Document:

exv10w62

 

EXHIBIT 10.62

Loan and Security Agreement

between

Martek Biosciences Corporation,

A Delaware Corporation,

as “Borrower”

and

Manufacturers And Traders Trust Company,

as “Administrative Agent” and as “Sole Book
Runner”

and

Bank Of America, N.A.,

as “Syndication Agent”

and

SunTrust Bank,

as “Documentation Agent”

and

Manufacturers And Traders Trust Company

AND VARIOUS OTHER FINANCIAL INSTITUTIONS

NOW OR HEREAFTER PARTY HERETO

“As Lenders”

Dated: January 26, 2004

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	ARTICLE 1 - DEFINITIONS
	 	 	1	 
	Section 1.1. Account Debtor
	 	 	1	 
	Section 1.2. Account, Chattel Paper, Document, General Intangibles, Goods, Instrument,
Letter-Of-Credit Right, Payment Intangible, Promissory Notes, And
Software
	 	 	1	 
	Section 1.3. Adjusted Base Rate.
	 	 	1	 
	Section 1.4. Adjusted LIBOR Rate.
	 	 	1	 
	Section 1.5. Affiliate.
	 	 	2	 
	Section 1.6. Agreement.
	 	 	2	 
	Section 1.7. Applicable Percentage.
	 	 	2	 
	Section 1.8. Assignee.
	 	 	2	 
	Section 1.9. Base Rate.
	 	 	3	 
	Section 1.10. Base Rate Borrowing.
	 	 	3	 
	Section 1.11. Basis Point.
	 	 	3	 
	Section 1.12. Borrowing Date.
	 	 	3	 
	Section 1.13. Business Day.
	 	 	3	 
	Section 1.14. Calculation Date.
	 	 	3	 
	Section 1.15. Capital Adequacy Requirement.
	 	 	3	 
	Section 1.16. Capital Expenditures.
	 	 	3	 
	Section 1.17. Capital Lease Obligations.
	 	 	3	 
	Section 1.18. Casualty Event.
	 	 	3	 
	Section 1.19. Change Of Control.
	 	 	3	 
	Section 1.20. Closing.
	 	 	4	 
	Section 1.21. Code.
	 	 	4	 
	Section 1.22. Collateral.
	 	 	4	 
	Section 1.23. Commitment Amount.
	 	 	4	 
	Section 1.24. Commitment Fee.
	 	 	4	 
	Section 1.25. Commitment Percentage.
	 	 	4	 
	Section 1.26. Credit Documents.
	 	 	5	 
	Section 1.27. Default.
	 	 	5	 
	Section 1.28. Disposition.
	 	 	5	 
	Section 1.29.
Domestic Subsidiary.
	 	 	5	 
	Section 1.30. EBITDA.
	 	 	5	 
	Section 1.31. Eligible Assignee.
	 	 	5	 
	Section 1.32. Employee Benefit Plan.
	 	 	5	 
	Section 1.33. Environmental Laws.
	 	 	5	 
	Section 1.34. ERISA.
	 	 	6	 
	Section 1.35. ERISA Affiliate.
	 	 	6	 
	Section 1.36. ERISA Liabilities.
	 	 	6	 
	Section 1.37. Event Of Default.
	 	 	6	 
	Section 1.38. Facilities.
	 	 	6	 
	Section 1.39.
Federal Funds Rate.
	 	 	6	 
	Section 1.40. Fiscal Quarter.
	 	 	6	 
	Section 1.41. Fiscal Year.
	 	 	6	 
	Section 1.42. Fixed Charge Coverage Ratio.
	 	 	6	 
	Section 1.43. Fixed Charges.
	 	 	7	 
	Section 1.44. Funded Debt Payments.
	 	 	7	 
	Section 1.45. Funded Indebtedness.
	 	 	7	 
	Section 1.46. G.A.A.P.
	 	 	7	 
	Section 1.47. Governmental Authority.
	 	 	7	 
	Section 1.48. Guaranteed Pension Plan.
	 	 	7	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	Section 1.49. Guarantors.
	 	 	7	 
	Section 1.50. Guaranty Agreements.
	 	 	8	 
	Section 1.51. Guaranty Indebtedness.
	 	 	8	 
	Section 1.52. Indebtedness.
	 	 	8	 
	Section 1.53. Insolvency Proceedings.
	 	 	8	 
	Section 1.54. Intellectual Property.
	 	 	8	 
	Section 1.55. Interest Expense.
	 	 	9	 
	Section 1.56. Interest Period.
	 	 	9	 
	Section 1.57. Interest Rate Hedge.
	 	 	9	 
	Section 1.58. Inventory.
	 	 	9	 
	Section 1.59. Laws.
	 	 	9	 
	Section 1.60. L/C Obligations.
	 	 	9	 
	Section 1.61. Lender Assignment.
	 	 	9	 
	Section 1.62. Lenders.
	 	 	9	 
	Section 1.63. Letter Agreement.
	 	 	9	 
	Section 1.64. Letters Of Credit.
	 	 	10	 
	Section 1.65. Leverage Ratio.
	 	 	10	 
	Section 1.66. LIBOR Borrowing.
	 	 	10	 
	Section 1.67. LIBOR Rate.
	 	 	10	 
	Section 1.68. Liens.
	 	 	10	 
	Section 1.69. Loans.
	 	 	10	 
	Section 1.70. M&T.
	 	 	10	 
	Section 1.71. Material Adverse Event.
	 	 	10	 
	Section 1.72. Maturity Date.
	 	 	10	 
	Section 1.73. Maximum Aggregate Loan Amount.
	 	 	10	 
	Section 1.74. Minimum Borrowing Amount.
	 	 	10	 
	Section 1.75. Multiemployer Plan.
	 	 	11	 
	Section 1.76. Net Available Proceeds.
	 	 	11	 
	Section 1.77. Net Income.
	 	 	11	 
	Section 1.78. Notes.
	 	 	11	 
	Section 1.79. Obligations.
	 	 	11	 
	Section 1.80. Other Taxes.
	 	 	11	 
	Section 1.81. Permitted Investments.
	 	 	12	 
	Section 1.82. Permitted Liens.
	 	 	12	 
	Section 1.83. Person.
	 	 	12	 
	Section 1.84. Prepayment Disposition.
	 	 	12	 
	Section 1.85. Prime Rate.
	 	 	12	 
	Section 1.86. Receivables.
	 	 	13	 
	Section 1.87. Records.
	 	 	13	 
	Section 1.88. Regulated Substance.
	 	 	13	 
	Section 1.89. Regulatory Change.
	 	 	13	 
	Section 1.90. Release.
	 	 	13	 
	Section 1.91. Required Lenders.
	 	 	13	 
	Section 1.92. Reserve Requirement.
	 	 	13	 
	Section 1.93. Restricted Payment.
	 	 	14	 
	Section 1.94. Secured Parties.
	 	 	14	 
	Section 1.95. Secured Party Expenses.
	 	 	14	 
	Section 1.96. Solvent.
	 	 	14	 
	Section 1.97. Subsidiary.
	 	 	14	 
	Section 1.98. Taxes.
	 	 	15	 
	Section 1.99. Termination Event.
	 	 	15	 
	Section 1.100. Transferee.
	 	 	15	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	ARTICLE 2 - TERMS OF THE LOANS AND LETTERS OF CREDIT
	 	 	15	 
	Section 2.1. Commitment To Extend Loans
	 	 	15	 
	 	Section 2.1.1. Revolving Loan Promissory Notes
	 	 	15	 
	 	Section 2.1.2. Procedure For Loan Borrowings
	 	 	15	 
	 	Section 2.1.3. Conditions Precedent To Initial Advances.
	 	 	16	 
	 	Section 2.1.4. Conditions Precedent To Each Advance.
	 	 	16	 
	 	Section 2.1.5. Repayment Of Loans
	 	 	17	 
	 	Section 2.1.6. Permitted Purposes Of Loans
	 	 	17	 
	 	Section 2.1.7. Commitment Fees
	 	 	17	 
	 	Section 2.1.8. Permanent Reduction Of Maximum Aggregate Loan Amount
	 	 	17	 
	Section 2.2. Interest Terms Applicable To The Loans
	 	 	17	 
	 	Section 2.2.1. Adjusted Base Rate
	 	 	18	 
	 	Section 2.2.2. Adjusted LIBOR Rate Option
	 	 	18	 
	 	Section 2.2.3. Calculation Of Interest
	 	 	19	 
	 	Section 2.2.4. Default Interest
	 	 	19	 
	 	Section 2.2.5. Maximum Rate Of Interest
	 	 	19	 
	 	Section 2.2.6. Late Payment Charges.
	 	 	19	 
	Section 2.3. Voluntary Prepayments
	 	 	19	 
	Section 2.4. Mandatory Prepayments.
	 	 	19	 
	Section 2.5. Letters Of Credit.
	 	 	20	 
	 	Section 2.5.1 Procedures For Issuance Of Letters Of Credit
	 	 	20	 
	 	Section 2.5.2. Commissions And Charges
	 	 	20	 
	 	Section 2.5.3. Agreement Of Lenders To Purchase Proportionate Share Of
Letters Of Credit
	 	 	20	 
	 	Section 2.5.4. Reimbursement Obligations Of The Borrower
	 	 	21	 
	 	Section 2.5.5. Borrower’s Reimbursement Obligations Are Absolute
	 	 	21	 
	Section 2.6. Pro Rata Treatment And Payments
	 	 	21	 
	 	Section 2.6.1. Distribution Of Payments To Lenders
	 	 	21	 
	 	Section 2.6.2. Funding Of Loans
	 	 	22	 
	 	Section 2.6.3. Ratable Sharing
	 	 	22	 
	Section 2.7. Application Of Payments
	 	 	22	 
	Section 2.8. Increased Costs And Reduced Return
	 	 	22	 
	 	Section 2.8.1. Yield Protection.
	 	 	22	 
	 	Section 2.8.2. Changes In Capital Adequacy Requirements.
	 	 	22	 
	 	Section 2.8.3. Compensation To Lenders.
	 	 	23	 
	Section 2.9. Taxes
	 	 	23	 
	 	Section 2.9.1.No Deductions For Taxes.
	 	 	23	 
	 	Section 2.9.2. Adjustments For Taxes; Obligation To Pay Taxes.
	 	 	23	 
	 	Section 2.9.3. Indemnification.
	 	 	23	 
	 	Section 2.9.4. Receipts.
	 	 	23	 
	 	Section 2.9.5. Foreign Lenders.
	 	 	23	 
	 	Section 2.9.6. Delivery Of Forms And Certificates.
	 	 	23	 
	 	Section 2.9.7. Survival After Repayment
	 	 	24	 
	Section 2.10. Payments To Administrative Agent
	 	 	24	 
	Section 2.11. Facility Fee
	 	 	24	 
	Section 2.12. Payments.
	 	 	24	 
	Section 2.13. Advancements.
	 	 	24	 
	ARTICLE 3 - SECURITY FOR THE OBLIGATIONS
	 	 	25	 
	Section 3.1. Grant Of Security Interests.
	 	 	25	 
	Section 3.2. Proceeds And Products.
	 	 	25	 
	Section 3.3. Priority Of Security Interests.
	 	 	25	 
	Section 3.4. Future Advances.
	 	 	25	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	Section 3.5. Lock Box.
	 	 	25	 
	Section 3.6. Collection Of Receivables By Administrative Agent.
	 	 	25	 
	Section 3.7. Maintenance Of Principal Accounts.
	 	 	26	 
	Section 3.8. Guaranty Agreements.
	 	 	26	 
	Section 3.9. Stock Pledge Agreement.
	 	 	26	 
	Section 3.10. Further Assurances.
	 	 	26	 
	ARTICLE 4 - REPRESENTATIONS AND WARRANTIES.
	 	 	26	 
	Section 4.1. Accuracy Of Information.
	 	 	27	 
	Section 4.2. No Litigation.
	 	 	27	 
	Section 4.3. Liens.
	 	 	27	 
	Section 4.4. Authority; Approvals And Consents.
	 	 	27	 
	 	 	Section 4.4.1. Authority.
	 	 	27	 
	 	 	Section 4.4.2. Approvals.
	 	 	27	 
	 	 	Section 4.4.3. Consents.
	 	 	27	 
	Section 4.5. Binding Effect Of Documents, Etc.
	 	 	27	 
	Section 4.6. No Events Of Default.
	 	 	27	 
	Section 4.7. Guaranty Agreements.
	 	 	27	 
	Section 4.8. Taxes.
	 	 	28	 
	Section 4.9. Compliance With Laws.
	 	 	28	 
	Section 4.10. Chief Places Of Business, Etc.
	 	 	28	 
	Section 4.11. Location Of Inventory.
	 	 	28	 
	Section 4.12. Subsidiaries.
	 	 	28	 
	Section 4.13. No Labor Agreements.
	 	 	28	 
	Section 4.14. Approvals.
	 	 	28	 
	Section 4.15. Financial Statements.
	 	 	28	 
	Section 4.16. Solvency.
	 	 	28	 
	Section 4.17. Fair Labor Standards Act.
	 	 	28	 
	Section 4.18. Employee Benefit Plans.
	 	 	28	 
	 	 	Section 4.18.1. Compliance.
	 	 	29	 
	 	 	Section 4.18.2. Absence Of Termination Event.
	 	 	29	 
	 	 	Section 4.18.3. Actuarial Value.
	 	 	29	 
	 	 	Section 4.18.4. No Withdrawal Liability.
	 	 	29	 
	Section 4.19. Environmental Conditions.
	 	 	29	 
	 	 	Section 4.19.1. Existence Of Permits.
	 	 	29	 
	 	 	Section 4.19.2. Compliance With Permits.
	 	 	29	 
	 	 	Section 4.19.3. No Litigation.
	 	 	29	 
	 	 	Section 4.19.4. No Releases.
	 	 	29	 
	 	 	Section 4.19.5. Transportation.
	 	 	29	 
	 	 	Section 4.19.6. No Violation Notices.
	 	 	29	 
	 	 	Section 4.19.7. No Notice Of Violations.
	 	 	30	 
	Section 4.20. Investment Company Act.
	 	 	30	 
	Section 4.21. Public Utility Holding Company Act.
	 	 	30	 
	ARTICLE 5 - AFFIRMATIVE COVENANTS.
	 	 	30	 
	Section 5.1. Payment And Performance.
	 	 	30	 
	Section 5.2. Insurance.
	 	 	30	 
	Section 5.3. Books And Records.
	 	 	30	 
	Section 5.4. Collection Of Accounts; Sale Of Inventory.
	 	 	30	 
	Section 5.5. Notice Of Litigation And Proceedings.
	 	 	30	 
	Section 5.6. Payment Of Liabilities To Third Persons.
	 	 	30	 
	Section 5.7. Notice Of Change Of Business Location.
	 	 	31	 
	Section 5.8. Payment Of Taxes.
	 	 	31	 
	Section 5.9. Inspections Of Records.
	 	 	31	 
	Section 5.10. Documentation Of Collateral.
	 	 	31	 
	Section 5.11. Reporting Requirements.
	 	 	31	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	 	 	Section 5.11.1. Inventory Reports.
	 	 	31	 
	 	 	Section 5.11.2. Receivables And Accounts Payable Reports.
	 	 	32	 
	 	 	Section 5.11.3. Quarterly Financial Statements.
	 	 	32	 
	 	 	Section 5.11.4. Annual Financial Statements.
	 	 	32	 
	 	 	Section 5.11.5. SEC And Other Filings.
	 	 	32	 
	 	 	Section 5.11.6. Management Letters.
	 	 	32	 
	 	 	Section 5.11.7. Quarterly Officer’s Certificates.
	 	 	32	 
	 	 	Section 5.11.8.
Reports To Other Creditors.
	 	 	33	 
	 	 	Section 5.11.9. Defaults.
	 	 	33	 
	 	 	Section 5.11.10. Management Changes.
	 	 	33	 
	 	 	Section 5.11.11. General Information.
	 	 	33	 
	Section 5.12. Employee Benefit Plans And Guaranteed Pension Plans.
	 	 	33	 
	Section 5.13. Compliance With Laws.
	 	 	33	 
	Section 5.14. Fixed Charge Coverage Ratio.
	 	 	34	 
	Section 5.15. Minimum Liquidity.
	 	 	34	 
	ARTICLE 6 - NEGATIVE COVENANTS
	 	 	34	 
	Section 6.1. No Change Of Name, Merger, Etc.
	 	 	34	 
	Section 6.2. Dispositions.
	 	 	34	 
	Section 6.3. No Encumbrance Of Assets.
	 	 	34	 
	Section 6.4. No Indebtedness.
	 	 	34	 
	Section 6.5. Restricted Payments.
	 	 	34	 
	Section 6.6. Transactions With Affiliates.
	 	 	35	 
	Section 6.7. Loans, Investments And Sale-Leasebacks.
	 	 	35	 
	Section 6.8. No Assignment.
	 	 	35	 
	Section 6.9. No Alteration Of Line Of Business.
	 	 	35	 
	Section 6.10. Unpermitted Uses Of Loan Proceeds.
	 	 	35	 
	Section 6.11. Changes In Fiscal Year.
	 	 	35	 
	Section 6.12. Subsidiaries.
	 	 	35	 
	Section 6.13. Leverage Ratio.
	 	 	35	 
	ARTICLE 7 - EVENTS OF DEFAULT
	 	 	35	 
	Section 7.1. Failure To Pay.
	 	 	35	 
	Section 7.2. Violation Of Covenants.
	 	 	35	 
	Section 7.3. Representation Or Warranty.
	 	 	36	 
	Section 7.4. Default Under Credit Documents.
	 	 	36	 
	Section 7.5. Cross-Default.
	 	 	36	 
	Section 7.6. Judgments.
	 	 	36	 
	Section 7.7. Levy By Judgment Or Lien Creditor.
	 	 	36	 
	Section 7.8. Failure To Pay Liabilities.
	 	 	36	 
	Section 7.9. Involuntary Insolvency Proceedings.
	 	 	36	 
	Section 7.10. Voluntary Insolvency Proceedings.
	 	 	36	 
	Section 7.11.
Insolvency Proceedings Pertaining To Subsidiaries.
	 	 	36	 
	Section 7.12. Material Adverse Event.
	 	 	36	 
	Section 7.13. Default By Guarantors.
	 	 	36	 
	Section 7.14. Attempt To Terminate Guaranties.
	 	 	37	 
	Section 7.15. ERISA.
	 	 	37	 
	Section 7.16. Indictment Of Borrower Or Guarantors.
	 	 	37	 
	Section 7.17. Injunction.
	 	 	37	 
	Section 7.18. Change Of Control.
	 	 	37	 
	ARTICLE 8 - RIGHTS AND REMEDIES ON THE OCCURRENCE OF AN EVENT OF DEFAULT
	 	 	37	 
	Section 8.1. Secured Parties’ Specific Rights And Remedies.
	 	 	37	 
	Section 8.2. Automatic Acceleration.
	 	 	37	 
	Section 8.3. Sale Of Collateral.
	 	 	37	 
	Section 8.4. Letters Of Credit.
	 	 	38	 
	Section 8.5. Remedies Cumulative.
	 	 	38	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	ARTICLE 9 - THE ADMINISTRATIVE AGENT
	 	 	38	 
	Section 9.1. Appointment
	 	 	38	 
	Section 9.2. Administrative Agent May Hold Collateral For Lenders And Others
	 	 	39	 
	Section 9.3. Delegation Of Duties
	 	 	39	 
	Section 9.4. Liability
	 	 	39	 
	Section 9.5. Reliance By The Administrative Agent
	 	 	39	 
	Section 9.6. Notice Of Default
	 	 	39	 
	Section 9.7. Non-Reliance On The Administrative Agent And Other Lenders
	 	 	40	 
	Section 9.8. Indemnification
	 	 	40	 
	Section 9.9. No Independent Actions By Lenders With Respect To
Collateral Or Remedies
	 	 	40	 
	Section 9.10. The Administrative Agent In Its Individual Capacity
	 	 	40	 
	Section 9.11. Removal Or Resignation Of The Administrative Agent; Successor
Administrative Agent.
	 	 	41	 
	Section 9.12. Benefits Of Article 9
	 	 	41	 
	Section 9.13. Syndication And Documentation Agent
	 	 	41	 
	ARTICLE 10 - GENERAL CONDITIONS AND TERMS
	 	 	41	 
	Section 10.1. Successors And Assigns; Participations
	 	 	41	 
	 	 	Section 10.1.1. Benefit Of Agreement
	 	 	41	 
	 	 	Section 10.1.2. Assignment Of Loans By Lenders
	 	 	41	 
	 	 	Section 10.1.3. Rights And Duties Upon Assignment
	 	 	42	 
	 	 	Section 10.1.4. Register
	 	 	42	 
	 	 	Section 10.1.5. Issuance Of New Notes
	 	 	42	 
	 	 	Section 10.1.6. Participations
	 	 	42	 
	 	 	Section 10.1.7. Disclosure Of Information; Confidentiality
	 	 	43	 
	 	 	Section 10.1.8. Certain Pledges Or Assignments
	 	 	43	 
	Section 10.2. Sharing Of Collections
	 	 	43	 
	Section 10.3. Reversal Of Payments; Revival Of Obligations
	 	 	43	 
	Section 10.4. Amendments, Waivers And Consents
	 	 	43	 
	Section 10.5. Set Off
	 	 	44	 
	Section 10.6. Secured Party Expenses
	 	 	44	 
	Section 10.7. Obligations Are Unconditional.
	 	 	44	 
	Section 10.8. Indemnity.
	 	 	45	 
	Section 10.9. Incorporation.
	 	 	45	 
	Section 10.10. Waivers.
	 	 	45	 
	Section 10.11. Continuing Obligation Of Borrower.
	 	 	45	 
	Section 10.12. Choice Of Law.
	 	 	45	 
	Section 10.13. Submission To Jurisdiction; Venue; Actions Against Secured
Parties.
	 	 	45	 
	 	 	Section 10.13.1. Jurisdiction.
	 	 	45	 
	 	 	Section 10.13.2. Venue.
	 	 	45	 
	 	 	Section 10.13.3. Waiver Of Objections To Venue.
	 	 	45	 
	Section 10.14. Notices.
	 	 	46	 
	Section 10.15. Miscellaneous Provisions.
	 	 	48	 
	Section 10.16. Waiver Of Trial By Jury.
	 	 	48	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	Exhibits	 	 
	Exhibit 2.1.1	 	
Form of Revolving Loan Promissory Note
	Exhibit 2.1.3.b	 	
Form of Opinion of Borrower’s and Guarantors’ Counsel
	Exhibit 2.1.3.e	 	
Form of Officer’s Closing Certificate
	Exhibit 3.8(a)	 	
Form of Guaranty Agreement
	Exhibit 3.8(b)	 	
Form of Security Agreement from Guarantors
	Exhibit 3.8(c)	 	
Form of Financing Statement from Guarantors
	Exhibit 3.9	 	
Form of Stock Pledge Agreement
	Exhibit 10.1.2.(c)	 	
Form of Lender Assignment And Acceptance
	Schedules	 	 
	Schedule 1.82	 	
Permitted Liens
	Schedule 4.2	 	
Litigation
	Schedule 4.10	 	
Chief Place Of Business
	Schedule 4.11	 	
Location Of Inventory
	Schedule 4.12	 	
Subsidiaries
	Schedule 4.15	 	
Liabilities And Obligations Not Disclosed In Financial Statements
	Schedule 4.18.4	 	
ERISA Withdrawal Liabilities
	Schedule 4.19	 	
Environmental Conditions

 

 

LOAN AND SECURITY AGREEMENT

     THIS
LOAN AND SECURITY AGREEMENT is dated as of January 26, 2004, by and
between MARTEK BIOSCIENCES CORPORATION, a Delaware corporation (“BORROWER”);
each of the “LENDERS” (as defined below); MANUFACTURERS AND TRADERS TRUST
COMPANY, as Administrative Agent for the LENDERS (in such capacity, together
with its successors in such capacity, the “ADMINISTRATIVE AGENT”), and as Sole
Book Runner; BANK OF AMERICA, N.A., as Syndication Agent (in such capacity,
together with its successors in such capacity, the “SYNDICATION AGENT”); and
SUNTRUST BANK, as Documentation Agent (in such capacity, together with its
successors in such capacity, the “DOCUMENTATION AGENT”).

RECITALS

     The BORROWER has requested that the LENDERS extend a revolving credit
facility to the BORROWER. The LENDERS are willing to extend the requested
revolving credit facility upon the terms and conditions of this Loan And
Security Agreement.

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

     As used in this Loan And Security Agreement, the terms set forth in this
Article 1 have the meanings set forth below, unless the specific context of
this Loan And Security Agreement clearly requires a different meaning. Terms
defined in this Article 1 or elsewhere in this Loan And Security Agreement are
in all capital letters throughout this Loan And Security Agreement. The
singular use of any defined term includes the plural and the plural use
includes the singular.

     Section 1.1. Account Debtor. The term
“ACCOUNT DEBTOR” means collectively each PERSON: (a) to or for whom the
BORROWER has provided or has agreed to provide any goods or services; or (b)
which owes the BORROWER any sum of money as a result of assets sold, leased or
licensed or services provided by the BORROWER; or (c) which is the maker or
endorser on any INSTRUMENT payable to the BORROWER or otherwise owes the
BORROWER any sum of money on account of any loan or other payment obligation.
With respect to each RECEIVABLE which is payable by any governmental authority,
“ACCOUNT DEBTOR” includes, without limitation, the agency, instrumentality or
official which has the duty of remitting or causing the remittance of the
amounts owing on such ACCOUNT or other RECEIVABLE.

     Section 1.2. Account, Chattel Paper, Document, General
Intangibles, Goods, Instrument, Letter-Of-Credit Right, Payment Intangible,
Promissory Notes, And Software. The terms “ACCOUNT,” “CHATTEL PAPER,”
“DOCUMENT,” “GENERAL INTANGIBLES,” “GOODS,” “INSTRUMENT,” “LETTER-OF-CREDIT
RIGHT,” “PAYMENT INTANGIBLE,” “PROMISSORY NOTES,” and “SOFTWARE” shall have the
same respective meanings as are given to those terms in the Uniform
Commercial Code, as adopted and in effect in the State of Maryland.

     Section 1.3. Adjusted Base
Rate. The term “ADJUSTED BASE RATE” means for any BASE RATE BORROWING that
rate of interest equal to the BASE RATE plus the APPLICABLE PERCENTAGE.

 

 

     Section 1.4. Adjusted LIBOR
Rate. The term “ADJUSTED LIBOR RATE” means, for any LIBOR BORROWING for
any selected INTEREST PERIOD, that rate per annum, rounded upwards, if
necessary, to the nearest one hundredth of one percent (.01%), determined by
the ADMINISTRATIVE AGENT to be equal to the sum of: (a) the quotient obtained
by dividing (i) the LIBOR RATE for such LIBOR BORROWING for such INTEREST
PERIOD by (ii) 1.00 minus the RESERVE REQUIREMENT for such LIBOR
BORROWING for such INTEREST PERIOD; plus (b) the APPLICABLE PERCENTAGE.

     Section 1.5. Affiliate. The term
“AFFILIATE” means collectively any PERSON: (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with the BORROWER, including, without limitation, the officers,
managers and directors of the BORROWER; (b) that directly or beneficially owns
or holds ten percent (10%) or more of any equity interests in the BORROWER; or
(c) ten percent (10%) or more of whose equity interests are owned directly or
controlled by the BORROWER. As used herein, the term “control” (including,
with correlative meanings, the terms “controlled by” and “under common control
with”) shall mean possession, directly or indirectly, of the power to direct
the management or policies of a PERSON, whether through ownership of equity
interests, by contract or otherwise.

     Section 1.6. Agreement. The term
“AGREEMENT” means this Loan And Security Agreement, as amended, extended, or
modified from time to time by the parties hereto, as well as all schedules,
exhibits and attachments hereto.

     Section 1.7. Applicable
Percentage. The term “APPLICABLE PERCENTAGE” means with respect to the
LOANS, the COMMITMENT FEES, and the LETTERS OF CREDIT the following percentages
corresponding to the LEVERAGE RATIO in effect as of the most recent CALCULATION
DATE:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	APPLICABLE	 	 	 	 	 	 	 	 	 	APPLICABLE
	 	 	 	 	 	 	PERCENTAGE	 	APPLICABLE	 	APPLICABLE	 	PERCENTAGE
	 	 	 	 	 	 	FOR BASE	 	PERCENTAGE	 	PERCENTAGE	 	FOR
	TIER	 	LEVERAGE	 	RATE	 	FOR LIBOR	 	FOR LETTERS	 	COMMITMENT
	LEVEL	 	RATIO	 	BORROWINGS	 	BORROWINGS	 	OF CREDIT	 	FEES
	
	 	
	 	
	 	
	 	
	 	

	 	1	 	 	< 1.000
	 	 	0.000	%	 	 	1.250	%	 	 	1.250	%	 	 	0.250	%
	 	2	 	 	1.000 but < 1.500
	 	 	0.000	%	 	 	1.500	%	 	 	1.500	%	 	 	0.250	%
	 	3	 	 	1.500 but < 2.000
	 	 	0.000	%	 	 	1.750	%	 	 	1.750	%	 	 	0.300	%
	 	4	 	 	> 2.000
	 	 	0.000	%	 	 	2.250	%	 	 	2.250	%	 	 	0.375	%

     The initial APPLICABLE PERCENTAGES shall be based on Tier Level 4. Beginning
on the first day of the first month following the receipt by the ADMINISTRATIVE
AGENT of the annual audited financial statement of the BORROWER for the
BORROWER’S fiscal year ending October 31, 2003, and quarterly thereafter, the
APPLICABLE PERCENTAGES shall be determined and adjusted to correspond with the
then current LEVERAGE RATIO as determined in accordance with the quarterly
officer’s certificate to be provided by the BORROWER in accordance with
Section 5.11.7 of this AGREEMENT. If the BORROWER fails to provide such
quarterly officer’s certificate for any FISCAL QUARTER as required by and
within the time limitations set forth in Section 5.11.7, the APPLICABLE
PERCENTAGES from the applicable date of such failure shall be based on Tier
Level 4 until five (5) BUSINESS DAYS after an appropriate officer’s certificate
is provided, whereupon the appropriate Tier Level and corresponding APPLICABLE
PERCENTAGES shall be determined by the LEVERAGE RATIO evidenced by such
certificate. Except as set forth above, each APPLICABLE PERCENTAGE shall be
effective from a CALCULATION DATE until the next CALCULATION DATE.

     Section 1.8. Assignee. The term
“ASSIGNEE” means an ELIGIBLE ASSIGNEE who has

 

 

acquired an assignment of a
LENDER’S interests in a LOAN in accordance with the provisions of Section 10.1
of this AGREEMENT.

     Section 1.9. Base Rate. The term
“BASE RATE” means, for any day, the rate per annum equal to the higher
of: (a) the FEDERAL FUNDS RATE for such day plus fifty (50) BASIS
POINTS; or (b) the PRIME RATE for such day. Any change in the BASE RATE due to
a change in the PRIME RATE or the FEDERAL FUNDS RATE shall be effective on the
effective date of such change in the PRIME RATE or the FEDERAL FUNDS RATE.

     Section 1.10. Base Rate
Borrowing. The term “BASE RATE BORROWING” means each amount of the unpaid
principal balance of a LOAN which in accordance with the terms of the AGREEMENT
accrues interest at the BASE RATE.

     Section 1.11. Basis Point. The
term “BASIS POINT” means one one-hundredth (.01) of one percent.

     Section 1.12. Borrowing Date.
The term “BORROWING DATE” means any BUSINESS DAY specified in a notice issued
by the BORROWER in accordance with Section 2.1.2 of this AGREEMENT as a date on
which the BORROWER has requested that the LENDERS advance the proceeds of the
LOANS to or for the account of the BORROWER.

     Section 1.13. Business Day.
The term “BUSINESS DAY” means any day other than a Saturday, Sunday, or other
day on which commercial banking institutions in the States of Maryland and New
York are required to be closed.

     Section 1.14. Calculation
Date. The term “CALCULATION DATE” means each of the dates upon which the
APPLICABLE PERCENTAGES are to be determined and adjusted, which adjustment
shall be made at the end of each FISCAL QUARTER on the date occurring five (5)
BUSINESS DAYS after the date on which the ADMINISTRATIVE AGENT receives the
quarterly officer’s certificate in accordance with the provisions of Section
5.11.7 of this AGREEMENT, or otherwise as required by the terms of this
AGREEMENT.

     Section 1.15.
Capital Adequacy Requirement. The term “CAPITAL ADEQUACY REQUIREMENT”
means any LAW imposing any capital adequacy requirement or any other similar
requirement (including but not limited to the capital adequacy regulations
contained in Parts 3, 208 and 225 of Title 12 of the Code of Federal
Regulations, as amended), any change in such LAWS or in the interpretation
or application thereof, and any request or directive regarding capital adequacy
(whether or not having the force of law) from any central bank or government
authority.

     Section 1.16. Capital
Expenditures. The term “CAPITAL EXPENDITURES” means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including expenditures for CAPITAL LEASE OBLIGATIONS) by the
BORROWER during such period that are required by G.A.A.P. to be included in or
reflected by the property, plant, equipment or similar capital asset accounts
on the consolidated balance sheet of the BORROWER and its SUBSIDIARIES.

     Section 1.17. Capital
Lease Obligations. The term “CAPITAL LEASE OBLIGATIONS” means collectively
the obligations of any referenced PERSON to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
PERSON under G.A.A.P., and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with G.A.A.P.

     Section 1.18. Casualty Event.
The term “CASUALTY EVENT” means any loss of or damage to, or any condemnation
or other taking of, any of the COLLATERAL for which the BORROWER or its

 

 

SUBSIDIARIES receive insurance proceeds, or proceeds of a condemnation award or
other compensation.

     Section 1.19. Change Of
Control. The term “CHANGE OF CONTROL” means an event or series of events
by which: (a) any “person” or “group” (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the “ACT”), but excluding any
employee benefit plan of such person or its SUBSIDIARIES, and any person or
entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Act, except that a person or group shall be
deemed to have “beneficial ownership” of all capital stock that such person or
group has the right to acquire (such right, an “OPTION RIGHT”), whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of twenty-five percent (25%) more of the voting stock of the
BORROWER on a fully diluted basis (and taking into account all such securities
that such person or group has the right to acquire pursuant to any option
right) that any such person or group beneficially owns as of the date of
CLOSING; (b) during any period of twenty-four (24) consecutive months, a
majority of the members of the board of directors or other equivalent governing
body of the BORROWER ceases to be composed of individuals (i) who were members
of that board or equivalent governing body on the first day of such period,
(ii) whose election or nomination to that board or equivalent governing body
was approved by individuals referred to in clause (i) above constituting at the
time of such election or nomination at least a majority of that board or the
nominating committee thereof or equivalent governing body, or (iii) whose
election or nomination to that board or other equivalent governing body was
approved by individuals referred to in clauses (i) and (ii) above constituting
at the time of such election or nomination at least a majority of that board or
equivalent governing body (excluding, in the case of both clause (ii) and
clause (iii), any individual whose initial nomination for, or assumption of
office as, a member of that board or equivalent body occurs as a result of an
actual or threatened solicitation of proxies or consents for the election or
removal of one or more directors by any person or group other than a
solicitation for the election of one or more directors by or on behalf of the
board of directors); or (c) during any period of twelve (12) consecutive months
any two of the three (3) individuals holding the positions of Chief Executive
Officer, President, and Chief Financial Officer cease holding such positions
with the BORROWER, and the BORROWER does not replace within one hundred eighty
(180) days either of the preceding individuals that cease holding such
positions with the BORROWER with an individual reasonably acceptable to the
REQUIRED LENDERS.

     Section 1.20. Closing. The term
“CLOSING” means the execution and delivery of this AGREEMENT, the NOTES, and
various other CREDIT DOCUMENTS. The date of CLOSING is the date written above
as the date of this AGREEMENT.

     Section 1.21. Code. The term “CODE”
means the Internal Revenue Code of 1986, as amended, and all Treasury
regulations, revenue rulings, revenue procedures or announcements issued
thereunder.

     Section 1.22. Collateral. The term
“COLLATERAL” means all of the following types of assets and personal property
of the BORROWER, wherever located, whether now owned or hereafter acquired by
the BORROWER, together with all substitutions therefor, and all replacements
and renewals thereof, and all accessions, additions, and packaging relating
thereto: (a) ACCOUNTS; (b) INVENTORY, including returned, rejected, or
repossessed INVENTORY and rights of reclamation and stoppage in transit with
respect to INVENTORY; (c) RECEIVABLES; (d) all SOFTWARE evidencing or used in
the tracking, monitoring, maintenance or collection of any of the foregoing;
(e) all GENERAL INTANGIBLES necessary for the collection, monitoring or
maintenance of RECEIVABLES, or for the sale of the INVENTORY; (f) all capital
stock or other equity or ownership interests of the BORROWER in the
SUBSIDIARIES of the BORROWER; (g) all RECORDS relating to or pertaining to any
of the above listed COLLATERAL; and (h) all proceeds of the foregoing. The
definition of COLLATERAL shall not include any INTELLECTUAL PROPERTY except to
the limited extent that the use or licensing of any INTELLECTUAL PROPERTY is
necessary for the liquidation, sale or collection of any of the COLLATERAL
during any continuing EVENT OF DEFAULT. The definition of COLLATERAL shall
include royalties, payments, and payment rights which arise from or with
respect to the licensing, sale or other alienation of INTELLECTUAL PROPERTY.

 

 

     Section 1.23. Commitment
Amount. The term “COMMITMENT AMOUNT” means as to any LENDER, the maximum
aggregate principal amount which such LENDER has agreed to advance and have at
any time outstanding as proceeds of the LOANS, which amount is set forth
opposite such LENDER’S name on the signature pages hereof under the caption
“Commitment Amount,” or as set forth on the most recently executed LENDER
ASSIGNMENT executed after the date of CLOSING by such LENDER whether as
assignor or assignee of such LENDER ASSIGNMENT with respect to any LENDER which
acquires an assignment of the LOANS or any portion thereof after the date of
CLOSING, as such percentage may change in order to reflect any subsequent
assignments thereafter of the LOANS or any portion thereof in accordance with
the provisions of Section 10.1 of this AGREEMENT.

     Section 1.24. Commitment Fee.
The term “COMMITMENT FEE” has the meaning given that term in Section 2.1.7 of
this AGREEMENT.

     Section 1.25. Commitment
Percentage. The term “COMMITMENT PERCENTAGE” means, as to any LENDER, the
percentage which is set forth opposite such LENDER’S name on the signature
pages of this AGREEMENT as the “Commitment Percentage”, or as set forth in the
most recently executed LENDER ASSIGNMENT executed after the date of CLOSING by
such LENDER whether as assignor or assignee of such LENDER ASSIGNMENT with
respect to any LENDER which acquires an assignment of the LOANS or any portion
thereof after the date of CLOSING, as such percentage may change in order to
reflect any subsequent assignments thereafter of the LOANS or any portion
thereof in accordance with the provisions of Section 10.1 of this AGREEMENT.

     Section 1.26. Credit
Documents. The term “CREDIT DOCUMENTS” means all agreements, instruments
and documents, including without limitation each document listed as a “Credit
Document” on a Closing Index of even date herewith, together with all other
loan agreements (including without limitation this AGREEMENT), notes (including
without limitation the NOTES), guarantees, subordination agreements,
intercreditor agreements, the LETTER AGREEMENT, pledges, affidavits, powers of
attorney, consents, assignments, landlord and mortgage waivers, collateral
assignments, reimbursement agreements, contracts, notices, leases, financing
statements, mortgages, deeds of trust, assignments of rents or contract
proceeds, intellectual property security agreements, pledges, letter of credit
applications, reimbursement agreements, INTEREST RATE HEDGES, and all other
written matter, whether heretofore, now or hereafter executed by or on behalf
of the BORROWER or any of the GUARANTORS, in connection with any of the
OBLIGATIONS.

     Section 1.27. Default. The term
“DEFAULT” means any event, occurrence or omission which, with the giving of
notice, the passage of time, or both, would constitute an EVENT OF DEFAULT.

     Section 1.28. Disposition. The
term “DISPOSITION” means any sale, assignment, transfer or other disposition of
any property (whether now owned or hereafter acquired) by the BORROWER or any
of its SUBSIDIARIES.

     Section 1.29. Domestic
Subsidiary. The term “DOMESTIC SUBSIDIARY” means any SUBSIDIARY of the
BORROWER that is organized under the laws of any state or territory of the
United States of America or under the laws of the District of Columbia.

     Section 1.30. EBITDA. The term
“EBITDA” means, for any period of computation, the sum, for the BORROWER and
its SUBSIDIARIES (determined on a consolidated basis without duplication), of
the following: (a) NET INCOME for such period; plus (b) the aggregate
amount of depreciation and amortization and other non-cash charges or non-cash
expenses (to the extent deducted in determining NET INCOME for such period);
plus (c) aggregate INTEREST EXPENSE for such period; plus (d) the
aggregate amount of all income taxes for such period; plus (e) any
non-cash expenses associated with stock compensation and/or stock awards, to
the extent such non-cash expenses have been previously deducted in arriving at
EBITDA. EBITDA shall be measured for the purposes of this AGREEMENT in the
following manner for the following periods of time: (i) from the date of
CLOSING through April 29, 2004 - the prior six (6) months of EBITDA multiplied
by 2.0; (ii) from April 30, 2004 through July 30, 2004
- the

 

 

prior nine (9)
months of EBITDA multiplied by 1.333; and (iii) from July 31, 2004 and
thereafter - the EBITDA for the immediately preceding four (4) FISCAL QUARTERS.

     Section 1.31. Eligible
Assignee. The term “ELIGIBLE ASSIGNEE” means, with respect to any
assignment of the rights, interest and obligations of any LENDER in accordance
with the provisions of Section 10.1 of this AGREEMENT: (a) a commercial bank
organized under the LAWS of the United States or any state thereof which is a
member bank of the Federal Reserve System; or (b) a finance company, insurance
company or other financial institution which in the ordinary course of business
extends credit of the type extended hereunder by the LENDERS to the BORROWER
and that has total assets in excess of One Billion Dollars ($1,000,000,000.00);
or (c) a PERSON which is already a LENDER hereunder (whether as an original
party to this AGREEMENT or as the assignee of another LENDER); or (d) the
successor (whether by transfer of assets, merger or otherwise) to all or
substantially all of the commercial lending business of the assigning LENDER;
or (e) any other PERSON that has been approved in writing as an ELIGIBLE
ASSIGNEE by the BORROWER and all of the SECURED PARTIES.

     Section 1.32. Employee
Benefit Plan. The term “EMPLOYEE BENEFIT PLAN” means an “employee benefit
plan” as defined in Section 3(3) of ERISA.

     Section 1.33. Environmental
Laws. The term “ENVIRONMENTAL LAWS” means individually or collectively any
applicable local, state or federal LAW, statute, rule, regulation, order,
ordinance, common law, permit or license term or condition, or state superlien
or environmental clean-up or disclosure statutes pertaining to the environment
or to environmental contamination, regulation, management, control, treatment,
storage, disposal, containment, removal, clean-up, reporting, or disclosure,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as now or hereafter amended (including,
but not limited to, the Superfund Amendments and Reauthorization Act); the
Resource Conservation and Recovery Act, as now or hereafter amended (including,
but not limited to, the Hazardous and Solid Waste Amendments of 1984); the
Toxic Substances Control Act, as now or hereafter amended; the Clean Water Act,
as now or hereafter amended; the Safe Drinking Water Act, as now or hereafter
amended; or the Clean Air Act, as now or hereafter amended.

