing to the Company or any Subsidiary of the
Company as a result of Insolvency Proceedings involving an Account Debtor or
upon the foreclosure or enforcement of any Lien in favor of the Company or any
Subsidiary of the Company.

 

“Permitted
Liens” means (a) Liens held by Collateral Agent, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not
constitute an Event of Default hereunder and are the subject of Permitted Protests,
(c) Liens set forth on Schedule 3.2 to this Annex II, (d) the interests
of lessors under operating leases, (e) purchase money Liens or the interests of
lessors under Capital Leases to the extent that such Liens or interests secure
Permitted Purchase Money Indebtedness and so long as such Lien attaches only to
the asset purchased or acquired and the proceeds thereof, (f) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of the
Company and its Subsidiaries’ business and not in connection with the borrowing
of money, and which Liens either (i) are for sums not yet delinquent, or
(ii) are the subject of Permitted Protests, (g) Liens arising from deposits
made in connection with obtaining worker’s compensation or other unemployment
insurance, (h) Liens or deposits to secure performance of bids, tenders, or
leases incurred in the ordinary course of business and not in connection with
the borrowing of money, (i) Liens granted as security for surety or appeal
bonds in connection with obtaining such bonds in the ordinary course of
business, (j) Liens resulting from any judgment or award that is not an Event
of Default hereunder, (k) with respect to any Real Property, easements, rights
of way, and zoning restrictions that do not materially interfere with or impair
the use or operation thereof and (l) any and all Liens granted in, created by
or arising out of any WFF Credit Agreements, which Liens may be senior and
prior to any Lien in favor of the Collateral Agent or Noteholders to secure the
repayment and performance of the Obligations.

 

“Permitted
Protest” means the right of Company or any of its Subsidiaries to protest
any Lien (other than any Lien that secures the Obligations), taxes (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the Books in such amount as is required under
GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Company or any of its Subsidiaries, as applicable, in good faith,
and (c) while any such protest is pending, there will be no impairment of
the enforceability, validity, or priority of any of the Collateral Agent’s
Liens.

 

“Permitted
Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the date of execution of the Secured
Promissory Notes in an aggregate amount outstanding at any one time not in
excess of $5,000,000.

 

“Person”
means natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, statutory
trusts, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.

 

“Projections”
means the Company’s forecasted (a) balance sheets, (b) profit and loss statements,
and (c) cash flow statements, all prepared on a consistent basis with the
Company’s historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.

 

8

 

“Purchase
Money Indebtedness” means Indebtedness (other than the Obligations, but
including Capitalized Lease Obligations), incurred at the time of, or within 20
days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.

 

“Real
Property” means any estates or interests in real property now owned or
hereafter acquired by the Company or a Subsidiary of the Company and the
improvements thereto.

 

“Record”
means information that is inscribed on a tangible medium or which is stored in
an electronic or other medium and is retrievable in perceivable form.

 

“Remedial
Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (d) conduct any other
actions authorized by 42 USC § 9601.

 

“Required
Noteholders” means, at any time, Noteholders owed or holding at least a
majority in interest of the aggregate principal amount of the Advances
outstanding at such time under this Secured Promissory Note.

 

“Required
Noteholders” means the Noteholders holding at least a majority in interest
of the aggregate principal amount of the Advances (as defined in each Secured
Promissory Note) outstanding at such time under each of the Secured Promissory
Notes.

 

“SEC”
means the United States Securities and Exchange Commission and any successor
thereto.

 

“Noteholder”
means a “Noteholder” as defined in each of the Secured Promissory Notes.

 

“Secured
Promissory Note” means this Secured Promissory Note and each other secured
promissory note issued by the Company as of the date hereof.

 

“Securities
Account” means a “securities account” as that term is defined in the Code.

 

“Solvent”
means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such
Person’s debts.

 

“Stock”
means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

 

“Subsidiary”
of a Person means a corporation, partnership, limited liability company, or
other entity in which that Person directly or indirectly owns or controls the
shares of

 

9

 

Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.

 

“United
States” means the United States of America.

 

“WFF
Credit Agreements” means the loan documents, including loan agreements,
promissory notes and security agreements entered into by the Company and
lenders for which Well Fargo Foothill, Inc. acts as the arranger and administrative
agent or any other lender or group of lenders in connection with the extension
of credit to the Company and/or one or more of its Subsidiaries by such lender
or group of lenders and any related agreements, documents and instruments,
including intercreditor agreements.