     Section 1.34. ERISA. The term “ERISA”
means the Employee Retirement Income Security Act of 1974 and regulations
issued thereunder, as amended from time to time and any successor statute.

     Section 1.35. ERISA
Affiliate. The term “ERISA AFFILIATE” means, in relation to any PERSON,
any trade or business (whether or not incorporated) which is a member of a
group of which that PERSON is a member and which is under common control within
the meaning of the regulations promulgated under Section 414 of the CODE.

     Section 1.36. ERISA
Liabilities. The term “ERISA LIABILITIES” means the aggregate of all
unfunded vested benefits under any employee pension benefit plan, within the
meaning of Section 3(2) of ERISA, of the BORROWER or any ERISA AFFILIATE of the
BORROWER under any plan covered by ERISA that is not a MULTIEMPLOYER PLAN and
all potential withdrawal liabilities of the BORROWER or any ERISA AFFILIATE
under all MULTIEMPLOYER PLANS.

     Section 1.37. Event Of
Default. The term “EVENT OF DEFAULT” means any of the events set forth in
Article 7 of this AGREEMENT, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other expressly stated condition,
has been satisfied.

     Section 1.38. Facilities. The
term “FACILITIES” means all real property and the improvements thereon used or
occupied or leased by the BORROWER or otherwise used at any time by the
BORROWER in the operation of its business or for the manufacture, storage, or
location of any of the COLLATERAL.

     Section 1.39. Federal Funds
Rate. The term “FEDERAL FUNDS RATE” means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined (which

 

 

determination shall be conclusive and binding, absent manifest error) by the
ADMINISTRATIVE AGENT to be equal to the weighted average of the rates on
overnight Federal funds transactions with member banks of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the BUSINESS DAY next succeeding such day;
provided that: (a) if such day is not a BUSINESS DAY, the FEDERAL FUNDS
RATE for such day shall be such rate on such transactions on the next preceding
BUSINESS DAY as so published on the next succeeding BUSINESS DAY; and (b) if no
such rate is so published on such next succeeding BUSINESS DAY, the FEDERAL
FUNDS RATE for such day shall be the average rate charged to the ADMINISTRATIVE
AGENT (in its individual capacity) on such day on such transactions as
determined by the ADMINISTRATIVE AGENT (which determination shall be conclusive
and binding, absent manifest error).

     Section 1.40. Fiscal Quarter.
The term “FISCAL QUARTER” means each period of three (3) consecutive months
commencing on the first days of each consecutive November, February, May and
August.

     Section 1.41. Fiscal Year. The
term “FISCAL YEAR” means the fiscal year of the BORROWER which is the twelve
(12) month accounting period commencing November 1 and ending October 31 of
each calendar year, or such other accounting period selected by the BORROWER
after notice to the ADMINISTRATIVE AGENT as required by Section 6.11 of this
AGREEMENT.

     Section 1.42. Fixed
Charge Coverage Ratio. The term “FIXED CHARGE COVERAGE RATIO” means the ratio as of the end of each FISCAL QUARTER for the
period of computation of: (a)
the EBITDA of the BORROWER and its SUBSIDIARIES for such period,
minus cash taxes paid by the BORROWER and its SUBSIDIARIES during such
period, minus that portion of the purchase price paid in connection with
any acquisitions made in accordance with the authorization of Section 6.7(d) of
this AGREEMENT which is paid in cash during such period if the aggregate cash
balances maintained by the BORROWER and its SUBSIDIARIES were less than Fifty
Million Dollars ($50,000,000.00) during such period, minus the amount of
payments made during such period to repurchase shares of the BORROWER’S stock
pursuant to the terms of any restricted share plan, as contemplated by Section
1.93(b) of this AGREEMENT, minus the amount of CAPITAL EXPENDITURES made
by the BORROWER and its SUBSIDIARIES in such period if (x) the aggregate cash
balances maintained by the BORROWER and its SUBSIDIARIES were less than Fifty
Million Dollars ($50,000,000.00) during such period and (y) such CAPITAL
EXPENDITURES were not financed with the use of borrowed funds or by leases
required by G.A.A.P. to be classified and accounted for as capital leases;
to (b) the FIXED CHARGES of the BORROWER and its SUBSIDIARIES for such
period. Each calculation of EBITDA, and of the above-described deductions from
EBITDA and of FIXED CHARGES used in determining the FIXED CHARGE COVERAGE RATIO
shall be measured in the following manner for the following periods of time:
(i) from the date of CLOSING through April 29, 2004, the prior six (6) months
of the measured item multiplied by 2.0, (ii) from April 30, 2004 through July
30, 2004, the prior nine (9) months of the measured item multiplied by 1.33,
and (iii) from July 31, 2004 and thereafter, the measured item for the
immediately preceding four (4) FISCAL QUARTERS.

     Section 1.43. Fixed Charges.
The term “FIXED CHARGES” means, for any period of computation, the sum of: (a)
INTEREST EXPENSE for such period; plus (b) FUNDED DEBT PAYMENTS for such
period.

     Section 1.44. Funded Debt
Payments. The term “FUNDED DEBT PAYMENTS” means, as of the end of each
FISCAL QUARTER, the sum of all scheduled payments of principal on FUNDED
INDEBTEDNESS of the BORROWER and its SUBSIDIARIES (determined on a consolidated
basis without duplication in accordance with G.A.A.P.) for the applicable
FISCAL QUARTER ending on such date (including the principal component of
payments due on CAPITAL LEASES during the applicable period ending on such
date); it being understood that FUNDED DEBT PAYMENTS shall not include
voluntary prepayments of the LOANS or mandatory prepayments of the LOANS
required by the terms of this AGREEMENT.

     Section 1.45. Funded
Indebtedness. The term “FUNDED INDEBTEDNESS” means, with

 

 

respect to any
PERSON, without duplication: (a) all INDEBTEDNESS of such PERSON other than
INDEBTEDNESS of the types referred to in clauses (e), (f) (g), (i), (k), (l)
and (m) of the definition of “INDEBTEDNESS” set forth in this AGREEMENT; (b)
all INDEBTEDNESS of another PERSON of the type referred to in clause (a) above
secured by (or for which the holder of such FUNDED INDEBTEDNESS has an existing
right, contingent or otherwise, to be secured by) any LIEN on, or payable out
of the proceeds of production from, property owned or acquired by such PERSON,
whether or not the obligations secured thereby have been assumed; (c) all
guaranties of such PERSON with respect to INDEBTEDNESS of the type referred to
in clause (a) above of another PERSON; and (d) INDEBTEDNESS of the type
referred to in clause (a) above of any partnership or unincorporated joint
venture in which such PERSON is legally obligated or has a reasonable
expectation of being liable with respect thereto.

     Section 1.46. G.A.A.P. The term
“G.A.A.P.” means, with respect to any date of determination, generally accepted
accounting principles as used by the Financial Accounting Standards Board
and/or the American Institute of Certified Public Accountants consistently
applied and maintained throughout the periods indicated.

     Section 1.47. Governmental
Authority. The term “GOVERNMENTAL AUTHORITY” means any nation or
government, any union of nations or governments (including without limitation
the European Union), any state, region, province, or other political
subdivision of any nation, government or union of nations or governments, and
any municipality, court or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.

     Section 1.48. Guaranteed
Pension Plan. The term “GUARANTEED PENSION PLAN” means any pension plan
maintained by the BORROWER or an ERISA AFFILIATE of the BORROWER, or to which
the BORROWER or an ERISA AFFILIATE contributes, some or all of the benefits
under which are guaranteed by the United States Pension Benefit Guaranty
Corporation.

     Section 1.49. Guarantors. The
term “GUARANTORS” means collectively all DOMESTIC SUBSIDIARIES of the BORROWER
which have executed and delivered a GUARANTY AGREEMENT as required by Section
3.8 of this AGREEMENT.

     
Section 1.50. Guaranty Agreements. The term “GUARANTY AGREEMENTS” means the Guaranty Agreements
executed from time to time by the GUARANTORS for the benefit of the SECURED
PARTIES.

     Section 1.51. Guaranty
Indebtedness. The term “GUARANTY INDEBTEDNESS” means any obligation,
contingent or otherwise, of any referenced PERSON directly or indirectly
guaranteeing any debt or obligation of any other PERSON and, without limiting
the generality of the foregoing, any obligation, direct or indirect, contingent
or otherwise, of such PERSON: (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such debt or obligation (whether arising
by virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise, other than agreements to purchase goods at
an arm’s length price in the ordinary course of business); or (b) entered into
for the purpose of assuring in any other manner the holder of such debt or
obligation of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part). The term GUARANTY INDEBTEDNESS shall
not include endorsements for collection or deposit in the ordinary course of
business.

     Section 1.52. Indebtedness.
The term “INDEBTEDNESS” means, with respect to any referenced PERSON, without
duplication: (a) all obligations of such PERSON for borrowed money; (b) all
obligations of such PERSON evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made; (c) all
obligations of such PERSON under conditional sale or other title retention
agreements relating to property purchased by such PERSON (other than customary
reservations or retentions of title under agreements with suppliers entered
into in the ordinary course of business); (d) all obligations of such PERSON
issued or assumed as the deferred purchase price of property or services
purchased by such PERSON (other than trade debt incurred in the ordinary course
of business and due within six months of the incurrence thereof) which would
appear as liabilities on a balance sheet of such PERSON; (e) all obligations of
such PERSON under take-or-pay or similar

 

 

arrangements or under commodities
agreements; (f) all indebtedness of others secured by (or for which the holder
of such indebtedness has an existing right, contingent or otherwise, to be
secured by) any LIEN on, or payable out of the proceeds of production from,
property owned or acquired by such PERSON, whether or not the obligations
secured thereby have been assumed; (g) all GUARANTY INDEBTEDNESS of such
PERSON; (h) the principal portion of all obligations of such PERSON under
capital leases; (i) all obligations of such PERSON under INTEREST RATE HEDGES;
(j) the maximum amount of all standby letters of credit issued or bankers’
acceptances facilities created for the account of such PERSON and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed); (k) all
preferred capital stock issued by such PERSON and required by the terms thereof
to be redeemed, or for which mandatory sinking fund payments are due by a fixed
date; (l) with respect to the BORROWER, the principal portion of all
obligations of such PERSON under off-balance sheet financing arrangements in
the nature of “synthetic leases,” asset securitizations and other similar
financings; (m the indebtedness of any partnership or unincorporated joint
venture in which such PERSON is a general partner or a joint venturer and with
respect to which such PERSON under applicable LAW has the liability for the
repayment thereof.

     Section 1.53. Insolvency
Proceedings. The term “INSOLVENCY PROCEEDINGS” means, with respect to any
referenced PERSON, any case or proceeding commenced by or against such PERSON,
under any provision of the United States Bankruptcy Code, as amended, or
under any other federal or state bankruptcy or insolvency law, or any
assignments for the benefit of creditors, formal or informal moratoriums,
receiverships, compositions or extensions with some or all creditors with
respect to any indebtedness of such PERSON.

     Section 1.54. Intellectual
Property. The term “INTELLECTUAL PROPERTY” means all of the BORROWER’S
right, title and interest, whether now owned or existing or hereafter acquired
or arising, in all of the following property: (a) all domestic and foreign
copyrights, copyright registrations and copyright applications, whether or not
registered or filed with any governmental authority; (b) all domestic and
foreign trademarks, trademark registrations, trademark applications, trade
names, service marks, certification marks, logos and other source business
identifiers, whether or not registered or filed with any governmental
authority; (c) all United States and foreign patents, and pending and abandoned
United States and foreign patent applications, including, without limitation,
the inventions and improvements described or claimed therein, together with (i)
all renewals, reissues, divisions, continuations, certificates of
reexamination, extensions and continuations-in-part of all of the foregoing,
(ii) all present and future rights of the BORROWER under all present and future
license agreements relating to all of the foregoing, whether the BORROWER is
licensee or licensor thereunder, and (iii) all of the BORROWER’S present and
future claims, causes of action and rights to sue for past, present or future
infringements of all of the foregoing; (d) all rights corresponding thereto
throughout the world; and (e) all goodwill of the BORROWER in connection with
the use of, and symbolized by, any of the foregoing.

     Section 1.55. Interest
Expense. The term “INTEREST EXPENSE” means, for any period of computation,
for the BORROWER and its SUBSIDIARIES (determined on a consolidated basis
without duplication in accordance with G.A.A.P.) the sum of the following: (a)
interest expense on FUNDED INDEBTEDNESS of the BORROWER for such period
(whether paid or accrued) and including the interest component of any payments
in respect of CAPITAL LEASE OBLIGATIONS, as determined in accordance with
G.A.A.P.; and (b) the net amount payable under any INTEREST RATE HEDGES during
such period.

     Section 1.56. Interest
Period. The term “INTEREST PERIOD” means with respect to any LIBOR
BORROWING, each period commencing on the date upon which a LIBOR BORROWING has
been selected to commence in accordance with the provisions of Section 2.2.2.b
of this AGREEMENT, or the date upon which a BASE RATE BORROWING is converted to
a LIBOR BORROWING, and ending one, (1), two (2), three (3) or six (6) months
thereafter; provided that: (a) any INTEREST PERIOD which would otherwise end on
a day which is not a BUSINESS DAY shall be extended to the next succeeding
BUSINESS DAY unless such BUSINESS DAY falls in another calendar month, in which
case such INTEREST PERIOD shall end on the immediately preceding BUSINESS DAY;
(b) any INTEREST PERIOD which begins on the last BUSINESS DAY of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such INTEREST PERIOD) shall end on the last
BUSINESS DAY of a calendar month; and (c) the BORROWER shall not select any
INTEREST

 

 

PERIOD which would end after any applicable MATURITY DATE.

     Section 1.57. Interest Rate
Hedge. The term “INTEREST RATE HEDGE” means, with respect to any
referenced PERSON, an interest rate swap, hedge, cap or collar agreement or
similar arrangement between such PERSON and one or more financial institutions
providing for the transfer or mitigation of interest risks either generally or
under specific contingencies.

     Section 1.58. Inventory. The term
“INVENTORY” has the same meaning as provided to such term in the Uniform
Commercial Code - Secured Transactions, Title 9, Commercial Law
Article, Annotated
Code of Maryland, as amended, together with all of the BORROWER’S
GOODS, merchandise, materials, raw materials, goods in process, finished goods,
work in progress, bindings or component materials, packaging and shipping
materials and other tangible or intangible personal property, now owned or
hereafter acquired and held for sale or lease or furnished or to be furnished
under contracts of service or which contribute to the finished products or the
sale, promotion, storage and shipment thereof, whether located at facilities
owned or leased by the BORROWER, in the course of transport to or from ACCOUNT
DEBTORS, used for demonstration, placed on consignment, or held at storage
locations.

     Section 1.59. Laws. The term “LAWS”
means all ordinances, statutes, rules, regulations, orders, injunctions, writs
or decrees of any government or political subdivision or agency thereof, or any
court or similar entity established by any thereof.

     Section 1.60. L/C
Obligations. The term “L/C OBLIGATIONS” means collectively at any time of
determination an amount equal to the sum of: (a) the aggregate undrawn and
unexpired amount of the then outstanding LETTERS OF CREDIT; and (b) the
aggregate amount in U.S. dollars of drawings under LETTERS OF CREDIT which have
not then been reimbursed.

     Section 1.61. Lender
Assignment. The term “LENDER ASSIGNMENT” shall have the same meaning as
set forth in Section 10.1.2 of this AGREEMENT.

     Section 1.62. Lenders. The term
“LENDERS” means collectively each of the signatories hereto designated as a
“LENDER”, and each ASSIGNEE.

     Section 1.63. Letter
Agreement. The term “LETTER AGREEMENT” means the Letter Agreement of even
date herewith by and between the BORROWER and the ADMINISTRATIVE AGENT.

     Section 1.64. Letters Of
Credit. The term “LETTERS OF CREDIT” means collectively any letters of
credit issued by the ADMINISTRATIVE AGENT for the account or benefit of the
BORROWER in accordance with the terms of this AGREEMENT.

     Section 1.65. Leverage Ratio.
The term “LEVERAGE RATIO” means as of the last day of each FISCAL QUARTER of
the BORROWER, the ratio of FUNDED INDEBTEDNESS of the BORROWER and its
SUBSIDIARIES on a consolidated basis (as existing on the last day of such
FISCAL QUARTER) to EBITDA.

     Section 1.66. LIBOR
Borrowing. The term “LIBOR BORROWING” means each amount of the unpaid
principal balance of a LOAN which is designated by the BORROWER in accordance
with the terms of this AGREEMENT to accrue interest at the ADJUSTED LIBOR RATE
for a separately designated INTEREST PERIOD.

     Section 1.67. LIBOR Rate. The
term “LIBOR RATE” means, with respect to any LIBOR BORROWING for any INTEREST
PERIOD therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Dow Jones Markets Page 3750 (or any successor
page) as the London interbank offered rate for deposits in dollars at
approximately 11:00 a.m. (London time) two (2) BUSINESS DAYS prior to the first
day of such INTEREST PERIOD for a term comparable to such INTEREST PERIOD. If
for any reason such rate is not available, the term “LIBOR RATE” shall mean,
for

 

 

any LIBOR BORROWING for any INTEREST PERIOD therefor, the rate 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 dollars at
approximately 11:00 a.m. (London time) two (2) BUSINESS DAYS prior to the first
day of such 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 (rounded upwards, if necessary, to the nearest 1/100 of 1%).

     Section 1.68. Liens. The term “LIENS”
means with respect to any asset owned by a referenced PERSON: (a any lien,
claim, charge, pledge, security interest, deed of trust, mortgage, or other
encumbrance in, on or of such asset; (b the interest of a vendor or a lessor
under any conditional sale agreement capital lease or title retention agreement
(or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset; and (c) in the case of securities owned
by any such PERSON, any purchase option, call or similar right of a third party
with respect to such securities.

     Section 1.69. Loans. The term “LOANS”
means collectively the revolving credit loans extended to the BORROWER as
described in Section 2.1 of this AGREEMENT.

     Section 1.70. M&T. The term “M&T” means
Manufacturers And Traders Trust Company.

     Section 1.71. Material
Adverse Event. The term “MATERIAL ADVERSE EVENT” means the occurrence of
any event, condition, or omission which could be reasonably expected to have a
material adverse effect upon: (a) the financial condition, results of
operations, properties, assets, liabilities (including, without limitation, tax
liabilities, liabilities under ENVIRONMENTAL LAWS, and ERISA LIABILITIES),
businesses, operations, capitalization, equity, licenses, or franchises of the
BORROWER and its SUBSIDIARIES taken as a whole; (b) the ability of the BORROWER
or of any of the GUARANTORS to perform any of the OBLIGATIONS when and as
required by the terms of the CREDIT DOCUMENTS; (c) the rights and remedies of
the SECURED PARTIES as provided by the CREDIT DOCUMENTS; or (d) the value,
condition, use, or availability of any material portion of the COLLATERAL or
upon the enforceability, continued perfection, or priority of any of the LIENS
and security interests securing the OBLIGATIONS.

     Section 1.72. Maturity Date.
The term “MATURITY DATE” means February 1, 2007.

     Section 1.73.
Maximum Aggregate Loan Amount. The term “MAXIMUM AGGREGATE LOAN AMOUNT”
means Eighty-Five Million Dollars ($85,000,000.00).

     Section 1.74. Minimum
Borrowing Amount. The term “MINIMUM BORROWING AMOUNT”
means: (a) for BASE
RATE BORROWINGS, Two Hundred Fifty Thousand Dollars ($250,000.00); and (b) for
LIBOR BORROWINGS, Five Million Dollars ($5,000,000.00).

     
Section 1.75. Multiemployer Plan. The term “MULTIEMPLOYER PLAN” means a “multiemployer plan” as
defined in Section 4001(a)(3) of ERISA which is maintained for employees of the
BORROWER, or any ERISA AFFILIATE of the BORROWER.

     Section 1.76. Net
Available Proceeds. The term “NET AVAILABLE PROCEEDS” means: (a) in the
case of any PREPAYMENT DISPOSITION, the aggregate amount of all cash payments,
and the fair market value of any non-cash consideration, received by the
BORROWER or its SUBSIDIARIES directly or indirectly in connection with
such PREPAYMENT DISPOSITION, provided that (i) NET AVAILABLE
PROCEEDS shall be net of (x) the amount of any legal, title, accounting,
investment banking and recording tax expenses, commissions and other fees and
expenses payable by the BORROWER or its SUBSIDIARIES in connection with such
PREPAYMENT DISPOSITION, (y) any foreign or U.S. federal, state and local
income or other taxes estimated to be payable by the BORROWER or its
SUBSIDIARIES as a result of such PREPAYMENT DISPOSITION, and (z) reserves
established in accordance with G.A.A.P. for obligations related to such
PREPAYMENT DISPOSITION, and (ii) NET AVAILABLE PROCEEDS shall be net of any
repayments (including reasonable expenses in connection therewith) by the
BORROWER or any of its SUBSIDIARIES of INDEBTEDNESS to the extent that (x) such

 

 

INDEBTEDNESS is secured by a LIEN on the property that is the subject of such
PREPAYMENT DISPOSITION, and (y) the transferee of (or holder of a LIEN on) such
property requires that such INDEBTEDNESS be repaid as a condition to the
DISPOSITION of such property; (b) in the case of any CASUALTY EVENT, the
aggregate amount of proceeds of insurance, condemnation awards and other
compensation received by the BORROWER or its SUBSIDIARIES in respect of such
CASUALTY EVENT net of (i) reasonable expenses incurred by the BORROWER or its
SUBSIDIARIES in connection therewith, (ii) contractually required repayments of
INDEBTEDNESS to the extent secured by a LIEN on such property, and (iii) any
income and transfer taxes payable by the BORROWER or any of its SUBSIDIARIES in
respect of such CASUALTY EVENT; and (c in the case of the issuance of debt
obligations by the BORROWER or any of its SUBSIDIARIES, the aggregate amount of
the proceeds of such debt issuance received by the BORROWER or its SUBSIDIARIES
therefrom less any reasonable and necessary expenses incurred by the BORROWER
or its SUBSIDIARIES in connection therewith.

     Section 1.77. Net Income. The
term “NET INCOME” means, for any period of computation, the net income (or net
deficit) of the BORROWER and its SUBSIDIARIES (determined on a consolidated
basis without duplication) for such period, after deduction of all expenses,
taxes and other proper charges, all as determined in accordance with G.A.A.P.

     Section 1.78. Notes. The term “NOTES”
means collectively the Revolving Loan Promissory Notes of even date herewith
issued by the BORROWER, as the maker thereof, to each of the LENDERS in
accordance with the provisions of Section 2.1.1 of this AGREEMENT, and any
Revolving Loan Promissory Notes subsequently issued in accordance with the
provisions of Section 10.1.5 of this AGREEMENT, and all amendments and
modifications thereto.

     Section 1.79. Obligations. The
term “OBLIGATIONS” means collectively the obligations of the BORROWER to pay to
the SECURED PARTIES or to perform for the benefit of the SECURED PARTIES: (a)
sums due any of the SECURED PARTIES arising out of or in connection with the
LOANS, the LETTERS OF CREDIT, the L/C OBLIGATIONS, or otherwise pursuant to the
terms of the CREDIT DOCUMENTS, including without limitation all principal,
accrued interest, fees and charges; (b) indemnification duties and obligations
owed by the BORROWER to the SECURED PARTIES in accordance with the terms of the
CREDIT DOCUMENTS, including without limitation the L/C OBLIGATIONS; (c) SECURED
PARTY EXPENSES; (d) overdrafts of the BORROWER upon its accounts with the
ADMINISTRATIVE AGENT or any of the LENDERS; (e) all other indebtedness,
liabilities, duties, and covenants of the BORROWER to the SECURED PARTIES
arising out of or related to the LOANS or the CREDIT DOCUMENTS, whether direct
or indirect, joint or several, absolute or contingent, contemplated or not
presently contemplated, now existing or hereafter arising; (f) any indebtedness
owed to any LENDER with respect to INTEREST RATE HEDGES issued to mitigate or
hedge interest rate risks relating to the LOANS; and (g) any indebtedness or
liability which may exist or arise as a result of any payment made by or for
the benefit of the SECURED PARTIES being avoided or set aside for any reason
including, without limitation, any payment being avoided as a preference under
Sections 547 and 550 of the United States Bankruptcy Code, as amended,
or under any state law governing insolvency or creditors’ rights.

     Section 1.80. Other Taxes. The
term “OTHER TAXES” means any stamp, court or documentary taxes or any other
excise or property taxes, charges, or similar levies which arise from any
payment made at any time upon any
of the OBLIGATIONS or from the execution, delivery, performance,
enforcement, filing or registration of, or otherwise with respect to, this
AGREEMENT or any other CREDIT DOCUMENT.

     Section 1.81. Permitted
Investments. The term “PERMITTED INVESTMENTS” means: (a) currency of the
United States of America; (b) direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United States of
America), in each case maturing within one year from the date of acquisition
thereof; (c) investments in commercial paper maturing within one year from the
date of acquisition thereof and having, at such date of acquisition, with a
rating of at least “A-1” and “P-1” from Standard & Poor’s and Moody’s,
respectively;

 

 

(d)  investments in certificates of deposit, banker’s acceptances
and time deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which has a
combined capital and surplus and undivided profits of not less than
$250,000,000; (e) repurchase agreements with a term of not more than 30 days
for securities described in clause (b) of this definition and entered into with
a financial institution satisfying the criteria described in clause (d) of this
definition; (f) readily marketable obligations issued by any State of the
United States of America or any political subdivision thereof or any authorized
agency thereof having a rating of at least “A-1,” “P-1,” or “AAA” (as
applicable), from either Standard & Poor’s or Moody’s; and (g) money market
mutual funds having assets in excess of $250,000,000, substantially all of the
assets of which are comprised of assets specified in clauses (a) through (f)
above.

     Section 1.82. Permitted
Liens. The term “PERMITTED LIENS” means: (a) LIENS for taxes,
assessments, or similar charges incurred in the ordinary course of business
that are not yet due and payable or which are being contested in compliance
with the procedures set forth in Section 5.8 hereof; (b) LIENS in favor of the
SECURED PARTIES; (c) any existing LIENS specifically described on Schedule 1.82
hereof; (d) any LIEN on specifically allocated money or securities to secure
payments under workmen’s compensation, unemployment insurance, social security
and other similar LAWS, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
statutory obligations or appeal bonds, or to secure indemnity, performance or
other similar bonds in the ordinary course of business; (e) purchase money
security interests in equipment (and security interests in equipment securing
the refinancing of INDEBTEDNESS previously secured by a purchase money security
interest therein) not to exceed, together with all purchase money security
interests of the SUBSIDIARIES of the BORROWER, in aggregate amount outstanding
at any one time the sum of Two Million Dollars ($2,000,000.00), provided that
such purchase money security interests do not attach to any assets other than
the specific item(s) of equipment acquired with the proceeds of the loan
secured by such purchase money security interests and the proceeds thereof; (f)
interests of lessors under capital leases; (g) LIENS of carriers, warehousemen,
mechanics, materialmen and landlords arising in the ordinary course of business
for sums not overdue or sums being diligently contested in good faith by
appropriate procedures and for which adequate reserves have been set aside; (h)
easements, rights-of-way, restrictions, encroachments and other similar charges
or encumbrances, and minor title deficiencies relating to real property owned
or occupied by the BORROWER or its SUBSIDIARIES, in each case not securing
INDEBTEDNESS and not materially interfering with the conduct of the business of
the BORROWER or any of its SUBSIDIARIES; and (i) subsequently arising LIENS
which are expressly approved in advance of the creation of any such LIENS by
the ADMINISTRATIVE AGENT in writing.

     Section 1.83. Person. The term
“PERSON” means any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, estate, unincorporated
organization, joint venture, court, government or political subdivision or
agency thereof, or other legal entity.

     Section 1.84. Prepayment
Disposition. The term “PREPAYMENT DISPOSITION” means any DISPOSITION by
the BORROWER or any of the BORROWER’S SUBSIDIARIES other than
DISPOSITIONS: (a) of INVENTORY or other assets of the BORROWER or its
SUBSIDIARIES or the licensing of INTELLECTUAL PROPERTY by the BORROWER or its
SUBSIDIARIES, in each case in the ordinary course of
business; (b) of obsolete or worn-out property, tools or equipment, or
property, tools or equipment no longer used or useful in the business of the
BORROWER or any of its SUBSIDIARIES; or (c) to a SUBSIDIARY of the BORROWER or
to the BORROWER.

     Section 1.85. Prime Rate. The
term “PRIME RATE” means the rate of interest announced from time to time by the
ADMINISTRATIVE AGENT, in its sole discretion, as its prime lending rate of
interest, it being understood that such announced rate bears no inference,
implication, representation, or warranty that such announced rate is charged to
any particular customer or customers of the ADMINISTRATIVE AGENT. The
ADMINISTRATIVE AGENT’S prime lending rate of interest is but one of several
interest rate bases used by the ADMINISTRATIVE AGENT. Changes in the
applicable interest rate shall be made as of, and immediately upon, the
occurrence of changes in the ADMINISTRATIVE AGENT’S prime rate.

 

 

     Section 1.86. Receivables. The
term “RECEIVABLES” means: (a) all ACCOUNTS; (b) all INSTRUMENTS, DOCUMENTS,
GENERAL INTANGIBLES, CHATTEL PAPER, PAYMENT INTANGIBLES, PROMISSORY NOTES,
drafts, acceptances, and choses in action, of the BORROWER, now existing or
hereafter created or acquired, and all proceeds and products thereof, and all
rights thereto, in each case arising from or relating to the sale, lease or
license of or the providing of INVENTORY, GOODS, or other assets or services by
the BORROWER to ACCOUNT DEBTORS; (c) all SOFTWARE relating to any of the
foregoing; (d) all rights to royalties or payments of any kind arising out of
the licensing or sale of any INTELLECTUAL PROPERTY; and (e) all other rights,
contingent or non-contingent, of any kind of the BORROWER to receive payment,
benefit, or credit from any PERSON, other than casualty insurance proceeds or
condemnation proceeds from the loss or taking of assets of the BORROWER which
are not COLLATERAL.

     Section 1.87. Records. The term
“RECORDS” means correspondence, memoranda, tapes, discs, papers, books and
other documents, or transcribed information of any type, whether expressed in
ordinary, computer or machine language.

     Section 1.88. Regulated
Substance. The term “REGULATED SUBSTANCE” means any substance which,
pursuant to any ENVIRONMENTAL LAW, is identified as a hazardous substance (or
other term having similar import) or is otherwise subject to special
requirements under ENVIRONMENTAL LAWS in connection with the use, storage,
transportation, disposition or other handling thereof.

     Section 1.89. Regulatory
Change. The term “REGULATORY CHANGE” means any change after the date of
CLOSING in the LAWS of the United States, any state thereof, or any other
GOVERNMENTAL AUTHORITY, or the adoption or making after such date, of any
interpretations, changes in convention, directives or requests applying to a
class of depository institutions, including any LENDER, of or under any LAWS of
the United States, any state thereof, or any other GOVERNMENTAL AUTHORITY
(whether or not any such interpretation, directive or request has the force of
LAW).

     Section 1.90. Release. The term
“RELEASE” means a “release” as defined in Section 101(22) of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as now or
hereafter amended.

     Section 1.91. Required
Lenders. The term “REQUIRED LENDERS” means, at any time of determination,
any combination of LENDERS holding at least sixty-six and two-thirds percent
(66-2/3%) of: (a) the aggregate outstanding principal balances of the LOANS;
and (b) unused COMMITMENT AMOUNTS.

     Section 1.92. Reserve
Requirement. The term “RESERVE REQUIREMENT” means for any day during
the referenced period the maximum rate at which reserves (including
without limitation any marginal, special, supplemental or emergency reserves)
are required to be maintained during such period under Regulation D of the
Board of Governors of the Federal Reserve System, from time to time in effect
(or any successor or other regulation or legal requirement relating to reserve
requirements applicable to member banks of the Federal Reserve System) by
member banks of the Federal Reserve System against “Eurocurrency Liabilities”
as currently defined in Regulation D (or against any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR BORROWINGS or loans is determined or any category of extensions of credit
or other assets which include loans by a non-United States office of a bank to
United States residents), whether or not a LENDER has any “Eurocurrency
Liabilities” subject to such reserve requirements during the referenced period.
LIBOR BORROWINGS shall be deemed to constitute “Eurocurrency Liabilities,” and
as such shall be deemed subject to reserve requirements without benefits or
credits for proration, exceptions or offsets that may be available from time to
time to a LENDER. The ADJUSTED LIBOR RATE shall be adjusted automatically on
and as of the effective date of any change in the RESERVE REQUIREMENT.

     Section 1.93. Restricted
Payment. The term “RESTRICTED PAYMENT” means collectively:

 

 

(a)  any
dividend or other payment or distribution, direct or indirect, on account of
any equity interest in the BORROWER now or hereafter outstanding, except a
dividend or distribution payable solely in the same class or type of equity
interest to the holders of that class or type; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, by the BORROWER of any equity
interest in the BORROWER now or hereafter outstanding (other than repurchases
of shares held by employees or directors pursuant to the terms of any
restricted share plan of the BORROWER, which in aggregate amount in any FISCAL
YEAR do not exceed One Million Dollars ($1,000,000.00)); (c) any payment made
by the BORROWER to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire equity interests in the BORROWER
now or hereafter outstanding; or (d) any payment by the BORROWER of any
management, consulting or similar fees which are not payments in amounts
comparable to sums paid in the marketplace by entities comparable to the payor
for similar services to unrelated employees or providers of management,
consulting, or other services actually performed.

     Section 1.94. Secured
Parties. The term “SECURED PARTIES” means collectively the ADMINISTRATIVE
AGENT and the LENDERS.

     Section 1.95. Secured
Party Expenses. The term “SECURED PARTY EXPENSES” means the out-of-pocket
expenses or costs incurred by the ADMINISTRATIVE AGENT arising out of,
pertaining to, or in any way connected with this AGREEMENT, any of the other
CREDIT DOCUMENTS or the OBLIGATIONS. The term “SECURED PARTY EXPENSES” shall
include, without limitation: (a) the costs required to be paid by the BORROWER
by the terms of the CREDIT DOCUMENTS; (b) taxes and insurance premiums advanced
or otherwise paid by the SECURED PARTIES in connection with the COLLATERAL or
on behalf of the BORROWER; (c) filing and recording costs, title insurance
premiums, environmental and consulting fees, audit fees, search fees and other
expenses paid or incurred by the ADMINISTRATIVE AGENT; (d) costs and expenses
incurred by the ADMINISTRATIVE AGENT in the collection of the ACCOUNTS (with or
without the institution of legal action), or to enforce any provision of this
AGREEMENT, or in gaining possession of, maintaining, handling, evaluating,
preserving, storing, shipping, selling, preparing for sale and/or advertising
to sell the COLLATERAL or any other property of the BORROWER whether or not a
sale is consummated; (e) costs and expenses of litigation incurred by any
SECURED PARTY or any participant of a SECURED PARTY in any of the OBLIGATIONS,
in enforcing or defending this AGREEMENT or any portion hereof or in collecting
any of the OBLIGATIONS; (f) reasonable attorneys’ fees and expenses incurred by
the ADMINISTRATIVE AGENT in obtaining advice or the services of its attorneys
with respect to the structuring, drafting, negotiating, reviewing, amending,
terminating, enforcing or defending of this AGREEMENT, or any portion hereof or
any agreement or matter related hereto, whether or not litigation is
instituted; and (g) travel expenses of the ADMINISTRATIVE AGENT or its agents
related to any of the foregoing.

     Section 1.96. Solvent. The term
“SOLVENT” means, as to any referenced PERSON, that as of the date of
determination both: (a) (i) the then fair saleable value of the property of
such PERSON is greater than the total amount of liabilities (including
contingent liabilities) of such PERSON and is not less than the amount that
will be required to pay the probable liabilities on such PERSON’S then existing
debts as they become absolute and matured considering all financing
alternatives and potential asset sales reasonably available to such PERSON;
(ii) such PERSON’S capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction; and (iii) such PERSON
does not intend to incur, or believe (nor should it reasonably believe) that it
will incur, debts beyond its ability to pay such debts as they become due; and
(b) such PERSON is “solvent” within the meaning given that term and similar
terms under applicable LAWS relating to fraudulent transfers and conveyances.
For purposes of this definition, the amount of any contingent liability at any
time shall be computed as the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

     Section 1.97. Subsidiary. The
term “SUBSIDIARY” means, with respect to any PERSON (the “PARENT”) at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the PARENT in
the PARENT’S consolidated financial statements if such financial statements
were prepared in accordance with G.A.A.P. as of such

 

 

date, as well as any other
corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than fifty percent (50%) of the equity or more than fifty percent (50%) of the
ordinary voting power or, in the case of a partnership, more than fifty percent
(50%) of the general partnership interests are, as of such date, owned,
controlled or held, or (b) that is, as of such date, otherwise controlled, by
the PARENT or one or more subsidiaries of the PARENT or by the PARENT and one
or more subsidiaries of the PARENT. Unless otherwise specified, “SUBSIDIARY”
means a SUBSIDIARY of the BORROWER.

     Section 1.98. Taxes. The term “TAXES”
means any and all taxes, levies, assessments, imposts, duties, deductions,
fees, withholdings or similar charges, and all liabilities with respect
thereto, imposed upon any SECURED PARTY, excluding, in the case of each SECURED
PARTY (and/or its participants), taxes imposed on or measured by its net income
(or taxes imposed in lieu of taxes on net income) by the jurisdiction (or any
political subdivision thereof) under the laws of which it is organized or
maintains a lending office.

     Section 1.99. Termination
Event. The term “TERMINATION EVENT” means: (a) a “Reportable Event”
described in Section 4043 of ERISA and the regulations issued thereunder, but
not including any such event for which the 30-day notice requirement has been
waived by applicable regulation; (b) the withdrawal of the BORROWER or an ERISA
AFFILIATE of the BORROWER from a GUARANTEED PENSION PLAN during a plan year in
which it was a “substantial employer” as defined in Section 4001(a)(2) of
ERISA; (c) the filing of a notice of intent to terminate a GUARANTEED PENSION
PLAN or the treatment of a GUARANTEED PENSION PLAN amendment as a termination
under Section 4041 of ERISA; (d) the institution of proceedings to terminate a
GUARANTEED PENSION PLAN by the Pension Benefit Guaranty Corporation; (e) the
withdrawal or partial withdrawal of the BORROWER or an ERISA AFFILIATE of the
BORROWER from a MULTIEMPLOYER PLAN; or (f) any other event or condition which
might reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any GUARANTEED
PENSION PLAN.

     Section 1.100. Transferee. The
term “TRANSFEREE” means either an ASSIGNEE or a PARTICIPANT.

ARTICLE 2

TERMS OF THE LOANS AND LETTERS OF CREDIT

     Section 2.1. Commitment
To Extend Loans. Subject to the terms and conditions of this AGREEMENT and
the other CREDIT DOCUMENTS, each of the LENDERS severally agrees to extend a
loan or loans to the BORROWER as an obligor (each a “LOAN” and collectively,
the “LOANS”) from time to time until the MATURITY DATE, in aggregate principal
amounts outstanding at any one time which do not exceed the amount of such
LENDER’S COMMITMENT AMOUNT; provided, however, that the aggregate
principal unpaid balances of all outstanding and unpaid LOANS (after giving
effect to any amount requested) plus the aggregate amount of L/C
OBLIGATIONS shall not exceed the MAXIMUM AGGREGATE LOAN AMOUNT (as decreased
from time to time in accordance with the terms of this AGREEMENT). The BORROWER
shall not request any advances of proceeds of the LOANS which would cause the
aggregate unpaid principal balances of the LOANS to exceed either of the
above-stated limitations. In the event that the aggregate unpaid principal
balances of the LOANS exceed the limitations provided for herein, the BORROWER
shall immediately make such payments to the ADMINISTRATIVE AGENT as will be
sufficient to reduce the aggregate unpaid principal balances of the LOANS to an
aggregate amount which will not be in excess of such limitations. Each LOAN
extended by a LENDER shall be in a principal amount equal to the LENDER’S
COMMITMENT PERCENTAGE of the aggregate principal balance of the LOANS requested
on such occasion. Subject to the terms and conditions of this AGREEMENT and
the other CREDIT DOCUMENTS, the BORROWER may borrow, prepay, and reborrow the
LOANS in whole or in part until the MATURITY DATE.

          Section 2.1.1.
Revolving Loan Promissory Notes. The obligations of the BORROWER to
repay the LOANS to each of the LENDERS shall be evidenced by the NOTES in the
form

 

 

of the specimen Revolving Loan Promissory Note attached as Exhibit 2.1.1
hereto. The BORROWER shall deliver a NOTE on the date of CLOSING to each of
the LENDERS, with the face amount of each NOTE to be in the amount of the
COMMITMENT AMOUNT of the respective LENDER.

          Section 2.1.2.
Procedure For Loan Borrowings. The BORROWER may borrow proceeds of the
LOANS until (but not including) the MATURITY DATE, provided, that the
BORROWER delivers to the ADMINISTRATIVE AGENT an irrevocable notice (which
notice must be received by the ADMINISTRATIVE AGENT prior to 10:00 a.m.
Buffalo, New York time: (a) two (2) BUSINESS DAYS prior to the requested
BORROWING DATE, if all or any part of the requested advances of proceeds of the
LOANS are to be initially LIBOR BORROWINGS; or (b) on the requested BORROWING
DATE, if all of the requested advances of the proceeds of the LOANS are to be
initially BASE RATE BORROWINGS, specifying: (i) the amount to be borrowed, (i)
the requested BORROWING DATE, (ii) whether the borrowing is to be a LIBOR
BORROWING, a BASE RATE BORROWING, or a combination thereof, and (iii) if the
borrowing is to be entirely or partly a LIBOR BORROWING, the information
required to be specified in the election described in Section 2.2.2(b) of this
AGREEMENT. The above-described notice may be delivered to the ADMINISTRATIVE
AGENT via facsimile with telephone confirmation. The ADMINISTRATIVE AGENT
shall promptly notify each LENDER of the ADMINISTRATIVE AGENT’S receipt of each
notice. Each LENDER will make the amount of its pro rata share (calculated in
accordance with its respective COMMITMENT PERCENTAGE) of each requested
borrowing available to the ADMINISTRATIVE AGENT for the account of the BORROWER
at the offices of the ADMINISTRATIVE AGENT specified in this AGREEMENT prior to
12:00 Noon Buffalo, New York time on the BORROWING DATE requested by the
BORROWER in U.S. Dollars and in funds immediately available to the
ADMINISTRATIVE AGENT; provided, however, that each LENDER is
provided with written notification thereof prior to 11:00 a.m. Buffalo, New
York time on such date. Such borrowing will be made available to the BORROWER
on or prior to 1:00 p.m. Buffalo, New York time by the ADMINISTRATIVE AGENT
crediting the BORROWER’S account with the ADMINISTRATIVE AGENT with the
aggregate of the amounts of proceeds of the LOANS made available to the
ADMINISTRATIVE AGENT by the
LENDERS and in like funds as received by the ADMINISTRATIVE AGENT. Each
borrowing under the LOANS shall be in a principal amount of not less than the
MINIMUM BORROWING AMOUNT.