 

1.2  Accounting Terms.  All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP.  When used herein, the term
“financial statements” shall include the notes and schedules thereto.  Whenever the term “the Company and its
Subsidiaries” or the term “Company” is used in respect of a financial covenant
or a related definition, it shall be understood to mean the Company and its
Subsidiaries on a consolidated basis unless the context clearly requires otherwise.

 

1.3  Code.  Any terms used
in this Annex II that are defined in the Code shall be construed and defined as
set forth in the Code unless otherwise defined herein.

 

2.                   Affirmative Covenants

 

The
Company covenants and agrees that, until the payment in full of the
Obligations, the Company and its Subsidiaries shall and shall cause each of
their respective Subsidiaries to do all of the following:

 

2.1  Accounting
System.  Maintain a system of accounting that enables
the Company and its Subsidiaries to produce financial statements in accordance
with GAAP and maintain records pertaining to the Collateral that contain
information as from time to time reasonably may be requested by Collateral
Agent.

 

2.2  Financial
Statements, Reports, Certificates.  Deliver to Administrative
Agent, with copies to each Noteholder:

 

(a)  as soon as available, but in any event
within 30 days (45 days in the case of a month that is the end of one of the
Company’s fiscal quarters) after the end of each month during each of the Company’s
fiscal years,

 

(i)  a
company prepared consolidated balance sheet, income statement, and statement of
cash flow covering the Company’s and its Subsidiaries’ operations during such
period,

 

(ii)  a
certificate signed by the chief financial officer of the Company to the effect
that:

 

A.            the financial statements delivered hereunder
have been prepared in accordance with GAAP (except for the lack of footnotes
and being subject to year-end audit adjustments) and fairly present in all

 

10

 

material respects the financial condition of the
Company and its Subsidiaries,

 

B.            there does not exist any condition or event
that constitutes a Default or Event of Default (or, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action the Company and its Subsidiaries have taken, are
taking, or propose to take with respect thereto), and

 

(iii) for each quarter that is the date on which a
financial covenant in Section 3.17 is to be tested, a Compliance
Certificate demonstrating, in reasonable detail, compliance at the end of such
period with the applicable financial covenants contained in Section 3.17,

 

(b)  as soon as available, but in any event
within 90 days after the end of each of the Company’s fiscal years,

 

(i) 
financial statements of the Company and its Subsidiaries for each such
fiscal year, audited by the Company’s independent certified public accountants
as of the original issuance date of the Secured Promissory Notes or such other
independent certified public accountants reasonably acceptable to
Administrative Agent and certified, without any qualifications, by such
accountants to have been prepared in accordance with GAAP (such audited
financial statements to include a balance sheet, income statement, and
statement of cash flow and, if prepared, such accountants’ letter to
management), and

 

(ii)  a
certificate of such accountants addressed to Administrative Agent and the
Lenders stating that such accountants do not have knowledge of the existence of
any Default or Event of Default under Section 3.17,

 

(c)  as soon as available, but in any event
within 30 days prior to the start of each of the Company’s fiscal years, copies
of the Company’s Projections, in form and substance (including as to scope and
underlying assumptions) satisfactory to Administrative Agent, in its sole
discretion, for the forthcoming three years, year by year, and for the
forthcoming fiscal year, month by month, certified by the chief financial
officer of the Company as being such officer’s good faith best estimate of the
financial performance of the Company and its Subsidiaries during the period
covered thereby,

 

(d)  if and when filed by the Company with the
SEC,

 

(i)  the Company’s
quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports
on Form 8-K,

 

(ii)  any
other filings made by the Company with the SEC,

 

(iii)  copies
of the Company and its Subsidiaries’ federal income tax returns, and any
amendments thereto, filed with the Internal Revenue Service, and

 

(iv)  any
other information that is provided by the Company to its shareholders
generally,

 

11

 

(e)  if and when filed by the Company or any
Subsidiary of the Company and as requested by Administrative Agent,
satisfactory evidence of payment of applicable excise taxes in each
jurisdiction in which (i) the Company or any Subsidiary of the Company conducts
business or is required to pay any such excise tax, (ii) where the Company’s or
any Subsidiary of the Company’s failure to pay any such applicable excise tax
would result in a Lien on the properties or assets of the Company or such
Subsidiary, or (iii) where the Company’s or any Subsidiary of the Company’s
failure to pay any such applicable excise tax reasonably could be expected to
result in a Material Adverse Change,

 

(f)  as soon as the Company has knowledge of any
event or condition that constitutes a Default or an Event of Default, notice
thereof and a statement of the curative action that the Company and its
Subsidiaries propose to take with respect thereto,

 

(g)  promptly after the commencement thereof, but
in any event within five days after the service of process with respect thereto
on the Company or any Subsidiary of the Company, notice of all actions, suits,
or proceedings brought by or against the Company or any Subsidiary of the
Company before any Governmental Authority which, if determined adversely to
such Borrower or such Subsidiary, reasonably could be expected to result in a
Material Adverse Change, and

 

(h)  upon the request of Administrative Agent,
any other report reasonably requested relating to the financial condition of
the Company and its Subsidiaries or their Subsidiaries.

 

In
addition to the financial statements referred to above, the Company and its
Subsidiaries agree that no Subsidiary of the Company will have a fiscal year
different from that of the Company.  the
Company and its Subsidiaries agree to cooperate with Administrative Agent to
allow Administrative Agent to consult with their independent certified public
accountants if Administrative Agent reasonably requests the right to do so and
that, in such connection, their independent certified public accountants are
authorized to communicate with Administrative Agent and to release to
Administrative Agent whatever financial information concerning the Company and
its Subsidiaries or their Subsidiaries that Administrative Agent reasonably may
request.

 

2.3  Returns. 
Cause returns and allowances as between the Company and its Subsidiaries
and their Subsidiaries and their Account Debtors, to be on the same basis and
in accordance with the usual customary practices of the Company and its
Subsidiaries and their Subsidiaries, as they exist at the time of the execution
and delivery of this Agreement.

 

2.4 
Maintenance of Properties.  Maintain and preserve all of
their properties which are necessary or useful in the proper conduct to their
business and not obsolete in good working order and condition, ordinary wear
and tear excepted, and comply at all times with the provisions of all leases to
which it is a party as lessee, so as to prevent any loss or forfeiture thereof
or thereunder.

 

2.5  Taxes. 
Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against the Company and its
Subsidiaries, their Subsidiaries, or any of their respective assets to be paid
in full, before delinquency or before the expiration of any extension period,
except to the extent that the validity of such assessment or tax shall be the
subject of a Permitted Protest.  The
Company and its Subsidiaries will and will cause their Subsidiaries to make
timely payment or deposit of all tax payments and withholding taxes required of
them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish Administrative

 

12

 

Agent with proof satisfactory to
Administrative Agent indicating that the Company or the Subsidiary of the
Company, as the case may be, has made such payments or deposits.

 

2.6 
Insurance.  (a)  At the Company and its Subsidiaries’ expense,
maintain insurance respecting the Company’s and its Subsidiaries’ assets
wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. 
The Company and its Subsidiaries also shall maintain business
interruption, public liability, and product liability insurance.  All such policies of insurance shall be in
such amounts and with such insurance companies as are reasonably satisfactory to
Collateral Agent.  The Company and its
Subsidiaries shall deliver copies of all such policies to Collateral Agent with
a satisfactory lender’s loss payable endorsement naming Collateral Agent as
sole loss payee or additional insured, as appropriate, with respect to any
losses of the Collateral.  Each policy
of insurance or endorsement shall contain a clause requiring the insurer to
give not less than 30 days prior written notice to Collateral Agent in the
event of cancellation of the policy for any reason whatsoever.

 

(b)  The Company shall give Collateral Agent
prompt notice of any loss covered by such insurance.  Collateral Agent shall have the exclusive right to adjust any
losses claimed under any such insurance policies with respect to Collateral in
excess of $50,000 (or in any amount after the occurrence and during the
continuation of an Event of Default), without any liability to the Company and
its Subsidiaries whatsoever in respect of such adjustments, except to the
extent the Company or any of its Subsidiaries suffers any loss or damage as a
direct result of the gross negligence or willful malfeasance of the Collateral
Agent.  Any monies received as payment
for any loss of any of the Collateral under any insurance policy mentioned
above (other than liability insurance policies) or as payment of any award or
compensation for condemnation or taking by eminent domain of any of the
Collateral, shall be paid over to Collateral Agent to be applied at the option
of the Required Noteholders either to the prepayment of the Obligations under
each of the Secured Promissory Notes (pro rata according to the interests of
each Noteholder in and to the principal outstanding at such time under the
Secured Promissory Notes) or shall be disbursed to the Company under staged
payment terms reasonably satisfactory to the Required Noteholders for
application to the cost of repairs, replacements, or restorations. Any such
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction.