          Section
2.1.3. Conditions Precedent To Initial Advances. The commitments of the
LENDERS to extend the LOANS shall not become effective until the date on which
the ADMINISTRATIVE AGENT shall have received each of the following documents,
each of which shall be reasonably satisfactory to the ADMINISTRATIVE AGENT:

               a. Executed Counterparts. From each party hereto a counterpart of
this AGREEMENT signed on behalf of such party.

               b. Opinion of Counsel. The opinion, dated the date of CLOSING
(addressed to the ADMINISTRATIVE AGENT and to the LENDERS) of Hogan & Hartson
L.L.P., counsel for the BORROWER, substantially in the form of Exhibit 2.1.3.b
attached hereto.

               c. Organizational Documents. Such documents and certificates as
the ADMINISTRATIVE AGENT or its counsel may reasonably request relating to the
organization, existence and good standing of the BORROWER, the authorization of
the LOANS, and any other legal matters relating to the BORROWER or this
AGREEMENT by the BORROWER.

               d. Insurance. Certificates of insurance evidencing the existence
of all insurance required to be maintained by the BORROWER in accordance with
the CREDIT DOCUMENTS.

               e. Closing Certificate. A closing certificate, dated as of the
date of CLOSING and signed by the chief financial officer of the BORROWER,
substantially in the form of Exhibit 2.1.3.e attached hereto.

               f. Other Documents. Such other documents as the ADMINISTRATIVE

 

 

AGENT may reasonably request.

          Section 2.1.4.
Conditions Precedent To Each Advance. The right of the BORROWER to
receive each advance of proceeds of the LOANS, including the initial advance,
shall be subject to each of the following conditions precedent:

               a. No Defaults Or Events Of Default. No event shall have occurred
on or prior to such date and be continuing on such date which constitutes a
DEFAULT or EVENT OF DEFAULT.

               b. Continuing Accuracy Of Representations And Warranties. Each
representation and warranty of the BORROWER set forth in this AGREEMENT shall
be materially true and correct, except to the extent that the BORROWER has
previously advised the ADMINISTRATIVE AGENT in writing of the occurrence or
existence of any condition or event which makes any representation or warranty
no longer materially accurate or correct. The BORROWER acknowledges that each
request by the BORROWER for an advance of proceeds of the LOANS constitutes a
reaffirmation by the BORROWER of the continuing accuracy of such
representations and warranties, except to the extent to the contrary disclosed
to the ADMINISTRATIVE AGENT by written notice from the BORROWER.

               c. Receipt Of Reports. The ADMINISTRATIVE AGENT shall be in
receipt of all reports, financial statements, financial information and
financial disclosures required by the CREDIT DOCUMENTS, except to the extent
that the ADMINISTRATIVE AGENT has waived in writing the receipt thereof.

               d. No Illegalities. It shall not be unlawful for the LENDERS to
perform any of the agreements or obligations imposed upon the LENDERS by any of
the CREDIT DOCUMENTS or for the BORROWER or any of the GUARANTORS to perform
any of their respective agreements or obligations as provided by the CREDIT
DOCUMENTS.

               e. No Material Adverse Event. No MATERIAL ADVERSE EVENT shall have
occurred and then be continuing.

          Section 2.1.5. Repayment Of
Loans. The BORROWER unconditionally promises to pay to the ADMINISTRATIVE
AGENT for the accounts of the LENDERS, the then unpaid principal amount of each
LOAN on or before the MATURITY DATE (or on any earlier date on which the LOANS
become due and payable as required by the stated provisions of this AGREEMENT).
The BORROWER unconditionally promises to pay to the ADMINISTRATIVE AGENT for
the accounts of the LENDERS all interest which has accrued upon the unpaid
principal amounts of the LOANS from time to time outstanding from the date of
CLOSING until the date of payment in full of the LOANS at the rates per annum,
and on the dates set forth in Section 2.2 of this AGREEMENT. All sums due to
the LENDERS in connection with the LOANS shall be paid in full on or before the
MATURITY DATE.

          Section 2.1.6.
Permitted Purposes Of Loans. The proceeds of the LOANS shall be used by
the BORROWER solely for the general corporate purposes of the BORROWER.

          Section 2.1.7. Commitment
Fees. For each FISCAL QUARTER during the term of the LOANS, the BORROWER
agrees to pay to the ADMINISTRATIVE AGENT for the ratable accounts of the
LENDERS an unused commitment fee (“COMMITMENT FEE”) calculated by subtracting
the average daily disbursed aggregate principal balances of the LOANS and the
average aggregate face amount of issued and outstanding LETTERS OF CREDIT
during such FISCAL QUARTER (calculated on the basis of the actual number of
days elapsed in a year of 360 days) from the MAXIMUM AGGREGATE LOAN AMOUNT (as
such MAXIMUM AGGREGATE LOAN AMOUNT may be reduced from time to time in
accordance with the provisions of this AGREEMENT), and multiplying any positive
difference thereof by the APPLICABLE PERCENTAGE then in effect for COMMITMENT
FEES. The COMMITMENT FEES shall be payable in arrears on the first BUSINESS
DAY of each succeeding FISCAL QUARTER with the first of such

 

 

COMMITMENT FEES to be paid on February 2, 2004 for the period of
time beginning on the date of CLOSING and ending on January 31, 2004.

          Section 2.1.8. Permanent Reduction Of Maximum Aggregate Loan Amount. The
BORROWER shall have the right at any time and from time to time, upon not less
than five (5) BUSINESS DAYS prior written notice to the ADMINISTRATIVE AGENT,
to permanently reduce, in whole at any time or in part from time to time,
without premium or penalty, the MAXIMUM AGGREGATE LOAN AMOUNT, provided that:
(a) each reduction shall be in an amount of not less than Five Million Dollars
($5,000,000.00) or, if greater, an integral multiple of One Million Dollars
($1,000,000.00); and (b) no reduction shall be permitted if, after giving
effect thereto, and to any repayments of the LOANS made on the effective date
thereof, the aggregate principal balances of the LOANS then unpaid and
outstanding would exceed the MAXIMUM AGGREGATE LOAN AMOUNT then in effect.

     Section 2.2. Interest Terms Applicable To The Loans.  Interest shall
accrue upon the unpaid principal balances of the LOANS until the LOANS have
been repaid in full at the rate or rates described below in this Section 2.2.

          Section 2.2.1. Adjusted Base Rate. Except as otherwise provided by the
terms of this AGREEMENT, the LOANS shall bear interest on the unpaid principal
balances at the fluctuating ADJUSTED BASE RATE. Absent a timely election by
the BORROWER in accordance with Section 2.2.2.b of this AGREEMENT, the unpaid
balances of the LOANS, including any balances of any LIBOR BORROWINGS for which
the applicable INTEREST PERIOD has expired, shall be automatically deemed to
bear interest at the ADJUSTED BASE RATE. Changes in the interest rate shall be
made when and as changes in the BASE RATE occur. For each BASE RATE BORROWING,
all accrued and unpaid interest shall be payable monthly in arrears on the
first BUSINESS DAY of each succeeding calendar month, with the first of such
payments to be due on February 2, 2004. Each election by the BORROWER of a
BASE RATE BORROWING shall be in the MINIMUM BORROWING AMOUNT applicable to BASE
RATE BORROWINGS, or any multiple thereof.

          Section 2.2.2. Adjusted LIBOR Rate Option. Subject to the terms of this
Section, interest may accrue at the election of the BORROWER for INTEREST
PERIODS selected by the BORROWER, at the ADJUSTED LIBOR RATE on portions of the
unpaid principal
balances of the LOANS. Any LIBOR BORROWING or election for a LIBOR
BORROWING pursuant to the provisions of this Section shall be subject to the
following terms and conditions:

               a. Payments. For each of the LIBOR BORROWINGS, accrued interest shall be
paid to the ADMINISTRATIVE AGENT for the accounts of the LENDERS in arrears on
the first BUSINESS DAY of each month during each INTEREST PERIOD and on the
last day of each applicable INTEREST PERIOD.

               b. Notice Of Election. By 10:00 a.m. Buffalo, New York time on that
BUSINESS DAY which occurs two (2) BUSINESS DAYS prior to the BUSINESS DAY on
which the BORROWER desires that an INTEREST PERIOD commence, the BORROWER shall
deliver a written election to the ADMINISTRATIVE AGENT specifying: (1) the
commencement date of and length of the relevant INTEREST PERIOD, and (2) the
dollar amount of that portion of the total aggregate principal amount of the
LOANS identified by the BORROWER, which are to bear interest at the ADJUSTED
LIBOR RATE, which amount shall not be less than the MINIMUM BORROWING AMOUNT
applicable to LIBOR BORROWINGS and with any increments to the MINIMUM BORROWING
AMOUNT to be in minimum multiples of Two Hundred Fifty Thousand Dollars
($250,000.00).

               c. Effect Of Election. Interest shall accrue from and including the first
day of each INTEREST PERIOD selected by the BORROWER to (but not including) the
last day of such INTEREST PERIOD at the ADJUSTED LIBOR RATE determined as
applicable to such INTEREST PERIOD upon the amount of the unpaid principal
balances of the LOANS identified by the BORROWER in the BORROWER’S written
election.

 

 

               d. Interest Periods. There shall be no more than five (5) INTEREST
PERIODS outstanding at any one time. No INTEREST PERIOD may expire after the
MATURITY DATE.

               e. Availability. If the REQUIRED LENDERS determine at any time that a
REGULATORY CHANGE or a change in market conditions has made it impractical for
the LENDERS to offer pricing based on the ADJUSTED LIBOR RATE, the
ADMINISTRATIVE AGENT may give notice of such determination to the BORROWER, and
all advances which are then accruing interest at an ADJUSTED LIBOR RATE shall,
on the last day(s) of the then applicable current INTEREST PERIOD(S)
automatically and without further notice, begin to accrue interest at the
ADJUSTED BASE RATE. Until such time as the REQUIRED LENDERS determine that a
REGULATORY CHANGE or a change in market conditions has again made it practical
for the LENDERS to offer pricing at the ADJUSTED LIBOR RATE, the LENDERS will
not be obligated to further offer pricing based upon the ADJUSTED LIBOR RATE,
and any notice from the BORROWER requesting such a rate option will be
ineffective.

               f. Breakage Costs. The BORROWER agrees to compensate the LENDERS from time
to time, upon demand from any LENDER through the ADMINISTRATIVE AGENT, for all
losses, expenses, lost earnings, costs and liabilities (including, without
limitation, all interest paid to lenders of funds borrowed by the LENDERS to
carry LIBOR BORROWINGS) which any of the LENDERS sustains if: any repayment or
prepayment of any LIBOR BORROWINGS (including, without limitation, any payment
resulting from the acceleration of the LOANS in accordance with the terms of
this AGREEMENT or as a result of any mandatory prepayments required by the
terms of this AGREEMENT) or any conversion of a LIBOR BORROWING for any reason
occurs on a date which is not the last day of the applicable INTEREST PERIOD;
or any failure by the BORROWER to borrow a LIBOR BORROWING or convert a BASE
RATE BORROWING to a LIBOR BORROWING on the date for such borrowing or
conversion specified in the relevant notice of election given by the BORROWER
to the LENDERS in accordance with the terms of this AGREEMENT.

               g. Termination Of Right To Elect LIBOR Borrowings. Notwithstanding
anything to the contrary set forth in this AGREEMENT, and without limiting any
other rights and remedies of the LENDERS, the REQUIRED LENDERS during any
continuing DEFAULT or EVENT OF DEFAULT may suspend the right of the BORROWER to
convert any BASE RATE BORROWING into a LIBOR BORROWING or to permit any LIBOR
BORROWING to be renewed as a LIBOR BORROWING, in which case all LOANS shall be
converted (on the last days of the respective INTEREST PERIODS therefor) or
continued, as the case may be, as BASE RATE BORROWINGS.

          Section 2.2.3. Calculation Of Interest. Interest shall be calculated upon
LIBOR BORROWINGS on the basis of a 360 day per year factor applied to the
actual days on which there exists an unpaid balance of the LIBOR BORROWINGS.
Interest shall be calculated upon BASE RATE BORROWINGS on the basis of a 365 or
366 days per year factor applied to the actual days on which there exists an
unpaid balance of the BASE RATE BORROWINGS.

          Section 2.2.4. Default Interest. The interest rates payable upon the
LOANS may be increased during any continuing EVENT OF DEFAULT upon the
authorization of the REQUIRED LENDERS to that rate equal to the ADJUSTED BASE
RATE plus two hundred (200) BASIS POINTS until the EVENT OF DEFAULT has been
cured to the satisfaction of the REQUIRED LENDERS or waived by the
ADMINISTRATIVE AGENT upon the authorization of the REQUIRED LENDERS.

          Section 2.2.5. Maximum Rate Of Interest. Any provision contained in the
CREDIT DOCUMENTS to the contrary notwithstanding, the holders of the NOTES
shall not be entitled to receive or collect, nor shall the BORROWER be
obligated to pay, interest, fees, or charges thereunder in excess of the
maximum rate of interest permitted by any applicable LAW, and if any provision
of this AGREEMENT, the NOTES or any of the other CREDIT DOCUMENTS is construed
or held by any court of law or GOVERNMENTAL BODY having jurisdiction to permit
or require the charging, collection or payment of any amount of interest in
excess of that permitted by such LAWS, the provisions of this Section shall
control and shall override any contrary or inconsistent provision. The
intention of the parties is to at all times conform strictly with all
applicable usury requirements and other LAWS limiting the maximum rates

 

 

of interest which may be lawfully charged upon the LOANS. The interest to be paid
pursuant to the NOTES shall be held subject to reduction to the amount allowed
under said usury or other laws as now or hereafter construed by the courts
having jurisdiction, and any sums of money paid in excess of the interest rate
allowed by applicable law shall be applied in reduction of the principal amount
owing pursuant to the NOTES. The BORROWER acknowledges and irrevocably
stipulates for all purposes that it has been contemplated at all times by the
parties that the LAWS of the State of Maryland will govern the maximum rate of
interest that it is permissible for the LENDERS to charge the BORROWER.

          Section 2.2.6. Late Payment Charges. Any payment of principal, interest
or fees due upon any of the LOANS which is received by the ADMINISTRATIVE AGENT
more than fifteen (15) calendar days after its due date shall incur a late
payment charge equal to five percent (5%) of the amount of the payment due.
All late payment charges shall be payable upon the demand of the ADMINISTRATIVE
AGENT. The existence of the right by the LENDERS to receive a late payment
charge shall not be deemed to constitute a grace period or provide any right to
the BORROWER to make a payment other than on such payment’s scheduled due date.

     Section 2.3. Voluntary Prepayments. Any principal balances of the LOANS
accruing interest at the ADJUSTED LIBOR RATE may be prepaid in whole or in part
at any time without penalty or premium, provided that the LENDERS are
compensated for any breakage costs incurred by the LENDERS as a result of any
such repayment in accordance with the provisions of Section 2.2.2.f of this
AGREEMENT. Any principal balance of the LOANS bearing interest at the BASE
RATE may be prepaid in whole or in part at any time without penalty or premium.

     Section 2.4. Mandatory Prepayments. The BORROWER shall have the
obligation to apply to the unpaid principal balances of the LOANS and all
accrued interest and fees all of the NET AVAILABLE PROCEEDS received by the
BORROWER from any PREPAYMENT DISPOSITIONS, CASUALTY EVENTS, or issuances of
INDEBTEDNESS for borrowed money other than proceeds from purchase money
INDEBTEDNESS which is otherwise permitted by the terms of this AGREEMENT. The
MAXIMUM AGGREGATE LOAN AMOUNT and the COMMITMENT AMOUNTS shall be permanently
reduced by the amount of each payment of the NET AVAILABLE PROCEEDS that is
applied to the unpaid principal balances of the LOANS. Notwithstanding the
foregoing, (A) an amount equal to such NET AVAILABLE PROCEEDS shall not be
required to be so applied to any of the OBLIGATIONS and to the reduction of the
MAXIMUM AGGREGATE LOAN AMOUNT and the COMMITMENT AMOUNTS so long as no DEFAULT
or EVENT OF DEFAULT is then continuing and such NET AVAILABLE PROCEEDS (i) do
not exceed Five Million Dollars ($5,000,000.00) when
aggregated with all other NET AVAILABLE PROCEEDS not applied to the
OBLIGATIONS and the permanent reduction of the MAXIMUM AGGREGATE LOAN AMOUNT
and the COMMITMENT AMOUNTS, and (ii) are used to purchase replacement assets,
in each case within 180 days following the date of receipt of such NET
AVAILABLE PROCEEDS, and (B) if all or any portion of such NET AVAILABLE
PROCEEDS not required to be so applied as provided above in this Section 2.4
are not so reinvested to purchase replacement assets within such 180-day period
(or such earlier date, if any, if the BORROWER determines not to reinvest the
NET AVAILABLE PROCEEDS as set forth above), an amount equal to such remaining
portion shall be applied on the last day of such period (or such earlier date,
as the case may be) as provided above in this Section 2.4 without regard to
this proviso.

     Section 2.5. Letters Of Credit. Subject to the terms and conditions of
this AGREEMENT, the ADMINISTRATIVE AGENT, in reliance upon the agreements of
the LENDERS set forth in Section 2.5.3 of this AGREEMENT, agrees to issue
LETTERS OF CREDIT for the account of the BORROWER on any BUSINESS DAY from the
CLOSING DATE through but not including the MATURITY DATE in such form as may be
approved from time to time by the ADMINISTRATIVE AGENT provided: (a) no DEFAULT
or EVENT OF DEFAULT has occurred and is then continuing; (b) the aggregate
amount of L/C OBLIGATIONS (after giving effect to any requested issuance) shall
not exceed Five Million Dollars ($5,000,000.00); (c) the sum of the L/C
OBLIGATIONS (after giving effect to the requested issuance) plus the aggregate
unpaid principal balances of the LOANS shall not exceed the MAXIMUM AGGREGATE

 

 

LOAN AMOUNT (as decreased from time to time in accordance with the terms of
this AGREEMENT); (d) no LETTER OF CREDIT shall have a term greater than one (1)
year nor an expiration date later than the MATURITY DATE; and (e) the issuance
of any requested LETTER OF CREDIT shall not conflict with or cause the
ADMINISTRATIVE AGENT or any LENDER to exceed any limits imposed by any LAWS
applicable to the ADMINISTRATIVE AGENT or the LENDER.

          Section 2.5.1 Procedures For Issuance Of Letters Of Credit. The BORROWER
may from time to time request that the ADMINISTRATIVE AGENT issue a LETTER OF
CREDIT by delivering to the ADMINISTRATIVE AGENT a completed letter of credit
application in the standard form then being used by the ADMINISTRATIVE AGENT.
To the extent that any provisions of the ADMINISTRATIVE AGENT’S standard form
letter of credit application conflict with the provisions of this AGREEMENT,
the provisions of this AGREEMENT shall control. Upon receipt of the BORROWER’S
application, the ADMINISTRATIVE AGENT shall process such application and issue
the LETTER OF CREDIT requested thereby provided, however, that the
ADMINISTRATIVE AGENT shall not be required to issue any LETTER OF CREDIT
earlier than three (3) BUSINESS DAYS after the receipt by the ADMINISTRATIVE
AGENT of the application and of all certificates, documents, and other papers
and information required by the ADMINISTRATIVE AGENT which relates thereto. The
ADMINISTRATIVE AGENT shall promptly furnish a copy of each LETTER OF CREDIT to
the BORROWER and to each of the LENDERS.

          Section 2.5.2. Commissions And Charges. The BORROWER shall pay to the
ADMINISTRATIVE AGENT for the account of the LENDERS a per annum fee with
respect to each LETTER OF CREDIT in an amount equal to that sum obtained by
multiplying the face amount of each LETTER OF CREDIT by the APPLICABLE
PERCENTAGE for LETTERS OF CREDIT in effect on the date of the issuance of the
LETTER OF CREDIT, which fee shall be payable on the date of issuance of each
LETTER OF CREDIT. The BORROWER shall further pay or reimburse the
ADMINISTRATIVE AGENT for such normal and customary costs and expenses as are
incurred or charged by the ADMINISTRATIVE AGENT in issuing, effecting payment
under, amending, extending, renewing, or otherwise administering any LETTER OF
CREDIT.

          Section 2.5.3. Agreement Of Lenders To Purchase Proportionate Share Of
Letters Of Credit. In order to induce the ADMINISTRATIVE AGENT to issue
LETTERS OF CREDIT for the account of the BORROWER in accordance with the terms
of this AGREEMENT, each LENDER unconditionally and irrevocably agrees to accept
and purchase and hereby accepts and purchases from the ADMINISTRATIVE AGENT, on
the terms and conditions hereinafter stated, for such LENDER’S own account and
risk an undivided interest equal to such LENDER’S COMMITMENT PERCENTAGE in the
ADMINISTRATIVE AGENT’S obligations and rights under each LETTER OF CREDIT
issued hereunder and the amount of each draft paid by the ADMINISTRATIVE AGENT
thereunder. Each LENDER unconditionally and irrevocably agrees with the
ADMINISTRATIVE AGENT that, if a
draft is paid under any LETTER OF CREDIT for which the ADMINISTRATIVE
AGENT is not immediately reimbursed in full by the BORROWER in accordance with
the terms of this AGREEMENT, such LENDER shall pay to the ADMINISTRATIVE AGENT
upon demand by the ADMINISTRATIVE AGENT of an amount equal to such LENDER’S
COMMITMENT PERCENTAGE of the amount of such draft, or any part thereof, which
is not so reimbursed.

          Section 2.5.4. Reimbursement Obligations Of The Borrower. The BORROWER
unconditionally and irrevocably agrees to reimburse the ADMINISTRATIVE AGENT on
each date on which the ADMINISTRATIVE AGENT notifies the BORROWER of the date
and amount of a draft paid under any LETTER OF CREDIT for the amount of such
draft so paid and any taxes, charges, or other costs or expenses incurred by
the ADMINISTRATIVE AGENT in connection with such payment. If any draft under a
LETTER OF CREDIT is payable in a currency other than U.S. dollars, the BORROWER
shall reimburse the ADMINISTRATIVE AGENT for such draft by paying to the
ADMINISTRATIVE AGENT the equivalent in U.S. dollars of the amount required to
purchase the currency from the ADMINISTRATIVE AGENT at the ADMINISTRATIVE
AGENT’S current selling rate of exchange in Buffalo, New York for cable
transfers to the place of payment in the currency and amount in which such
draft was drawn (or if there is no current selling rate of exchange generally
offered by the ADMINISTRATIVE AGENT for effecting such cable transfers, the
amount of U.S. dollars required to be paid shall be based on such rate

 

 

as the
ADMINISTRATIVE AGENT shall determine in good faith for such purpose). Interest
shall be payable on any and all amounts remaining unpaid by the BORROWER under
this Section from the date such amounts become payable (whether at stated
maturity, by acceleration, or otherwise) until payment in full at the BASE
RATE. Each drawing under any LETTER OF CREDIT shall be deemed to automatically
constitute a request by the BORROWER to the ADMINISTRATIVE AGENT for a BASE
RATE BORROWING under the LOANS in the amount of such drawing to be made on the
date on which the ADMINISTRATIVE AGENT notifies the BORROWER of the drawing,
and the proceeds of such BASE RATE BORROWING shall be applied automatically by
the LENDER to satisfy the BORROWER’S reimbursement obligations set forth in
this Section.

          Section 2.5.5. Borrower’s Reimbursement Obligations Are Absolute. The
BORROWER’S reimbursement obligations hereunder shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the BORROWER may have or has had
against the ADMINISTRATIVE AGENT, the LENDERS, or any beneficiary of a LETTER
OF CREDIT. The BORROWER agrees that neither the ADMINISTRATIVE AGENT nor any
of the LENDERS shall be responsible for, nor shall the BORROWER’S duties and
obligations hereunder under the LOAN DOCUMENTS be affected by, among other
things, the form, validity, sufficiency, accuracy, genuineness or legal effect
of documents or of any endorsements thereon, even though such documents shall
in fact prove to be invalid, fraudulent or forged, or any dispute between or
among the BORROWER and any beneficiary of any LETTER OF CREDIT or any other
party to which such LETTER OF CREDIT may be transferred or any claims
whatsoever of the BORROWER against any beneficiary of such LETTER OF CREDIT or
any such transferee. Neither the ADMINISTRATIVE AGENT nor the LENDERS shall be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any LETTER OF CREDIT. The BORROWER agrees that any action taken or omitted by
the ADMINISTRATIVE AGENT or the LENDERS under or in connection with any LETTER
OF CREDIT or the related drafts or documents shall be binding on the BORROWER
and shall not result in any liability of the ADMINISTRATIVE AGENT or the
LENDERS to the BORROWER, absent the gross negligence or wilful misconduct of
the ADMINISTRATIVE AGENT or the LENDERS.

     Section 2.6. Pro Rata Treatment And Payments.

          Section 2.6.1. Distribution Of Payments To Lenders. Except as otherwise
expressly provided to the contrary by the terms of this AGREEMENT, all payments
(including prepayments) to be made by the BORROWER hereunder, whether on
account of principal, interest, fees or otherwise shall be made without set-off
or counterclaim and shall be made prior to 12:00 Noon Buffalo, New York time on
the due date thereof to the ADMINISTRATIVE AGENT for the accounts of the
LENDERS at the ADMINISTRATIVE AGENT’S offices in Buffalo, New York, in immediately
available U.S. Dollars. The ADMINISTRATIVE AGENT shall distribute such
payments to the LENDERS entitled to receive the same promptly upon receipt in
like funds as received.

          Section 2.6.2. Funding Of Loans. The LENDERS agree that the
ADMINISTRATIVE AGENT may assume that each LENDER will fund its pro rata portion
of each borrowing requested by the BORROWER in accordance with the terms of
this AGREEMENT and that the ADMINISTRATIVE AGENT may, in reliance upon such
assumption, make available to the BORROWER a corresponding amount. If such
amount is not funded and made available to the ADMINISTRATIVE AGENT by the time
required hereunder, any LENDER not making such timely funding shall pay to the
ADMINISTRATIVE AGENT on demand such amount with interest thereon at a rate
equal to the interest rate applicable to such borrowing. If such LENDER’S
portion of such borrowing is not made available to the ADMINISTRATIVE AGENT
within three (3) BUSINESS DAYS of the date required for funding, the
ADMINISTRATIVE AGENT shall be entitled to recover from any such LENDER the
unfunded amount together with interest thereon calculated at the fluctuating
interest rate equal to the ADJUSTED BASE RATE plus two hundred (200) BASIS
POINTS. A certificate of the ADMINISTRATIVE AGENT submitted to any LENDER with
respect to any amounts owing under this Section shall be conclusive in the
absence of manifest error.

          Section 2.6.3. Ratable Sharing. Each borrowing by the BORROWER and each

 

 

payment of principal or interest (including prepayments) made by the BORROWER
upon the unpaid balances of the LOANS shall be shared ratably by the LENDERS in
accordance with their respective COMMITMENT PERCENTAGES. Any reduction in the
MAXIMUM AGGREGATE LOAN AMOUNT shall be made ratably among the LENDERS in
accordance with their respective COMMITMENT PERCENTAGES.

     Section 2.7. Application Of Payments. Except as expressly required to the
contrary by the terms of this AGREEMENT, all payments received upon the LOANS
may be applied first to SECURED PARTY EXPENSES, next to late payment charges,
then to accrued interest and the unpaid principal balances of the LOANS, or in
such other order as elected by the REQUIRED LENDERS.

     Section 2.8. Increased Costs And Reduced Return.

          Section 2.8.1. Yield Protection. If the adoption or change of any LAW,
rule, or any change in the interpretation or administration thereof by any
GOVERNMENTAL AUTHORITY, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any LENDER with any
request or directive (whether or not having the force of law) of any such
GOVERNMENTAL AUTHORITY, central bank, or comparable agency or any REGULATORY
CHANGE after the date of CLOSING: (a) subjects such LENDER to any tax, duty, or
other charge with respect to any LOAN or NOTE, or changes the basis of taxation
of any amounts payable to such LENDER under this AGREEMENT or any NOTE in
respect of any LOAN or otherwise with respect to any OBLIGATIONS (other than
taxes imposed on the overall net income of such LENDER by the jurisdiction in
which such LENDER has its principal office); (b) imposes, modifies, or deems
applicable any reserve, special deposit, assessment, compulsory loan, or
similar requirement (other than the RESERVE REQUIREMENT utilized in the
determination of the ADJUSTED LIBOR RATE) relating to any extensions of credit
or other assets of, or any deposits with or other liabilities or commitments
of, such LENDER, including the applicable LOANS extended by such LENDER
hereunder or any other OBLIGATIONS owing to such LENDER; or (c) imposes on such
LENDER or the applicable interbank market any other condition affecting this
AGREEMENT or any NOTE or any OBLIGATION or any of such extensions of credit or
liabilities or commitments or the costs of deposits maintained by any LENDER in
obtaining funds to carry any of the LOANS or OBLIGATIONS; and the result of any
of the foregoing is to increase the cost to such LENDER of the making,
converting into, continuing, or maintaining or participating in any LOAN or to
reduce any yield or sum received or receivable by such LENDER under this
AGREEMENT or any NOTE with respect to any LOAN or other OBLIGATION, then the
BORROWER shall pay to such LENDER on demand such amount or amounts as will
compensate such LENDER for such increased cost or reduction.

          Section 2.8.2. Changes In Capital Adequacy Requirements. If any LENDER
determines that the adoption or change of any CAPITAL ADEQUACY REQUIREMENT or
change in the interpretation or administration thereof by any GOVERNMENTAL
AUTHORITY, central bank, or comparable agency charged with the interpretation
or administration thereof, or any request or directive regarding capital
adequacy (whether or not having the force of law) of any such GOVERNMENTAL
AUTHORITY, central bank, or comparable agency after the date hereof has or
would have the effect of reducing the rate of return on the capital of such
LENDER or any corporation controlling such LENDER as a consequence of such
LENDER’S obligations hereunder to a level below that which such LENDER or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand the BORROWER shall pay to such
LENDER such additional amount or amounts as will compensate such LENDER for
such reduction.

          Section 2.8.3. Compensation To Lenders. Any LENDER claiming compensation
under this Section shall furnish to the BORROWER and to the ADMINISTRATIVE
AGENT a statement setting forth in reasonable detail the reason and the
additional amount or amounts to be paid to such LENDER hereunder and the
calculation thereof which shall be conclusive in the absence of manifest error.
In determining such amount, such LENDER may use any reasonable averaging and
attribution methods.

     Section 2.9. Taxes.

 

 

          Section 2.9.1. No Deductions For Taxes. All payments by the BORROWER to
the SECURED PARTIES in accordance with this AGREEMENT, any of the NOTES, or any
other CREDIT DOCUMENT shall be made without deduction or withholding for any
TAXES. In addition, the BORROWER shall pay all OTHER TAXES.

          Section 2.9.2. Adjustments For Taxes; Obligation To Pay Taxes. If the
BORROWER is required by LAW to deduct or withhold any TAXES or OTHER TAXES from
or in respect of any sum payable to any secured party, then: (a) the sum
payable shall be increased as necessary so that, after making all required
deductions and withholdings (including deductions and withholdings applicable
to additional sums payable under this Section), such LENDER or the
ADMINISTRATIVE AGENT, as the case may be, receives and retains an amount equal
to the sum it would have received and retained had not such deductions or
withholdings been made; (b) the BORROWER shall make such deductions and
withholdings; and (c) the BORROWER shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable LAWS.

          Section 2.9.3. Indemnification. The BORROWER agrees to indemnify and hold
harmless each of the SECURED PARTIES for the full amount of TAXES and OTHER
TAXES in the amount necessary to preserve the after-tax yield that each LENDER
would have received if such TAXES or OTHER TAXES, as the case may be, had not
been imposed, and any liability (including penalties, interest, additions to
tax and expenses) arising therefrom or with respect thereto, whether or not
such TAXES or OTHER TAXES, as the case may be, were correctly or legally
asserted. Payment under this indemnification shall be made by the BORROWER
within thirty (30) days after the date the applicable SECURED PARTY makes
written demand therefor.

          Section 2.9.4. Receipts. Within thirty (30) days after the date of any
payment by the BORROWER of TAXES or OTHER TAXES, the BORROWER shall furnish to
each applicable SECURED PARTY the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment satisfactory to such
SECURED PARTY.

          Section 2.9.5. Foreign Lenders. Each LENDER organized under the laws of a
jurisdiction outside the United States shall from time to time if requested in
writing by the BORROWER, provide the BORROWER and the ADMINISTRATIVE AGENT
with: (a) Internal Revenue Service Form 1001 or 4224, as appropriate (or if
such LENDER is not a “bank” or other PERSON described in Section 881(c)(3) of
the CODE and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (a)
above, a Certificate of Non-Bank Status), or any successor form prescribed
by the Internal Revenue Service, certifying that such LENDER is entitled to
benefits under an income tax treaty to which the United States is a party which
establishes such LENDER is not subject to withholding tax on payments of
interest or certifying that the income receivable pursuant to this AGREEMENT is
effectively connected with the conduct of a trade or business in the United
States; (b) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service; and (c) any other
form or certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the CODE), certifying that such
LENDER is entitled to an exemption from a tax on payments made upon any of the
OBLIGATIONS.

          Section 2.9.6. Delivery Of Forms And Certificates. Each LENDER required
to deliver any forms, certificates or other evidence with respect to United
States federal income tax withholding matters pursuant to this Section hereby
agrees, from time to time after the initial delivery by such LENDER of such
forms, certificates or other evidence, that whenever a lapse in time or change
in circumstances renders such forms, certificates or other evidence obsolete or
inaccurate in any material respect, such LENDER shall promptly deliver to the
ADMINISTRATIVE AGENT and to the BORROWER two (2) new original copies of
Internal Revenue Service Form 1001 or 4224, as appropriate, a Certificate of
Non-Bank Status, or Internal Revenue Service Form W-8 or W-9, as appropriate,
as the case may be, properly completed and duly executed by such LENDER,
together with any other certificate or statement of exemption required in order
to confirm or establish that such LENDER is not subject to deduction or
withholding of United States federal income tax with respect to payments to
such LENDER under the

 

 

CREDIT DOCUMENTS, or such LENDER shall notify the
ADMINISTRATIVE AGENT and the BORROWER of its inability to deliver any such
forms, certificates or other evidence.

          Section 2.9.7. Survival After Repayment. The payment and indemnification
obligations of the BORROWER under this entire Section 2.9 shall survive the
termination of this AGREEMENT and the repayment of the OBLIGATIONS.

     Section 2.10. Payments To Administrative Agent. The BORROWER shall pay to
the ADMINISTRATIVE AGENT for the ADMINISTRATIVE AGENT’S own account the fees
and expenses required by the LETTER AGREEMENT.

     Section 2.11. Facility Fee. The BORROWER shall pay to the ADMINISTRATIVE
AGENT for the pro rata accounts of the LENDERS on or before CLOSING a
non-refundable and unconditional facility fee of Three Hundred Eighteen
Thousand Seven Hundred Fifty Dollars ($318,750.00), which shall be the absolute
property of the LENDERS upon payment. The facility fee shall not be considered
to be a payment of any of the SECURED PARTY EXPENSES incurred in connection
with the LOANS and shall be paid independent of the amount of proceeds of the
LOANS ultimately advanced to the BORROWER.

     Section 2.12. Payments. All payments received by the SECURED PARTIES
which are to be applied to reduce the OBLIGATIONS shall be provisional and
shall not be considered final unless and until such payment is not subject to
avoidance under any provision of the United States Bankruptcy Code, as amended,
including Sections 547 and 550, or any state law governing insolvency or
creditors’ rights. If any payment is avoided or set aside under any provision
of the United States Bankruptcy Code, including Sections 547 and 550, or any
state law governing insolvency or creditors’ rights, the payment shall be
considered not to have been made for all purposes of this AGREEMENT and the
SECURED PARTIES shall adjust their respective records to reflect the fact that
the avoided payment was not made and has not been credited against the
OBLIGATIONS.

     Section 2.13. Advancements. If the BORROWER fails to perform any of its
agreements or covenants contained in this AGREEMENT or if the BORROWER fails to
protect or preserve the COLLATERAL or the status and priority of the security
interests of the SECURED PARTIES in the COLLATERAL, and such failure shall
remain uncured for three (3) BUSINESS DAYS after the ADMINISTRATIVE AGENT shall
have notified the BORROWER thereof, the ADMINISTRATIVE AGENT for the account of
the LENDERS may make advances to perform the same on behalf of the BORROWER to
protect or preserve the COLLATERAL or the status and priority of the security
interests of the SECURED PARTIES in the COLLATERAL, and all sums so advanced
shall immediately upon advance become secured by the security interests granted
in this
AGREEMENT, and shall become part of the principal amount owed to the
LENDERS with interest to be assessed at the ADJUSTED BASE RATE plus two hundred
(200) BASIS POINTS. The BORROWER shall repay on demand all sums so advanced on
the BORROWER’S behalf, plus all expenses or costs incurred by the
ADMINISTRATIVE AGENT, on account of the LENDERS, including reasonable legal
fees, with interest thereon. The provisions of this Section shall not be
construed to prevent the institution of the rights and remedies of the
ADMINISTRATIVE AGENT upon the occurrence of an EVENT OF DEFAULT. The
authorization contained in this Section is not intended to impose any duty or
obligation on the ADMINISTRATIVE AGENT to perform any action or make any
advancement on behalf of the BORROWER and is intended to be for the sole
benefit and protection of the LENDERS.

ARTICLE 3

SECURITY FOR THE OBLIGATIONS

     The payment, performance and satisfaction of the OBLIGATIONS shall be
secured by the following assurances of payment and security.

 

 

     Section 3.1. Grant Of Security Interests. In order to secure the
repayment and performance of all OBLIGATIONS, both currently existing and
arising in the future, the BORROWER grants to the ADMINISTRATIVE AGENT for the
benefit of the SECURED PARTIES, and assigns as collateral to the ADMINISTRATIVE
AGENT for the benefit of the SECURED PARTIES, an immediate and continuing
security interest in and to the COLLATERAL. The BORROWER further pledges,
hypothecates and grants to the SECURED PARTIES a continuing security interest
in and to, all amounts that may be owing at any time and from time to time by
any of the SECURED PARTIES to the BORROWER in any capacity, including but not
limited to any balance or share belonging to the BORROWER of any deposit or
other account with any of the SECURED PARTIES, which security interest shall be
independent of and in addition to any right of set-off to which the SECURED
PARTIES may be entitled.

     Section 3.2. Proceeds And Products. The security interests provided for
herein shall apply to the proceeds, including but not limited to insurance
proceeds, and the products of the COLLATERAL.

     Section 3.3. Priority Of Security Interests. Each of the LIENS granted by
the BORROWER to the SECURED PARTIES pursuant to any of the CREDIT DOCUMENTS
shall be perfected first priority LIENS, except for PERMITTED LIENS which by
operation of law or the written consent of the ADMINISTRATIVE AGENT constitute
prior encumbrances.

     Section 3.4. Future Advances. The LIENS granted by the BORROWER to the
SECURED PARTIES pursuant to the CREDIT DOCUMENTS shall secure all current and
all future advances made by the SECURED PARTIES to the BORROWER, or for the
account or benefit of the BORROWER. The SECURED PARTIES may advance or
readvance upon repayment by the BORROWER all or any portion of the sums loaned
to the BORROWER and any such advance or readvance shall be fully secured by the
LIENS created by the CREDIT DOCUMENTS.

     Section 3.5. Lock Box. Upon the written request of the ADMINISTRATIVE
AGENT, the BORROWER shall instruct all of its ACCOUNT DEBTORS during any
continuing EVENT OF DEFAULT to make all payments on the BORROWER’S RECEIVABLES
to a post office box to which the ADMINISTRATIVE AGENT alone shall have sole
access. All proceeds made to such post office box shall periodically be
withdrawn by the ADMINISTRATIVE AGENT and applied toward payment of all or any
part of the OBLIGATIONS, whether or not then due, in such order of application
as the ADMINISTRATIVE AGENT may determine. The ADMINISTRATIVE AGENT shall have
no obligation to provide any provisional or other credit for any deposited
funds which are not collected funds free of any rights of return.

     Section 3.6. Collection Of Receivables By Administrative Agent. The
ADMINISTRATIVE AGENT shall have the right during any continuing EVENT OF
DEFAULT to send notices of assignment or notices of the SECURED PARTIES’
security interests to the ACCOUNT DEBTORS or any third party holding or
otherwise concerned with any of the COLLATERAL, and thereafter the
ADMINISTRATIVE AGENT shall have the sole right to collect the RECEIVABLES and
to take possession of the COLLATERAL and RECORDS relating thereto for the
benefit of the SECURED PARTIES. All of the SECURED PARTIES’ collection expenses
shall be charged to the BORROWER’S accounts and added to the OBLIGATIONS.
During any continuing EVENT OF DEFAULT, the ADMINISTRATIVE AGENT shall have the
right to receive, indorse, assign and deliver in the ADMINISTRATIVE AGENT’S
name or the BORROWER’S name all checks, drafts and other instruments for the
payment of money relating to the RECEIVABLES, and the BORROWER hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed.
The BORROWER hereby constitutes the ADMINISTRATIVE AGENT or the ADMINISTRATIVE
AGENT’S designee as its attorney-in-fact with power during any continuing EVENT
OF DEFAULT with respect to the RECEIVABLES: (a) to indorse its name upon all
notes, acceptances, checks, drafts, money orders or other evidences of payment
of COLLATERAL that may come into the ADMINISTRATIVE AGENT’S possession; (b) to
sign its name on any invoices relating to any of the RECEIVABLES, drafts
against ACCOUNT DEBTORS, assignments and verifications of RECEIVABLES and
notices to ACCOUNT DEBTORS; (c) to send verifications of RECEIVABLES to any
ACCOUNT DEBTOR; (d) to notify the Post Office to change the address for
delivery of mail addressed to it to such address as the ADMINISTRATIVE AGENT
may designate; (e) to receive and open all mail addressed to it

 

 

and to remove
therefrom all cash, checks, drafts and other payments of money; and (f) to do
all other acts and things necessary, proper, or convenient to carry out the
terms and conditions and purposes and intent of this AGREEMENT. All acts of
such attorney or designee are hereby ratified and approved, and such attorney
or designee shall not be liable for any acts of omission or commission, nor for
any error of judgment or mistake of fact or law in accordance with this
AGREEMENT, with the exception of acts arising from wilful misconduct or gross
negligence. The power of attorney hereby granted, being coupled with an
interest, is irrevocable while any of the OBLIGATIONS remain unpaid. During
any continuing EVENT OF DEFAULT, the ADMINISTRATIVE AGENT, without notice to or
consent from the BORROWER, may sue upon or otherwise collect, extend the time
of payment of or compromise or settle for cash, credit or otherwise upon any
terms, any of the RECEIVABLES or any securities, instruments or insurances
applicable thereto or release the obligor thereon. The ADMINISTRATIVE AGENT is
authorized and empowered to accept the return of the goods represented by any
of the RECEIVABLES, without notice to or consent by the BORROWER, all without
discharging or in any way affecting the liability of the BORROWER under the
CREDIT DOCUMENTS. The ADMINISTRATIVE AGENT does not, by anything herein or in
any assignment or otherwise, assume any of the obligations of the BORROWER
under any contract or agreement assigned to the LENDER, and the ADMINISTRATIVE
AGENT shall not be responsible in any way for the performance by the BORROWER
of any of the terms and conditions thereof.

     Section 3.7. Maintenance Of Principal Accounts. As further security for
the OBLIGATIONS, the BORROWER agrees to maintain its principal operating
accounts with M&T so long as M&T is the ADMINISTRATIVE AGENT.