 

(c)  The Company and its Subsidiaries shall not,
and shall not suffer or permit their Subsidiaries to, take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 2.7, unless Collateral
Agent is included thereon as named insured with the loss payable to Collateral
Agent under a lender’s loss payable endorsement or its equivalent.  The Company immediately shall notify
Collateral Agent whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and copies of such policies promptly shall be provided to Collateral Agent.

 

2.7  Location
of Inventory and Equipment.  Keep the Company and its
Subsidiaries’ and their Subsidiaries’ Equipment only at the locations
identified on Schedule 2.7 to this Annex II and their chief executive
offices only at the locations identified on said Schedule 2.7; provided,
however, that Company may amend Schedule 2.7 so long as such
amendment occurs by written notice to Collateral Agent not less than 30 days
prior to the date on which such Equipment is moved to such new location or such
chief executive office is relocated, so long as such new location is within the
continental United States, and so long as, at the time of such written 

 

13

 

notification, the Company or its Subsidiary
provides Collateral Agent a Collateral Access Agreement with respect thereto.

 

2.8  Compliance
with Laws.  Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change.

 

2.9  Leases.  Pay
when due all rents and other amounts payable under any leases to which the
Company or any Subsidiary of the Company is a party or by which the Company’s
or any Subsidiary of the Company’s properties and assets are bound, unless such
payments are the subject of a Permitted Protest.

 

2.10. 
Existence.  At all times preserve and keep in full force
and effect the Company’s and each Subsidiary of the Company’s valid existence
and good standing and any rights and franchises material to their businesses.

 

2.11  Environmental.  (a)
Keep any property either owned or operated by the Company or any Subsidiary of
the Company free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Administrative Agent documentation of such compliance which
Administrative Agent reasonably requests, (c) promptly notify Administrative
Agent of any release of a Hazardous Material of any reportable quantity from or
onto property owned or operated by the Company or any Subsidiary of the Company
and take any Remedial Actions required to abate said release or otherwise to
come into compliance with applicable Environmental Law, and (d) promptly, but
in any event within five days of its receipt thereof, provide Administrative
Agent with written notice of any of the following:  (i) notice that an Environmental Lien has been filed against any
of the real or personal property of the Company or any Subsidiary of the
Company, (ii) commencement of any Environmental Action or notice that an
Environmental Action will be filed against the Company or any Subsidiary of the
Company, and (iii) notice of a violation, citation, or other administrative
order which reasonably could be expected to result in a Material Adverse
Change.

 

2.12 
Disclosure Updates.  Promptly and in no event
later than five Business Days after obtaining knowledge thereof, notify
Administrative Agent if any written information, exhibit, or report furnished
to the Noteholders contained any untrue statement of a material fact or omitted
to state any material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which made.  The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not
cure or remedy the effect of the prior untrue statement of a material fact or
omission of any material fact nor shall any such notification have the affect
of amending or modifying this Agreement or any of the Schedules hereto.

 

2.13  Formation
of Subsidiaries.  At the time that the Company or any
Subsidiary of the Company forms any direct or indirect Subsidiary or acquires
any direct or indirect Subsidiary after the Closing Date, the Company or such
existing Subsidiary shall (a) cause such new Subsidiary to provide to
Administrative Agent a Guaranty Supplement (as defined in the Guaranty) and
joinder to the Security Agreement, together with such other security documents,
as well as appropriate UCC-1 financing statements, all in form and substance
satisfactory to Collateral Agent (including being sufficient to grant
Collateral Agent a first priority Lien (subject to Permitted Liens) in and to the
assets of such newly formed or acquired Subsidiary), (b) provide to Collateral
Agent a pledge 

 

14

 

agreement and appropriate certificates and
powers or UCC-1 financing statements, hypothecating all of the direct or
beneficial ownership interest in such new Subsidiary, in form and substance
satisfactory to Collateral Agent, and (c) provide to Collateral Agent all other
documentation, including one or more opinions of counsel satisfactory to
Collateral Agent, which in its opinion is appropriate with respect to the
execution and delivery of the applicable documentation referred to above
(including policies of title insurance or other documentation with respect to
all property subject to a Mortgage). 
Any document, agreement, or instrument executed or issued pursuant to
this Section 2.13 shall be a Loan Document.

 

Notwithstanding
anything to the contrary in this Section 2 of this Annex II, in no event shall
the Company or any Subsidiary of the Company be required to make any disclosure
of information or provide any information, including any financial statements,
to the Administrative Agent or any Noteholder if, pursuant to Regulation FD
promulgated under the Securities Act of 1933, as amended, the Company would be
required to make any disclosure of that information in a circumstance in which,
or at a time at which, the Company reasonably determines such disclosure would
be adverse to the best interest of the Company and its Subsidiaries or the best
interest of its stockholders or if the disclosure of that information would
include the disclosure of non-GAAP financial measures as contemplated by
Regulation G of the SEC.

 

3. 
Negative Covenants.

 

The
Company covenants and agrees that, until the payment in full of the
Obligations, the Company and its Subsidiaries will not and will not permit any
of their respective Subsidiaries to do any of the following:

 

3.1 
Indebtedness.  Create, incur, assume, suffer to exist,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:

 

(a)  Indebtedness evidenced by the Secured
Promissory Notes;

 

(b)  Indebtedness set forth on Schedule 3.1 to
this Annex II;

 

(c)  Permitted Purchase Money Indebtedness;

 

(d)  refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this Section 3.1
(and continuance or renewal of any Permitted Liens associated therewith) so
long as: (i) the terms and conditions of such refinancings, renewals, or
extensions do not, in Administrative Agent’s judgment, materially impair the
prospects of repayment of the Obligations by the Company and its Subsidiaries
or materially impair the Company and its Subsidiaries’ creditworthiness, (ii)
such refinancings, renewals, or extensions do not result in an increase in the
then extant principal amount of, or interest rate with respect to, the
Indebtedness so refinanced, renewed, or extended or add one or more borrowers
as liable with respect thereto if such additional borrowers were not liable
with respect to the original Indebtedness, (iii) such refinancings, renewals,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions, that, taken as a whole, are materially more burdensome or
restrictive to the Company or any of its Subsidiaries, (iv) if the Indebtedness
that is refinanced, renewed, or extended was subordinated in right of payment
to the Obligations, then the terms and conditions of the refinancing, renewal,
or extension Indebtedness must be include subordination terms and conditions 

 

15

 

that are at least as favorable to the
Noteholders as those that were applicable to the refinanced, renewed, or
extended Indebtedness, and (v) the Indebtedness that is refinanced, renewed, or
extended is not recourse to any Person that is liable on account of the
Obligations other than those Persons which were obligated with respect to the
Indebtedness that was refinanced, renewed, or extended;

 

(e)          Indebtedness
under the WFF Credit Agreements;

 

(f)            endorsement
of instruments or other payment items for deposit; and

 

(g)  Indebtedness composing Permitted
Investments.

 

3.2  Liens. 
Create, incur, assume, or suffer to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind (expressly including,
without limitation, Real Property), whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens (including Liens
that are replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced, renewed, or extended under Section 3.1(d) of
this Annex II and so long as the replacement Liens only encumber those assets
that secured the refinanced, renewed, or extended Indebtedness).

 

3.3 
Restrictions on Fundamental Changes.

 

(a)  Enter into any merger, consolidation,
reorganization or recapitalization, or reclassify its Stock.

 

(b)  Liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution).

 

(c)  Other than in Permitted Dispositions,
convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
assets.

 

3.4  Disposal
of Assets.  Other than in Permitted Dispositions or, in
any twelve month period in the ordinary course of business consistent with past
practices, assets having a book value on the Books of the Company of up to
$100,000 in the aggregate, convey, sell, lease, license, assign, transfer, or
otherwise dispose of any of the assets of the Company or any Subsidiary of the
Company.

 

3.5  Change
Name.  Change the Company’s or any Subsidiary of
the Company’s name, FEIN, organizational identification number, state of
organization, or organizational identity; provided, however, that
the Company or a Subsidiary of the Company may change its name upon at least 30
days prior written notice by Company to Collateral Agent of such change and so
long as, at the time of such written notification, such Borrower or such
Subsidiary provides any financing statements necessary to perfect and continue
perfected Collateral Agent’s Liens.