     Section 3.8. Guaranty Agreements. Each DOMESTIC SUBSIDIARY shall execute
and deliver a GUARANTY AGREEMENT in form and substance as Exhibit 3.8(a)
attached hereto, and shall execute and delivery a Security Agreement in form
and substance as Exhibit 3.8(b) attached hereto, pursuant to which such
DOMESTIC SUBSIDIARY shall: (a) secure its obligations arising from its GUARANTY
AGREEMENT; and (b) authorize the filing by the ADMINISTRATIVE AGENT of
financing statements in form and substance as Exhibit 3.8(c) attached hereto.

     Section 3.9. Stock Pledge Agreement. The BORROWER shall execute and
deliver to the ADMINISTRATIVE AGENT for the benefit of the SECURED PARTIES
Stock Pledge Agreements in form and substance as Exhibit 3.9 attached hereto,
pursuant to which the BORROWER shall further secure the repayment and
performance of the OBLIGATIONS by pledging: (a) all of the capital stock and
ownership interests of the BORROWER in each DOMESTIC SUBSIDIARY; and (b) the
maximum amount of capital stock and ownership interests of the BORROWER in each
of its SUBSIDIARIES which are not
DOMESTIC SUBSIDIARIES that may be pledged without causing the accumulated
earnings and profits of such non-DOMESTIC SUBSIDIARIES to be included in the
income of the BORROWER for United States income tax purposes.

     Section 3.10. Further Assurances. The BORROWER agrees promptly to execute
and deliver all further instruments and documents and take all further action
that may be necessary or desirable or that the ADMINISTRATIVE AGENT may
reasonably request from time to time in order: (a) to perfect and protect the
security interests to be created hereby; (b) to enable the ADMINISTRATIVE AGENT
to exercise and enforce the rights and remedies of the SECURED PARTIES
hereunder in respect of the COLLATERAL; or (c) otherwise to effect the purposes
of this AGREEMENT.

 ARTICLE 4

 REPRESENTATIONS AND WARRANTIES

     To induce the SECURED PARTIES to enter into this AGREEMENT, the BORROWER
makes the representations and warranties set forth in this Article 4. The
BORROWER acknowledges the justifiable right of the SECURED PARTIES to rely upon
these representations and warranties. The BORROWER agrees to promptly notify
the ADMINISTRATIVE AGENT of the occurrence after the date of CLOSING of any
condition or event which would make any of the following representations and
warranties no longer

 

 

materially accurate.

     Section 4.1. Accuracy Of Information. All information submitted by or on
behalf of the BORROWER or any of the GUARANTORS in connection with any of the
OBLIGATIONS was true, accurate and complete in all material respects as of the
date made and contains no knowingly false, incomplete or misleading statements.

     Section 4.2. No Litigation. Except as set forth on Schedule 4.2 attached
hereto, there are no actions, suits, citations, violations, directions, notices
or proceedings before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting the BORROWER,
or the assets or properties thereof, which, if determined adversely to the
BORROWER: (a) could require the BORROWER to pay over more than One Million
Dollars ($1,000,000.00) or deliver assets the value of which exceeds that sum
(whether or not the claim is considered to be covered by insurance); or (b)
could reasonably be expected to be or cause a MATERIAL ADVERSE EVENT.

     Section 4.3. Liens. The LIENS granted by the BORROWER and its
SUBSIDIARIES to the SECURED PARTIES in accordance with the terms of the CREDIT
DOCUMENTS will have the priorities required by the CREDIT DOCUMENTS. No LIENS
exist on any of the assets of the BORROWER or its SUBSIDIARIES except for
PERMITTED LIENS against the COLLATERAL and any LIENS against the assets of the
SUBSIDIARIES which are expressly authorized by the terms of the CREDIT
DOCUMENTS.

     Section 4.4. Authority; Approvals And Consents.

          Section 4.4.1. Authority. The BORROWER has the legal authority to enter
into each of the CREDIT DOCUMENTS and to perform, observe and comply with all
of its agreements and obligations thereunder, including, without limitation the
borrowings contemplated hereby.

          Section 4.4.2. Approvals. The execution and delivery by the BORROWER of
each of the CREDIT DOCUMENTS, the performance by the BORROWER of all of its
agreements and obligations under the CREDIT DOCUMENTS, and the borrowings
contemplated by this AGREEMENT, have been duly authorized by all necessary
action and will not: (a) contravene any provision of its organizational
documents; (b) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in the creation of any
LIEN upon any of its property under any agreement, trust deed, indenture,
mortgage or other instrument to which it is a party or by which it or any of
its property is bound or affected
(except for LIENS created for the benefit of the SECURED PARTY); (c)
violate or contravene any provision of any LAWS (including, without limitation,
Regulations T, U or X of the Board of Governors of the Federal Reserve System)
or any order, ruling or interpretation thereunder or any decree, order of
judgment of any court or GOVERNMENTAL AUTHORITY (all as from time to time in
effect and applicable to the BORROWER); or (d) require any waivers, consents or
approvals by any of its creditors which have not been obtained.

          Section 4.4.3. Consents. Other than the filings and recordings required
to perfect the LIENS granted in accordance with the CREDIT DOCUMENTS, no
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental or regulatory
authority or agency is required for the execution and delivery by the BORROWER
of the CREDIT DOCUMENTS or for the performance by the BORROWER of any of the
agreements and obligations thereunder.

     Section 4.5. Binding Effect Of Documents, Etc. Each of the CREDIT
DOCUMENTS which the BORROWER has executed and delivered as contemplated and
required to be executed and delivered as of the date of CLOSING by this
AGREEMENT, has been duly executed and delivered by the BORROWER and is the
legal, valid and binding obligation of the BORROWER and is enforceable against
the BORROWER in accordance with all stated terms.

     Section 4.6. No Events Of Default. There is not currently existing any
action, event, or condition which presently constitutes a DEFAULT or an EVENT
OF DEFAULT.

 

 

     Section 4.7. Guaranty Agreements. The GUARANTY AGREEMENTS and the
accompanying Security Agreements are the valid and binding obligations of the
GUARANTORS and are fully enforceable against the GUARANTORS in accordance with
all outstanding terms.

     Section 4.8. Taxes. The BORROWER and its SUBSIDIARIES have each: (a)
filed all federal, state and local tax returns and other reports which it is
required by applicable LAWS to file prior to the date hereof and which are
material to the conduct of the its business; (b) paid or caused to be paid all
taxes, assessments and other governmental charges that are due and payable
prior to the date hereof unless being contested in accordance with the
procedures of Section 5.8 hereof; and (c) made adequate provisions for the
payment of such taxes, assessments or other charges accruing but not yet
payable. The BORROWER has no knowledge of any deficiency or additional
assessment in connection with any taxes, assessments or charges not provided
for on the books of account of the BORROWER and its SUBSIDIARIES or reflected
in the financial statements of the BORROWER and its SUBSIDIARIES.

     Section 4.9. Compliance With Laws. The BORROWER has complied in all
material respects with all applicable LAWS, including, but not limited to, all
LAWS with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; and (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business, except where noncompliance could not reasonably be
expected to be or result in a MATERIAL ADVERSE EVENT.

     Section 4.10. Chief Places Of Business, Etc. The chief executive office,
chief place of business, and the places where the BORROWER keeps its RECORDS
concerning the COLLATERAL are set forth on Schedule 4.10 attached hereto.

     Section 4.11. Location Of Inventory. The INVENTORY is located solely at
the BORROWER’S locations set forth on Schedule 4.11 attached hereto. None of
the INVENTORY is stored with or in the possession of any bailee, warehouseman,
or other similar PERSON, except as specifically disclosed on Schedule 4.11
attached hereto.

     Section 4.12. Subsidiaries. All of the SUBSIDIARIES of the BORROWER are
identified on Schedule 4.12 attached hereto.

     Section 4.13. No Labor Agreements. The BORROWER is not subject to any
collective bargaining agreement or any agreement, contract, decree or order
requiring it to recognize, deal with or employ any PERSONS organized as a
collective bargaining unit or other form of organized labor.

     Section 4.14. Approvals. The BORROWER possesses all franchises, approvals,
licenses, contracts, merchandising agreements, merchandising contracts and
governmental approvals, registrations and exemptions necessary for it lawfully
to conduct its business and operation as presently conducted and as anticipated
to be conducted after the date of CLOSING, except where any such failure could
not reasonably be expected to be or result in a MATERIAL ADVERSE EVENT.

     Section 4.15. Financial Statements. The financial statements of the
BORROWER and its SUBSIDIARIES which have been delivered to the ADMINISTRATIVE
AGENT prior to the date of this AGREEMENT, fairly present the financial
condition of the BORROWER and its SUBSIDIARIES as of the respective dates
thereof and the results and operations of the BORROWER and its SUBSIDIARIES for
the fiscal periods ended on such respective dates, all in accordance with
G.A.A.P. The BORROWER has no direct or contingent liability or obligation
known to the BORROWER that would be required to be disclosed in the BORROWER’S
financial statements under G.A.A.P. that are not disclosed on the financial
statements delivered to the ADMINISTRATIVE AGENT or disclosed on Schedule 4.15
hereto. There has been no material adverse change in the financial condition
of the BORROWER and its SUBSIDIARIES since October 31, 2003.

     Section 4.16. Solvency. The BORROWER will be SOLVENT both before and
after

 

 

CLOSING, after giving effect to the OBLIGATIONS and all of the BORROWER’S
liabilities.

     Section 4.17. Fair Labor Standards Act. The BORROWER has complied in all
material respects with the Fair Labor Standards Act of 1938, as amended, except
to the extent that any noncompliance would not represent a MATERIAL ADVERSE
EVENT.

     Section 4.18. Employee Benefit Plans.

          Section 4.18.1. Compliance. The BORROWER and its ERISA AFFILIATES are in
compliance in all material respects with all applicable provisions of ERISA and
the regulations thereunder and of the CODE with respect to all EMPLOYEE BENEFIT
PLANS, except to the extent that any noncompliance would not represent a
MATERIAL ADVERSE EVENT.

          Section 4.18.2. Absence Of Termination Event. No TERMINATION EVENT has
occurred or is reasonably expected to occur with respect to any GUARANTEED
PENSION PLAN.

          Section 4.18.3. Actuarial Value. The actuarial present value (as defined
in Section 4001 of ERISA) of all benefit commitments (as defined in Section
4001 of ERISA) under each GUARANTEED PENSION PLAN does not exceed the assets of
that plan.

          Section 4.18.4. No Withdrawal Liability. Except as set forth on Schedule
4.18.4 attached hereto, neither the BORROWER nor any of its ERISA AFFILIATES
has incurred or reasonably expects to incur any withdrawal liability under
ERISA in connection with any MULTIEMPLOYER PLANS.

     Section 4.19. Environmental Conditions. Except as disclosed in Schedule
4.19 attached hereto:

          Section 4.19.1. Existence Of Permits. The BORROWER maintains all legally
required governmental permits, licenses, variances, clearances and all other
necessary approvals required under the ENVIRONMENTAL LAWS for use of the
FACILITIES and the operation and conduct of its business as currently conducted
(including, but not limited to, the handling, transporting, treating, storage,
disposal, discharge, or RELEASE of REGULATED SUBSTANCES, if any, into, on or
from the environment (including, but not limited to, any air, water, or soil))
from all applicable federal, state, and local governmental authorities
including, but not limited to, any and all appropriate federal or state
environmental protection agencies and other county or city departments
(collectively, the “EPA PERMITS”).

          Section 4.19.2. Compliance With Permits. Each issued EPA PERMIT is in
full force and effect, has not expired or been suspended, denied or revoked,
and is not under challenge by any PERSON. The BORROWER is in compliance in all
material aspects with each issued EPA PERMIT.

          Section 4.19.3. No Litigation. Neither the BORROWER nor any of the
FACILITIES is the subject of any private or governmental litigation, or to the
knowledge of the BORROWER, threatened litigation, LIEN or judicial or
administrative notice, order or action under ENVIRONMENTAL LAWS involving the
BORROWER or any of the FACILITIES relating to REGULATED SUBSTANCES or
liabilities under ENVIRONMENTAL LAWS.

          Section 4.19.4. No Releases. To the best knowledge of the BORROWER, there
has been no RELEASE into, on or from any of the FACILITIES and no REGULATED
SUBSTANCES are located on or have been treated, stored, processed, disposed of,
handled or transported to or from, any of the FACILITIES in violation of any
ENVIRONMENTAL LAWS. To the best knowledge of the BORROWER, no REGULATED
SUBSTANCES have been treated, stored, disposed, RELEASED, located, discharged,
possessed, managed, processed, or otherwise handled in the operation or conduct
of the BORROWER’S business in violation of any ENVIRONMENTAL LAWS. The
BORROWER is in compliance in all material respects with all ENVIRONMENTAL LAWS
affecting the FACILITIES and the BORROWER’S business.

 

 

          Section 4.19.5. Transportation. The BORROWER does not transport, in any
manner, any REGULATED SUBSTANCES except in the ordinary course of the
BORROWER’S business in material compliance with all ENVIRONMENTAL LAWS.

          Section 4.19.6. No Violation Notices. The BORROWER has not received any
notices that any REGULATED SUBSTANCES transported from any FACILITY have been
disposed of in violation of any ENVIRONMENTAL LAWS.

          Section 4.19.7. No Notice Of Violations. The BORROWER has not received
written notice of any circumstances which would be likely to result in any
obligation under any ENVIRONMENTAL LAW to investigate or remediate any
REGULATED SUBSTANCES in, on or under any of the FACILITIES.

     Section 4.20. Investment Company Act. The BORROWER is not subject to
regulation as an “investment company” under the Investment Company Act of 1940,
as amended.

     Section 4.21. Public Utility Holding Company Act. The BORROWER is not a
“holding company,” or a “subsidiary company” of a “holding company,” or an
“affiliate” of a “holding company” or of a “subsidiary company” of a “holding
company” within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

ARTICLE 5

AFFIRMATIVE COVENANTS

     The BORROWER agrees during the term of this AGREEMENT and while any
OBLIGATIONS are outstanding and unpaid to do and perform each of the acts and
promises set forth in this Article 5:

     Section 5.1. Payment And Performance. All OBLIGATIONS shall be paid and
performed in full when and as due.

     Section 5.2. Insurance. The BORROWER agrees to obtain and maintain such
business interruption, casualty, liability, products liability and other
insurance coverages as are reasonable, customary and prudent for businesses
engaged in activities similar to the business activities of the BORROWER.
Without limitation to the foregoing, the BORROWER agrees to maintain for all of
its assets and properties, whether real, personal, or mixed and including but
not limited to the COLLATERAL, fire and extended coverage casualty insurance in
amounts satisfactory to the ADMINISTRATIVE AGENT in the exercise of its
reasonable discretion and sufficient to prevent any co-insurance liability
(which amount shall be the full insurable value of the assets and properties
insured unless the ADMINISTRATIVE AGENT in writing agrees to a lesser amount),
naming the ADMINISTRATIVE AGENT as sole loss payee with respect to the
COLLATERAL, with insurance companies and upon policy forms containing standard
mortgagee clauses which are acceptable to and approved by the ADMINISTRATIVE
AGENT. The BORROWER shall submit to the ADMINISTRATIVE AGENT reasonable
evidence of such casualty insurance policies and of the payment of the premiums
due on the same. The casualty insurance policies shall be endorsed so as to
make them noncancellable unless thirty (30) days prior written notice of
cancellation is provided to the ADMINISTRATIVE AGENT.

     Section 5.3. Books And Records. The BORROWER shall notify the
ADMINISTRATIVE AGENT in writing if the BORROWER modifies or changes its method
of accounting in any material respect or enters into, modifies, or terminates
any agreement presently existing, or at any time hereafter entered into with
any third party accounting firm for the preparation and/or storage of the
BORROWER’S accounting records.

     Section 5.4. Collection Of Accounts; Sale Of Inventory. The BORROWER
shall only collect its RECEIVABLES and sell its INVENTORY in the ordinary
course of the BORROWER’S business.

 

 

     Section 5.5. Notice Of Litigation And Proceedings. The BORROWER shall
give prompt notice to the ADMINISTRATIVE AGENT of any action, suit, citation,
violation, direction, notice or proceeding before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the BORROWER, or the assets or properties thereof, which, if
determined adversely to the BORROWER: (a) could require the BORROWER to pay
over more than One Million Dollars ($1,000,000.00) or deliver assets the value
of which exceeds that sum (whether or not the claim is considered to be covered
by insurance); or (b) could reasonably be expected to be or cause a MATERIAL
ADVERSE EVENT.

     Section 5.6. Payment Of Liabilities To Third Persons. The BORROWER shall
pay when and as due, or within applicable grace periods, all liabilities due to
third persons which either individually or in the aggregate unpaid amount
exceed Two Million Dollars ($2,000,000.00), except when the amount thereof is
being contested in good faith by appropriate proceedings and with adequate
reserves therefor being set aside.

     Section 5.7. Notice Of Change Of Business Location. The BORROWER shall
notify the ADMINISTRATIVE AGENT thirty (30) days in advance of: (a) any change
in the location of its existing offices or place of business; (b) the
establishment of any new, or the discontinuation of any existing, place of
business; and (c) any change in or addition to the locations at which the
COLLATERAL is kept. Prior to moving any COLLATERAL to any location not
owned by the BORROWER (other than deliveries to ACCOUNT DEBTORS of sold or
leased items), the BORROWER shall obtain and deliver to the ADMINISTRATIVE
AGENT an agreement, in form and substance acceptable to the ADMINISTRATIVE
AGENT, pursuant to which the owner of such location shall: (i) subordinate any
rights which it may have, or thereafter may obtain, in any of the COLLATERAL to
the rights and security interests of the SECURED PARTIES in the COLLATERAL;
(ii) acknowledge the security interests of the SECURED PARTIES in the
COLLATERAL; and (iii) allow the ADMINISTRATIVE AGENT access to the COLLATERAL
in order to remove the COLLATERAL from such location. In the event any
COLLATERAL is stored with a warehousemen or other bailee, and the COLLATERAL is
evidenced by a negotiable document of title, the BORROWER shall immediately
deliver the document of title to the ADMINISTRATIVE AGENT.

     Section 5.8. Payment Of Taxes. The BORROWER shall pay or cause to be paid
when and as due all taxes, assessments and charges or levies imposed upon it or
on any of its property or which it is required to withhold and pay over to the
taxing authority or which it must pay on its income, except where contested in
good faith, by appropriate proceedings and at its own cost and expense;
provided, however, that the BORROWER shall not be deemed to be contesting in
good faith by appropriate proceedings unless: (a) such proceedings operate to
prevent the taxing authority from attempting to collect the taxes, assessments
or charges; (b) the COLLATERAL is not subject to sale, forfeiture or loss
during such proceedings; (c) the BORROWER’S contest does not subject the
SECURED PARTIES to any claim by the taxing authority or any other person; (d)
the BORROWER establishes appropriate reserves in accordance with G.A.A.P. for
the payment of all taxes, assessments, charges, levies, legal fees, court costs
and other expenses for which the BORROWER would be liable if unsuccessful in
the contest; (e) the BORROWER prosecutes the contest continuously to its final
conclusion; and (f) at the conclusion of the proceedings, the BORROWER promptly
pays all amounts determined to be payable, including but not limited to all
taxes, assessments, charges, levies, legal fees and court costs.

     Section 5.9. Inspections Of Records. The BORROWER shall permit
representatives of the ADMINISTRATIVE AGENT access to the BORROWER’S places of
business, at intervals and at such times as determined by the ADMINISTRATIVE
AGENT, to inspect the COLLATERAL and to review and make extracts from or
photocopies of the books and records of the BORROWER; provided, however, that
in the absence of any continuing DEFAULT or EVENT OF DEFAULT, such inspections
and reviews shall be conditioned upon reasonable advance notice to the BORROWER
and at times reasonably convenient to the BORROWER. The BORROWER agrees to
reimburse the ADMINISTRATIVE AGENT for the reasonable audit fees and other
expenses incurred by the ADMINISTRATIVE AGENT in connection with such
inspections; provided, however, that unless a DEFAULT or an EVENT OF DEFAULT
shall have occurred and be continuing, the BORROWER shall have no obligation to
pay for more than one audit or inspection in any single twelve-month period.

 

 

     Section 5.10. Documentation Of Collateral. The BORROWER agrees that upon
the request of the ADMINISTRATIVE AGENT, the BORROWER will provide the
ADMINISTRATIVE AGENT with: (a) written statements or schedules identifying and
describing the COLLATERAL, and all additions, substitutions, and replacements
thereof, in such detail as the ADMINISTRATIVE AGENT may reasonably require; (b)
copies of ACCOUNT DEBTORS’ invoices or billing statements; (c) evidence of
shipment or delivery of GOODS or merchandise to or performance of services for
ACCOUNT DEBTORS; and (d) such other schedules and information as the
ADMINISTRATIVE AGENT reasonably may require. The items to be provided under
this Section shall be in form satisfactory to the ADMINISTRATIVE AGENT in its
reasonable discretion and are to be executed and delivered to the
ADMINISTRATIVE AGENT from time to time solely for the ADMINISTRATIVE AGENT’S
convenience in maintaining RECORDS of the COLLATERAL.

     Section 5.11. Reporting Requirements. The BORROWER shall submit the
following items to the ADMINISTRATIVE AGENT:

          Section 5.11.1. Inventory Reports. On or before the date of CLOSING and
thereafter as periodically requested by the ADMINISTRATIVE AGENT, reports of
INVENTORY on such reporting forms as are required by the ADMINISTRATIVE AGENT
from time to time,
certified to be accurate and correct by the chief financial officer of the
BORROWER, which reports shall be compiled in a manner acceptable to the
ADMINISTRATIVE AGENT in its reasonable discretion.

          Section 5.11.2. Receivables And Accounts Payable Reports. On or before
the date of CLOSING and thereafter as periodically requested by the
ADMINISTRATIVE AGENT : (a) a report and aging of the BORROWER’S ACCOUNTS; and
(b) an accounts payable report and aging, both in form reasonably acceptable to
the ADMINISTRATIVE AGENT and containing such information as the ADMINISTRATIVE
AGENT may specify from time to time. Such reports shall be accompanied by such
reports, copies of sales journals, remittance reports, and other documentation
as the ADMINISTRATIVE AGENT may reasonably request from time to time.

          Section 5.11.3. Quarterly Financial Statements. As soon as available and
in any event within forty-five (45) calendar days after the end of each of the
first three FISCAL QUARTERS of each FISCAL YEAR, the BORROWER shall submit to
the ADMINISTRATIVE AGENT a consolidated balance sheet of the BORROWER and its
SUBSIDIARIES as of the end of such quarter, a consolidated statement of income
and retained earnings of the BORROWER and its SUBSIDIARIES for the period
commencing at the end of the previous FISCAL YEAR and ending with the end of
such FISCAL QUARTER, and a consolidated statement of cash flow of the BORROWER
and its SUBSIDIARIES for the portion of the FISCAL YEAR ended with the last day
of such quarter, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period in the
previous FISCAL YEAR and all prepared in accordance with G.A.A.P. and certified
by the chief financial officer of the BORROWER (subject to year-end
adjustments).

          Section 5.11.4.Annual Financial Statements. As soon as available and in
any event within ninety (90) calendar days after the end of each FISCAL YEAR of
the BORROWER, the BORROWER shall submit to the ADMINISTRATIVE AGENT a
consolidated balance sheet of the BORROWER and its SUBSIDIARIES as of the end
of such FISCAL YEAR and a consolidated statement of income and retained
earnings of the BORROWER and its SUBSIDIARIES for such FISCAL YEAR, and a
consolidated statement of cash flow of the BORROWER and its SUBSIDIARIES for
such FISCAL YEAR, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period in the
prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and accompanied
by an audited opinion thereon acceptable to the ADMINISTRATIVE AGENT by
independent accountants selected by the BORROWER and acceptable to the
ADMINISTRATIVE AGENT.

          Section 5.11.5. SEC And Other Filings. Within five (5) days after the
sending, filing, or receipt thereof, and to the extent not readily available to
the public through the internet, copies of: (a) all financial statements,
reports, notices and proxy statements that the BORROWER sends to its
shareholders; and (b) all regular, periodic and special reports, registration
statements and prospectuses

 

 

that the BORROWER renders to or files with the
Securities And Exchange Commission or any national securities exchange,
including without limitation each of the Forms 10-K and 10-Q filed by the
BORROWER with the Securities And Exchange Commission.

          Section 5.11.6. Management Letters. Promptly upon receipt thereof, the
BORROWER shall submit to the ADMINISTRATIVE AGENT copies of any management
letter or similar report submitted to the BORROWER or any SUBSIDIARY by
independent certified public accountants in connection with the examination of
the financial statements of the BORROWER or any SUBSIDIARY made by such
accountants.

          Section 5.11.7. Quarterly Officer’s Certificates. Within forty-five (45)
calendar days after the end of each FISCAL QUARTER, the BORROWER shall submit
to the ADMINISTRATIVE AGENT certificates of the chief financial officer of the
BORROWER certifying that: (a) there exists no DEFAULT or EVENT OF DEFAULT, or
if a DEFAULT or an EVENT OF DEFAULT exists, specifying the nature thereof, the
period of existence thereof and what action the BORROWER proposes to take with
respect thereto; (b) no material adverse change in the condition, financial or
otherwise, business, property or results of operations of the BORROWER has
occurred since the previous certificate was sent to the ADMINISTRATIVE AGENT by
the BORROWER or, if any such change has occurred, specifying the nature thereof
and what action the BORROWER has taken or proposes to take with respect
thereto; (c) all insurance premiums then due have been paid; (d) all taxes then
due have been paid or, for those taxes which have not been paid, a statement of
the taxes not paid and a description of the BORROWER’S rationale therefor; (e)
no material litigation, investigation or proceedings, or injunction, writ or
restraining order not previously disclosed in writing to the ADMINISTRATIVE
AGENT is pending or threatened or, if any such litigation, investigation,
proceeding, injunction, writ or order is pending, describing the nature
thereof; (f) stating whether or not the GUARANTORS and the BORROWER are in
compliance with the covenants in this AGREEMENT, including a calculation of the
financial covenants in the schedule attached to such officers’ certificates in
form satisfactory to the ADMINISTRATIVE AGENT; and (g) the LEVERAGE RATIO of
the BORROWER for the most recently ended FISCAL QUARTER. Each of such
quarterly certificates shall state whether the BORROWER has made any
acquisitions, the terms of such acquisitions, and whether or not the BORROWER
is in compliance with Section 6.7 of this AGREEMENT.

          Section 5.11.8. Reports To Other Creditors. Promptly after the furnishing
thereof, the BORROWER shall submit to the ADMINISTRATIVE AGENT copies of any
statement or report furnished to any other PERSON pursuant to the terms of any
indenture, loan, or credit or similar agreement and not otherwise required to
be furnished to the ADMINISTRATIVE AGENT pursuant to any other provisions of
this AGREEMENT.

          Section 5.11.9. Defaults. The BORROWER shall notify the ADMINISTRATIVE
AGENT immediately of the occurrence of any DEFAULT or EVENT OF DEFAULT, setting
forth in such notice the details thereof, and the action which the BORROWER is
taking or proposes to take with respect thereto.

          Section 5.11.10. Management Changes. The BORROWER shall notify the
ADMINISTRATIVE AGENT promptly of any changes in the personnel holding the
positions of Chief Executive Officer, Chief Financial Officer, or President of
the BORROWER.

          Section 5.11.11. General Information. In addition to the items set forth
in subparagraphs 5.11.1 through 5.11.10 above, the BORROWER agrees to submit to
the ADMINISTRATIVE AGENT such other information respecting the condition or
operations, financial or otherwise, of the BORROWER and its SUBSIDIARIES as the
ADMINISTRATIVE AGENT may reasonably request from time to time.

     Section 5.12. Employee Benefit Plans And Guaranteed Pension Plans. The
BORROWER will, and will cause each of its ERISA AFFILIATES to: (a) comply with
all material requirements imposed by ERISA and the CODE, applicable from time
to time to any of its GUARANTEED PENSION PLANS or EMPLOYEE BENEFIT PLANS; (b)
make full payment when due of all amounts which, under the

 

 

provisions of
EMPLOYEE BENEFIT PLANS or under applicable LAW, are required to be paid as
contributions thereto; (c) not permit to exist any material accumulated funding
deficiency, whether or not waived; (d) file on a timely basis all reports,
notices and other filings required by any governmental agency with respect to
any of its EMPLOYEE BENEFITS PLANS; (e) make any payments to MULTIEMPLOYER
PLANS required to be made under any agreement relating to such MULTIEMPLOYER
PLANS, or under any LAW pertaining thereto; (f) not amend or otherwise alter
any GUARANTEED PENSION PLAN if the effect would be to cause the actuarial
present value of all benefit commitments under any GUARANTEED PENSION PLAN to
be less than the current value of the assets of such GUARANTEED PENSION PLAN
allocable to such benefit commitments; (g) furnish to all participants,
beneficiaries and employees under any of the EMPLOYEE BENEFIT PLANS, within the
periods prescribed by LAW, all reports, notices and other information to which
they are entitled under applicable LAW; and (h) take no action which would
cause any of the EMPLOYEE BENEFIT PLANS to fail to meet any qualification
requirement imposed by the CODE, except to the extent that any such failure to
act or comply would not be or result in a MATERIAL ADVERSE EVENT. As used in
this Section, the term “accumulated funding deficiency” has the meaning
specified in Section 302 of ERISA and Section 412 of the CODE, and the terms
“actuarial present value,” “benefit commitments” and “current value” have
the meaning specified in Section 4001 of ERISA.

     Section 5.13. Compliance With Laws. Except to the extent described in
Schedule 4.19 attached hereto, the BORROWER shall comply in all material
respects with all applicable LAWS, the non-compliance with which would or could
reasonably be expected to cause a MATERIAL ADVERSE EVENT, including, but not
limited to, all LAWS with respect to: (a) all restrictions, specifications, or
other requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business; and (d) the obtaining and maintenance of all necessary
licenses, franchises, permits and governmental approvals, registrations and
exemptions necessary to engage in its business. Without limiting the
generality of the preceding sentence, the BORROWER shall: (i) comply in all
material respects with, and ensure such compliance by all tenants and
subtenants, if any, with, all applicable ENVIRONMENTAL LAWS and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
ENVIRONMENTAL LAWS; (ii) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required
under ENVIRONMENTAL LAWS, and promptly comply with all lawful orders and
directives of any governmental authority regarding ENVIRONMENTAL LAWS; and
(iii) defend, indemnify and hold harmless the SECURED PARTIES and their
employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or liability under any ENVIRONMENTAL LAWS applicable to the operations of the
BORROWER, or any lawful orders, requirements or demands of governmental
authorities related thereto, including, without limitation, reasonable
attorney’s and consultant’s fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of
the foregoing directly result from the gross negligence or willful misconduct
of any SECURED PARTY or the employees, agents, officers and directors of any
SECURED PARTY. The BORROWER agrees to promptly notify the ADMINISTRATIVE AGENT
of any RELEASE of a REGULATED SUBSTANCE on, to or from any FACILITY in
violation of any ENVIRONMENTAL LAWS or of any notice received by the BORROWER
that the BORROWER or any FACILITY is not in compliance with any ENVIRONMENTAL
LAWS.

     Section 5.14. Fixed Charge Coverage Ratio. The BORROWER and its
SUBSIDIARIES shall maintain a FIXED CHARGE COVERAGE RATIO of not less than 1.2
to 1.0, measured as of the last day of each FISCAL QUARTER.

     Section 5.15. Minimum Liquidity. The BORROWER shall at all times maintain
PERMITTED INVESTMENTS with a minimum aggregate value of not less than
Twenty-Five Million Dollars ($25,000,000.00), and shall provide the
ADMINISTRATIVE AGENT with such periodic confirmation thereof as requested by
the ADMINISTRATIVE AGENT from time to time.

 

 

ARTICLE 6

NEGATIVE COVENANTS

     The BORROWER covenants while any OBLIGATIONS are outstanding and unpaid
not to do or to permit to be done or to occur any of the acts or occurrences
set forth in this Article 6 without the prior written authorization of the
ADMINISTRATIVE AGENT.

     Section 6.1. No Change Of Name, Merger, Etc. The BORROWER shall not
change its name or enter into any merger, consolidation, or reorganization,
other than the following mergers, provided that the BORROWER is the sole
surviving entity thereof: (a) mergers between the BORROWER and its
SUBSIDIARIES; and (b) mergers in connection with acquisitions by the BORROWER
which are otherwise permitted by Section 6.7 of this AGREEMENT.

     Section 6.2. Dispositions. Neither the BORROWER nor its SUBSIDIARIES may
make any DISPOSITIONS other than: (a) DISPOSITIONS which do not constitute
PREPAYMENT DISPOSITIONS; or (b) PREPAYMENT DISPOSITIONS with respect to which
the NET AVAILABLE PROCEEDS arising therefrom are applied as required by the
terms of Section 2.4 of this AGREEMENT.

     Section 6.3. No Encumbrance Of Assets. Neither the BORROWER nor its
SUBSIDIARIES shall mortgage, pledge, grant or permit to exist any LIENS upon
any of its assets of any kind, now owned or hereafter acquired, except for
PERMITTED LIENS. The BORROWER agrees that it will not grant to any PERSON
other than the SECURED PARTIES any negative pledges applicable to any of the
assets of the BORROWER.

     Section 6.4. No Indebtedness. The BORROWER shall not incur, create,
assume, or permit to exist any INDEBTEDNESS except: (a) the OBLIGATIONS; (b)
INDEBTEDNESS secured by PERMITTED LIENS; (c) INDEBTEDNESS owed to SUBSIDIARIES;
(d) INDEBTEDNESS owed to Genencor International, Inc. in the principal amount
of Ten Million Dollars ($10,000,000.00); and (e) additional unsecured
INDEBTEDNESS not to exceed One Million Dollars ($1,000,000.00) in aggregate
amount at any time.

     Section 6.5. Restricted Payments. The BORROWER shall not make any
RESTRICTED PAYMENTS.

     Section 6.6. Transactions With
Affiliates. The BORROWER shall not make
any contract for the purchase of any items from any AFFILIATE or the
performance of any services (including employment services) by any AFFILIATE,
unless such contract is on terms which fairly represent generally available
terms to be obtained in transactions of a similar nature with independent third
PERSONS.

     Section 6.7. Loans, Investments And Sale-Leasebacks. The BORROWER and its
SUBSIDIARIES shall not make any advance, loan, investment, or acquisition of
the assets or equity interests of any other entity or enter into any
sale-leaseback transactions other than: (a) PERMITTED INVESTMENTS; (b) employee
loans and advances not to exceed Two Hundred Fifty Thousand Dollars
($250,000.00) in aggregate amount outstanding at any time; (c) capital
contributions and loans made by the BORROWER to its SUBSIDIARIES or made by the
BORROWER’S SUBSIDIARIES to the BORROWER; (d) acquisitions of the stock or
assets of another entity to the extent that: (i) such entity is engaged only in
business ventures consistent with the BORROWER’S line of business, (ii) the
aggregate value of all consideration (including cash and stock of the BORROWER)
paid in any FISCAL YEAR for such acquisitions does not exceed Five Million
Dollars ($5,000,000.00), and (iii) no DEFAULT or EVENT OF DEFAULT either exists
at the time of the subject acquisition or would be caused by the making of the
acquisition; or (e) INTEREST RATE HEDGES and currency hedges for
non-speculative, ordinary course of business purposes.

     Section 6.8. No Assignment. The BORROWER shall not assign or attempt to
assign its rights under this AGREEMENT.

 

 

     Section 6.9. No Alteration Of Line Of Business. The BORROWER shall not
amend or change materially its line of business, nor shall it engage in
business ventures other than business ventures which are consistent with its
line of business.

     Section 6.10. Unpermitted Uses Of Loan Proceeds. The BORROWER shall not
use any part of the proceeds of the LOANS hereunder for any purpose which
constitutes a violation of, or is inconsistent with, regulations of the Board
of Governors of the Federal Reserve System, including without limitation, the
purchase or carrying of (or refinancing of indebtedness originally incurred to
purchase or carry) margin securities.

     Section 6.11. Changes In Fiscal Year. The BORROWER shall not change its
FISCAL YEAR without providing the ADMINISTRATIVE AGENT with ninety (90) days
advance written notice thereof.

     Section 6.12. Subsidiaries. The BORROWER shall not form or acquire any
SUBSIDIARIES unless: (a) the BORROWER complies with the requirements of
Sections 3.8 and 3.9 of this AGREEMENT; and (b) the acquisition or the
formation of the SUBSIDIARY does not violate any of the restrictions of Section
6.7 of this AGREEMENT.

     Section 6.13. Leverage Ratio. The LEVERAGE RATIO shall not exceed: (a)
2.5 to 1.0 from the date of CLOSING through October 30, 2004; (b) 2.25 to 1.0
from October 31, 2004 through October 30, 2005; and (c) 2.0 to 1.0 from October
31, 2005 and thereafter.

ARTICLE 7

EVENTS OF DEFAULT

     The occurrence of any of the following events shall constitute an EVENT OF
DEFAULT.

     Section 7.1. Failure To Pay. The failure or refusal of the BORROWER to
pay: (a) all or any amount or installment of principal due upon the LOANS
(whether such payment is scheduled or is a mandatory prepayment or is due as a
result of the acceleration of the LOANS or is otherwise required by the CREDIT
DOCUMENTS); (b) any payment of interest due upon the LOANS within three (3)
BUSINESS DAYS after the date due; or (c) any other monetary OBLIGATION within
three (3) BUSINESS DAYS after demand therefor by the ADMINISTRATIVE AGENT.

     Section 7.2. Violation Of Covenants. The failure or refusal of the
BORROWER to timely perform, observe, and comply with: (a) any covenant,
agreement, or condition contained in Sections 5.14 or 5.15 of this AGREEMENT or
in Article 6 of this AGREEMENT; (b) the failure of the BORROWER to provide any
of the reports or items required by Section 5.11 of this AGREEMENT within ten
(10) BUSINESS DAYS after notice thereof by the ADMINISTRATIVE AGENT to the
BORROWER; and (c) any other covenant, agreement, or condition contained in
this AGREEMENT (other than the failure to pay the OBLIGATIONS as described
above in Section 7.1), and such failure or refusal continues for a period of
thirty (30) consecutive BUSINESS DAYS after notice thereof by the
ADMINISTRATIVE AGENT to the BORROWER.

     Section 7.3. Representation Or Warranty. The failure of any
representation or warranty made by the BORROWER or by any of the GUARANTORS to
be true in any material respect, as of the date made.

     Section 7.4. Default Under Credit Documents. A breach of or default by
the BORROWER under the terms, covenants, and conditions set forth in any other
CREDIT DOCUMENT after the expiration of any applicable rights of cure.

     Section 7.5. Cross-Default. A breach of or default under the terms,
covenants, or conditions of any agreement, loan, guaranty, or other credit
transactions of the BORROWER or any of the

 

 

GUARANTORS with Genencor
International, Inc., or with any other holder of INDEBTEDNESS, involving either
individually or in the aggregate an unpaid balance in excess of Two Million
Dollars ($2,000,000.00), after the expiration of any applicable rights of cure.

     Section 7.6. Judgments. The BORROWER or any of the GUARANTORS shall suffer
final judgments for the payment of money aggregating in excess of Two Million
Dollars ($2,000,000.00) and shall not discharge the same within a period of
thirty (30) days unless, pending further proceedings, execution has not been
commenced or if commenced has been effectively stayed.

     Section 7.7. Levy By Judgment Or Lien Creditor. A judgment or lien
creditor of the BORROWER shall obtain possession of any of the COLLATERAL by
any means, including but not limited to levy, distraint, replevin or self-help,
and the BORROWER shall not remedy
same within thirty (30) days thereof; or a writ of garnishment is served
on the LENDER relating to any of the accounts of the BORROWER maintained with
the ADMINISTRATIVE AGENT or any other SECURED PARTY.

     Section 7.8. Failure To Pay Liabilities. The BORROWER shall fail to pay
any of its debts, in an aggregate amount in excess of Two Million Dollars
($2,000,000.00), due to any third PERSON and such failure shall continue beyond
any applicable grace period, unless the BORROWER holds a good faith defense to
payment and has set aside reasonable reserves for the payment thereof.

     Section 7.9. Involuntary Insolvency Proceedings. The institution of
involuntary INSOLVENCY PROCEEDINGS against the BORROWER and the failure of any
such INSOLVENCY PROCEEDINGS to be dismissed before the earliest to occur of:
(a) the date which is sixty (60) days after the institution of such INSOLVENCY
PROCEEDINGS; (b) the entry of any order for relief in the INSOLVENCY PROCEEDING
or any order adjudicating the BORROWER insolvent; or (c) the impairment (as to
validity, priority or otherwise) of any security interest or LIEN of the
SECURED PARTIES in any of the COLLATERAL.

     Section 7.10. Voluntary Insolvency Proceedings. The commencement by the
BORROWER of INSOLVENCY PROCEEDINGS.

     Section 7.11. Insolvency Proceedings Pertaining To Subsidiaries. The
occurrence of any of the events listed in Sections 7.9 and 7.10 above to any
SUBSIDIARY of the BORROWER.

     Section 7.12. Material Adverse Event. The occurrence of a MATERIAL
ADVERSE EVENT.

     Section 7.13. Default By Guarantors. The failure by any of the GUARANTORS
to satisfy any obligation imposed upon the GUARANTORS in the GUARANTY
AGREEMENTS or their respective Security Agreements, after the expiration of any
cure rights.

     Section 7.14. Attempt To Terminate Guaranties. The receipt by the LENDER
of notice from a GUARANTOR that such GUARANTOR is attempting to terminate or
limit any portion of its obligations under a GUARANTY AGREEMENT.

     Section 7.15. ERISA. If any TERMINATION EVENT shall occur and as of the
date thereof or any subsequent date, the sum of the various liabilities of the
BORROWER and its ERISA AFFILIATES (such liabilities to include, without
limitation, any liability to the Pension Benefit Guaranty Corporation (or any
successor thereto) or to any other party under Sections 4062, 4063, or 4064 of
ERISA or any other provision of LAW and to be calculated after giving effect to
the tax consequences thereof) resulting from or otherwise associated with such
event exceeds Two Million Dollars ($2,000,000.00); or the BORROWER or any of
its ERISA AFFILIATES as an employer under any MULTIEMPLOYER PLAN shall have
made a complete or partial withdrawal from such MULTIEMPLOYER PLANS and the
plan sponsors of such MULTIEMPLOYER PLANS shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability requiring a
payment in an amount exceeding Two Million Dollars

 

 

($2,000,000.00).

     Section 7.16. Indictment Of Borrower Or Guarantors. The indictment of the
BORROWER or of any of the GUARANTORS for a felony under any federal, state or
other LAW.

     Section 7.17. Injunction. The issuance of any injunction against the
BORROWER which enjoins or restrains the BORROWER from continuing to conduct any
material part of its business affairs.

     Section 7.18. Change Of Control. The occurrence of a CHANGE OF CONTROL.

ARTICLE 8

RIGHTS AND REMEDIES ON THE OCCURRENCE

OF AN EVENT OF DEFAULT

     Upon the occurrence of an EVENT OF DEFAULT, the ADMINISTRATIVE AGENT
shall, at the request of, or may with the consent of, the REQUIRED LENDERS,
take any or all of the following actions:

     Section 8.1. Secured Parties’ Specific Rights And Remedies. In addition
to all other rights and remedies provided by LAWS and the CREDIT DOCUMENTS,
upon the occurrence of any EVENT OF DEFAULT, the ADMINISTRATIVE AGENT may with
the consent of the REQUIRED LENDERS and shall at the request of the REQUIRED
LENDERS: (a) accelerate and call immediately due and payable all or any part
of the OBLIGATIONS; (b) seek specific performance or injunctive relief to
enforce performance of the undertakings, duties, and agreements provided in the
CREDIT DOCUMENTS, whether or not a remedy at law exists or is adequate; and (c)
exercise any rights of a secured creditor under the Uniform Commercial Code, as
adopted and amended in Maryland or as otherwise applicable, including the right
to take possession of the COLLATERAL without the use of judicial process or
hearing of any kind and the right to require the BORROWER to assemble the
COLLATERAL at such place as the ADMINISTRATIVE AGENT may specify.