 

3.6  Nature of
Business.  Make any change in the principal nature of
their business.

 

3.7 
Prepayments and Amendments.  Except in connection with a
refinancing permitted by Section 3.1(d) of this Annex II,

 

16

 

(a)  prepay, redeem, defease, purchase, or
otherwise acquire any Indebtedness of the Company or any Subsidiary of the
Company, other than the Obligations in accordance with this Agreement, or

 

(b)  directly or indirectly, amend, modify,
alter, increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness permitted under Section 3.1(b) or (c) of this Annex II.

 

3.8  Change of
Control.  Cause, permit, or suffer, directly or
indirectly, any Change of Control.

 

3.9 
Distributions.  Other than distributions or declaration and
payment of dividends by the Company to another Borrower or by a Subsidiary of
the Company to the Company, make any distribution or declare or pay any
dividends (in cash or other property, other than common Stock) on, or purchase,
acquire, redeem, or retire any of the Company’s Stock, of any class, whether
now or hereafter outstanding.

 

3.10 
Accounting Methods.  Modify or change their fiscal
year or their method of accounting (other than as may be required to conform to
GAAP or to conform to more commonly used principles that are a part of GAAP) or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of the Company and its Subsidiaries’ or
their Subsidiaries’ accounting records without said accounting firm or service
bureau agreeing to provide Administrative Agent information regarding the
Company and its Subsidiaries’ and their Subsidiaries’ financial condition.

 

3.11 
Investments.  Except for Permitted Investments, directly
or indirectly, make or acquire any Investment, or incur any liabilities
(including contingent obligations) for or in connection with any Investment.

 

3.12  Transactions
with Affiliates.  Directly or indirectly enter into or permit
to exist any transaction with any Affiliate of the Company, other than one of
the Company’s wholly owned Subsidiaries, except for transactions that are in
the ordinary course of the Company and its Subsidiaries’ business, upon fair
and reasonable terms, that are fully disclosed to Administrative Agent, and
that are no less favorable to the Company and its Subsidiaries than would be
obtained in an arm’s length transaction with a non-Affiliate.

 

3.13 
Suspension.  Suspend or go out of a substantial portion
of their business.

 

3.14 
Compensation.  Increase the annual fee or per-meeting fees
paid to the members of its Board of Directors during any year by more than 15%
over the prior year; pay or accrue total cash compensation, during any year, to
its officers and senior management employees in an aggregate amount in excess
of 115% of that paid or accrued in the prior year.

 

3.15  Equipment
with Bailees.  Store the Equipment of the Company and its
Subsidiaries or their Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party without Collateral Agent’s prior written
consent.

 

17

 

3.16  Financial
Covenants.

 

(a)  Minimum of
EBITDA.   Fail to maintain or achieve  at least the required amount set forth in
the following table for the applicable period ending in the month set forth
opposite thereto:

 

	
  Applicable Amount

  	
   

  	
  Applicable Period

  	
   

  
	
  $

  	
  1,500,000

  	
   

  	
  Quarter ended March 31, 2004

  	
   

  
	
  $

  	
  2,000,000

  	
   

  	
  Quarter ended June 30, 2004

  	
   

  
	
  $

  	
  2,200,000

  	
   

  	
  Quarter ended September 30, 2004

  	
   

  
	
  $

  	
  2,400,000

  	
   

  	
  Quarter ended December 31, 2004

  	
   

  
						

 

EBITDA
shall be measured on a quarter-end basis. 
Administrative Agent and the Company shall establish required minimum
EBITDA amounts for quarter occurring after December 31, 2004 on the basis of
projections and business plans for such periods prepared and delivered by the
Company and its Subsidiaries and accepted by Administrative Agent in its
Permitted Discretion, but in any event in amounts not less than the amount
required for the quarter ending December 31, 2004.

 

(b)  Capital
Expenditures.  Make capital
expenditures of a total of $10,000,000, which capital expenditures are financed
through the incurrence of Indebtedness or pursuant to Capital Leases or in the
fiscal years set forth in the following table, make capital expenditures from
operating cash flow in excess of the amount set forth in the following table
for the applicable period:

 

	
  Fiscal
  Year 2004

  	
   

  	
  Fiscal
  Year 2005

  	
   

  	
  Fiscal
  Year 2006

  	
   

  
	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  4,000,000

  	
   

  
									

 

3.17  Billing
Practices.  Modify or change their billing practices.

 

3.18  Change of
Officers.   Permit any change in the holders of the
offices of President and Chief Executive Officer and Chief Financial Officer
unless the individual named to any such office is satisfactory to
Administrative Agent in its Permitted Discretion.

 

4. 
EVENTS OF DEFAULT.

 

Any
one or more of the following events shall constitute an event of default (each,
an “Event of Default”) under the Secured Promissory Notes:

 

4.1  If the Company and its Subsidiaries fail to
pay within 5 calendar days of the date when due and payable or when declared
due and payable, all or any portion of the Obligations other than the principal
amount payable under the Secured Promissory Notes (whether of interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees, charges and expense reimbursements
due the Noteholders or other amounts constituting Obligations);

 

4.2  If the Company and its Subsidiaries fail to
pay when due and payable or when declared due and payable, all or any portion
of the principal amount payable under the Secured Promissory Notes;

 

4.3  If the Company and its Subsidiaries fail to
perform, keep, or observe any term, provision, covenant or agreement contained
in any of the Loan Documents and, except for those 

 

18

 

covenants set forth in Sections 2.7 or 2.11
or Section 3, such failure continues for a period of 30 days or more after the
earlier of (a) the date on which the Company first receives notice of such
failure from the Administrative Agent or a Noteholder and (b) the first date on
which an executive officer of the Company has actual awareness of such failure.

 

4.4  If any material portion of the Company’s or
any Subsidiary of the Company’s assets is attached, seized, subjected to a writ
or distress warrant, levied upon, or comes into the possession and control of
any third Person;

 

4.5  If an Insolvency Proceeding is commenced by
the Company or any Subsidiary of the Company;

 

4.6  If an Insolvency Proceeding is commenced
against the Company or any Subsidiary of the Company, and any of the following
events occur:  (a) the applicable
Borrower or Subsidiary consents to the institution of the Insolvency Proceeding
against it, (b) the petition commencing the Insolvency Proceeding is not
timely controverted, (c) the petition commencing the Insolvency Proceeding
is not dismissed within 60 calendar days of the date of the filing thereof,
(d) an interim trustee is appointed to take possession of all or any
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, the Company or any Subsidiary of the
Company, or (e) an order for relief shall have been entered therein;

 

4.7  If the Company or any Subsidiary of the
Company is enjoined, restrained, or in any way prevented by court order from continuing
to conduct all or any material part of its business affairs;

 

4.8  If a notice of Lien, levy, or assessment is
filed of record with respect to the Company’s or any Subsidiary of the
Company’s assets by the United States, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien, whether choate or otherwise, upon the
Company’s or any Subsidiary of the Company’s assets and the same is not paid
before such payment is delinquent unless any such Lien is a Permitted Lien or
any such Lien, levy or assessment is and continues to be the subject of a
Permitted Protest;

 

4.9  If a judgment or other claim becomes a Lien
(other than a Permitted Lien) upon any material portion of the Company’s or any
Subsidiary of the Company’s properties or assets ;

 

4.10  If there is a default in the WFF Credit
Agreements, any other Secured Promissory Note or any material agreement to
which the Company or any Subsidiary of the Company is a party (other than any
customer contract) and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of the applicable
Borrower’s or Subsidiary’s obligations thereunder, or to terminate such
agreement, which termination is reasonably likely to have a Material Adverse
Change;

 

4.11  If the Company or any Subsidiary of the
Company makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

 

4.12  If any misstatement or misrepresentation
exists now or hereafter in any warranty, representation, statement, or Record
made to the Noteholders by the Company, any Subsidiary of

 

19

 

the Company, provided, however, that if the
misstatement or misrepresentation is in any warranty, representation, statement
or Record that is not itself qualified as to materiality, such misstatement or
misrepresentation must be as to a material misstatement or misrepresentation;

 

4.13  If any of the Loan Documents that purports
to create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby; or

 

4.14  Any material provision of any Loan Document
shall at any time for any reason be declared to be null and void, or the
validity or enforceability thereof shall be contested by the Company or any
Subsidiary of the Company, or a proceeding shall be commenced by the Company or
any Subsidiary of the Company, or by any Governmental Authority having
jurisdiction over the Company or any Subsidiary of the Company, seeking to establish
the invalidity or unenforceability thereof, or the Company or any Subsidiary of
the Company shall deny that it has any liability or obligation purported to be
created under any Loan Document.

 

20

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