     Section 8.2. Automatic Acceleration. Upon the occurrence of an EVENT OF
DEFAULT as described in Sections 7.9 or 7.10 of this AGREEMENT, the OBLIGATIONS
shall be automatically accelerated and due and payable without any notice,
demand or action of any type on the part of the SECURED PARTIES.

     Section 8.3. Sale Of Collateral. In addition to any other remedy provided
herein, upon the occurrence of an EVENT OF DEFAULT, the ADMINISTRATIVE AGENT,
in a commercially reasonable fashion, may sell at public or private sale or
otherwise realize upon, in Baltimore, Maryland, or elsewhere, the whole or,
from time to time, any part of all COLLATERAL which is personal property, or
any interest which the BORROWER may have therein. Pending any such action, the
ADMINISTRATIVE AGENT may collect and liquidate the COLLATERAL. After deducting
from the proceeds of sale or other disposition of such COLLATERAL all expenses,
including all expenses for legal services, the ADMINISTRATIVE AGENT shall apply
such proceeds toward the satisfaction of the OBLIGATIONS. Any remainder of the
proceeds after satisfaction in full of the OBLIGATIONS shall be distributed as
required by applicable LAW. Notice of any sale or other disposition (other
than sales or other dispositions of COLLATERAL which is perishable or threatens
to decline speedily in value or of a type customarily sold on a recognized
market) shall be given to the BORROWER not less than ten (10) calendar days
before the time of any intended public sale or of the time after which any
intended private sale or other disposition of the COLLATERAL is to be made,
which the BORROWER hereby agrees would be commercially reasonable notice of
such sale or other disposition. The BORROWER agrees to assemble, or to cause
to be assembled, at the BORROWER’S expense, the COLLATERAL at such place or
places as the ADMINISTRATIVE AGENT designates. At any such sale or other
disposition, the ADMINISTRATIVE AGENT may, to the extent permissible under
applicable law, purchase the whole or any part of the COLLATERAL, free from any
right of redemption on the part of the BORROWER, which right is hereby waived
and released to the extent lawfully permitted. Without limiting the generality
of any of the rights and remedies conferred upon the ADMINISTRATIVE AGENT under
this Section, the ADMINISTRATIVE AGENT may, to the full extent

 

 

permitted by
applicable law: (a) enter upon the premises of the BORROWER, exclude therefrom
the BORROWER or any PERSON connected therewith, and take immediate possession
of the COLLATERAL, either personally or by means of a receiver appointed by a
court of competent jurisdiction, using all necessary force to do so; (b) at the
ADMINISTRATIVE AGENT’S option, use, operate, manage, and control the COLLATERAL
in any lawful manner; (c) collect and receive all income, revenue, earnings,
issues, and profits therefrom; and (d) maintain, alter or remove the
COLLATERAL.

     Section 8.4. Letters Of Credit. Upon the request of the ADMINISTRATIVE
AGENT, during any continuing EVENT OF DEFAULT, the BORROWER shall immediately
deposit in a cash collateral account to be maintained by the ADMINISTRATIVE
AGENT for the benefit of the LENDERS, over which the ADMINISTRATIVE AGENT has
exclusive dominion, an amount equal to the aggregate then undrawn and unexpired
amount of all LETTERS OF CREDIT. Amounts held in such cash collateral account
shall be applied by the ADMINISTRATIVE AGENT to the payment of drafts drawn
under LETTERS OF CREDIT, and the unused portion thereof after all LETTERS OF
CREDIT shall have expired or been fully drawn upon shall be applied to repay
any remaining unpaid OBLIGATIONS. After all LETTERS OF CREDIT have expired or
have been fully drawn upon and all other OBLIGATIONS have been paid in full,
the balance, if any, in such cash collateral account shall be returned to the
BORROWER. In the event the BORROWER fails to deposit into the cash collateral
account an amount equal to the then undrawn and unexpired amount of all LETTERS
OF CREDIT, the ADMINISTRATIVE AGENT shall be authorized to deposit into such
cash collateral account proceeds from the liquidation of the COLLATERAL until
the balance in such account equals the aggregate then undrawn and unexpired
amount of all LETTERS OF CREDIT.

     Section 8.5. Remedies Cumulative. The rights and remedies provided in
this AGREEMENT and in the other CREDIT DOCUMENTS or otherwise under applicable
LAWS shall be cumulative and the exercise of any particular right or remedy
shall not preclude the exercise of any other rights or remedies in addition to,
or as an alternative of, such right or remedy.

ARTICLE 9

THE ADMINISTRATIVE AGENT

     Section 9.1. Appointment. Each of the LENDERS hereby irrevocably
designates and appoints M&T as agent of such LENDER under this AGREEMENT and
the other CREDIT DOCUMENTS and each such LENDER authorizes M&T as agent for
such LENDER, to take such action on its behalf under the provisions of this
AGREEMENT and the other CREDIT DOCUMENTS and to exercise such powers and
perform such duties as are expressly delegated to the ADMINISTRATIVE AGENT by
the terms of this AGREEMENT and such other CREDIT DOCUMENTS, together with such
other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this AGREEMENT or such other CREDIT
DOCUMENTS, the ADMINISTRATIVE AGENT shall not have any duties or
responsibilities, except those expressly set forth herein and therein, or any
fiduciary relationship with any LENDER, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
AGREEMENT or the other CREDIT DOCUMENTS or otherwise exist against the
ADMINISTRATIVE AGENT. Without limiting the generality of the foregoing
sentence, the use of the term “agent” in this AGREEMENT is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine or any applicable laws. Instead, such terms is used merely as
a matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.

     Section 9.2. Administrative Agent May Hold Collateral For Lenders And
Others. The LENDERS and the BORROWER acknowledge that any financing
statements, guaranties, stock pledge agreements, mortgages, deeds of trust,
security documents or other document evidencing or documenting any LIENS
relating to or securing the LOANS, the other OBLIGATIONS, or the COLLATERAL,
including all of such documents filed in the public records in order to
evidence or perfect the LIENS and security interests granted in the CREDIT
DOCUMENTS, may name only the ADMINISTRATIVE AGENT, as agent for the LENDERS, as
the secured party, mortgagee, beneficiary, or

 

 

as lienholder. The LENDERS and
the BORROWER authorize the ADMINISTRATIVE AGENT to hold any or all of the
above-described security interests and LIENS in and to the COLLATERAL as the
agent for the LENDERS.

     Section 9.3. Delegation Of Duties. The ADMINISTRATIVE AGENT may execute
any of its duties under this AGREEMENT and the other CREDIT DOCUMENTS by or
through agents or attorneys-in-fact and shall be entitled to rely upon the
advice of counsel
concerning all matters pertaining to such duties. The ADMINISTRATIVE
AGENT shall not have any liability to the LENDERS for the negligence or
misconduct of any agents or attorneys-in-fact selected by the ADMINISTRATIVE
AGENT.

     Section 9.4. Liability. Neither the ADMINISTRATIVE AGENT nor any of the
officers, directors, employees, agents, attorneys-in-fact, subsidiaries or
affiliates of the ADMINISTRATIVE AGENT shall be: (a) liable to the LENDERS for
any action lawfully taken or omitted to be taken by the ADMINISTRATIVE AGENT or
such PERSON under or in connection with this AGREEMENT or the other CREDIT
DOCUMENTS (except for actions occasioned solely by the ADMINISTRATIVE AGENT’S
or such PERSON’S own gross negligence or willful misconduct); or (b)
responsible in any manner to any of the LENDERS for any recitals, statements,
representations or warranties made by the BORROWER or the GUARANTORS or by any
representative or officer thereof contained in this AGREEMENT or the other
CREDIT DOCUMENTS or in any certificate, report, statement or other document
referred to or provided for in, or received by the ADMINISTRATIVE AGENT under
or in connection with, this AGREEMENT or the other CREDIT DOCUMENTS or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this AGREEMENT or the other CREDIT DOCUMENTS or for any failure of the BORROWER
to pay or perform the OBLIGATIONS. The ADMINISTRATIVE AGENT shall not be under
any obligation to any LENDER to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
AGREEMENT, or to inspect the properties, books or records of the BORROWER, the
GUARANTORS, or of any other PERSON.

     Section 9.5. Reliance By The Administrative Agent. The ADMINISTRATIVE
AGENT shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper PERSON or PERSONS and upon advice
and statements of legal counsel (including, without limitation, counsel to the
BORROWER), independent accountants and other experts selected by the
ADMINISTRATIVE AGENT. The ADMINISTRATIVE AGENT may deem and treat the payee of
any NOTE as the owner thereof for all purposes unless such NOTE shall have been
transferred in accordance with the applicable provisions of this AGREEMENT.
The ADMINISTRATIVE AGENT shall be fully justified in refusing to take any
action requested or suggested by a LENDER in connection with this AGREEMENT or
any of the other CREDIT DOCUMENTS or which otherwise relates to the BORROWER or
the COLLATERAL, unless the ADMINISTRATIVE AGENT shall first receive such advice
or concurrence of the REQUIRED LENDERS, and the ADMINISTRATIVE AGENT is
indemnified to the ADMINISTRATIVE AGENT’S satisfaction by all of the LENDERS
against any and all liability and expense which may be incurred by the
ADMINISTRATIVE AGENT by reason of taking or continuing to take any such action.
The ADMINISTRATIVE AGENT shall in all cases be fully protected in acting, or
in refraining from acting, pursuant to this AGREEMENT and the NOTES in
accordance with a request of the REQUIRED LENDERS and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
LENDERS and all future holders of the NOTES.

     Section 9.6. Notice Of Default. The ADMINISTRATIVE AGENT shall not be
deemed to have knowledge or notice of the occurrence of any EVENT OF DEFAULT
unless the ADMINISTRATIVE AGENT has received notice from a LENDER or the
BORROWER referring to this AGREEMENT, describing such EVENT OF DEFAULT and
stating that such notice is intended to direct the ADMINISTRATIVE AGENT’S
attention to such EVENT OF DEFAULT in accordance with the provisions of this
Section. In the event that the ADMINISTRATIVE AGENT receives such a notice,
the ADMINISTRATIVE AGENT shall promptly give notice thereof to each of the
LENDERS within one (1) BUSINESS DAY of receipt of the ADMINISTRATIVE AGENT.
The ADMINISTRATIVE AGENT shall take such action with respect to an EVENT OF
DEFAULT as may be directed by the REQUIRED LENDERS;

 

 

provided that unless and
until the ADMINISTRATIVE AGENT shall have received such directions, the
ADMINISTRATIVE AGENT may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such EVENT OF DEFAULT as the
ADMINISTRATIVE AGENT, in the sole and absolute discretion of the ADMINISTRATIVE
AGENT, deems advisable.

     Section 9.7.Non-Reliance On The Administrative Agent And Other Lenders.
Each LENDER expressly acknowledges that neither the ADMINISTRATIVE AGENT nor
any of the officers, directors, employees, agents, attorneys-in-fact,
subsidiaries or affiliates of the ADMINISTRATIVE AGENT have made any
representations or warranties to it and that no act by the ADMINISTRATIVE AGENT
hereinafter taken, including any review of the affairs of the BORROWER shall be
deemed to constitute any representation or warranty by the ADMINISTRATIVE AGENT
to any LENDER. Each LENDER represents to the ADMINISTRATIVE AGENT that it has,
independently and without reliance upon the ADMINISTRATIVE AGENT or any other
LENDER, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the businesses,
operations, properties, financial and other conditions and creditworthiness of
the BORROWER and made its own decision to extend the LOANS to the BORROWER and
to enter into this AGREEMENT. Each LENDER also represents that it will,
independently and without reliance upon the ADMINISTRATIVE AGENT or any other
LENDER, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this AGREEMENT and the other
CREDIT DOCUMENTS, and to make such investigations as it deems necessary to
inform itself as to the businesses, operations, properties, financial and other
conditions and creditworthiness of the BORROWER. Except for notices, reports
and other documents expressly required to be furnished to the LENDERS by the
ADMINISTRATIVE AGENT hereunder or by the other CREDIT DOCUMENTS, the
ADMINISTRATIVE AGENT shall not have any duty or responsibility to provide any
LENDER with any credit or other information concerning the businesses,
operations, properties, financial and other conditions or creditworthiness of
the BORROWER which may come into the possession of the ADMINISTRATIVE AGENT or
any of its officers, directors, employees, agents, attorneys-in-fact,
subsidiaries or affiliates.

     Section 9.8. Indemnification. Each LENDER agrees to indemnify the
ADMINISTRATIVE AGENT in the ADMINISTRATIVE AGENT’S capacity as the appointed
agent of the LENDERS (to the extent not reimbursed by the BORROWER and without
limiting the obligations of the BORROWER to do so), ratably according to its
COMMITMENT PERCENTAGE, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the NOTES) be imposed on,
incurred by or asserted against the ADMINISTRATIVE AGENT in any way relating to
or arising out of this AGREEMENT or the other CREDIT DOCUMENTS, or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
ADMINISTRATIVE AGENT under or in connection with any of the foregoing; provided
that no LENDER shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the
ADMINISTRATIVE AGENT’S gross negligence or willful misconduct. The agreements
in this Section shall survive the repayment and performance of the OBLIGATIONS
and the termination of this AGREEMENT.

     Section 9.9. No Independent Actions By Lenders With Respect To Collateral
Or Remedies. Each LENDER hereby authorizes the ADMINISTRATIVE AGENT to take
such actions in the name of the ADMINISTRATIVE AGENT or in the name of the
LENDERS as may be required to enforce the terms and conditions of any of the
CREDIT DOCUMENTS, including but not limited to the exercise of any remedies or
enforcement rights. Each LENDER agrees that no LENDER shall have any right
individually to seek to realize upon any security granted by any of the CREDIT
DOCUMENTS or to individually exercise any of the remedies or rights of
enforcement provided by the CREDIT DOCUMENTS or as otherwise available under
applicable LAWS, it being agreed that such rights and remedies shall be
exercised only by the ADMINISTRATIVE AGENT for the benefit of the LENDERS in
accordance with the terms of the CREDIT DOCUMENTS.

 

 

     Section 9.10. The Administrative Agent In Its Individual Capacity. The
ADMINISTRATIVE AGENT and the ADMINISTRATIVE AGENT’S parent and subsidiaries and
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the BORROWER as though the ADMINISTRATIVE AGENT were not
an ADMINISTRATIVE AGENT hereunder. With respect to any LOAN made or renewed by
the ADMINISTRATIVE AGENT and any NOTE issued to the ADMINISTRATIVE AGENT, the
ADMINISTRATIVE AGENT shall have
the same rights and powers provided by this AGREEMENT and the other CREDIT
DOCUMENTS as any other LENDER and may exercise the same as though it were not
the ADMINISTRATIVE AGENT, and the terms “LENDER” and “LENDERS” shall include
the ADMINISTRATIVE AGENT in its individual lending capacity. The LENDERS, in
their individual capacities, may from time to time issue INTEREST RATE HEDGES
for the accounts of the BORROWER and its SUBSIDIARIES with respect to the
OBLIGATIONS.

     Section 9.11. Removal Or Resignation Of The Administrative Agent;
Successor Administrative Agent. The ADMINISTRATIVE AGENT may be removed for
cause by the REQUIRED LENDERS. Subject to the appointment and acceptance of a
successor as provided below, the ADMINISTRATIVE AGENT may resign at any time by
giving notice thereof to the LENDERS and the BORROWER. Upon any such removal
or resignation, the REQUIRED LENDERS, with the prior written approval of the
BORROWER (which approval shall not unreasonably be withheld or delayed, and
shall not be required if a DEFAULT or an EVENT OF DEFAULT shall have occurred
and be continuing), shall appoint a successor ADMINISTRATIVE AGENT, which
successor shall have minimum capital and surplus of at least Five Hundred
Million Dollars ($500,000,000.00). If a successor ADMINISTRATIVE AGENT has not
been so appointed or has not accepted such appointment within thirty (30) days
after the ADMINISTRATIVE AGENT’S giving of notice of resignation, then the
ADMINISTRATIVE AGENT may, on behalf of the LENDERS, appoint a successor, which
successor shall have minimum capital and surplus of at least Five Hundred
Million Dollars ($500,000,000.00). Upon the acceptance of any appointment as
ADMINISTRATIVE AGENT hereunder by a successor ADMINISTRATIVE AGENT, such
ADMINISTRATIVE AGENT shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the retiring or removed ADMINISTRATIVE
AGENT, and the retiring or removed ADMINISTRATIVE AGENT shall be discharged
from its duties and obligations hereunder. After the resignation and removal
of any ADMINISTRATIVE AGENT, the provisions of this Article 9 shall continue in
effect with respect to actions taken or omitted to be taken by such
ADMINISTRATIVE AGENT while the retired or removed ADMINISTRATIVE AGENT was
acting in the capacity of ADMINISTRATIVE AGENT.

     Section 9.12. Benefits Of Article 9. None of the provisions of this
Article 9 shall inure to the benefit of the BORROWER or any other PERSON other
than the ADMINISTRATIVE AGENT and the LENDERS; consequently, neither the
BORROWER nor any other PERSON shall be entitled to rely upon, or to raise as a
defense, in any manner whatsoever, the failure of the ADMINISTRATIVE AGENT or
any LENDER to comply with such provisions.

     Section 9.13. Syndication And Documentation Agent. No LENDER identified
in this AGREEMENT as a “SYNDICATION AGENT” or as a “DOCUMENTATION AGENT” shall
have any rights, powers, obligations or duties under the CREDIT DOCUMENTS other
than those applicable to all LENDERS.

ARTICLE 10

GENERAL CONDITIONS AND TERMS

     Section 10.1. Successors And Assigns; Participations.

          Section 10.1.1. Benefit Of Agreement. This AGREEMENT shall be binding
upon and inure to the benefit of the BORROWER, the SECURED PARTIES, all future
holders of the NOTES, and their respective successors and assigns.

          Section 10.1.2. Assignment Of Loans By Lenders. Each LENDER may, with the
written consent of the BORROWER and the ADMINISTRATIVE AGENT, such consent not
to be

 

 

unreasonably withheld or unduly delayed (and shall not be required during
any continuing EVENT OF DEFAULT), assign to one or more ELIGIBLE ASSIGNEES all
or any portion of such LENDER’S interests, rights and obligations set forth in
this AGREEMENT or the other CREDIT DOCUMENTS
(including, without limitation, all or a portion of the LOANS at the time
owing to such LENDER and the NOTE held by such LENDER) provided that: (a) an
administrative fee in the amount of Three Thousand Five Hundred Dollars
($3,500.00) is paid to the ADMINISTRATIVE AGENT in connection with the
assignment; (b) if less than all of the assigning LENDER’S COMMITMENT AMOUNT is
to be assigned, the amount of the COMMITMENT AMOUNT so assigned shall be for an
aggregate principal amount of not less than Five Million Dollars
($5,000,000.00); (c) the parties to each such assignment shall execute and
deliver to the ADMINISTRATIVE AGENT (with copies to be sent contemporaneously
to each LENDER), for its acceptance, an Assignment And Acceptance (“LENDER
ASSIGNMENT”) in the form of Exhibit 10.1.2.(c) attached hereto; and (d) such
LENDER ASSIGNMENT does not require the filing of a registration statement with
the Securities And Exchange Commission or require the LOANS or the NOTE to be
qualified in conformance with the requirements imposed by any blue sky laws or
other LAWS of any state. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each LENDER
ASSIGNMENT, which effective date are at least five (5) BUSINESS DAYS after the
execution thereof, (i) the ASSIGNEE thereunder shall be a party hereto and, to
the extent provided in such LENDER ASSIGNMENT, have the rights, duties, and
obligations of a LENDER hereunder, and (ii) the assigning LENDER thereunder
shall, to the extent provided in such assignment, be released from its duties
and obligations under this AGREEMENT.

          Section 10.1.3. Rights And Duties Upon Assignment. By executing and
delivering a LENDER ASSIGNMENT, the assigning LENDER thereunder and the
ASSIGNEE thereunder confirm to and agree with each other and the other parties
to this AGREEMENT as set forth in such LENDER ASSIGNMENT.

          Section 10.1.4. Register. The ADMINISTRATIVE AGENT shall maintain a copy
of each LENDER ASSIGNMENT delivered to it and a register for the recordation of
the names and addresses of the LENDERS and the amount of the LOANS with respect
to each LENDER from time to time (the “REGISTER”). The entries in the REGISTER
shall be conclusive, in the absence of manifest error, and the BORROWER, the
ADMINISTRATIVE AGENT and the LENDERS may treat each PERSON whose name is
recorded in the REGISTER as a LENDER hereunder for all purposes of this
AGREEMENT. The REGISTER shall be available for inspection by the BORROWER or
LENDERS at any reasonable time and from time to time upon reasonable prior
notice.

          Section 10.1.5. Issuance Of New Notes. Upon the ADMINISTRATIVE AGENT’S
receipt of an LENDER ASSIGNMENT executed by an assigning LENDER and an ELIGIBLE
ASSIGNEE together with any NOTE subject to such LENDER ASSIGNMENT and the
written consent to such LENDER ASSIGNMENT, the ADMINISTRATIVE AGENT shall, if
such LENDER ASSIGNMENT has been completed and is substantially in the form of
Exhibit 10.1.2.(c): (a) accept such LENDER ASSIGNMENT; (b) record the
information contained therein in the REGISTER; (c) give prompt notice thereof
to the LENDERS and the BORROWER; and (d) promptly deliver a copy of such LENDER
ASSIGNMENT to each of the LENDERS and the BORROWER. Within three (3) BUSINESS
DAYS after receipt of notice, the BORROWER shall execute and deliver to the
ADMINISTRATIVE AGENT, in exchange for the surrendered NOTE, a new NOTE to the
order of such ELIGIBLE ASSIGNEE in amounts equal to the COMMITMENT PERCENTAGE
assumed by it pursuant to such LENDER ASSIGNMENT and a new NOTE to the order of
the assigning LENDER in an amount equal to the COMMITMENT PERCENTAGE retained
by the assigning LENDER. Such new NOTE shall be in an aggregate principal
amount equal to the aggregate principal amount of each surrendered NOTE, shall
be dated the effective date of such LENDER ASSIGNMENT and shall otherwise be in
substantially the form of the assigned NOTE delivered to the assigning LENDER.
Each surrendered NOTE shall be canceled and returned to the BORROWER. The
BORROWER expressly acknowledges that the cancellation of any NOTE and the
replacement of any NOTE in accordance with this provision shall not constitute
or be deemed to be a refinancing or a novation of any of the OBLIGATIONS.

          Section 10.1.6. Participations. Each LENDER may sell participations to
one or more

 

 

banks or other entities in all or a portion of its rights and
obligations relating to the LOANS and as provided for in this AGREEMENT and the
other CREDIT DOCUMENTS (including, without
limitation, all or a portion of its extensions of credit and the NOTES
held by it) and each such PARTICIPANT shall be entitled to the indemnification,
yield protection and protection from increased costs provided to the LENDERS
under this AGREEMENT, provided that: (a) each such participation shall be in an
amount not less than Five Million Dollars ($5,000,000.00); (b) such LENDER’S
obligations under this AGREEMENT (including, without limitation, its COMMITMENT
PERCENTAGE) shall remain unchanged; (c) such LENDER shall remain responsible to
the other parties hereto for the performance by such LENDER of its duties and
obligations under this AGREEMENT; (d) such LENDER shall remain the holder of
the NOTE held by such LENDER for all purposes of this AGREEMENT; (e) the
BORROWER, the ADMINISTRATIVE AGENT, and the other LENDERS shall continue to
deal solely and directly with such LENDER in connection with such LENDER’S
rights and obligations under this AGREEMENT; (f) such LENDER shall not permit
any PARTICIPANT to have any contractual right or veto directly or indirectly to
approve any waivers, amendments or other modifications to this AGREEMENT or any
other CREDIT DOCUMENT other than waivers, amendments or modifications which
would reduce the principal of or the interest rate on any LOAN in which such
PARTICIPANT is acquiring a participation interest, extend the term or increase
the amount of the applicable COMMITMENT PERCENTAGE of the LENDER selling the
subject participation interest, reduce the amount of any fees to which the
LENDER selling the subject participation is entitled, extend any scheduled
payment date for principal upon any LOAN in which the subject PARTICIPANT is
acquiring a participation interest or, except as expressly contemplated hereby
or thereby, release substantially all of the COLLATERAL securing the LOAN in
which the subject PARTICIPANT is acquiring a participation interest; (g) any
such disposition shall not necessitate the filing of a registration statement
with the Securities and Exchange Commission, or require the qualification of
the LOANS or the NOTES under the blue sky law of any state; and (h) the
PARTICIPANT shall not be entitled to any indemnification, yield protection or
protection from increased costs which are in excess of the rights of the LENDER
from which it purchased its participation interest.

          Section 10.1.7. Disclosure Of Information; Confidentiality. The SECURED
PARTIES shall hold all non-public information with respect to the BORROWER
confidential. The BORROWER agrees that any LENDER may, in connection with any
assignment, proposed assignment, participation or proposed participation
pursuant to this Section, disclose to the ASSIGNEE, PARTICIPANT, proposed
ASSIGNEE or proposed PARTICIPANT, any information relating to the BORROWER
furnished to such LENDER by or on behalf of the BORROWER; provided, that prior
to any such disclosure, each such ASSIGNEE, proposed ASSIGNEE, PARTICIPANT or
proposed PARTICIPANT shall agree with the BORROWER or such LENDER to preserve
the confidentiality of any confidential information relating to the BORROWER
received from such LENDER. Nothing herein shall prevent any SECURED PARTY from
disclosing such information: (a) to any other SECURED PARTY; (b) upon the order
of any court or administrative agency; (c) upon the request or demand of any
regulatory agency or authority having jurisdiction over such SECURED PARTY; (d)
which has been publicly disclosed; (e) to the extent reasonably required in
connection with any litigation to which such SECURED PARTY may be a party; (f)
to its counsel and auditors; and (g) to the extent reasonably required in
connection with the exercise of any remedy hereunder.

          Section 10.1.8. Certain Pledges Or Assignments. Nothing herein shall
prohibit any LENDER from pledging or assigning any NOTE to any Federal Reserve
Bank in accordance with applicable LAW.

     Section 10.2. Sharing Of Collections. The LENDERS hereby agree among
themselves that, except as provided to the contrary in this AGREEMENT, if any
LENDER shall receive by voluntary payment, realization upon security, set-off
or from any other source any amount on account of the LOANS, interest thereon,
or any other OBLIGATION contemplated by this AGREEMENT or the other CREDIT
DOCUMENTS to be made by the BORROWER ratably to all LENDERS in greater
proportion than any such amount received by any other LENDER, then the LENDER
receiving such proportionately greater payment shall notify the ADMINISTRATIVE
AGENT of such receipt, and equitable adjustment will be made in the manner
stated in this Section so that, in effect, all such excess amounts will be
shared ratably among all of the LENDERS. The LENDER receiving such excess
amount shall purchase (which it

 

 

shall be deemed to have done simultaneously
upon its receipt of a disproportionate payment) a participation in the
applicable OBLIGATIONS owed to such other LENDERS in such amount as shall
result in a ratable sharing by all LENDERS of such excess amount. If all or any
portion of such excess amount is thereafter recovered from the LENDER making
such purchase, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery, together with
interest or other amounts, if any, required by LAW to be paid by the LENDER
making such purchase.

     Section 10.3. Reversal Of Payments; Revival Of Obligations. To the extent
that the BORROWER makes a payment or payments to the LENDERS or the
ADMINISTRATIVE AGENT for the ratable benefit of the LENDERS, or the
ADMINISTRATIVE AGENT or LENDERS receive any payment or proceeds of the
COLLATERAL or from any set-off or any other source, which payments or proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, avoided, and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
repaid, the OBLIGATIONS or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if such payment or proceeds
had not been received by the LENDERS or the ADMINISTRATIVE AGENT.

     Section 10.4. Amendments, Waivers And Consents. Except as expressly set
forth below in this Section, any term, covenant, agreement or condition of this
AGREEMENT or of any of the other CREDIT DOCUMENTS may be amended or waived by
the REQUIRED LENDERS on behalf of the LENDERS, and any consent may be given by
the REQUIRED LENDERS on behalf of the LENDERS; provided, however, that no
amendment, waiver or consent shall, without the prior written consent of all of
the LENDERS: (a) increase the principal amount or extend the time for payment
of any of the LOANS; (b) change any COMMITMENT PERCENTAGE or COMMITMENT AMOUNT
of any LENDER (except as specifically permitted to reflect an assignment
pursuant to the assignment provisions of Section 10.1.2 of this AGREEMENT); (c)
extend the originally scheduled time or times of payment of the principal of
any of the LOANS or the time or times of payment of interest on any of the
LOANS; (d) increase or reduce the rate of interest or fees payable on any of
the LOANS or as otherwise required by the CREDIT DOCUMENTS; (e) permit any
subordination of the principal or interest of any of the LOANS; (f) release
substantially all of the COLLATERAL or the GUARANTORS; (g) amend the provisions
of this Section 10.4 or of Section 6.3 or the definitions of ADMINISTRATIVE
AGENT, APPLICABLE PERCENTAGE, BORROWER, LENDERS, COMMITMENT AMOUNT, COMMITMENT
PERCENTAGE, or REQUIRED LENDERS, or modify in any other manner the number or
percentage of LENDERS required to make any determinations, waive any rights, or
modify any provisions of this AGREEMENT; (h) reduce or forgive any commitment
fees payable in accordance with Section 2.1.7 of this AGREEMENT; (i) waive any
EVENT OF DEFAULT arising pursuant to a violation of either Section 6.3 or
Section 7.1 of this AGREEMENT; (or) (j) waive the condition precedent to
advances of proceeds of the LOANS set forth in Section 2.1.4 of this AGREEMENT
with respect to any then continuing EVENTS OF DEFAULT. Except as expressly
provided to the contrary in this AGREEMENT and with the exception of amendments
to any provision of Article 9 of this AGREEMENT, this AGREEMENT may not be
amended without the prior written consent of the BORROWER. The ADMINISTRATIVE
AGENT and all of the LENDERS may amend or modify any provision of Article 9 of
this AGREEMENT (excluding (i) those provisions relating to the consent rights
of the BORROWER, and (ii) those provisions relating to the qualifications of a
successor ADMINISTRATIVE AGENT) without the need for any consent or approval
from the BORROWER, it being acknowledged that the BORROWER is not a third-party
beneficiary of any of the provisions of Article 9 (without implying that the
BORROWER has any other third-party beneficiary rights).

     Section 10.5. Set Off. The BORROWER agrees that, to the fullest extent
permitted by law, if any OBLIGATION shall be due and payable (by acceleration
or otherwise), each SECURED PARTY or PARTICIPANT (and any branch, subsidiary or
affiliate thereof) shall have the right, without notice to the BORROWER, to set
off against and to appropriate and apply to such OBLIGATION any indebtedness,
liability or obligation of any nature owing to the BORROWER by such SECURED
PARTY, PARTICIPANT (or branch, subsidiary or affiliate thereof), including but
not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, whether or not evidenced by a
certificate of deposit) now or hereafter maintained by the BORROWER with such
SECURED PARTY, PARTICIPANT

 

 

(or branch, subsidiary or affiliate thereof). Such right shall be
absolute and unconditional in all circumstances and, without limitation, shall
exist whether or not any notice or demand has been given to the BORROWER or any
other PERSON, whether such indebtedness, obligation or liability owed to the
BORROWER is contingent, absolute, matured or unmatured (it being agreed that
any such indebtedness, obligation or liability shall be deemed to be then due
and payable at the time of such set-off), and regardless of the existence or
adequacy of any collateral, guaranty or any other security, right or remedy
available. The rights provided by this Section are in addition to all other
rights of set-off and banker’s LIEN and all other rights and remedies which the
SECURED PARTIES, any PARTICIPANT, or any branch, subsidiary or affiliate
thereof, may otherwise have under this AGREEMENT, any other CREDIT DOCUMENT,
at law or in equity, or otherwise, and nothing in this AGREEMENT or any other
CREDIT DOCUMENT shall be deemed a waiver or prohibition of or restriction on
the rights of set-off or bankers’ LIEN of any such PERSON.

     Section 10.6. Secured Party Expenses. All reasonable
SECURED PARTY EXPENSES shall be paid by the BORROWER upon the demand of the
ADMINISTRATIVE AGENT, whether incurred prior to or after the date of CLOSING.

     Section 10.7. Obligations Are Unconditional. The
payment and performance of the OBLIGATIONS shall be the absolute and
unconditional duty and obligation of the BORROWER, and shall be independent of
any defense or any rights of set-off, recoupment or counterclaim which the
BORROWER might otherwise have against any of the SECURED PARTIES. The BORROWER
shall pay the payments of the principal and interest to be made upon the
OBLIGATIONS, free of any deductions and without abatement, diminution or
set-off other than those herein expressly provided. Until the OBLIGATIONS have
been fully paid and performed, the BORROWER shall not: (a) suspend or
discontinue any payments required by the CREDIT DOCUMENTS; and (b) fail to
perform and observe all of the BORROWER’S covenants and agreements set forth in
the CREDIT DOCUMENTS.

     Section 10.8. Indemnity. The BORROWER agrees to
defend, indemnify and hold harmless each of the SECURED PARTIES and the
entities affiliated with the SECURED PARTIES and all of the SECURED PARTIES’
and their respective affiliated entities’ employees, agents, officers and
directors, from and against any losses, penalties, fines, liabilities,
settlements, damages, costs and expenses, suffered in connection with any
claim, investigation, litigation or other proceeding (whether or not the
SECURED PARTY or an affiliated entity is a party thereto) and the prosecution
and defense thereof, arising out of or in any way connected with any CREDIT
DOCUMENT, including without limitation reasonable attorneys’ and consultant’s
fees, except to the extent that any of the foregoing directly result from the
gross negligence or willful misconduct of the party seeking indemnification
therefor. Notwithstanding any termination of this AGREEMENT or payment and
performance of the OBLIGATIONS, the indemnities provided for herein shall
continue in full force and effect and shall protect all of the above-described
PERSONS against events arising after such termination, payment or performance
as well as before.

     Section 10.9. Incorporation. The terms and conditions
of the CREDIT DOCUMENTS are incorporated by reference and made a part hereof,
as if fully set forth herein.

     Section 10.10. Waivers. The ADMINISTRATIVE AGENT at
any time or from time to time may waive all or any rights under this AGREEMENT
or any other CREDIT DOCUMENT upon the consent of the REQUIRED LENDERS or all
LENDERS as required by the terms of this AGREEMENT, but any waiver or
indulgence at any time or from time to time shall not constitute a future
waiver of performance or exact performance by the BORROWER.

     Section 10.11. Continuing Obligation Of Borrower. The
terms, conditions, and covenants set forth herein
and in the CREDIT DOCUMENTS shall survive CLOSING and shall constitute a
continuing obligation of the BORROWER during the course of the transactions
contemplated herein. The LIENS and other security provided by this AGREEMENT
shall remain in effect so long as any OBLIGATION, whether direct or contingent,
is outstanding, unpaid, or unsatisfied or is being challenged or contested. At
such time as the OBLIGATIONS have been paid, performed and satisfied in full
and no INTEREST RATE

 

 

HEDGE or LETTER OF CREDIT remains in effect and provided
that no challenge or contest to such payment and performance or attempt to
avoid or set aside any payment upon the OBLIGATIONS is pending, the
ADMINISTRATIVE AGENT shall provide, at the BORROWER’S expense, documentation
sufficient to release all LIENS of the ADMINISTRATIVE AGENT in the COLLATERAL;
and provided, that without limitation, the foregoing provisions of this Section
shall be subject to Section 2.12 hereof.

     Section 10.12. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this AGREEMENT and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the execution of this AGREEMENT or which occurred or were to occur
as a direct or indirect result of this AGREEMENT having been executed.

     Section 10.13. Submission To Jurisdiction; Venue; Actions Against
Secured Parties. For purposes of any action, in law or in equity,
which is based directly or indirectly on this AGREEMENT, any other CREDIT
DOCUMENT or any matter related to this AGREEMENT or any other CREDIT DOCUMENT,
including any action for recognition or enforcement of any of the SECURED
PARTIES’ rights under the CREDIT DOCUMENTS or any judgment obtained by the
SECURED PARTIES in respect thereof, the BORROWER hereby:

          Section 10.13.1. Jurisdiction. Irrevocably submits to
the non-exclusive general jurisdiction of the courts of the State of Maryland
and, if a basis for federal jurisdiction exists at any time, the courts of the
United States of America for the District of Maryland.

          Section 10.13.2. Venue. Agrees that venue shall be
proper in the Circuit Court for Baltimore City, Maryland, the Circuit Court for
any county in the state of Maryland, as selected by the SECURED PARTIES, and,
if a basis for federal jurisdiction exists, the courts of the United States of
America for the District of Maryland.

          Section 10.13.3. Waiver Of Objections To Venue. Waives
any right to object to the maintenance of any suit in any of the courts
specified in Section 10.13.2 above on the basis of improper venue or
convenience of forum. The BORROWER further agrees that it shall not institute
any suit or other action against any of the SECURED PARTIES, in law or in
equity, which is based directly or indirectly on this AGREEMENT, any other
CREDIT DOCUMENT or any matter related to this AGREEMENT or any other CREDIT
DOCUMENT, in any court other than a court specified in Section 10.13.2 above;
provided, that in any instance in which there is then pending a suit instituted
by the LENDER against the BORROWER in a court other than a court specified in
Section 10.13.2 above, the BORROWER may file in such suit any counterclaim
which it has against any of the SECURED PARTIES but only if such counterclaim
is a compulsory counterclaim and would be barred if not filed as a counterclaim
in such suit. The BORROWER agrees that any suit brought by it against any of
the SECURED PARTIES not in accordance with this paragraph should be forthwith
dismissed or transferred to a court specified in Section 10.13.2 above.

     Section 10.14. Notices. Any notice required or
permitted by or in connection with this AGREEMENT shall be in writing (except
to the extent that telephonic notice is expressly authorized by the terms of
this AGREEMENT) and shall be made by facsimile (confirmed on the date the
facsimile is sent by one of the other methods of giving notice provided for in
this Section) or by hand delivery, by Federal Express, or other similar
overnight delivery service, or by certified mail, unrestricted
delivery, return receipt requested, postage prepaid, addressed to the
ADMINISTRATIVE AGENT, the LENDERS or the BORROWER at the appropriate addresses
set forth below or to such other address as may be hereafter specified by
written notice by the ADMINISTRATIVE AGENT, the LENDERS or the BORROWER.
Notice shall be considered given as of the date of the facsimile or the hand
delivery, one (1) calendar day after delivery to Federal Express or similar
overnight delivery service, or three (3) calendar days after the date of
mailing, independent of the date of actual delivery or whether delivery is ever
in fact made, as the case may be, provided the giver of notice can establish
the fact that notice was given as provided herein. If notice is tendered
pursuant to the provisions of this Section and is refused by the intended
recipient

 

 

thereof, the notice, nevertheless, shall be considered to have been
given and shall be effective as of the date herein provided.

               If to any or all of the LENDERS:

	 	 	 	To the addresses set forth on the signature pages of

this AGREEMENT or in any LENDER ASSIGNMENT

               If to the ADMINISTRATIVE AGENT (with a copy to each of the LENDERS):

	 	 	 	Manufacturers And Traders Trust Company

25 S. Charles Street, 12th Floor

Baltimore, Maryland 21201

Attn: Hugh E. Giorgio, Vice President

Facsimile: (410) 244-4447
	 
	 	 	 	                        -and-
	 
	 	 	 	Manufacturers And Traders Trust Company

6395 Dobbin Road, Suite 106

Columbia, Maryland 21045

Attn: Robert F. Topper, Vice President

Facsimile: (410) 964-6810

               If to the BORROWER:

	 	 	 	Martek Biosciences Corporation

6480 Dobbin Road

Columbia, Maryland 21045

Attn: George P. Barker, Esquire

Facsimile: (410) 740-2985

               With A Courtesy Copy To:

	 	 	 	HOGAN & HARTSON L.L.P.

111 South Calvert Street, Suite 1600

Baltimore, Maryland 21202

Attn.: Kevin G. Gralley, Esquire

Facsimile: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of any notice given to the BORROWER in the manner
provided herein.

     Section 10.15. Miscellaneous Provisions. The parties
agree that: (a) this AGREEMENT shall be effective as of the date first above
written, independent of the date of execution or delivery hereof; (b) this
AGREEMENT shall
be binding upon the parties and their successors and assigns, contains the
final and entire agreement and understanding of the parties, and may neither be
amended or altered except by a writing signed by the parties; (c) time is
strictly of the essence of this AGREEMENT; (d) as used herein, the singular
includes the plural and the plural includes the singular, the use of any gender
applies to all genders; (e) the captions contained herein are for purposes of
convenience only and are not a part of this AGREEMENT; (f) a carbon,
photographic, photocopy or other reproduction of a security agreement or
financing statement shall be sufficient as a financing statement; (g) this
AGREEMENT may be delivered by facsimile, and a facsimile of any party’s
signature to this AGREEMENT shall be deemed an original signature for all
purposes; and (h) this AGREEMENT may be executed in several counterparts, each
of which shall be an original, but all of which, when taken together, shall
constitute one and the same

 

 

document.

     Section 10.16. Waiver Of Trial By Jury. Each party to
this AGREEMENT agrees that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this AGREEMENT or any other CREDIT
DOCUMENT or which in any way relates, directly or indirectly, to the
OBLIGATIONS or any event, transaction, or occurrence arising out of or in any
way connected with any of the OBLIGATIONS, or the dealings of the parties with
respect thereto, shall be tried only by a court and not by a jury. EACH PARTY
HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION,
OR PROCEEDING.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

 

 

     IN WITNESS WHEREOF, each of the SECURED PARTIES and the BORROWER have duly
executed this AGREEMENT under seal as of the date first above written. This
AGREEMENT may be executed in counterparts and delivered via facsimile and shall
be enforceable against each signatory hereto regardless of whether all
indicated signatories ultimately execute this AGREEMENT.

	 	 	 
	WITNESS/ATTEST:	 	
MARTEK BIOSCIENCES CORPORATION,
	 	 	
A Delaware Corporation

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Peter
L. Buzy	 	 	(SEAL)
	 	
	 	 	 
	 	 	 	 	Peter L. Buzy,

Chief Financial Officer	 	 	 	 

[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]

 

 

COUNTERPART SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT:

	 	 	 
	WITNESS/ATTEST:	 	
MANUFACTURERS AND TRADERS TRUST COMPANY,
	 	 	
In Its Capacity As Administrative Agent

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Robert Topper	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	Robert Topper	 	 	 
	 	 	 	 	
	 	 
	 	 	
    Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	WITNESS/ATTEST:	 	
BANK OF AMERICA, N.A.,
	 	 	
In Its Capacity As Syndication Agent

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Michael J. Radcliffe	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	Michael J. Radcliffe	 	 	 
	 	 	 	 	
	 	 
	 	 	
    Title:	 	Senior Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	WITNESS/ATTEST:	 	
SUNTRUST BANK,
	 	 	
In Its Capacity As Documentation Agent

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   J. MacGregor
Tisdale	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	J. MacGregor Tisdale	 	 	 	 
	 	 	 	 	
	 	 
	 	 	
Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 
	WITNESS/ATTEST:	 	
LENDERS:
	 	 	 
	 	 	
MANUFACTURERS AND TRADERS TRUST COMPANY

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Robert Topper	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	Robert Topper	 	 	 
	 	 	 	 	
	 	 
	 	 	
    Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
26.5%

22,500,000.00

Notice Address:

25 S. Charles Street, 12th Floor

Baltimore, Maryland 21201

Attn: Hugh E. Giorgio, Vice President

Facsimile: (410) 244-4447

[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 
	WITNESS/ATTEST:	 	
BANK OF AMERICA, N.A

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Michael
J. Radcliffe	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	Michael
J. Radcliffe	 	 	 
	 	 	 	 	
	 	 
	 	 	
Title:	 	Senior Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
23.5%

$20,000,000.00

Notice Address:

1101 Wootton Parkway, 4th Floor

Rockville, MD 20852

Attn.:   Michael J. Radcliffe, Senior Vice President

Fax:       (301) 517-3120

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 
	WITNESS/ATTEST:	 	
SUNTRUST BANK

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   J.
MacGregor Tisdale	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	J. MacGregor Tisdale	 	 	 
	 	 	 	 	
	 	 
	 	 	
Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
17.6%

$15,000,000.00

Notice Address:

120 E. Baltimore Street, 25th Floor

Baltimore, MD 21202

Attn.:   Mac Tisdale, Assistant Vice President

Fax:       (410) 986-1670

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 
	WITNESS/ATTEST:	 	
COMERICA BANK

	 	 	 	 	 	 	 	 
	 	By:	 	 	/s/   Richard
S. Bagosy	 	 	(SEAL)
	 	
	 	 	 
	 	 	
Name:	 	Richard S. Bagosy	 	 	 
	 	 	 	 	
	 	 
	 	 	
Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
11.8%

$10,000,000.00

Notice Address:

Comerica Tower at Detroit Center

500 Woodward Avenue

Detroit, MI 48226

Attn.:   Richard S. Bagosy, Vice President, Middle Market
Banking, Metropolitan Loans - D

Fax:       (313) 222-3389

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	FIFTH THIRD BANK	 
	 	 	 
	 	By:	 	 	/s/ David Melin	 	 	(SEAL)
	 	 	
	 	 
	 	 	Name:	 	David Melin	 	 	 
	 	 	 	 	
	 	 
	 	 	
Title:	 	Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
11.8%

$10,000,000.00

Notice Address:

Mailcode: 109046

38 Fountain Square Plaza

Cincinnati, OH 45202

Attn.:   David Melin

Fax:       (513) 534-5947

 

 

COUNTERPART SIGNATURE PAGE OF “LENDERS” TO LOAN AND SECURITY AGREEMENT:

	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	CHEVY CHASE BANK
	 	 
	 	By:	 	 	/s/ William J. Olsen	 	(SEAL)
	 	 	
	 	 
	 	 	Name:	 	William J. Olsen	 	 	 
	 	 	 	 	
	 	 
	 	 	Title:	 	Group Vice President	 	 	 
	 	 	 	 	
	 	 

	 	 	 
	Commitment Percentage:

Commitment Amount:	 	
8.8%

$7,500,000.00

Notice Address:

135 E. Baltimore Street

Baltimore, MD 21202

Attn.:   William J. Olsen, Group Vice President

Fax:       (410) 685-1990

 

 

GUARANTY AGREEMENT

(Martek Biosciences Boulder Corporation)

     THIS GUARANTY AGREEMENT (“GUARANTY”) is made to be effective as of January
26, 2004, by MARTEK BIOSCIENCES BOULDER CORPORATION, a Delaware corporation
(“GUARANTOR”), for the benefit of MANUFACTURERS AND TRADERS TRUST COMPANY,
individually and in its capacity as the Administrative Agent (“ADMINISTRATIVE
AGENT”) for the “LENDERS” that are now or hereafter parties to a Loan And
Security Agreement (“LOAN AGREEMENT”) of even date herewith by and among MARTEK
BIOSCIENCES CORPORATION, a Delaware corporation (“BORROWER”), the
ADMINISTRATIVE AGENT, and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and
the LENDERS are collectively referred to as the “SECURED PARTIES.”

RECITALS

     The LENDERS have been requested to extend loans to the BORROWER in the
maximum aggregate principal amount of Eighty-Five Million Dollars
($85,000,000.00) (collectively, “LOANS”). The LENDERS are unwilling to extend
the LOANS to the BORROWER unless the GUARANTOR agrees to guaranty to the
SECURED PARTIES the payment and performance by the BORROWER of all obligations
owed by the BORROWER to the SECURED PARTIES in connection with the LOANS. The
GUARANTOR will derive substantial direct and indirect economic benefits from
the extension of the LOANS by the SECURED PARTIES to the BORROWER, and has
agreed to execute and deliver this GUARANTY in order to induce the SECURED
PARTIES to extend the LOANS to the BORROWER. Hereafter, the LOAN AGREEMENT and
all documents and writings evidencing or securing the LOANS are collectively
referred to as the “CREDIT DOCUMENTS.”

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the GUARANTOR hereby agrees to provide to the SECURED PARTIES the
following guaranties and indemnifications.

     Section 1. Guaranty. The GUARANTOR guarantees to the
SECURED PARTIES: (a) the payment of any and all sums now or hereafter due and
owing to the SECURED PARTIES by the BORROWER as a result of or in connection
with any and all existing or future indebtedness, liability, or obligation of
every kind, nature, type, and variety owed by the BORROWER to the SECURED
PARTIES from time to time, arising out of or related to the LOANS or the CREDIT
DOCUMENTS, whether direct or indirect, absolute or contingent, primary or
secondary, joint or several, unconditional or conditional, known or unknown,
liquidated or unliquidated, contractual or tortious, including, but not limited
to, all amounts of principal, interest, charges, reimbursements, advancements,
escrows, and fees; (b) that all sums now or hereafter due and owing by the
BORROWER to the SECURED PARTIES in connection with or arising from the LOANS
shall be paid when and as due, whether by reason of installment, maturity,
acceleration or otherwise, time being of the essence; (c) the payment and
performance of all indemnification obligations and duties to defend owed by the
BORROWER to the SECURED PARTIES in accordance with the terms of the CREDIT
DOCUMENTS; and (d) the timely, complete, continuous, and strict performance and
observance by the BORROWER of each of the terms, covenants, agreements and
conditions contained in the CREDIT DOCUMENTS. The GUARANTOR agrees to hold
harmless and indemnify the SECURED PARTIES from any and all costs and expenses,
including reasonable attorneys’ fees, incurred by the SECURED PARTIES as a
result of a failure by the BORROWER to satisfy its duties and obligations under
the CREDIT DOCUMENTS or the GUARANTOR’S failure to satisfy the duties and
obligations assumed by the GUARANTOR under this GUARANTY. As used in this
GUARANTY, the term “OBLIGATIONS” shall refer to the obligations of payment,
performance, and indemnification which the GUARANTOR has undertaken and assumed
pursuant to this GUARANTY, as described in this Section and in other Sections
of this GUARANTY.

     Section 2. Nature Of Guaranty. This GUARANTY is
irrevocable and absolute and one of payment and not just collection, and is
direct, immediate, and primary. This GUARANTY makes the GUARANTOR a surety to
the SECURED PARTIES for the ratable and proportionate benefit of the SECURED
PARTIES with respect to the OBLIGATIONS and the equivalent of a co-obligor with
the BORROWER.

 

     Section 3. Secured Parties Need Not Pursue Other
Rights. The SECURED PARTIES shall be under no obligation to pursue
any of the SECURED PARTIES’ rights and remedies against: (a) the BORROWER; (b)
any of the BORROWER’S collateral securing the obligations of the BORROWER to
the SECURED PARTIES; (c) any other guarantor; or (d) any other guarantor’s
collateral, before pursuing the SECURED PARTIES’ rights and remedies against
the GUARANTOR.

     Section 4. Certain Rights Of Secured Parties. The
GUARANTOR hereby assents to any and all terms and agreements between the
SECURED PARTIES and the BORROWER or between the SECURED PARTIES and any other
guarantor, and all amendments and modifications thereof, whether presently
existing or hereafter made and whether oral or in writing. The SECURED PARTIES
may, without compromising, impairing, diminishing, or in any way releasing the
GUARANTOR from the OBLIGATIONS and without notifying or obtaining the prior
approval of the GUARANTOR, at any time or from time to time: (a) waive or
excuse a default by the BORROWER or any other guarantor, or delay in the
exercise by the SECURED PARTIES of any or all of the SECURED PARTIES’ rights or
remedies with respect to such default or defaults; (b) grant extensions of time
for payment or performance by the BORROWER or any other guarantor; (c) release,
substitute, exchange, surrender, or add collateral of the BORROWER or of any
other guarantor, or waive, release, or subordinate, in whole or in part, any
lien or security interest held by the SECURED PARTIES on any real or personal
property securing payment or performance, in whole or in part, of the
obligations of the BORROWER to the SECURED PARTIES or of any other guarantor;
(d) release the BORROWER or any other guarantor; (e) apply payments made by the
BORROWER or by any other guarantor to any sums owed by the BORROWER to the
SECURED PARTIES, in any order or manner, or to any specific account or
accounts, as the SECURED PARTIES may elect; and (f) modify, change, renew,
extend, or amend in any respect any of the CREDIT DOCUMENTS or any guaranties,
security agreements or other agreements between the SECURED PARTIES and any
other guarantor, including without limitation modifications which increase the
amount of the OBLIGATIONS or extend the maturity of the OBLIGATIONS.

     Section 5. Waivers By Guarantor. The GUARANTOR waives:
(a) any and all notices whatsoever with respect to this GUARANTY or with
respect to any of the obligations of the BORROWER to the SECURED PARTIES,
including, but not limited to, notice of (i) the SECURED PARTIES’ acceptance
hereof or the SECURED PARTIES’ intention to act, or the SECURED PARTIES’
action, in reliance hereon, (ii) the present existence or future incurring of
any of the obligations of the BORROWER to the SECURED PARTIES or any terms or
amounts thereof or any change therein, (iii) any default by the BORROWER or any
surety, pledgor, grantor of security, guarantor or any person who has
guarantied or secured in whole or in part the obligations of the BORROWER to
the SECURED PARTIES, and (iv) the obtaining or release of any guaranty or
surety agreement, pledge, assignment, or other security for any of the
obligations of the BORROWER to the SECURED PARTIES; (b) presentment and demand
for payment of any sum due from the BORROWER or any other guarantor and protest
of nonpayment; and (c) demand for performance by the BORROWER or any other
guarantor.

     Section 6. Unenforceability Of Obligations Of Borrower.
This GUARANTY shall be valid, binding, and enforceable even if the obligations
of the BORROWER to the SECURED PARTIES which are guaranteed hereby are now or
hereafter become invalid, unenforceable or uncollectible for any reason.

     Section 7. No Conditions Precedent. This GUARANTY
shall be effective and enforceable immediately upon its execution. The
GUARANTOR acknowledges that no unsatisfied conditions precedent to the
effectiveness and enforceability of this GUARANTY exist as of the date of its
execution and that the effectiveness and enforceability of this GUARANTY are
not in any way conditioned or contingent upon any event, occurrence, or
happening, or upon any condition existing or coming into existence either
before or after the execution of this GUARANTY.

     Section 8. No Duty To Disclose. The SECURED PARTIES
shall have no present or future duty or obligation to discover or to disclose
to the GUARANTOR any information, financial or otherwise, concerning the
BORROWER, any other guarantor, or any collateral securing either the
obligations of the BORROWER to the SECURED PARTIES or of any other person who
may have guarantied in whole or in part the obligations of the BORROWER to the
SECURED PARTIES. The GUARANTOR waives any right to claim or assert any such
duty or obligation on the part of the SECURED PARTIES. The GUARANTOR agrees to
obtain all information which the GUARANTOR considers either appropriate or
relevant to this GUARANTY from sources other than the SECURED PARTIES and to
become and remain at all times current and continuously apprised of all
information concerning the

2

 

BORROWER, other guarantors, and any collateral which is material and
relevant to the OBLIGATIONS of the GUARANTOR under this GUARANTY.

     Section 9. Existing Or Future Guaranties. The
execution of this GUARANTY shall not discharge, terminate or in any way impair
or adversely affect the validity or enforceability of any other guaranty given
by the GUARANTOR to the SECURED PARTIES. The execution and delivery by the
GUARANTOR of any future guaranty for the benefit of the SECURED PARTIES shall
not discharge, terminate, or in any way impair or adversely affect the validity
or enforceability of this GUARANTY unless expressly stated therein. All
guaranties provided by the GUARANTOR to the SECURED PARTIES are intended to be
cumulative and shall remain in full force and effect unless and until
discharged and terminated in accordance with any expressly stated termination
provisions set forth therein.

     Section 10. Cumulative Liability. The liability of the
GUARANTOR under this GUARANTY shall be cumulative to, and not in lieu of, the
GUARANTOR’S liability under any other CREDIT DOCUMENT or in any capacity other
than as GUARANTOR hereunder.

     Section 11. Obligations Are Unconditional. The payment
and performance of the OBLIGATIONS shall be the absolute and unconditional duty
and obligation of the GUARANTOR, and shall be independent of any defense or any
rights of setoff, recoupment or counterclaim which the GUARANTOR might
otherwise have against the SECURED PARTIES, and the GUARANTOR shall pay and
perform these OBLIGATIONS, free of any deductions and without abatement,
diminution or setoff. Until such time as the OBLIGATIONS have been fully paid
and performed, the GUARANTOR: (a) shall not suspend or discontinue any
payments provided for herein; (b) shall perform and observe all of the
covenants and agreements contained in this GUARANTY; and (c) shall not
terminate or attempt to terminate this GUARANTY for any reason. No delay by
the SECURED PARTIES in making demand on the GUARANTOR for satisfaction of the
OBLIGATIONS shall prejudice or in any way impair the SECURED PARTIES’ ability
to enforce this GUARANTY.

     Section 12. Defenses Against Borrower. The GUARANTOR
waives any right to assert against the SECURED PARTIES any defense (whether
legal or equitable), claim, counterclaim, or right of setoff or recoupment
which the GUARANTOR may now or hereafter have against the BORROWER or any other
guarantor.

     Section 13. Events Of Default. The occurrence of any
of the following (each an “EVENT OF DEFAULT”) shall entitle the SECURED
PARTIES, without notice or demand, to accelerate and call due the OBLIGATIONS,
even if the SECURED PARTIES have not accelerated and called due the sums owed
to the SECURED PARTIES by the BORROWER: (a) the occurrence of an “EVENT OF
DEFAULT,” as such term is defined in the LOAN AGREEMENT; and (b) a failure of
the GUARANTOR to pay any of the OBLIGATIONS to the SECURED PARTIES at such time
as the nonpayment thereof by the BORROWER would constitute an “EVENT OF
DEFAULT” under the LOAN AGREEMENT.

     Section 14. Expenses Of Collection And Attorneys’ Fees.
Should this GUARANTY be referred to an attorney for collection, the GUARANTOR
shall pay all of the SECURED PARTIES’ reasonable costs, fees and expenses
resulting from such referral, including reasonable attorneys’ fees, which the
SECURED PARTIES may incur, even though judgment has not been confessed or suit
has not been filed.

     Section 15. Confession Of Judgment. Upon the occurrence
of an EVENT OF DEFAULT, the GUARANTOR authorizes any attorney designated by the
SECURED PARTIES or admitted to practice before any court of record in the
United States to appear on its behalf in any court in one or more proceedings,
or before any clerk thereof or prothonotary or other court official, and to
confess judgment against the GUARANTOR in the full amount due on this GUARANTY
(including principal, accrued interest and any and all charges, fees and costs)
plus attorneys’ fees equal to fifteen percent (15%) of the amount due, plus
court costs, all without prior notice or opportunity of the GUARANTOR for a
prior hearing. The GUARANTOR waives the benefit of any statutes, ordinances,
or rules of court which may be lawfully waived conferring upon it any right or
privilege of exemption, homestead rights, stay of execution, or supplementary
proceedings, or other relief from the enforcement or immediate enforcement of a
judgment or related proceedings on a judgment. The authority and power to
appear for and enter judgment against the GUARANTOR shall not be exhausted by
one or more exercises thereof, or by any imperfect exercise thereof, and shall
not be extinguished by any judgment entered pursuant thereto; such authority
and power may be exercised on one or more occasions from time to time, in the
same or different jurisdictions, as often as the SECURED PARTIES shall deem
necessary, convenient, or

3

 

proper. In the event that the SECURED PARTIES receive, as a result of
execution on a judgment confessed hereunder, attorneys’ fees which exceed the
actual legal fees incurred by the SECURED PARTIES in connection with the
enforcement of this GUARANTY, then upon full and final payment of all other
sums due and owing to the SECURED PARTIES in accordance with this GUARANTY and
the payment to the SECURED PARTIES of the actual attorneys’ fees incurred by
the SECURED PARTIES, the SECURED PARTIES shall remit such excess amount of
attorneys’ fees to the GUARANTOR.

     Section 16. Interest Rate. If judgment is entered
against the GUARANTOR on this GUARANTY, the amount of the judgment entered
(which, unless applicable law specifically provides to the contrary, includes
all principal, prejudgment interest, late charges, prepayment charges if any
are provided for, collection expenses, attorneys’ fees, and court costs) shall
bear interest at the highest rate after default authorized by the CREDIT
DOCUMENTS (“DEFAULT RATE”) as of the date of entry of the judgment to the
extent permitted by applicable law. In the event any statute or rule of court
specifies the rate of interest which a judgment on this GUARANTY may bear or
the amount on which such interest rate may apply and such rate or amount is
less than that called for in the preceding sentence absent a restriction under
applicable law, the GUARANTOR: (a) agrees to pay to the order of the SECURED
PARTIES an amount as will equal the interest computed at the DEFAULT RATE on
the judgment amount (which, for this purpose, shall be considered to include
all principal, prejudgment interest, late charges, prepayment charges if any
are provided for, collection expense fees, attorneys’ fees, and court costs)
less the interest due on the amount of the judgment which bears judgment
interest; and (b) authorizes the confession of judgment pursuant to the
confession of judgment provision of this GUARANTY if the GUARANTOR fails to
make payment thereof.

     Section 17. Enforcement During Bankruptcy Of Borrower.
Enforcement of this GUARANTY shall not be stayed or in any way delayed as a
result of the filing of a petition under the United States Bankruptcy
Code, as amended, by or against the BORROWER. Should the SECURED
PARTIES be required to obtain an order of the United States Bankruptcy Court to
begin enforcement of this GUARANTY after the filing of a petition under the
United States Bankruptcy Code, as amended, by or against the
BORROWER, the GUARANTOR hereby consents to this relief and agrees to file or
cause to be filed all appropriate pleadings to evidence and effectuate such
consent and to enable the SECURED PARTIES to obtain the relief requested.

     Section 18. Remedies Cumulative. All of the SECURED
PARTIES’ rights and remedies shall be cumulative and any failure of the SECURED
PARTIES to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other right at any time, and from time to
time, thereafter.

     Section 19. Continuing Guaranty. This GUARANTY is a
continuing guaranty of all existing and future obligations of the BORROWER to
the SECURED PARTIES arising out of or relating to the LOANS or the CREDIT
DOCUMENTS and may not be terminated by the GUARANTOR until after the repayment
and performance in full of the LOANS and all of the OBLIGATIONS and in the
absence of any pending or threatened proceedings to avoid or recover any
payment previously received by the SECURED PARTIES upon the LOANS or any of the
OBLIGATIONS. All obligations and duties of indemnification assumed by the
GUARANTOR under this GUARANTY and the obligations of the GUARANTOR to guaranty
any covenants or agreements of indemnification or duties to defend provided by
the BORROWER to the SECURED PARTIES shall survive the repayment of the LOANS
and the termination of this GUARANTY.

     Section 20. Reinstatement. If at any time any payment,
or portion thereof, made by, or for the account of, the BORROWER or the
GUARANTOR on account of any of the obligations and liabilities under any of the
CREDIT DOCUMENTS is set aside by any court or trustee having jurisdiction as a
voidable preference, or fraudulent conveyance or must otherwise be restored or
returned by the SECURED PARTIES to the BORROWER or any other person or entity
under any insolvency, bankruptcy or other federal and/or state law or as a
result of any dissolution, liquidation or reorganization of the BORROWER or any
other person or entity, or for any other reason, the GUARANTOR hereby agrees
that this GUARANTY shall continue and remain in full force and effect or be
reinstated, as the case may be, all as though such payment(s) had not been
made.

     Section 21. Rights Of Subrogation, Etc. In the event
the GUARANTOR pays any sum to or for the benefit of the SECURED PARTIES
pursuant to this GUARANTY, the GUARANTOR may not enforce any right of
contribution, indemnification, exoneration, reimbursement, subrogation or other
right or remedy against the BORROWER, any other guarantor, or any collateral,
whether real, personal, or mixed, securing the obligations of the

4

 

BORROWER to the SECURED PARTIES or the obligations of any other guarantor
to the SECURED PARTIES until such time as the SECURED PARTIES have been paid in
full and has no further claim against the BORROWER, any other guarantor, or any
collateral. The GUARANTOR waives and releases any claim which the GUARANTOR
hereafter may have against the SECURED PARTIES if some action of the SECURED
PARTIES, whether intentional or negligent, impairs, destroys, or in any way
adversely affects any right of contribution, indemnification, exoneration,
reimbursement, subrogation, or the like which the GUARANTOR may have upon the
payment of any sum to or for the benefit of the SECURED PARTIES pursuant to
this GUARANTY.

     Section 22. Subordination Of Certain Indebtedness. If
the GUARANTOR advances any sums to the BORROWER or its successors or assigns or
if the BORROWER or its successors or assigns shall hereafter become indebted to
the GUARANTOR, such sums and indebtedness shall be subordinate in all respects
to the amounts then or thereafter due and owing to the SECURED PARTIES by the
BORROWER; provided, however, that unless an EVENT OF DEFAULT shall have
occurred and be continuing the BORROWER shall be permitted to repay such sums
and indebtedness to the GUARANTOR.

     Section 23. Renewals, Etc. This GUARANTY shall apply
to all sums now or hereafter owed by the BORROWER to the SECURED PARTIES and to
all extensions, modifications, amendments, renewals, substitutions, and
refinancings thereof.

     Section 24. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this GUARANTY and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this GUARANTY and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the issuance of this GUARANTY or which occurred or were to occur as
a direct or indirect result of this GUARANTY having been executed.

     Section 25. Consent To Jurisdiction; Agreement As To
Venue. The GUARANTOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland, including all United
States District Courts located in Maryland. The GUARANTOR agrees that venue
shall be proper in any circuit court of the State of Maryland selected by the
SECURED PARTIES or in any United States District Court located in Maryland and
waives any right to object to the maintenance of a suit in any of the state or
federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.

     Section 26. Invalidity Of Any Part. If any provision
or part of any provision of this GUARANTY shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this GUARANTY, and this GUARANTY shall be construed
as if such invalid, illegal, or unenforceable provision or part thereof had
never been contained herein, but only to the extent of its invalidity,
illegality, or unenforceability.

     Section 27. Amendment Or Waiver. This GUARANTY may be
amended only by a writing duly executed by the GUARANTOR and the ADMINISTRATIVE
AGENT with the consent of those SECURED PARTIES as may be required under the
LOAN AGREEMENT. No waiver by the SECURED PARTIES of any of the provisions of
this GUARANTY or any of the rights or remedies of the SECURED PARTIES with
respect hereto shall be considered effective or enforceable unless in writing.

     Section 28. Notices. Any notice required or permitted
by or in connection with this GUARANTY shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the SECURED PARTIES or the GUARANTOR at the appropriate address
set forth below or to such other address as may be hereafter specified by
written notice by the SECURED PARTIES or the GUARANTOR. Notice shall be
considered given as of the date of the facsimile or the hand delivery, one (1)
calendar day after delivery to Federal Express or similar overnight delivery
service, or three (3) calendar days after the date of mailing, independent of
the date of actual delivery or whether delivery is ever in fact made, as the
case may be, provided the giver of notice can establish the fact that notice
was given as provided herein. If notice is tendered pursuant to the provisions
of this Section and is refused by the intended recipient

5

 

thereof, the notice, nevertheless, shall be considered to have been given
and shall be effective as of the date herein provided.

     If to the SECURED PARTIES:

          MANUFACTURERS AND TRADERS TRUST COMPANY, As Administrative Agent
         
25 S. Charles Street, 12th Floor
         
Baltimore, Maryland 21201
         
Attn: Hugh E. Giorgio, Vice President
         
Facsimile: (410) 244-4447

     If to the GUARANTOR:

          MARTEK BIOSCIENCES BOULDER CORPORATION
         
c/o Martek Biosciences Corporation
         
6480 Dobbin Road
         
Columbia, Maryland 21045
         
Attn.: George P. Barker, Esquire
         
Fax No.: (410) 740-2985

     With A Courtesy Copy To:

          HOGAN & HARTSON L.L.P.
         
111 South Calvert Street, Suite 1600
         
Baltimore, Maryland 21202
         
Attn.: Kevin G. Gralley, Esquire
         
Fax No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the GUARANTOR in the manner
provided herein.

     Section 29. Binding Nature. This GUARANTY shall inure
to the benefit of and be enforceable by the SECURED PARTIES and the SECURED
PARTIES’ successors and assigns and any other person to whom the SECURED
PARTIES may grant an interest in the obligations of the BORROWER to the SECURED
PARTIES, and shall be binding upon and enforceable against the GUARANTOR and
the GUARANTOR’S successors, and assigns.

     Section 30. Joint And Several Nature. The liability of
the GUARANTOR shall be joint and several with the liability of any other
guarantor of the LOANS not a party to this GUARANTY.

     Section 31. Assignability. This GUARANTY or an
interest therein may be assigned by the SECURED PARTIES, or by any other
holder, at any time or from time to time, without prior notice to or consent
from the GUARANTOR.

     Section 32. Tense, Gender, Defined Terms, Captions. As
used herein, the plural includes the singular, and the singular includes the
plural. The use of any gender applies to any other gender. If more than one
person has executed this GUARANTY, the term “GUARANTOR” means all such persons
collectively or any one or more of such persons individually or collectively,
as the case may be and as the context may require. All defined terms are
completely capitalized throughout this GUARANTY. All captions are for the
purpose of convenience only.

     Section 33. Seal And Effective Date. This GUARANTY is
an instrument executed under seal and is to be considered effective and
enforceable as of the date set forth on the first page hereof, independent of
the date of actual execution.

     Section 34. Waiver Of Trial By Jury. The GUARANTOR and
the SECURED PARTIES, by their execution and acceptance, respectively, of this
GUARANTY, agree that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this

6

 

GUARANTY or which in any way relates, directly or indirectly, to this
GUARANTY or any event, transaction, or occurrence arising out of or in any way
connected with this GUARANTY, or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

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     IN WITNESS WHEREOF, the GUARANTOR has executed this GUARANTY with the
specific intention of creating a document under seal.

  	 	 	 	 	 	 	 
	WITNESS:	 	GUARANTOR:
	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES
        BOULDER CORPORATION
	 	 	 	 	 	 	 
	
	 	 By: 	 	/s/ Peter L. Buzy	 	(SEAL)
	 	 	 	 	
        

        	 	 
	 	 	 	 	Peter L. Buzy,	 	 
	 	 	 	 	Chief Financial Officer and
        Treasurer	 	 

8

 

GUARANTY AGREEMENT

(Martek Biosciences Kingstree Corporation)

     THIS GUARANTY AGREEMENT (“GUARANTY”) is made to be effective as of January
26, 2004, by MARTEK BIOSCIENCES KINGSTREE CORPORATION, a Delaware corporation
(“GUARANTOR”), for the benefit of MANUFACTURERS AND TRADERS TRUST COMPANY,
individually and in its capacity as the Administrative Agent (“ADMINISTRATIVE
AGENT”) for the “LENDERS” that are now or hereafter parties to a Loan And
Security Agreement (“LOAN AGREEMENT”) of even date herewith by and among MARTEK
BIOSCIENCES CORPORATION, a Delaware corporation (“BORROWER”), the
ADMINISTRATIVE AGENT, and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and
the LENDERS are collectively referred to as the “SECURED PARTIES.”

RECITALS

     The LENDERS have been requested to extend loans to the BORROWER in the
maximum aggregate principal amount of Eighty-Five Million Dollars
($85,000,000.00) (collectively, “LOANS”). The LENDERS are unwilling to extend
the LOANS to the BORROWER unless the GUARANTOR agrees to guaranty to the
SECURED PARTIES the payment and performance by the BORROWER of all obligations
owed by the BORROWER to the SECURED PARTIES in connection with the LOANS. The
GUARANTOR will derive substantial direct and indirect economic benefits from
the extension of the LOANS by the SECURED PARTIES to the BORROWER, and has
agreed to execute and deliver this GUARANTY in order to induce the SECURED
PARTIES to extend the LOANS to the BORROWER. Hereafter, the LOAN AGREEMENT and
all documents and writings evidencing or securing the LOANS are collectively
referred to as the “CREDIT DOCUMENTS.”

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the GUARANTOR hereby agrees to provide to the SECURED PARTIES the
following guaranties and indemnifications.

     Section 1. Guaranty. The GUARANTOR guarantees to the
SECURED PARTIES: (a) the payment of any and all sums now or hereafter due and
owing to the SECURED PARTIES by the BORROWER as a result of or in connection
with any and all existing or future indebtedness, liability, or obligation of
every kind, nature, type, and variety owed by the BORROWER to the SECURED
PARTIES from time to time, arising out of or related to the LOANS or the CREDIT
DOCUMENTS, whether direct or indirect, absolute or contingent, primary or
secondary, joint or several, unconditional or conditional, known or unknown,
liquidated or unliquidated, contractual or tortious, including, but not limited
to, all amounts of principal, interest, charges, reimbursements, advancements,
escrows, and fees; (b) that all sums now or hereafter due and owing by the
BORROWER to the SECURED PARTIES in connection with or arising from the LOANS
shall be paid when and as due, whether by reason of installment, maturity,
acceleration or otherwise, time being of the essence; (c) the payment and
performance of all indemnification obligations and duties to defend owed by the
BORROWER to the SECURED PARTIES in accordance with the terms of the CREDIT
DOCUMENTS; and (d) the timely, complete, continuous, and strict performance and
observance by the BORROWER of each of the terms, covenants, agreements and
conditions contained in the CREDIT DOCUMENTS. The GUARANTOR agrees to hold
harmless and indemnify the SECURED PARTIES from any and all costs and expenses,
including reasonable attorneys’ fees, incurred by the SECURED PARTIES as a
result of a failure by the BORROWER to satisfy its duties and obligations under
the CREDIT DOCUMENTS or the GUARANTOR’S failure to satisfy the duties and
obligations assumed by the GUARANTOR under this GUARANTY. As used in this
GUARANTY, the term “OBLIGATIONS” shall refer to the obligations of payment,
performance, and indemnification which the GUARANTOR has undertaken and assumed
pursuant to this GUARANTY, as described in this Section and in other Sections
of this GUARANTY.

     Section 2. Nature Of Guaranty. This GUARANTY is
irrevocable and absolute and one of payment and not just collection, and is
direct, immediate, and primary. This GUARANTY makes the GUARANTOR a surety to
the SECURED PARTIES for the ratable and proportionate benefit of the SECURED
PARTIES with respect to the OBLIGATIONS and the equivalent of a co-obligor with
the BORROWER.

 

     Section 3. Secured Parties Need Not Pursue Other
Rights. The SECURED PARTIES shall be under no obligation to pursue
any of the SECURED PARTIES’ rights and remedies against: (a) the BORROWER; (b)
any of the BORROWER’S collateral securing the obligations of the BORROWER to
the SECURED PARTIES; (c) any other guarantor; or (d) any other guarantor’s
collateral, before pursuing the SECURED PARTIES’ rights and remedies against
the GUARANTOR.

     Section 4. Certain Rights Of Secured Parties. The
GUARANTOR hereby assents to any and all terms and agreements between the
SECURED PARTIES and the BORROWER or between the SECURED PARTIES and any other
guarantor, and all amendments and modifications thereof, whether presently
existing or hereafter made and whether oral or in writing. The SECURED PARTIES
may, without compromising, impairing, diminishing, or in any way releasing the
GUARANTOR from the OBLIGATIONS and without notifying or obtaining the prior
approval of the GUARANTOR, at any time or from time to time: (a) waive or
excuse a default by the BORROWER or any other guarantor, or delay in the
exercise by the SECURED PARTIES of any or all of the SECURED PARTIES’ rights or
remedies with respect to such default or defaults; (b) grant extensions of time
for payment or performance by the BORROWER or any other guarantor; (c) release,
substitute, exchange, surrender, or add collateral of the BORROWER or of any
other guarantor, or waive, release, or subordinate, in whole or in part, any
lien or security interest held by the SECURED PARTIES on any real or personal
property securing payment or performance, in whole or in part, of the
obligations of the BORROWER to the SECURED PARTIES or of any other guarantor;
(d) release the BORROWER or any other guarantor; (e) apply payments made by the
BORROWER or by any other guarantor to any sums owed by the BORROWER to the
SECURED PARTIES, in any order or manner, or to any specific account or
accounts, as the SECURED PARTIES may elect; and (f) modify, change, renew,
extend, or amend in any respect any of the CREDIT DOCUMENTS or any guaranties,
security agreements or other agreements between the SECURED PARTIES and any
other guarantor, including without limitation modifications which increase the
amount of the OBLIGATIONS or extend the maturity of the OBLIGATIONS.

     Section 5. Waivers By Guarantor. The GUARANTOR waives:
(a) any and all notices whatsoever with respect to this GUARANTY or with
respect to any of the obligations of the BORROWER to the SECURED PARTIES,
including, but not limited to, notice of (i) the SECURED PARTIES’ acceptance
hereof or the SECURED PARTIES’ intention to act, or the SECURED PARTIES’
action, in reliance hereon, (ii) the present existence or future incurring of
any of the obligations of the BORROWER to the SECURED PARTIES or any terms or
amounts thereof or any change therein, (iii) any default by the BORROWER or any
surety, pledgor, grantor of security, guarantor or any person who has
guarantied or secured in whole or in part the obligations of the BORROWER to
the SECURED PARTIES, and (iv) the obtaining or release of any guaranty or
surety agreement, pledge, assignment, or other security for any of the
obligations of the BORROWER to the SECURED PARTIES; (b) presentment and demand
for payment of any sum due from the BORROWER or any other guarantor and protest
of nonpayment; and (c) demand for performance by the BORROWER or any other
guarantor.

     Section 6. Unenforceability Of Obligations Of Borrower.
This GUARANTY shall be valid, binding, and enforceable even if the obligations
of the BORROWER to the SECURED PARTIES which are guaranteed hereby are now or
hereafter become invalid, unenforceable or uncollectible for any reason.

     Section 7. No Conditions Precedent. This GUARANTY
shall be effective and enforceable immediately upon its execution. The
GUARANTOR acknowledges that no unsatisfied conditions precedent to the
effectiveness and enforceability of this GUARANTY exist as of the date of its
execution and that the effectiveness and enforceability of this GUARANTY are
not in any way conditioned or contingent upon any event, occurrence, or
happening, or upon any condition existing or coming into existence either
before or after the execution of this GUARANTY.

     Section 8. No Duty To Disclose. The SECURED PARTIES
shall have no present or future duty or obligation to discover or to disclose
to the GUARANTOR any information, financial or otherwise, concerning the
BORROWER, any other guarantor, or any collateral securing either the
obligations of the BORROWER to the SECURED PARTIES or of any other person who
may have guarantied in whole or in part the obligations of the BORROWER to the
SECURED PARTIES. The GUARANTOR waives any right to claim or assert any such
duty or obligation on the part of the SECURED PARTIES. The GUARANTOR agrees to
obtain all information which the GUARANTOR considers either appropriate or
relevant to this GUARANTY from sources other than the SECURED PARTIES and to
become and remain at all times current and continuously apprised of all
information concerning the

2

 

BORROWER, other guarantors, and any collateral which is material and
relevant to the OBLIGATIONS of the GUARANTOR under this GUARANTY.

     Section 9. Existing Or Future Guaranties. The
execution of this GUARANTY shall not discharge, terminate or in any way impair
or adversely affect the validity or enforceability of any other guaranty given
by the GUARANTOR to the SECURED PARTIES. The execution and delivery by the
GUARANTOR of any future guaranty for the benefit of the SECURED PARTIES shall
not discharge, terminate, or in any way impair or adversely affect the validity
or enforceability of this GUARANTY unless expressly stated therein. All
guaranties provided by the GUARANTOR to the SECURED PARTIES are intended to be
cumulative and shall remain in full force and effect unless and until
discharged and terminated in accordance with any expressly stated termination
provisions set forth therein.

     Section 10. Cumulative Liability. The liability of the
GUARANTOR under this GUARANTY shall be cumulative to, and not in lieu of, the
GUARANTOR’S liability under any other CREDIT DOCUMENT or in any capacity other
than as GUARANTOR hereunder.

     Section 11. Obligations Are Unconditional. The payment
and performance of the OBLIGATIONS shall be the absolute and unconditional duty
and obligation of the GUARANTOR, and shall be independent of any defense or any
rights of setoff, recoupment or counterclaim which the GUARANTOR might
otherwise have against the SECURED PARTIES, and the GUARANTOR shall pay and
perform these OBLIGATIONS, free of any deductions and without abatement,
diminution or setoff. Until such time as the OBLIGATIONS have been fully paid
and performed, the GUARANTOR: (a) shall not suspend or discontinue any
payments provided for herein; (b) shall perform and observe all of the
covenants and agreements contained in this GUARANTY; and (c) shall not
terminate or attempt to terminate this GUARANTY for any reason. No delay by
the SECURED PARTIES in making demand on the GUARANTOR for satisfaction of the
OBLIGATIONS shall prejudice or in any way impair the SECURED PARTIES’ ability
to enforce this GUARANTY.

     Section 12. Defenses Against Borrower. The GUARANTOR
waives any right to assert against the SECURED PARTIES any defense (whether
legal or equitable), claim, counterclaim, or right of setoff or recoupment
which the GUARANTOR may now or hereafter have against the BORROWER or any other
guarantor.

     Section 13. Events Of Default. The occurrence of any
of the following (each an “EVENT OF DEFAULT”) shall entitle the SECURED
PARTIES, without notice or demand, to accelerate and call due the OBLIGATIONS,
even if the SECURED PARTIES have not accelerated and called due the sums owed
to the SECURED PARTIES by the BORROWER: (a) the occurrence of an “EVENT OF
DEFAULT,” as such term is defined in the LOAN AGREEMENT; and (b) a failure of
the GUARANTOR to pay any of the OBLIGATIONS to the SECURED PARTIES at such time
as the nonpayment thereof by the BORROWER would constitute an “EVENT OF
DEFAULT” under the LOAN AGREEMENT.

     Section 14. Expenses Of Collection And Attorneys’ Fees.
Should this GUARANTY be referred to an attorney for collection, the GUARANTOR
shall pay all of the SECURED PARTIES’ reasonable costs, fees and expenses
resulting from such referral, including reasonable attorneys’ fees, which the
SECURED PARTIES may incur, even though judgment has not been confessed or suit
has not been filed.

     Section 15. Confession Of Judgment. Upon the occurrence
of an EVENT OF DEFAULT, the GUARANTOR authorizes any attorney designated by the
SECURED PARTIES or admitted to practice before any court of record in the
United States to appear on its behalf in any court in one or more proceedings,
or before any clerk thereof or prothonotary or other court official, and to
confess judgment against the GUARANTOR in the full amount due on this GUARANTY
(including principal, accrued interest and any and all charges, fees and costs)
plus attorneys’ fees equal to fifteen percent (15%) of the amount due, plus
court costs, all without prior notice or opportunity of the GUARANTOR for a
prior hearing. The GUARANTOR waives the benefit of any statutes, ordinances,
or rules of court which may be lawfully waived conferring upon it any right or
privilege of exemption, homestead rights, stay of execution, or supplementary
proceedings, or other relief from the enforcement or immediate enforcement of a
judgment or related proceedings on a judgment. The authority and power to
appear for and enter judgment against the GUARANTOR shall not be exhausted by
one or more exercises thereof, or by any imperfect exercise thereof, and shall
not be extinguished by any judgment entered pursuant thereto; such authority
and power may be exercised on one or more occasions from time to time, in the
same or different jurisdictions, as often as the SECURED PARTIES shall deem
necessary, convenient, or

3

 

proper. In the event that the SECURED PARTIES receive, as a result of
execution on a judgment confessed hereunder, attorneys’ fees which exceed the
actual legal fees incurred by the SECURED PARTIES in connection with the
enforcement of this GUARANTY, then upon full and final payment of all other
sums due and owing to the SECURED PARTIES in accordance with this GUARANTY and
the payment to the SECURED PARTIES of the actual attorneys’ fees incurred by
the SECURED PARTIES, the SECURED PARTIES shall remit such excess amount of
attorneys’ fees to the GUARANTOR.

     Section 16. Interest Rate. If judgment is entered
against the GUARANTOR on this GUARANTY, the amount of the judgment entered
(which, unless applicable law specifically provides to the contrary, includes
all principal, prejudgment interest, late charges, prepayment charges if any
are provided for, collection expenses, attorneys’ fees, and court costs) shall
bear interest at the highest rate after default authorized by the CREDIT
DOCUMENTS (“DEFAULT RATE”) as of the date of entry of the judgment to the
extent permitted by applicable law. In the event any statute or rule of court
specifies the rate of interest which a judgment on this GUARANTY may bear or
the amount on which such interest rate may apply and such rate or amount is
less than that called for in the preceding sentence absent a restriction under
applicable law, the GUARANTOR: (a) agrees to pay to the order of the SECURED
PARTIES an amount as will equal the interest computed at the DEFAULT RATE on
the judgment amount (which, for this purpose, shall be considered to include
all principal, prejudgment interest, late charges, prepayment charges if any
are provided for, collection expense fees, attorneys’ fees, and court costs)
less the interest due on the amount of the judgment which bears judgment
interest; and (b) authorizes the confession of judgment pursuant to the
confession of judgment provision of this GUARANTY if the GUARANTOR fails to
make payment thereof.

     Section 17. Enforcement During Bankruptcy Of Borrower.
Enforcement of this GUARANTY shall not be stayed or in any way delayed as a
result of the filing of a petition under the United States Bankruptcy
Code, as amended, by or against the BORROWER. Should the SECURED
PARTIES be required to obtain an order of the United States Bankruptcy Court to
begin enforcement of this GUARANTY after the filing of a petition under the
United States Bankruptcy Code, as amended, by or against the
BORROWER, the GUARANTOR hereby consents to this relief and agrees to file or
cause to be filed all appropriate pleadings to evidence and effectuate such
consent and to enable the SECURED PARTIES to obtain the relief requested.

     Section 18. Remedies Cumulative. All of the SECURED
PARTIES’ rights and remedies shall be cumulative and any failure of the SECURED
PARTIES to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other right at any time, and from time to
time, thereafter.

     Section 19. Continuing Guaranty. This GUARANTY is a
continuing guaranty of all existing and future obligations of the BORROWER to
the SECURED PARTIES arising out of or relating to the LOANS or the CREDIT
DOCUMENTS and may not be terminated by the GUARANTOR until after the repayment
and performance in full of the LOANS and all of the OBLIGATIONS and in the
absence of any pending or threatened proceedings to avoid or recover any
payment previously received by the SECURED PARTIES upon the LOANS or any of the
OBLIGATIONS. All obligations and duties of indemnification assumed by the
GUARANTOR under this GUARANTY and the obligations of the GUARANTOR to guaranty
any covenants or agreements of indemnification or duties to defend provided by
the BORROWER to the SECURED PARTIES shall survive the repayment of the LOANS
and the termination of this GUARANTY.

     Section 20. Reinstatement. If at any time any payment,
or portion thereof, made by, or for the account of, the BORROWER or the
GUARANTOR on account of any of the obligations and liabilities under any of the
CREDIT DOCUMENTS is set aside by any court or trustee having jurisdiction as a
voidable preference, or fraudulent conveyance or must otherwise be restored or
returned by the SECURED PARTIES to the BORROWER or any other person or entity
under any insolvency, bankruptcy or other federal and/or state law or as a
result of any dissolution, liquidation or reorganization of the BORROWER or any
other person or entity, or for any other reason, the GUARANTOR hereby agrees
that this GUARANTY shall continue and remain in full force and effect or be
reinstated, as the case may be, all as though such payment(s) had not been
made.

     Section 21. Rights Of Subrogation, Etc. In the event
the GUARANTOR pays any sum to or for the benefit of the SECURED PARTIES
pursuant to this GUARANTY, the GUARANTOR may not enforce any right of
contribution, indemnification, exoneration, reimbursement, subrogation or other
right or remedy against the BORROWER, any other guarantor, or any collateral,
whether real, personal, or mixed, securing the obligations of the

4

 

BORROWER to the SECURED PARTIES or the obligations of any other guarantor
to the SECURED PARTIES until such time as the SECURED PARTIES have been paid in
full and has no further claim against the BORROWER, any other guarantor, or any
collateral. The GUARANTOR waives and releases any claim which the GUARANTOR
hereafter may have against the SECURED PARTIES if some action of the SECURED
PARTIES, whether intentional or negligent, impairs, destroys, or in any way
adversely affects any right of contribution, indemnification, exoneration,
reimbursement, subrogation, or the like which the GUARANTOR may have upon the
payment of any sum to or for the benefit of the SECURED PARTIES pursuant to
this GUARANTY.

     Section 22. Subordination Of Certain Indebtedness. If
the GUARANTOR advances any sums to the BORROWER or its successors or assigns or
if the BORROWER or its successors or assigns shall hereafter become indebted to
the GUARANTOR, such sums and indebtedness shall be subordinate in all respects
to the amounts then or thereafter due and owing to the SECURED PARTIES by the
BORROWER; provided, however, that unless an EVENT OF DEFAULT shall have
occurred and be continuing the BORROWER shall be permitted to repay such sums
and indebtedness to the GUARANTOR.

     Section 23. Renewals, Etc. This GUARANTY shall apply
to all sums now or hereafter owed by the BORROWER to the SECURED PARTIES and to
all extensions, modifications, amendments, renewals, substitutions, and
refinancings thereof.

     Section 24. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this GUARANTY and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this GUARANTY and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the issuance of this GUARANTY or which occurred or were to occur as
a direct or indirect result of this GUARANTY having been executed.

     Section 25. Consent To Jurisdiction; Agreement As To
Venue. The GUARANTOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland, including all United
States District Courts located in Maryland. The GUARANTOR agrees that venue
shall be proper in any circuit court of the State of Maryland selected by the
SECURED PARTIES or in any United States District Court located in Maryland and
waives any right to object to the maintenance of a suit in any of the state or
federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.

     Section 26. Invalidity Of Any Part. If any provision
or part of any provision of this GUARANTY shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this GUARANTY, and this GUARANTY shall be construed
as if such invalid, illegal, or unenforceable provision or part thereof had
never been contained herein, but only to the extent of its invalidity,
illegality, or unenforceability.

     Section 27. Amendment Or Waiver. This GUARANTY may be
amended only by a writing duly executed by the GUARANTOR and the ADMINISTRATIVE
AGENT with the consent of those SECURED PARTIES as may be required under the
LOAN AGREEMENT. No waiver by the SECURED PARTIES of any of the provisions of
this GUARANTY or any of the rights or remedies of the SECURED PARTIES with
respect hereto shall be considered effective or enforceable unless in writing.

     Section 28. Notices. Any notice required or permitted
by or in connection with this GUARANTY shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the SECURED PARTIES or the GUARANTOR at the appropriate address
set forth below or to such other address as may be hereafter specified by
written notice by the SECURED PARTIES or the GUARANTOR. Notice shall be
considered given as of the date of the facsimile or the hand delivery, one (1)
calendar day after delivery to Federal Express or similar overnight delivery
service, or three (3) calendar days after the date of mailing, independent of
the date of actual delivery or whether delivery is ever in fact made, as the
case may be, provided the giver of notice can establish the fact that notice
was given as provided herein. If notice is tendered pursuant to the provisions
of this Section and is refused by the intended recipient

5

 

thereof, the notice, nevertheless, shall be considered to have been given
and shall be effective as of the date herein provided.

     If to the SECURED PARTIES:

          MANUFACTURERS AND TRADERS TRUST COMPANY, As Administrative Agent
          
25 S. Charles Street, 12th Floor
          
Baltimore, Maryland 21201
          
Attn: Hugh E. Giorgio, Vice President
          
Facsimile: (410) 244-4447

     If to the GUARANTOR:

          MARTEK BIOSCIENCES KINGSTREE CORPORATION
          
c/o Martek Biosciences Corporation
          
6480 Dobbin Road
          
Columbia, Maryland 21045
          
Attn.: George P. Barker, Esquire
          
Fax No.: (410) 740-2985

     With A Courtesy Copy To:

          HOGAN & HARTSON L.L.P.
          
111 South Calvert Street, Suite 1600
          
Baltimore, Maryland 21202
          
Attn.: Kevin G. Gralley, Esquire
          
Fax No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the GUARANTOR in the manner
provided herein.

     Section 29. Binding Nature. This GUARANTY shall inure
to the benefit of and be enforceable by the SECURED PARTIES and the SECURED
PARTIES’ successors and assigns and any other person to whom the SECURED
PARTIES may grant an interest in the obligations of the BORROWER to the SECURED
PARTIES, and shall be binding upon and enforceable against the GUARANTOR and
the GUARANTOR’S successors, and assigns.

     Section 30. Joint And Several Nature. The liability of
the GUARANTOR shall be joint and several with the liability of any other
guarantor of the LOANS not a party to this GUARANTY.

     Section 31. Assignability. This GUARANTY or an
interest therein may be assigned by the SECURED PARTIES, or by any other
holder, at any time or from time to time, without prior notice to or consent
from the GUARANTOR.

     Section 32. Tense, Gender, Defined Terms, Captions. As
used herein, the plural includes the singular, and the singular includes the
plural. The use of any gender applies to any other gender. If more than one
person has executed this GUARANTY, the term “GUARANTOR” means all such persons
collectively or any one or more of such persons individually or collectively,
as the case may be and as the context may require. All defined terms are
completely capitalized throughout this GUARANTY. All captions are for the
purpose of convenience only.

     Section 33. Seal And Effective Date. This GUARANTY is
an instrument executed under seal and is to be considered effective and
enforceable as of the date set forth on the first page hereof, independent of
the date of actual execution.

     Section 34. Waiver Of Trial By Jury. The GUARANTOR and
the SECURED PARTIES, by their execution and acceptance, respectively, of this
GUARANTY, agree that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this

6

 

GUARANTY or which in any way relates, directly or indirectly, to this
GUARANTY or any event, transaction, or occurrence arising out of or in any way
connected with this GUARANTY, or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

7

 

     IN WITNESS WHEREOF, the GUARANTOR has executed this GUARANTY with the
specific intention of creating a document under seal.

	 	 	 	 	 	 	 
	WITNESS:	 	GUARANTOR:
	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES
      KINGSTREE CORPORATION
	 	 	 	 	 	 	 
	
	 	 By: 	 	/s/ Peter L. Buzy	 	(SEAL)
	 	 	 	 	
      

      	 	 
	 	 	 	 	Peter L. Buzy,	 	 
	 	 	 	 	Chief Financial Officer and Treasurer	 	 

8

 

SECURITY AGREEMENT

(Martek Biosciences Boulder Corporation)

     THIS SECURITY AGREEMENT is made as of January 26, 2004, by MARTEK
BIOSCIENCES BOULDER CORPORATION, a Delaware corporation (“GUARANTOR”), for the
benefit of MANUFACTURERS AND TRADERS TRUST COMPANY, individually and in its
capacity as the Agent (“ADMINISTRATIVE AGENT”) for the “LENDERS” that are now
or hereafter parties to a Loan And Security Agreement (“LOAN AGREEMENT”) of
even date herewith by and among the “BORROWER” (hereinafter defined), the
ADMINISTRATIVE AGENT, and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and
the LENDERS are collectively referred to as the “SECURED PARTIES.”

RECITALS

     The GUARANTOR has executed and delivered a Guaranty Agreement (“GUARANTY”)
of even date herewith pursuant to which the GUARANTOR has guaranteed to the
SECURED PARTIES the payment and performance of various obligations owed by
MARTEK BIOSCIENCES CORPORATION, a Delaware corporation (“BORROWER”), to the
SECURED PARTIES. The GUARANTOR has agreed to secure all of the duties and
obligations owed by the GUARANTOR to the SECURED PARTIES pursuant to the
GUARANTY by granting security interests to the SECURED PARTIES in and to
certain of the GUARANTOR’S assets. The GUARANTOR has executed and delivered
this Security Agreement in order to grant such security interests.

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

     As used in this Security Agreement, the terms set forth in this Article 1
have the meanings set forth below, unless the specific context of this Security
Agreement clearly requires a different meaning. Terms defined in this Article
1 or elsewhere in this Security Agreement are in all capital letters throughout
this Security Agreement. The singular use of any defined term includes the
plural and the plural use includes the singular.

     Section 1.1. Account, Chattel Paper, Document, General
Intangibles, Goods, Instrument, Letter-Of-Credit Right, Payment Intangible,
Promissory Notes, And Software. The terms “ACCOUNT,” “CHATTEL
PAPER,” “DOCUMENT,” “GENERAL INTANGIBLES,” “GOODS,” “INSTRUMENT,”
“LETTER-OF-CREDIT RIGHT,” “PAYMENT INTANGIBLE,” “PROMISSORY NOTES,” and
“SOFTWARE” shall have the same respective meanings as are given to those terms
in the Uniform Commercial Code, as adopted and in effect in
the State of Maryland.

     Section 1.2. Agreement. The term “AGREEMENT” means
this Security Agreement, as amended, extended, or modified from time to time by
the parties hereto, as well as all schedules, exhibits and attachments hereto.

     Section 1.3. Collateral. The term “COLLATERAL” means
all of the following types of assets and personal property of the GUARANTOR,
wherever located, whether now owned or hereafter acquired by the GUARANTOR,
together with all substitutions therefor, and all replacements and renewals
thereof, and all accessions, additions, and packaging relating thereto: (a)
ACCOUNTS; (b) INVENTORY, including returned, rejected, or repossessed INVENTORY
and rights of reclamation and stoppage in transit with respect to INVENTORY;
(c) RECEIVABLES; (d) all SOFTWARE evidencing or used in the tracking,
monitoring, maintenance or collection of any of the foregoing; (e) all GENERAL
INTANGIBLES necessary for the collection, monitoring or maintenance of
RECEIVABLES, or for the sale of the INVENTORY; (f) all capital stock or other
equity or ownership interests of the GUARANTOR in the SUBSIDIARIES of the
GUARANTOR; (g) all RECORDS relating to or pertaining to any of the above listed
COLLATERAL; and (h) all proceeds of the foregoing. The definition of
COLLATERAL shall not include any INTELLECTUAL PROPERTY except to the limited
extent that the use or licensing of any INTELLECTUAL

 

 

PROPERTY is necessary for
the liquidation, sale or collection of any of the COLLATERAL during any
continuing EVENT OF DEFAULT. The definition of COLLATERAL shall include
royalties, payments, and payment rights which arise from or with respect to the
licensing, sale or other alienation of INTELLECTUAL PROPERTY.

     Section 1.4. Customers. The term “CUSTOMERS” means the
persons to or for whom the GUARANTOR sells or leases GOODS or INVENTORY or for
whom the GUARANTOR performs services, together with all other account debtors
of the GUARANTOR.

     Section 1.5. Event Of Default. The term “EVENT OF
DEFAULT” means any of the events set forth in Article 6 of this AGREEMENT.

     Section 1.6. Insolvency Proceedings. The term
“INSOLVENCY PROCEEDINGS” means, with respect to any PERSON, any proceeding
commenced by or against such PERSON, under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency law, or any assignments for the benefit of creditors, formal or
informal moratoriums, compositions or extensions with some or all creditors
with respect to any indebtedness of such PERSON.

     Section 1.7. Intellectual Property. The term
“INTELLECTUAL PROPERTY” means all of the GUARANTOR’S right, title and
interest, whether now owned or existing or hereafter acquired or arising, in
all of the following property: (a) all domestic and foreign copyrights,
copyright registrations and copyright applications, whether or not registered
or filed with any governmental authority; (b) all domestic and foreign
trademarks, trademark registrations, trademark applications, trade names,
service marks, certification marks, logos and other source business
identifiers, whether or not registered or filed with any governmental
authority; (c) all United States and foreign patents, and pending and abandoned
United States and foreign patent applications, including, without limitation,
the inventions and improvements described or claimed therein, together with (i)
all renewals, reissues, divisions, continuations, certificates of
reexamination, extensions and continuations-in-part of all of the foregoing,
(ii) all present and future rights of the GUARANTOR under all present and
future license agreements relating to all of the foregoing, whether the
GUARANTOR is licensee or licensor thereunder, and (iii) all of the GUARANTOR’S
present and future claims, causes of action and rights to sue for past, present
or future infringements of all of the foregoing; (d) all rights corresponding
thereto throughout the world; and (e) all goodwill of the GUARANTOR in
connection with the use of, and symbolized by, any of the foregoing.

     Section 1.8. Inventory. The term “INVENTORY” has the
same meaning as provided to such term in the Uniform Commercial Code -
Secured Transactions, Title 9, Commercial Law
Article, Annotated Code of Maryland, as amended,
together with all of the GUARANTOR’S GOODS, merchandise, materials, raw
materials, goods in process, finished goods, work in progress, bindings or
component materials, packaging and shipping materials and other tangible or
intangible personal property, now owned or hereafter acquired and held for sale
or lease or furnished or to be furnished under contracts of service or which
contribute to the finished products or the sale, promotion, storage and
shipment thereof, whether located at facilities owned or leased by the
GUARANTOR, in the course of transport to or from account debtors, used for
demonstration, placed on consignment, or held at storage locations.

     Section 1.9. Laws. The term “LAWS” means all
ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees
of any government or political subdivision or agency thereof, or any court or
similar entity established by any thereof.

     Section 1.10. Liens. The term “LIENS” means with
respect to any asset owned by a referenced PERSON: (a) any lien, claim, charge,
pledge, security interest, deed of trust, mortgage, or other encumbrance in, on
or of such asset; (b) the interest of a vendor or a lessor under any
conditional sale agreement capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset; and (c)in the case of securities owned by
any such PERSON, any purchase option, call or similar right of a third party
with respect to such securities.

     Section 1.11. Material Adverse Event. The term
“MATERIAL ADVERSE EVENT” has the meaning provided to such term in Section 1.73
of the LOAN AGREEMENT.

     Section 1.12. Obligations. The term “OBLIGATIONS”
means the obligations of the GUARANTOR to pay to the SECURED PARTIES: (a) all
sums due to the SECURED PARTIES pursuant to the terms of the GUARANTY; (b) all

2

 

SECURED PARTY EXPENSES; (c) all overdrafts of the GUARANTOR upon any accounts
with the ADMINISTRATIVE AGENT; and (d) any indebtedness or liability which may
exist or arise as a result of any payment made by or for the benefit of the
GUARANTOR, on any of the obligations described in (a), (b) or (c) above being
avoided or set aside as a preference under Sections 547 and 550 of the United
States Bankruptcy Code, as amended, or under any state law
governing insolvency or creditors’ rights.

     Section 1.13. Permitted Liens. The term “PERMITTED
LIENS” means: (a) LIENS for taxes, assessments, or similar charges incurred in
the ordinary course of business that are not yet due and payable (or which are
being contested in compliance with the provisions of Section 4.5 hereof); (b)
LIENS in favor of the SECURED PARTIES; (c) any existing LIENS specifically
described on Schedule 1.13 hereof; (d) any LIEN on specifically allocated money
or securities to secure payments under workmen’s compensation, unemployment
insurance, social security and other similar LAWS, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business; (e)
purchase money security interests in equipment (and security interests in
equipment securing the refinancing of INDEBTEDNESS previously secured by a
purchase money security interest therein) not to exceed in aggregate amount
outstanding together with all other secured purchase money financing of the
BORROWER and of its SUBSIDIARIES at any one time the sum of Two Million Dollars
($2,000,000.00), provided that such purchase money security interests do not
attach to any assets other than the specific item(s) of equipment acquired with
the proceeds of the loan secured by such purchase money security interests and
the proceeds thereof; (f) LIENS of carriers, warehousemen, mechanics,
materialmen and landlords arising in the ordinary course of business for sums
not overdue or sums being diligently contested in good faith by appropriate
procedures and for which adequate reserves have been set aside; (g) easements,
rights-of-way, restrictions, encroachments and other similar charges or
encumbrances, and minor title deficiencies relating to real property owned or
occupied by the GUARANTOR, in each case not securing INDEBTEDNESS and not
materially interfering with the conduct of the business of the GUARANTOR; and
(h) subsequently arising LIENS which are expressly approved in advance of the
creation of any such LIENS by the ADMINISTRATIVE AGENT in writing.

     Section 1.14. Person. The term “PERSON” means any
individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, court, or government or political
subdivision or agency thereof.

     Section 1.15. Receivables. The term “RECEIVABLES”
means: (a) all ACCOUNTS; (b) all INSTRUMENTS, DOCUMENTS, GENERAL INTANGIBLES,
CHATTEL PAPER, PAYMENT INTANGIBLES, PROMISSORY NOTES, drafts, acceptances, and
choses in action, of the GUARANTOR, now existing or hereafter created or
acquired, and all proceeds and products thereof, and all rights thereto, in
each case arising from or relating to the sale, lease or license of or the
providing of INVENTORY, GOODS, or other assets or services by the GUARANTOR to
account debtors; (c) all SOFTWARE relating to any of the foregoing; (d) all
rights to royalties or payments of any kind arising out of the licensing or
sale of any INTELLECTUAL PROPERTY; and (e) all other rights, contingent or
non-contingent, of any kind of the GUARANTOR to receive payment, benefit, or
credit from any PERSON, other than casualty insurance proceeds or condemnation
proceeds from the loss or taking of assets of the GUARANTOR which are not
COLLATERAL.

     Section 1.16. Records. The term “RECORDS” means
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary, computer or
machine language.

     Section 1.17. Secured Party Expenses. The term
“SECURED PARTY EXPENSES” means all reasonable out-of-pocket expenses or costs
incurred by the SECURED PARTIES arising out of, pertaining to, or in any way
connected with this AGREEMENT, any of the other SECURITY DOCUMENTS or the
OBLIGATIONS, or any documents executed in connection herewith or transactions
hereunder, including without limitation: All costs or expenses required to be
paid by the GUARANTOR pursuant to this AGREEMENT or as otherwise provided for
in any of the SECURITY DOCUMENTS or as required by any other present or future
agreement between the GUARANTOR and the SECURED PARTIES evidencing and/or
securing the OBLIGATIONS which are paid or advanced by the SECURED PARTIES;
taxes and insurance premium of every nature and kind of GUARANTOR paid by the
SECURED PARTIES; filing, recording, title insurance, environmental and
consulting fees, audit fees, search fees and other expenses paid or incurred by
the SECURED PARTIES in connection with the transactions of the SECURED PARTIES
with the GUARANTOR;

3

 

reasonable and necessary costs and expenses incurred by the
SECURED PARTIES in the collection of the RECEIVABLES (with or without the
institution of legal action), to correct any default or enforce any provision
of this AGREEMENT, or in gaining possession of, maintaining, handling,
evaluating, preserving, storing, shipping, selling, preparing for sale and/or
advertising to sell the COLLATERAL or any other property of the GUARANTOR in
which any SECURED PARTY has a lien whether or not a sale is consummated;
reasonable and necessary costs and expenses of litigation incurred by the
SECURED PARTIES in enforcing or defending this AGREEMENT or any portion hereof;
and reasonable and necessary attorneys’ fees and expenses incurred by the
SECURED PARTIES in obtaining advice or the services of their attorneys with
respect to the structuring, drafting, negotiating, reviewing, amending,
terminating, enforcing or defending of this AGREEMENT, or any portion hereof or
any agreement or matter related hereto, whether or not litigation is
instituted; and reasonable travel expenses related to any of the foregoing.

     Section 1.18. Security Documents. The term “SECURITY
DOCUMENTS” means collectively this AGREEMENT, the GUARANTY and all agreements,
instruments and documents, whether heretofore, now or hereafter executed by or
on behalf of the GUARANTOR, or by any other PERSON in connection with the
OBLIGATIONS.

     Section 1.19. Subsidiary. The term “SUBSIDIARY” means,
with respect to any PERSON (the “PARENT”) at any date, any corporation, limited
liability company, partnership, association or other entity the accounts of
which would be consolidated with those of the PARENT in the PARENT’S
consolidated financial statements if such financial statements were prepared in
accordance with generally accepted accounting principles as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership interests
representing more than fifty percent (50%) of the equity or more than fifty
percent (50%) of the ordinary voting power or, in the case of a partnership,
more than fifty percent (50%) of the general partnership interests are, as of
such date, owned, controlled or held, or that is, as of such date, otherwise
controlled, by the PARENT or one or more subsidiaries of the PARENT or by the
PARENT and one or more subsidiaries of the PARENT. Unless otherwise specified,
“SUBSIDIARY” means a SUBSIDIARY of the GUARANTOR.

ARTICLE 2

SECURITY FOR THE OBLIGATIONS

     The payment, performance and satisfaction of the OBLIGATIONS, and the
full, complete and absolute performance by the GUARANTOR of each of the terms
and conditions of the SECURITY DOCUMENTS shall be secured by the following
described security interests, assignments and pledges.

     Section 2.1. Grant Of Security Interests. The
GUARANTOR hereby assigns to the SECURED PARTIES all of the GUARANTOR’S right,
title, and interest in and to, and grants to the SECURED PARTIES a continuing
security interest in and to, all of the COLLATERAL. The GUARANTOR further
assigns, transfers, hypothecates and sets over to the SECURED PARTIES all of
the GUARANTOR’S right, title and interest in and to, and grants to the SECURED
PARTIES a continuing security interest in and to, all amounts that may be owing
at any time and from time to time by the SECURED PARTIES to the GUARANTOR in
any capacity, including but not limited to any balance or share belonging to
the GUARANTOR of any deposit or other account with the SECURED PARTIES, which
security interest shall be independent of and in addition to any right of
setoff which the SECURED PARTIES may have.

     Section 2.2. Proceeds And Products. The security
interests of the SECURED PARTIES provided for herein shall apply to the
proceeds, including but not limited to insurance proceeds, and the products of
the COLLATERAL.

     Section 2.3. Priority Of Security Interests. Each of
the security interests granted by the GUARANTOR to the SECURED PARTIES pursuant
to this AGREEMENT shall be a perfected first priority security interest in the
COLLATERAL, except for PERMITTED LIENS which by operation of law or the written
consent of the ADMINISTRATIVE AGENT constitute prior encumbrances.

     Section 2.4. Future Advances. The security interests
granted by the GUARANTOR to the SECURED PARTIES hereunder shall secure all
current and all future advances.

4

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     The GUARANTOR makes the representations and warranties set forth in this
Article 3. The GUARANTOR acknowledges the justifiable right of the SECURED
PARTIES to rely upon these representations and warranties.

     Section 3.1. Accuracy Of Information. All information,
documents, reports, statements, financial statements, and data submitted by or
on behalf of the GUARANTOR in connection with the OBLIGATIONS, or in support
thereof, are true, accurate, and complete in all material respects as of the
date made and contain no knowingly false, incomplete or misleading statements.

     Section 3.2. Title To Collateral. The GUARANTOR has
good and marketable title to all of the COLLATERAL. The LIENS of the SECURED
PARTIES described herein shall constitute first and indefeasible LIENS except
as permitted to the contrary by the terms of Section 2.3 of this AGREEMENT.

     Section 3.3. Existing Liens. There are no existing
LIENS against any of the assets of the GUARANTOR other than PERMITTED LIENS.

     Section 3.4. Status. The GUARANTOR is validly
incorporated under the LAWS of the State of Delaware and its operations and
affairs have been effectively and validly commenced. The GUARANTOR has the
power to own its properties, conduct its business and affairs, and perform the
OBLIGATIONS. The GUARANTOR’S entry into the SECURITY DOCUMENTS with the SECURED
PARTIES has been validly and effectively approved by its board of directors and
shareholders as may be required by its charter, by-laws, and applicable LAWS.
All copies of the charter, by-laws, and corporate resolutions of the GUARANTOR
submitted to the SECURED PARTIES are true, accurate, and complete and no action
has been taken in diminution or abrogation thereof. The GUARANTOR has not
changed its name, been the surviving entity in a merger, or changed the
location of its chief executive office within the last five (5) years, except
as is disclosed on Schedule 3.4 attached hereto. The GUARANTOR does not trade
under any trade or fictitious names.

     Section 3.5. Valid, Binding and Enforceable. The
SECURITY DOCUMENTS executed by the GUARANTOR are the valid and binding
obligations of the GUARANTOR and are fully enforceable against the GUARANTOR in
accordance with their terms.

     Section 3.6. Compliance With Laws. Except as disclosed
in Schedule 3.6 attached hereto, and except to the extent that any inaccuracy
of any of the following statements could not reasonably be expected to be or
result in any MATERIAL ADVERSE EVENT, the GUARANTOR is in compliance in all
material respects with all applicable LAWS with respect to: (a) all
restrictions, specifications, or other requirements pertaining to products that
it sells or to the services it performs; (b) the conduct of its business; (c)
the use, maintenance, and operation of the real and personal properties owned
or leased by it in the conduct of its business; (d) the obtaining of all
necessary licenses and permits necessary to engage in its business; and (e) the
making, storing, handling, treating, disposing, generating, transporting, or
release of hazardous substances.

     Section 3.7. Chief Place Of Business. As of the date
hereof, the GUARANTOR’S chief executive office, chief place of business, and
the place where it keeps its RECORDS concerning the COLLATERAL is 4909 Nautilus
Court North, Suite 208, Boulder, Colorado 80301-3692.

     Section 3.8. Location Of Inventory. The INVENTORY is
and shall be kept solely at the locations set forth on Schedule 3.8 attached
hereto and at any subsequent locations of which the GUARANTOR has provided
notice in accordance with Section 4.4 of this AGREEMENT, and shall not be
moved, sold or otherwise disposed of without prior notification to the
ADMINISTRATIVE AGENT, except for sales of INVENTORY to CUSTOMERS in the
ordinary course of the GUARANTOR’S business. Except as disclosed on Schedule
3.8 attached hereto, none of the INVENTORY is stored with or in the possession
of any bailee, warehouseman, or other similar PERSON.

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ARTICLE 4

AFFIRMATIVE COVENANTS

     The GUARANTOR covenants and agrees during the term of this AGREEMENT and
while any OBLIGATIONS are outstanding and unpaid to do and perform each of the
acts and promises set forth in this Article 4:

     Section 4.1. Payment And Performance. All OBLIGATIONS
shall be paid and performed in full when and as due.

     Section 4.2. Casualty Insurance. Until the full and
complete satisfaction of all of the OBLIGATIONS, the GUARANTOR shall maintain
for all of its respective assets and properties, whether real, personal, or
mixed and including but not limited to the COLLATERAL, fire and extended
coverage casualty insurance in amounts satisfactory to the ADMINISTRATIVE AGENT
in the exercise of its reasonable discretion and sufficient to prevent any
co-insurance liability (which amount shall be the full insurable value of the
assets and properties insured unless the ADMINISTRATIVE AGENT in writing agree
to a lesser amount), naming the ADMINISTRATIVE AGENT as sole loss payee with
respect to the COLLATERAL. The GUARANTOR shall submit to the ADMINISTRATIVE
AGENT satisfactory evidence of the originals of the casualty insurance policies
and of the payment of the premiums due with respect to the policies. The
casualty insurance policies shall be endorsed so as to make them noncancellable
unless thirty (30) days prior written notice of cancellation is provided to the
ADMINISTRATIVE AGENT.

     Section 4.3. Collection Of Accounts; Sale Of Inventory.
The GUARANTOR shall collect its RECEIVABLES and sell its INVENTORY only in the
ordinary course of business, unless written permission to the contrary is
obtained from the ADMINISTRATIVE AGENT.

     Section 4.4. Notice Of Change Of Business Location. The
GUARANTOR shall notify the ADMINISTRATIVE AGENT thirty (30) days in advance of:
(a) any change in the location of its existing offices or place of business;
(b) the establishment of any new, or the discontinuation of any existing, place
of business; and (c) any change in or addition to the locations at which the
COLLATERAL is kept.

     Section 4.5. Payment Of Taxes. The GUARANTOR shall pay
or cause to be paid when and as due all taxes, assessments and charges or
levies imposed upon it or on any of its property or which it is required to
withhold and pay over to the taxing authority or which it must pay on its
income, except where contested in good faith, by appropriate proceedings and at
its own cost and expense; provided, however, that the GUARANTOR shall not be
deemed to be contesting in good faith by appropriate proceedings unless: (a)
such proceedings operate to prevent the taxing authority from attempting to
collect the taxes, assessments or charges; (b) the COLLATERAL is not subject to
sale, forfeiture or loss during such proceedings; (c) the GUARANTOR’S contest
does not subject the SECURED PARTIES to any claim by the taxing authority or
any other person; (d) the GUARANTOR establishes appropriate reserves in
accordance with generally accepted accounting principles for the payment of all
taxes, assessments, charges, levies, legal fees, court costs and other expenses
for which the GUARANTOR would be liable if it is unsuccessful in its contest;
(e) the GUARANTOR prosecutes the contest continuously to its final conclusion;
and (f) at the conclusion of the proceedings, the GUARANTOR promptly pays all
amounts determined to be payable, including but not limited to all taxes,
assessments, charges, levies, legal fees and court costs.

     Section 4.6. Inspections Of Records. The
ADMINISTRATIVE AGENT shall have the right to call at the GUARANTOR’S places of
business at intervals to be determined by the ADMINISTRATIVE AGENT, before or
after an EVENT OF DEFAULT, and without hindrance or delay to audit, inspect,
verify, check and make extracts or photocopies from the RECORDS of the
GUARANTOR and other data relating to the COLLATERAL or any of the GUARANTOR’S
indebtedness; ; provided, however, that
in the absence of any continuing EVENT OF DEFAULT, such inspections and reviews
shall be conditioned upon reasonable advance notice to the GUARANTOR and at
times reasonably convenient to the GUARANTOR. The GUARANTOR shall reimburse
the ADMINISTRATIVE AGENT for the reasonable costs of all of such audits,
inspections, verifications, copying, and extractions; provided, however, that
unless an EVENT OF DEFAULT shall have occurred and be continuing, the GUARANTOR
shall have no obligation to pay for more than one audit or inspection in any
single twelve-month period.

     Section 4.7. Further Assurances And Power Of Attorney.
The GUARANTOR shall execute from time to time such other and further documents
as the ADMINISTRATIVE AGENT reasonably determines to be necessary to perfect,

6

 

confirm, establish, reestablish, continue, or complete the security interests
and liens in the COLLATERAL. If the GUARANTOR fails to execute any such
document within five (5) business days of being requested to do so by the
SECURED PARTIES, the GUARANTOR hereby appoints the ADMINISTRATIVE AGENT or any
officer of the ADMINISTRATIVE AGENT as the GUARANTOR’S attorney in fact for
purposes of executing such documents in the GUARANTOR’S name, place and stead,
which power of attorney shall be considered as coupled with an interest and
irrevocable.

     Section 4.8. Advancements. If the GUARANTOR fails to
perform any of the affirmative covenants contained in this Article or to
protect or preserve the COLLATERAL or the status and priority of the security
interest of the SECURED PARTIES in the COLLATERAL, and such failure shall
remain uncured for three (3) business days after the ADMINISTRATIVE AGENT shall
have notified the GUARANTOR thereof, the SECURED PARTIES may make advances to
perform the same on behalf of the GUARANTOR or to protect or preserve the
COLLATERAL or the status and priority of the security interest of the SECURED
PARTIES in the COLLATERAL, and all sums so advanced shall immediately upon
advance become secured by the security interest created by this AGREEMENT. The
contrary notwithstanding, the authorization contained in this Section shall
impose no duty or obligation on the SECURED PARTIES to perform any action or
make any advancement on behalf of the GUARANTOR and is for the sole benefit and
protection of the SECURED PARTIES.

     Section 4.9. Documentation Of Collateral. The
GUARANTOR, upon the reasonable request of the ADMINISTRATIVE AGENT, shall
provide the ADMINISTRATIVE AGENT from time to time with: (a) written
statements or schedules identifying and describing the COLLATERAL, and all
additions, substitutions, and replacements thereof, in such detail as the
ADMINISTRATIVE AGENT may reasonably require; (b) copies of CUSTOMERS’ invoices
or billing statements; (c) evidence of shipment or delivery of goods or
merchandise to or performance of services for CUSTOMERS; and (d) such other
schedules and information as the ADMINISTRATIVE AGENT reasonably may require.
The items to be provided under this Section shall be in form satisfactory to
the ADMINISTRATIVE AGENT in its reasonable discretion and are to be executed
and delivered to the ADMINISTRATIVE AGENT from time to time solely for the
ADMINISTRATIVE AGENT’S convenience in maintaining RECORDS of the COLLATERAL.
The GUARANTOR’S failure to give any of such items to the ADMINISTRATIVE AGENT
shall not affect, terminate, modify or otherwise limit the SECURED PARTIES’
security interest in the COLLATERAL. The ADMINISTRATIVE AGENT shall have the
right, at any time and from time to time, to verify the GUARANTOR’S
RECEIVABLES, including during any continuing EVENT OF DEFAULT obtaining
verification of the RECEIVABLES directly from CUSTOMERS.

     Section 4.10. Compliance With Laws. Except to the
extent described in Schedule 3.6 attached hereto, the GUARANTOR shall comply in
all material respects with all applicable LAWS, the noncompliance with which
would or could reasonably be expected to cause a MATERIAL ADVERSE EVENT,
including, but not limited to, all LAWS with respect to: (a) all restrictions,
specifications, or other requirements pertaining to products that it sells or
to the services it performs; (b) the conduct of its business; (c) the use,
maintenance, and operation of the real and personal properties owned or leased
by it in the conduct of its business; (d) the obtaining of all necessary
licenses and permits necessary to engage in its business; and (e) the making,
storing, handling, treating, disposing, generating, transporting, or release of
hazardous substances.

ARTICLE 5

NEGATIVE COVENANTS

     The GUARANTOR covenants and agrees while any OBLIGATIONS are outstanding
and unpaid not to do or to permit to be done or to occur any of the acts or
happenings set forth in this Article 5 without the prior written authorization
of the SECURED PARTIES.

     Section 5.1. No Change Of Name, Merger, Etc. The
GUARANTOR shall not change its name or enter into any merger, consolidation, or
reorganization other than a merger with the BORROWER in which the BORROWER is
the sole surviving entity and mergers in connection with acquisitions which are
permitted by the terms of Section 6.7(d) of the LOAN AGREEMENT.

7

 

     Section 5.2. No Encumbrance Of Assets. The GUARANTOR
shall not mortgage, pledge, grant or permit to exist any LIEN upon any of its
assets of any kind, now owned or hereafter acquired except liens granted to
secured the SECURED PARTIES and PERMITTED LIENS.

     Section 5.3. No Sale-Leaseback Transactions. The
GUARANTOR shall not enter into any sale-leaseback transaction.

ARTICLE 6

EVENTS OF DEFAULT

     The occurrence of any of the following events shall constitute EVENTS OF
DEFAULT and shall entitle the SECURED PARTIES to exercise the SECURED PARTIES’
rights and remedies under Article 7 of this AGREEMENT.

     Section 6.1. Failure To Pay Or Perform. The failure by
the GUARANTOR to pay any monetary OBLIGATION when and as due after the
expiration of any cure period provided by the terms of the GUARANTY.

     Section 6.2. Violation Of Covenants. The failure by
the GUARANTOR to perform or comply with: (a) any covenant in Article 5 of this
AGREEMENT; or (b) any other covenant, agreement, or condition contained in this
AGREEMENT (other than the failure to pay the OBLIGATIONS as described above in
Section 4.1 of this AGREEMENT), and such failure continues for a period of
thirty (30) consecutive business days after notice thereof by the
ADMINISTRATIVE AGENT to the GUARANTOR.

     Section 6.3. Representation Or Warranty. The failure
of any representation or warranty made by the GUARANTOR to be true in any
material respect, as of the date made.

     Section 6.4. Default Under Security Documents. A
breach of or default by the GUARANTOR under the terms, covenants, and
conditions set forth in any other SECURITY DOCUMENT, after the expiration or
any applicable notice and cure period.

ARTICLE 7

RIGHTS AND REMEDIES ON THE OCCURRENCE

OF AN EVENT OF DEFAULT

     Section 7.1. Specific Rights And Remedies Of Secured
Parties. In addition to all other rights and remedies provided by
LAW and the SECURITY DOCUMENTS, the SECURED PARTIES, upon the occurrence and
during the continuance of any EVENT OF DEFAULT, may: (a) accelerate and call
due any or all of the OBLIGATIONS; (b) foreclose or enforce all or any security
interests, liens, or pledges created by this AGREEMENT or any other SECURITY
DOCUMENT; (c) seek specific performance or injunctive relief to enforce
performance of the undertakings, duties, and agreements provided in the
SECURITY DOCUMENTS, whether or not a remedy at law exists or is adequate; (d)
exercise any rights of a secured creditor under the Uniform Commercial
Code, as adopted and amended in Maryland, including the right to take
possession of the COLLATERAL without the use of judicial process or hearing of
any kind and the right to require the GUARANTOR to assemble the COLLATERAL at
such place as the SECURED PARTIES may specify; and (e) set-off any amounts in
any account or represented by any certificate with the SECURED PARTIES in the
name of the GUARANTOR or in which the GUARANTOR has an interest.

     Section 7.2. Collection Of Receivables By Secured
Parties. The SECURED PARTIES, following the occurrence and during the
continuance of an EVENT OF DEFAULT, may terminate the GUARANTOR’S authority to
collect the RECEIVABLES. Upon a termination of the GUARANTOR’S authority, the
ADMINISTRATIVE AGENT shall have the right to send notices of assignment or
notices of the SECURED PARTIES’ security interests to any and all CUSTOMERS or
any third party holding or otherwise concerned with any of the COLLATERAL, and
thereafter the ADMINISTRATIVE AGENT shall have the sole right to collect the
RECEIVABLES and to take possession of the COLLATERAL and RECORDS relating
thereto. All of the ADMINISTRATIVE AGENT’S collection expenses shall be
charged to the GUARANTOR’S account and added to the OBLIGATIONS. If the
ADMINISTRATIVE AGENT is collecting the RECEIVABLES as above provided, the
ADMINISTRATIVE AGENT shall have the right to receive,

8

 

indorse, assign and
deliver in the ADMINISTRATIVE AGENT’S name or the GUARANTOR’S name any and all
checks, drafts and other instruments for the payment of money relating to the
RECEIVABLES, and the GUARANTOR hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. If the ADMINISTRATIVE AGENT is
collecting the RECEIVABLES directly as above provided, the GUARANTOR hereby
constitutes the ADMINISTRATIVE AGENT or the ADMINISTRATIVE AGENT’S designees as
the GUARANTOR’S attorney-in-fact with power with respect to the RECEIVABLES:
(a) to indorse the GUARANTOR’S name upon all notes, acceptances, checks,
drafts, money orders or other evidences of payment of COLLATERAL that may come
into the ADMINISTRATIVE AGENT’S possession; (b) to sign the GUARANTOR’S name on
any invoices relating to any of the RECEIVABLES, drafts against CUSTOMERS,
assignments and verifications of RECEIVABLES and notices to CUSTOMERS; (c) to
send verifications of RECEIVABLES to any CUSTOMER; (d) to notify the Post
Office to change the address for delivery of mail addressed to the GUARANTOR to
such address as the ADMINISTRATIVE AGENT may designate; (e) to receive, open,
and dispose of all mail addressed to the GUARANTOR; and (f) to do all other
acts and things necessary, proper, or convenient to carry out the terms and
conditions and purposes and intent of this AGREEMENT. All acts of such
attorney or designee are hereby ratified and approved, and such attorney or
designee shall not be liable for any acts of omission or commission, nor for
any error of judgment or mistake of fact or law in accordance with this
AGREEMENT, with the exception of acts arising from gross negligence or willful
misconduct. The power of attorney hereby granted, being coupled with an
interest, is irrevocable while any of the OBLIGATIONS remain unpaid. The
ADMINISTRATIVE AGENT, without notice to or consent from the GUARANTOR, may sue
upon or otherwise collect, extend the time of payment of or compromise or
settle for cash, credit or otherwise upon any terms, any of the RECEIVABLES or
any securities, instruments or insurances applicable thereto or release the
obligor thereon. The ADMINISTRATIVE AGENT is authorized and empowered to
accept the return of the goods represented by any of the RECEIVABLES, without
notice to or consent by the GUARANTOR, all without discharging or in any way
affecting the GUARANTOR’S liability under the SECURITY DOCUMENTS. The
ADMINISTRATIVE AGENT does not, by anything herein or in any assignment or
otherwise, assume any of the GUARANTOR’S obligations under any contract or
agreement assigned to the SECURED PARTIES, and the ADMINISTRATIVE AGENT shall
not be responsible in any way for the performance by the GUARANTOR of any of
the terms and conditions thereof.

     Section 7.3. Remedies Cumulative. The rights and
remedies provided in this AGREEMENT and in the other SECURITY DOCUMENTS or
otherwise under applicable LAWS shall be cumulative and the exercise of any
particular right or remedy shall not preclude the exercise of any other rights
or remedies in addition to, or as an alternative of, such right or remedy.

     Section 7.4. Obligations Are Unconditional. The
payment and performance of the OBLIGATIONS shall be the absolute and
unconditional duty and obligation of the GUARANTOR, and shall be independent of
any defense or any rights of setoff, recoupment or counterclaim which the
GUARANTOR might otherwise have against the SECURED PARTIES, and the GUARANTOR
shall pay absolutely all payments required to be made on the OBLIGATIONS, free
of any deductions and without abatement, diminution or setoff other than those
herein expressly provided.

ARTICLE 8

GENERAL CONDITIONS AND TERMS

     Section 8.1. Incorporation. The terms and conditions
of the SECURITY DOCUMENTS are incorporated by reference and made a part hereof,
as if fully set forth herein.

     Section 8.2. Waivers. In accordance with the
provisions of the LOAN AGREEMENT, the SECURED PARTIES at any time or from time
to time may waive all or any rights under this AGREEMENT or any other SECURITY
DOCUMENT, but any waiver or indulgence by the SECURED PARTIES at any time or
from time to time shall not constitute a future waiver of performance or exact
performance by the GUARANTOR.

     Section 8.3. Continuing Obligation Of Guarantor. The
terms, conditions, and covenants set forth herein and in the SECURITY DOCUMENTS
shall constitute a continuing obligation of the GUARANTOR during the course of
the transactions contemplated herein. The OBLIGATIONS of the GUARANTOR under
this AGREEMENT shall remain in effect so long as any OBLIGATION is outstanding,
unpaid or unsatisfied between the GUARANTOR and the SECURED PARTIES.

9

 

     Section 8.4. Binding Obligation. This AGREEMENT shall
be binding upon the parties and their permitted successors and assigns.

     Section 8.5. Final Agreement. This AGREEMENT and the
SECURITY DOCUMENTS contain the final agreement and understanding of the
parties, and any terms and conditions not set forth in this AGREEMENT or the
SECURITY DOCUMENTS are not a part of this AGREEMENT and the understanding of
the parties hereto.

     Section 8.6. Amendment. This AGREEMENT may be amended
or altered only in writing signed by the party to be bound by the change or
alteration.

     Section 8.7. Time. Time is of the essence of this
AGREEMENT.

     Section 8.8. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this AGREEMENT and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the execution of this AGREEMENT or which occurred or were to occur
as a direct or indirect result of this AGREEMENT having been executed.

     Section 8.9. Consent To Jurisdiction; Agreement As To
Venue. The GUARANTOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland and of the United States
District Court For The District Of Maryland, if a basis for federal
jurisdiction exists. The GUARANTOR agrees that venue shall be proper in any
circuit court of the State of Maryland selected by the SECURED PARTIES or in
the United States District Court For The District Of Maryland if a basis for
federal jurisdiction exists and waives any right to object to the maintenance
of a suit in any of the state or federal courts of the State of Maryland on the
basis of improper venue or of inconvenience of forum.

     Section 8.10. Actions Against Secured Parties. Any
action brought by the GUARANTOR against the SECURED PARTIES which is based,
directly or indirectly, on this AGREEMENT or any matter in or related to this
AGREEMENT or any of the OBLIGATIONS, shall be brought only in the courts of the
State of Maryland. The GUARANTOR may not file a counterclaim against the
SECURED PARTIES in a suit brought by the SECURED PARTIES against the GUARANTOR
in a state other than the State of Maryland unless under the rules of procedure
of the court in which the SECURED PARTIES brought the action or the
counterclaim is mandatory, and not merely permissive, and will be considered
waived unless filed as a counterclaim in the action instituted by the SECURED
PARTIES. The GUARANTOR agrees that any forum other than the State of Maryland
is an inconvenient forum and that a suit brought by the GUARANTOR against the
SECURED PARTIES in a court of any state other than the State of Maryland should
be forthwith dismissed or transferred to a court located in the State of
Maryland by that court.

     Section 8.11. Number, Gender, And Captions. As used
herein, the singular includes the plural and the plural includes the singular.
The use of any gender applies to all genders. The captions contained herein
are for purposes of convenience only and are not a part of this AGREEMENT.

     Section 8.12. Photocopies Sufficient. A carbon,
photographic, photocopy or other reproduction of a security agreement or
financing statement shall be sufficient as a financing statement.

     Section 8.13. Notices. Any notice required or
permitted by or in connection with this AGREEMENT shall be in writing and shall
be made by facsimile (confirmed on the date the facsimile is sent by one of the
other methods of giving notice provided for in this Section) or by hand
delivery, by Federal Express, or other similar overnight delivery service, or
by certified mail, unrestricted delivery, return receipt requested, postage
prepaid, addressed to the SECURED PARTIES or the GUARANTOR at the appropriate
address set forth below or to such other address as may be hereafter specified
by written notice by the SECURED PARTIES or the GUARANTOR. Notice shall be
considered given as of the date of the facsimile or the hand delivery, one (1)
calendar day after delivery to Federal Express or similar overnight delivery
service, or three (3) calendar days after the date of mailing, independent of
the date of actual delivery or whether delivery is ever in fact made, as the
case may be, provided the giver of notice can establish the fact that notice
was given as provided herein. If notice is tendered pursuant to the provisions
of this Section and is refused by the intended recipient thereof, the notice,
nevertheless, shall be considered to have been given and shall be effective as
of the date herein provided.

10

 

     If to the SECURED PARTIES:

          MANUFACTURERS AND TRADERS TRUST COMPANY, Individually And
          In
Its Capacity As Administrative Agent For Various Other Lenders
          25
S. Charles Street, 12th Floor
          Baltimore,
Maryland 21201
          Attn:
Hugh E. Giorgio, Vice President
          Facsimile:
(410) 244-4447

     If to the GUARANTOR:

          MARTEK BIOSCIENCES BOULDER CORPORATION
          c/o
Martek Biosciences Corporation
          6480
Dobbin Road
          Columbia,
Maryland 21045
          Attn.:
George P. Barker, Esquire
          Fax
No.: (410) 740-2985

     With A Courtesy Copy To:

          HOGAN & HARTSON L.L.P.
          111
South Calvert Street, Suite 1600
          Baltimore,
Maryland 21202
          Attn.:
Kevin G. Gralley, Esquire
          Fax
No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the GUARANTOR in the manner
provided herein.

     Section 8.14. Effective Date. This AGREEMENT shall be
effective as of the date first above written, independent of the date of
execution or delivery hereof.

     Section 8.15. Waiver Of Trial By Jury. Each party to
this AGREEMENT agrees that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this AGREEMENT or any other SECURITY
DOCUMENT or which in any way relates, directly or indirectly, to the
OBLIGATIONS or any event, transaction, or occurrence arising out of or in any
way connected with the OBLIGATIONS, or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. The GUARANTOR acknowledges and agrees that this Section is a
specific and material aspect of this AGREEMENT and the understandings of the
parties.

[Signatures Begin On The Following Page]

11

 

     IN WITNESS WHEREOF, the GUARANTOR has duly executed this AGREEMENT under
seal as of the date first above written.

  	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	GUARANTOR:
	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES
        BOULDER CORPORATION
	 	 	 	 	 	 	 
	 	 	 By: 	/s/ Peter L. Buzy 	 	(SEAL)
	
	 	 	
        

        	 	 
	 	 	 	Peter L. Buzy,	 	 
	 	 	 	Chief Financial
        Officer and Treasurer	 	 
	 	 	 	 	 	 	 
	 	 	ADMINISTRATIVE
        AGENT:
	 	 	 	 	 	 	 
	 	 	MANUFACTURERS AND
        TRADERS TRUST COMPANY,

        AS ADMINISTRATIVE AGENT
	 	 	 	 	 	 	 
	 	 	 By: 	/s/ Hugh E. Giorgio	 	(SEAL)
	
	 	 	
        

        	 	 
	 	 	 	Name:	Hugh E. Giorgio	 	 
	 	 	 	 	
        

        	 	 
	 	 	 	Title:	VP	 	 
	 	 	 	 	
        

        	 	 

Schedules

	 	 	 
	Schedule 1.13	 	
Permitted Liens
	Schedule 3.4	 	
Status of Guarantor
	Schedule 3.6	 	
Compliance with Laws
	Schedule 3.8	 	
Location of Inventory

12

 

SECURITY AGREEMENT

(Martek Biosciences Kingstree Corporation)

     THIS SECURITY AGREEMENT is made as of January 26, 2004, by MARTEK
BIOSCIENCES KINGSTREE CORPORATION, a Delaware corporation (“GUARANTOR”), for
the benefit of MANUFACTURERS AND TRADERS TRUST COMPANY, individually and in its
capacity as the Agent (“ADMINISTRATIVE AGENT”) for the “LENDERS” that are now
or hereafter parties to a Loan And Security Agreement (“LOAN AGREEMENT”) of
even date herewith by and among the “BORROWER” (hereinafter defined), the
ADMINISTRATIVE AGENT, and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and
the LENDERS are collectively referred to as the “SECURED PARTIES.”

RECITALS

     The GUARANTOR has executed and delivered a Guaranty Agreement (“GUARANTY”)
of even date herewith pursuant to which the GUARANTOR has guaranteed to the
SECURED PARTIES the payment and performance of various obligations owed by
MARTEK BIOSCIENCES CORPORATION, a Delaware corporation (“BORROWER”), to the
SECURED PARTIES. The GUARANTOR has agreed to secure all of the duties and
obligations owed by the GUARANTOR to the SECURED PARTIES pursuant to the
GUARANTY by granting security interests to the SECURED PARTIES in and to
certain of the GUARANTOR’S assets. The GUARANTOR has executed and delivered
this Security Agreement in order to grant such security interests.

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

     As used in this Security Agreement, the terms set forth in this Article 1
have the meanings set forth below, unless the specific context of this Security
Agreement clearly requires a different meaning. Terms defined in this Article
1 or elsewhere in this Security Agreement are in all capital letters throughout
this Security Agreement. The singular use of any defined term includes the
plural and the plural use includes the singular.

     Section 1.1. Account, Chattel Paper, Document, General
Intangibles, Goods, Instrument, Letter-Of-Credit Right, Payment Intangible,
Promissory Notes, And Software. The terms “ACCOUNT,” “CHATTEL
PAPER,” “DOCUMENT,” “GENERAL INTANGIBLES,” “GOODS,” “INSTRUMENT,”
“LETTER-OF-CREDIT RIGHT,” “PAYMENT INTANGIBLE,” “PROMISSORY NOTES,” and
“SOFTWARE” shall have the same respective meanings as are given to those terms
in the Uniform Commercial Code, as adopted and in effect in
the State of Maryland.

     Section 1.2. Agreement. The term “AGREEMENT” means
this Security Agreement, as amended, extended, or modified from time to time by
the parties hereto, as well as all schedules, exhibits and attachments hereto.

     Section 1.3. Collateral. The term “COLLATERAL” means
all of the following types of assets and personal property of the GUARANTOR,
wherever located, whether now owned or hereafter acquired by the GUARANTOR,
together with all substitutions therefor, and all replacements and renewals
thereof, and all accessions, additions, and packaging relating thereto: (a)
ACCOUNTS; (b) INVENTORY, including returned, rejected, or repossessed
INVENTORY and rights of reclamation and stoppage in transit with respect to
INVENTORY; (c) RECEIVABLES; (d) all SOFTWARE evidencing or used in the
tracking, monitoring, maintenance or collection of any of the foregoing; (e)
all GENERAL INTANGIBLES necessary for the collection, monitoring or maintenance
of RECEIVABLES, or for the sale of the INVENTORY; (f) all capital stock or
other equity or ownership interests of the GUARANTOR in the SUBSIDIARIES of the
GUARANTOR; (g) all RECORDS relating to or pertaining to any of the above listed
COLLATERAL; and (h) all proceeds of the foregoing. The definition of
COLLATERAL shall not include any INTELLECTUAL PROPERTY except to the limited
extent that the use or licensing of any INTELLECTUAL

 

 

PROPERTY is necessary for
the liquidation, sale or collection of any of the COLLATERAL during any
continuing EVENT OF DEFAULT. The definition of COLLATERAL shall include
royalties, payments, and payment rights which arise from or with respect to the
licensing, sale or other alienation of INTELLECTUAL PROPERTY.

     Section 1.4. Customers. The term “CUSTOMERS” means the
persons to or for whom the GUARANTOR sells or leases GOODS or INVENTORY or for
whom the GUARANTOR performs services, together with all other account debtors
of the GUARANTOR.

     Section 1.5. Event Of Default. The term “EVENT OF
DEFAULT” means any of the events set forth in Article 6 of this AGREEMENT.

     Section 1.6. Insolvency Proceedings. The term
“INSOLVENCY PROCEEDINGS” means, with respect to any PERSON, any proceeding
commenced by or against such PERSON, under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency law, or any assignments for the benefit of creditors, formal or
informal moratoriums, compositions or extensions with some or all creditors
with respect to any indebtedness of such PERSON.

     Section 1.7. Intellectual Property. The term
“INTELLECTUAL PROPERTY” means all of the GUARANTOR’S right, title and
interest, whether now owned or existing or hereafter acquired or arising, in
all of the following property: (a) all domestic and foreign copyrights,
copyright registrations and copyright applications, whether or not registered
or filed with any governmental authority; (b) all domestic and foreign
trademarks, trademark registrations, trademark applications, trade names,
service marks, certification marks, logos and other source business
identifiers, whether or not registered or filed with any governmental
authority; (c) all United States and foreign patents, and pending and abandoned
United States and foreign patent applications, including, without limitation,
the inventions and improvements described or claimed therein, together with (i)
all renewals, reissues, divisions, continuations, certificates of
reexamination, extensions and continuations-in-part of all of the foregoing,
(ii) all present and future rights of the GUARANTOR under all present and
future license agreements relating to all of the foregoing, whether the
GUARANTOR is licensee or licensor thereunder, and (iii) all of the GUARANTOR’S
present and future claims, causes of action and rights to sue for past, present
or future infringements of all of the foregoing; (d) all rights corresponding
thereto throughout the world; and (e) all goodwill of the GUARANTOR in
connection with the use of, and symbolized by, any of the foregoing.

     Section 1.8. Inventory. The term “INVENTORY” has the
same meaning as provided to such term in the Uniform Commercial Code -
Secured Transactions, Title 9, Commercial Law
Article, Annotated Code of Maryland, as amended,
together with all of the GUARANTOR’S GOODS, merchandise, materials, raw
materials, goods in process, finished goods, work in progress, bindings or
component materials, packaging and shipping materials and other tangible or
intangible personal property, now owned or hereafter acquired and held for sale
or lease or furnished or to be furnished under contracts of service or which
contribute to the finished products or the sale, promotion, storage and
shipment thereof, whether located at facilities owned or leased by the
GUARANTOR, in the course of transport to or from account debtors, used for
demonstration, placed on consignment, or held at storage locations.

     Section 1.9. Laws. The term “LAWS” means all
ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees
of any government or political subdivision or agency thereof, or any court or
similar entity established by any thereof.

     Section 1.10. Liens. The term “LIENS” means with
respect to any asset owned by a referenced PERSON: (a) any lien, claim, charge,
pledge, security interest, deed of trust, mortgage, or other encumbrance in, on
or of such asset; (b) the interest of a vendor or a lessor under any
conditional sale agreement capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset; and (c)in the case of securities owned by
any such PERSON, any purchase option, call or similar right of a third party
with respect to such securities.

     Section 1.11. Material Adverse Event. The term
“MATERIAL ADVERSE EVENT” has the meaning provided to such term in Section 1.73
of the LOAN AGREEMENT.

     Section 1.12. Obligations. The term “OBLIGATIONS”
means the obligations of the GUARANTOR to pay to the SECURED PARTIES: (a) all
sums due to the SECURED PARTIES pursuant to the terms of the GUARANTY; (b) all

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SECURED PARTY EXPENSES; (c) all overdrafts of the GUARANTOR upon any accounts
with the ADMINISTRATIVE AGENT; and (d) any indebtedness or liability which may
exist or arise as a result of any payment made by or for the benefit of the
GUARANTOR, on any of the obligations described in (a), (b) or (c) above being
avoided or set aside as a preference under Sections 547 and 550 of the United
States Bankruptcy Code, as amended, or under any state law
governing insolvency or creditors’ rights.

     Section 1.13. Permitted Liens. The term “PERMITTED
LIENS” means: (a) LIENS for taxes, assessments, or similar charges incurred in
the ordinary course of business that are not yet due and payable (or which are
being contested in compliance with the provisions of Section 4.5 hereof); (b)
LIENS in favor of the SECURED PARTIES; (c) any existing LIENS specifically
described on Schedule 1.13 hereof; (d) any LIEN on specifically allocated money
or securities to secure payments under workmen’s compensation, unemployment
insurance, social security and other similar LAWS, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business; (e)
purchase money security interests in equipment (and security interests in
equipment securing the refinancing of INDEBTEDNESS previously secured by a
purchase money security interest therein) not to exceed in aggregate amount
outstanding together with all other secured purchase money financing of the
BORROWER and of its SUBSIDIARIES at any one time the sum of Two Million Dollars
($2,000,000.00), provided that such purchase money security interests do not
attach to any assets other than the specific item(s) of equipment acquired with
the proceeds of the loan secured by such purchase money security interests and
the proceeds thereof; (f) LIENS of carriers, warehousemen, mechanics,
materialmen and landlords arising in the ordinary course of business for sums
not overdue or sums being diligently contested in good faith by appropriate
procedures and for which adequate reserves have been set aside; (g) easements,
rights-of-way, restrictions, encroachments and other similar charges or
encumbrances, and minor title deficiencies relating to real property owned or
occupied by the GUARANTOR, in each case not securing INDEBTEDNESS and not
materially interfering with the conduct of the business of the GUARANTOR; and
(h) subsequently arising LIENS which are expressly approved in advance of the
creation of any such LIENS by the ADMINISTRATIVE AGENT in writing.

     Section 1.14. Person. The term “PERSON” means any
individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, court, or government or political
subdivision or agency thereof.

     Section 1.15. Receivables. The term “RECEIVABLES”
means: (a) all ACCOUNTS; (b) all INSTRUMENTS, DOCUMENTS, GENERAL INTANGIBLES,
CHATTEL PAPER, PAYMENT INTANGIBLES, PROMISSORY NOTES, drafts, acceptances, and
choses in action, of the GUARANTOR, now existing or hereafter created or
acquired, and all proceeds and products thereof, and all rights thereto, in
each case arising from or relating to the sale, lease or license of or the
providing of INVENTORY, GOODS, or other assets or services by the GUARANTOR to
account debtors; (c) all SOFTWARE relating to any of the foregoing; (d) all
rights to royalties or payments of any kind arising out of the licensing or
sale of any INTELLECTUAL PROPERTY; and (e) all other rights, contingent or
non-contingent, of any kind of the GUARANTOR to receive payment, benefit, or
credit from any PERSON, other than casualty insurance proceeds or condemnation
proceeds from the loss or taking of assets of the GUARANTOR which are not
COLLATERAL.

     Section 1.16. Records. The term “RECORDS” means
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary, computer or
machine language.

     Section 1.17. Secured Party Expenses. The term
“SECURED PARTY EXPENSES” means all reasonable out-of-pocket expenses or costs
incurred by the SECURED PARTIES arising out of, pertaining to, or in any way
connected with this AGREEMENT, any of the other SECURITY DOCUMENTS or the
OBLIGATIONS, or any documents executed in connection herewith or transactions
hereunder, including without limitation: All costs or expenses required to be
paid by the GUARANTOR pursuant to this AGREEMENT or as otherwise provided for
in any of the SECURITY DOCUMENTS or as required by any other present or future
agreement between the GUARANTOR and the SECURED PARTIES evidencing and/or
securing the OBLIGATIONS which are paid or advanced by the SECURED PARTIES;
taxes and insurance premium of every nature and kind of GUARANTOR paid by the
SECURED PARTIES; filing, recording, title insurance, environmental and
consulting fees, audit fees, search fees and other expenses paid or incurred by
the SECURED PARTIES in connection with the transactions of the SECURED PARTIES
with the GUARANTOR;

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reasonable and necessary costs and expenses incurred by the
SECURED PARTIES in the collection of the RECEIVABLES (with or without the
institution of legal action), to correct any default or enforce any provision
of this AGREEMENT, or in gaining possession of, maintaining, handling,
evaluating, preserving, storing, shipping, selling, preparing for sale and/or
advertising to sell the COLLATERAL or any other property of the GUARANTOR in
which any SECURED PARTY has a lien whether or not a sale is consummated;
reasonable and necessary costs and expenses of litigation incurred by the
SECURED PARTIES in enforcing or defending this AGREEMENT or any portion hereof;
and reasonable and necessary attorneys’ fees and expenses incurred by the
SECURED PARTIES in obtaining advice or the services of their attorneys with
respect to the structuring, drafting, negotiating, reviewing, amending,
terminating, enforcing or defending of this AGREEMENT, or any portion hereof or
any agreement or matter related hereto, whether or not litigation is
instituted; and reasonable travel expenses related to any of the foregoing.

     Section 1.18. Security Documents. The term “SECURITY
DOCUMENTS” means collectively this AGREEMENT, the GUARANTY and all agreements,
instruments and documents, whether heretofore, now or hereafter executed by or
on behalf of the GUARANTOR, or by any other PERSON in connection with the
OBLIGATIONS.

     Section 1.19. Subsidiary. The term “SUBSIDIARY” means,
with respect to any PERSON (the “PARENT”) at any date, any corporation, limited
liability company, partnership, association or other entity the accounts of
which would be consolidated with those of the PARENT in the PARENT’S
consolidated financial statements if such financial statements were prepared in
accordance with generally accepted accounting principles as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership interests
representing more than fifty percent (50%) of the equity or more than fifty
percent (50%) of the ordinary voting power or, in the case of a partnership,
more than fifty percent (50%) of the general partnership interests are, as of
such date, owned, controlled or held, or that is, as of such date, otherwise
controlled, by the PARENT or one or more subsidiaries of the PARENT or by the
PARENT and one or more subsidiaries of the PARENT. Unless otherwise specified,
“SUBSIDIARY” means a SUBSIDIARY of the GUARANTOR.

ARTICLE 2

SECURITY FOR THE OBLIGATIONS

     The payment, performance and satisfaction of the OBLIGATIONS, and the
full, complete and absolute performance by the GUARANTOR of each of the terms
and conditions of the SECURITY DOCUMENTS shall be secured by the following
described security interests, assignments and pledges.

     Section 2.1. Grant Of Security Interests. The
GUARANTOR hereby assigns to the SECURED PARTIES all of the GUARANTOR’S right,
title, and interest in and to, and grants to the SECURED PARTIES a continuing
security interest in and to, all of the COLLATERAL. The GUARANTOR further
assigns, transfers, hypothecates and sets over to the SECURED PARTIES all of
the GUARANTOR’S right, title and interest in and to, and grants to the SECURED
PARTIES a continuing security interest in and to, all amounts that may be owing
at any time and from time to time by the SECURED PARTIES to the GUARANTOR in
any capacity, including but not limited to any balance or share belonging to
the GUARANTOR of any deposit or other account with the SECURED PARTIES, which
security interest shall be independent of and in addition to any right of
setoff which the SECURED PARTIES may have.

     Section 2.2. Proceeds And Products. The security
interests of the SECURED PARTIES provided for herein shall apply to the
proceeds, including but not limited to insurance proceeds, and the products of
the COLLATERAL.

     Section 2.3. Priority Of Security Interests. Each of
the security interests granted by the GUARANTOR to the SECURED PARTIES pursuant
to this AGREEMENT shall be a perfected first priority security interest in the
COLLATERAL, except for PERMITTED LIENS which by operation of law or the written
consent of the ADMINISTRATIVE AGENT constitute prior encumbrances.

     Section 2.4. Future Advances. The security interests
granted by the GUARANTOR to the SECURED PARTIES hereunder shall secure all
current and all future advances.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     The GUARANTOR makes the representations and warranties set forth in this
Article 3. The GUARANTOR acknowledges the justifiable right of the SECURED
PARTIES to rely upon these representations and warranties.

     Section 3.1. Accuracy Of Information. All information,
documents, reports, statements, financial statements, and data submitted by or
on behalf of the GUARANTOR in connection with the OBLIGATIONS, or in support
thereof, are true, accurate, and complete in all material respects as of the
date made and contain no knowingly false, incomplete or misleading statements.

     Section 3.2. Title To Collateral. The GUARANTOR has
good and marketable title to all of the COLLATERAL. The LIENS of the SECURED
PARTIES described herein shall constitute first and indefeasible LIENS except
as permitted to the contrary by the terms of Section 2.3 of this AGREEMENT.

     Section 3.3. Existing Liens. There are no existing
LIENS against any of the assets of the GUARANTOR other than PERMITTED LIENS.

     Section 3.4. Status. The GUARANTOR is validly
incorporated under the LAWS of the State of Delaware and its operations and
affairs have been effectively and validly commenced. The GUARANTOR has the
power to own its properties, conduct its business and affairs, and perform the
OBLIGATIONS. The GUARANTOR’S entry into the SECURITY DOCUMENTS with the SECURED
PARTIES has been validly and effectively approved by its board of directors and
shareholders as may be required by its charter, by-laws, and applicable LAWS.
All copies of the charter, by-laws, and corporate resolutions of the GUARANTOR
submitted to the SECURED PARTIES are true, accurate, and complete and no action
has been taken in diminution or abrogation thereof. The GUARANTOR has not
changed its name, been the surviving entity in a merger, or changed the
location of its chief executive office within the last five (5) years, except
as is disclosed on Schedule 3.4 attached hereto. The GUARANTOR does not trade
under any trade or fictitious names.

     Section 3.5. Valid, Binding and Enforceable. The
SECURITY DOCUMENTS executed by the GUARANTOR are the valid and binding
obligations of the GUARANTOR and are fully enforceable against the GUARANTOR in
accordance with their terms.

     Section 3.6. Compliance With Laws. Except as disclosed
in Schedule 3.6 attached hereto, and except to the extent that any inaccuracy
of any of the following statements could not reasonably be expected to be or
result in any MATERIAL ADVERSE EVENT, the GUARANTOR is in compliance in all
material respects with all applicable LAWS with respect to: (a) all
restrictions, specifications, or other requirements pertaining to products that
it sells or to the services it performs; (b) the conduct of its business; (c)
the use, maintenance, and operation of the real and personal properties owned
or leased by it in the conduct of its business; (d) the obtaining of all
necessary licenses and permits necessary to engage in its business; and (e) the
making, storing, handling, treating, disposing, generating, transporting, or
release of hazardous substances.

     Section 3.7. Chief Place Of Business. As of the date
hereof, the GUARANTOR’S chief executive office, chief place of business, and
the place where it keeps its RECORDS concerning the COLLATERAL is 1416 North
Williamsburg County Highway, Kingstree, South Carolina 29556.

     Section 3.8. Location Of Inventory. The INVENTORY is
and shall be kept solely at the locations set forth on Schedule 3.8 attached
hereto and at any subsequent locations of which the GUARANTOR has provided
notice in accordance with Section 4.4 of this AGREEMENT, and shall not be
moved, sold or otherwise disposed of without prior notification to the
ADMINISTRATIVE AGENT, except for sales of INVENTORY to CUSTOMERS in the
ordinary course of the GUARANTOR’S business. Except as disclosed on Schedule
3.8 attached hereto, none of the INVENTORY is stored with or in the possession
of any bailee, warehouseman, or other similar PERSON.

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ARTICLE 4

AFFIRMATIVE COVENANTS

     The GUARANTOR covenants and agrees during the term of this AGREEMENT and
while any OBLIGATIONS are outstanding and unpaid to do and perform each of the
acts and promises set forth in this Article 4:

     Section 4.1. Payment And Performance. All OBLIGATIONS
shall be paid and performed in full when and as due.

     Section 4.2. Casualty Insurance. Until the full and
complete satisfaction of all of the OBLIGATIONS, the GUARANTOR shall maintain
for all of its respective assets and properties, whether real, personal, or
mixed and including but not limited to the COLLATERAL, fire and extended
coverage casualty insurance in amounts satisfactory to the ADMINISTRATIVE AGENT
in the exercise of its reasonable discretion and sufficient to prevent any
co-insurance liability (which amount shall be the full insurable value of the
assets and properties insured unless the ADMINISTRATIVE AGENT in writing agree
to a lesser amount), naming the ADMINISTRATIVE AGENT as sole loss payee with
respect to the COLLATERAL. The GUARANTOR shall submit to the ADMINISTRATIVE
AGENT satisfactory evidence of the originals of the casualty insurance policies
and of the payment of the premiums due with respect to the policies. The
casualty insurance policies shall be endorsed so as to make them noncancellable
unless thirty (30) days prior written notice of cancellation is provided to the
ADMINISTRATIVE AGENT.

     Section 4.3. Collection Of Accounts; Sale Of Inventory.
The GUARANTOR shall collect its RECEIVABLES and sell its INVENTORY only in the
ordinary course of business, unless written permission to the contrary is
obtained from the ADMINISTRATIVE AGENT.

     Section 4.4. Notice Of Change Of Business Location. The
GUARANTOR shall notify the ADMINISTRATIVE AGENT thirty (30) days in advance of:
(a) any change in the location of its existing offices or place of business;
(b) the establishment of any new, or the discontinuation of any existing, place
of business; and (c) any change in or addition to the locations at which the
COLLATERAL is kept.

     Section 4.5. Payment Of Taxes. The GUARANTOR shall pay
or cause to be paid when and as due all taxes, assessments and charges or
levies imposed upon it or on any of its property or which it is required to
withhold and pay over to the taxing authority or which it must pay on its
income, except where contested in good faith, by appropriate proceedings and at
its own cost and expense; provided, however, that the GUARANTOR shall not be
deemed to be contesting in good faith by appropriate proceedings unless: (a)
such proceedings operate to prevent the taxing authority from attempting to
collect the taxes, assessments or charges; (b) the COLLATERAL is not subject to
sale, forfeiture or loss during such proceedings; (c) the GUARANTOR’S contest
does not subject the SECURED PARTIES to any claim by the taxing authority or
any other person; (d) the GUARANTOR establishes appropriate reserves in
accordance with generally accepted accounting principles for the payment of all
taxes, assessments, charges, levies, legal fees, court costs and other expenses
for which the GUARANTOR would be liable if it is unsuccessful in its contest;
(e) the GUARANTOR prosecutes the contest continuously to its final conclusion;
and (f) at the conclusion of the proceedings, the GUARANTOR promptly pays all
amounts determined to be payable, including but not limited to all taxes,
assessments, charges, levies, legal fees and court costs.

     Section 4.6. Inspections Of Records. The
ADMINISTRATIVE AGENT shall have the right to call at the GUARANTOR’S places of
business at intervals to be determined by the ADMINISTRATIVE AGENT, before or
after an EVENT OF DEFAULT, and without hindrance or delay to audit, inspect,
verify, check and make extracts or photocopies from the RECORDS of the
GUARANTOR and other data relating to the COLLATERAL or any of the GUARANTOR’S
indebtedness; ; provided, however, that
in the absence of any continuing EVENT OF DEFAULT, such inspections and reviews
shall be conditioned upon reasonable advance notice to the GUARANTOR and at
times reasonably convenient to the GUARANTOR. The GUARANTOR shall reimburse
the ADMINISTRATIVE AGENT for the reasonable costs of all of such audits,
inspections, verifications, copying, and extractions; provided, however, that
unless an EVENT OF DEFAULT shall have occurred and be continuing, the GUARANTOR
shall have no obligation to pay for more than one audit or inspection in any
single twelve-month period.

     Section 4.7. Further Assurances And Power Of Attorney.
The GUARANTOR shall execute from time to time such other and further documents
as the ADMINISTRATIVE AGENT reasonably determines to be necessary to perfect,

6

 

confirm, establish, reestablish, continue, or complete the security interests
and liens in the COLLATERAL. If the GUARANTOR fails to execute any such
document within five (5) business days of being requested to do so by the
SECURED PARTIES, the GUARANTOR hereby appoints the ADMINISTRATIVE AGENT or any
officer of the ADMINISTRATIVE AGENT as the GUARANTOR’S attorney in fact for
purposes of executing such documents in the GUARANTOR’S name, place and stead,
which power of attorney shall be considered as coupled with an interest and
irrevocable.

     Section 4.8. Advancements. If the GUARANTOR fails to
perform any of the affirmative covenants contained in this Article or to
protect or preserve the COLLATERAL or the status and priority of the security
interest of the SECURED PARTIES in the COLLATERAL, and such failure shall
remain uncured for three (3) business days after the ADMINISTRATIVE AGENT shall
have notified the GUARANTOR thereof, the SECURED PARTIES may make advances to
perform the same on behalf of the GUARANTOR or to protect or preserve the
COLLATERAL or the status and priority of the security interest of the SECURED
PARTIES in the COLLATERAL, and all sums so advanced shall immediately upon
advance become secured by the security interest created by this AGREEMENT. The
contrary notwithstanding, the authorization contained in this Section shall
impose no duty or obligation on the SECURED PARTIES to perform any action or
make any advancement on behalf of the GUARANTOR and is for the sole benefit and
protection of the SECURED PARTIES.

     Section 4.9. Documentation Of Collateral. The
GUARANTOR, upon the reasonable request of the ADMINISTRATIVE AGENT, shall
provide the ADMINISTRATIVE AGENT from time to time with: (a) written
statements or schedules identifying and describing the COLLATERAL, and all
additions, substitutions, and replacements thereof, in such detail as the
ADMINISTRATIVE AGENT may reasonably require; (b) copies of CUSTOMERS’ invoices
or billing statements; (c) evidence of shipment or delivery of goods or
merchandise to or performance of services for CUSTOMERS; and (d) such other
schedules and information as the ADMINISTRATIVE AGENT reasonably may require.
The items to be provided under this Section shall be in form satisfactory to
the ADMINISTRATIVE AGENT in its reasonable discretion and are to be executed
and delivered to the ADMINISTRATIVE AGENT from time to time solely for the
ADMINISTRATIVE AGENT’S convenience in maintaining RECORDS of the COLLATERAL.
The GUARANTOR’S failure to give any of such items to the ADMINISTRATIVE AGENT
shall not affect, terminate, modify or otherwise limit the SECURED PARTIES’
security interest in the COLLATERAL. The ADMINISTRATIVE AGENT shall have the
right, at any time and from time to time, to verify the GUARANTOR’S
RECEIVABLES, including during any continuing EVENT OF DEFAULT obtaining
verification of the RECEIVABLES directly from CUSTOMERS.

     Section 4.10. Compliance With Laws. Except to the
extent described in Schedule 3.6 attached hereto, the GUARANTOR shall comply in
all material respects with all applicable LAWS, the noncompliance with which
would or could reasonably be expected to cause a MATERIAL ADVERSE EVENT,
including, but not limited to, all LAWS with respect to: (a) all restrictions,
specifications, or other requirements pertaining to products that it sells or
to the services it performs; (b) the conduct of its business; (c) the use,
maintenance, and operation of the real and personal properties owned or leased
by it in the conduct of its business; (d) the obtaining of all necessary
licenses and permits necessary to engage in its business; and (e) the making,
storing, handling, treating, disposing, generating, transporting, or release of
hazardous substances.

ARTICLE 5

NEGATIVE COVENANTS

     The GUARANTOR covenants and agrees while any OBLIGATIONS are outstanding
and unpaid not to do or to permit to be done or to occur any of the acts or
happenings set forth in this Article 5 without the prior written authorization
of the SECURED PARTIES.

     Section 5.1. No Change Of Name, Merger, Etc. The
GUARANTOR shall not change its name or enter into any merger, consolidation, or
reorganization other than a merger with the BORROWER in which the BORROWER is
the sole surviving entity and mergers in connection with acquisitions which are
permitted by the terms of Section 6.7(d) of the LOAN AGREEMENT.

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     Section 5.2. No Encumbrance Of Assets. The GUARANTOR
shall not mortgage, pledge, grant or permit to exist any LIEN upon any of its
assets of any kind, now owned or hereafter acquired except liens granted to
secured the SECURED PARTIES and PERMITTED LIENS.

     Section 5.3. No Sale-Leaseback Transactions. The
GUARANTOR shall not enter into any sale-leaseback transaction.

ARTICLE 6

EVENTS OF DEFAULT

     The occurrence of any of the following events shall constitute EVENTS OF
DEFAULT and shall entitle the SECURED PARTIES to exercise the SECURED PARTIES’
rights and remedies under Article 7 of this AGREEMENT.

     Section 6.1. Failure To Pay Or Perform. The failure by
the GUARANTOR to pay any monetary OBLIGATION when and as due after the
expiration of any cure period provided by the terms of the GUARANTY.

     Section 6.2. Violation Of Covenants. The failure by
the GUARANTOR to perform or comply with: (a) any covenant in Article 5 of this
AGREEMENT; or (b) any other covenant, agreement, or condition contained in this
AGREEMENT (other than the failure to pay the OBLIGATIONS as described above in
Section 4.1 of this AGREEMENT), and such failure continues for a period of
thirty (30) consecutive business days after notice thereof by the
ADMINISTRATIVE AGENT to the GUARANTOR.

     Section 6.3. Representation Or Warranty. The failure
of any representation or warranty made by the GUARANTOR to be true in any
material respect, as of the date made.

     Section 6.4. Default Under Security Documents. A
breach of or default by the GUARANTOR under the terms, covenants, and
conditions set forth in any other SECURITY DOCUMENT, after the expiration or
any applicable notice and cure period.

ARTICLE 7

RIGHTS AND REMEDIES ON THE OCCURRENCE

OF AN EVENT OF DEFAULT

     Section 7.1. Specific Rights And Remedies Of Secured
Parties. In addition to all other rights and remedies provided by
LAW and the SECURITY DOCUMENTS, the SECURED PARTIES, upon the occurrence and
during the continuance of any EVENT OF DEFAULT, may: (a) accelerate and call
due any or all of the OBLIGATIONS; (b) foreclose or enforce all or any security
interests, liens, or pledges created by this AGREEMENT or any other SECURITY
DOCUMENT; (c) seek specific performance or injunctive relief to enforce
performance of the undertakings, duties, and agreements provided in the
SECURITY DOCUMENTS, whether or not a remedy at law exists or is adequate; (d)
exercise any rights of a secured creditor under the Uniform Commercial
Code, as adopted and amended in Maryland, including the right to take
possession of the COLLATERAL without the use of judicial process or hearing of
any kind and the right to require the GUARANTOR to assemble the COLLATERAL at
such place as the SECURED PARTIES may specify; and (e) set-off any amounts in
any account or represented by any certificate with the SECURED PARTIES in the
name of the GUARANTOR or in which the GUARANTOR has an interest.

     Section 7.2. Collection Of Receivables By Secured
Parties. The SECURED PARTIES, following the occurrence and during the
continuance of an EVENT OF DEFAULT, may terminate the GUARANTOR’S authority to
collect the RECEIVABLES. Upon a termination of the GUARANTOR’S authority, the
ADMINISTRATIVE AGENT shall have the right to send notices of assignment or
notices of the SECURED PARTIES’ security interests to any and all CUSTOMERS or
any third party holding or otherwise concerned with any of the COLLATERAL, and
thereafter the ADMINISTRATIVE AGENT shall have the sole right to collect the
RECEIVABLES and to take possession of the COLLATERAL and RECORDS relating
thereto. All of the ADMINISTRATIVE AGENT’S collection expenses shall be
charged to the GUARANTOR’S account and added to the OBLIGATIONS. If the
ADMINISTRATIVE AGENT is collecting the RECEIVABLES as above provided, the
ADMINISTRATIVE AGENT shall have the right to receive,

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indorse, assign and
deliver in the ADMINISTRATIVE AGENT’S name or the GUARANTOR’S name any and all
checks, drafts and other instruments for the payment of money relating to the
RECEIVABLES, and the GUARANTOR hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. If the ADMINISTRATIVE AGENT is
collecting the RECEIVABLES directly as above provided, the GUARANTOR hereby
constitutes the ADMINISTRATIVE AGENT or the ADMINISTRATIVE AGENT’S designees as
the GUARANTOR’S attorney-in-fact with power with respect to the RECEIVABLES:
(a) to indorse the GUARANTOR’S name upon all notes, acceptances, checks,
drafts, money orders or other evidences of payment of COLLATERAL that may come
into the ADMINISTRATIVE AGENT’S possession; (b) to sign the GUARANTOR’S name on
any invoices relating to any of the RECEIVABLES, drafts against CUSTOMERS,
assignments and verifications of RECEIVABLES and notices to CUSTOMERS; (c) to
send verifications of RECEIVABLES to any CUSTOMER; (d) to notify the Post
Office to change the address for delivery of mail addressed to the GUARANTOR to
such address as the ADMINISTRATIVE AGENT may designate; (e) to receive, open,
and dispose of all mail addressed to the GUARANTOR; and (f) to do all other
acts and things necessary, proper, or convenient to carry out the terms and
conditions and purposes and intent of this AGREEMENT. All acts of such
attorney or designee are hereby ratified and approved, and such attorney or
designee shall not be liable for any acts of omission or commission, nor for
any error of judgment or mistake of fact or law in accordance with this
AGREEMENT, with the exception of acts arising from gross negligence or willful
misconduct. The power of attorney hereby granted, being coupled with an
interest, is irrevocable while any of the OBLIGATIONS remain unpaid. The
ADMINISTRATIVE AGENT, without notice to or consent from the GUARANTOR, may sue
upon or otherwise collect, extend the time of payment of or compromise or
settle for cash, credit or otherwise upon any terms, any of the RECEIVABLES or
any securities, instruments or insurances applicable thereto or release the
obligor thereon. The ADMINISTRATIVE AGENT is authorized and empowered to
accept the return of the goods represented by any of the RECEIVABLES, without
notice to or consent by the GUARANTOR, all without discharging or in any way
affecting the GUARANTOR’S liability under the SECURITY DOCUMENTS. The
ADMINISTRATIVE AGENT does not, by anything herein or in any assignment or
otherwise, assume any of the GUARANTOR’S obligations under any contract or
agreement assigned to the SECURED PARTIES, and the ADMINISTRATIVE AGENT shall
not be responsible in any way for the performance by the GUARANTOR of any of
the terms and conditions thereof.

     Section 7.3. Remedies Cumulative. The rights and
remedies provided in this AGREEMENT and in the other SECURITY DOCUMENTS or
otherwise under applicable LAWS shall be cumulative and the exercise of any
particular right or remedy shall not preclude the exercise of any other rights
or remedies in addition to, or as an alternative of, such right or remedy.

     Section 7.4. Obligations Are Unconditional. The
payment and performance of the OBLIGATIONS shall be the absolute and
unconditional duty and obligation of the GUARANTOR, and shall be independent of
any defense or any rights of setoff, recoupment or counterclaim which the
GUARANTOR might otherwise have against the SECURED PARTIES, and the GUARANTOR
shall pay absolutely all payments required to be made on the OBLIGATIONS, free
of any deductions and without abatement, diminution or setoff other than those
herein expressly provided.

ARTICLE 8

GENERAL CONDITIONS AND TERMS

     Section 8.1. Incorporation. The terms and conditions
of the SECURITY DOCUMENTS are incorporated by reference and made a part hereof,
as if fully set forth herein.

     Section 8.2. Waivers. In accordance with the
provisions of the LOAN AGREEMENT, the SECURED PARTIES at any time or from time
to time may waive all or any rights under this AGREEMENT or any other SECURITY
DOCUMENT, but any waiver or indulgence by the SECURED PARTIES at any time or
from time to time shall not constitute a future waiver of performance or exact
performance by the GUARANTOR.

     Section 8.3. Continuing Obligation Of Guarantor. The
terms, conditions, and covenants set forth herein and in the SECURITY DOCUMENTS
shall constitute a continuing obligation of the GUARANTOR during the course of
the transactions contemplated herein. The OBLIGATIONS of the GUARANTOR under
this AGREEMENT shall remain in effect so long as any OBLIGATION is outstanding,
unpaid or unsatisfied between the GUARANTOR and the SECURED PARTIES.

9

 

     Section 8.4. Binding Obligation. This AGREEMENT shall
be binding upon the parties and their permitted successors and assigns.

     Section 8.5. Final Agreement. This AGREEMENT and the
SECURITY DOCUMENTS contain the final agreement and understanding of the
parties, and any terms and conditions not set forth in this AGREEMENT or the
SECURITY DOCUMENTS are not a part of this AGREEMENT and the understanding of
the parties hereto.

     Section 8.6. Amendment. This AGREEMENT may be amended
or altered only in writing signed by the party to be bound by the change or
alteration.

     Section 8.7. Time. Time is of the essence of this
AGREEMENT.

     Section 8.8. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this AGREEMENT and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the execution of this AGREEMENT or which occurred or were to occur
as a direct or indirect result of this AGREEMENT having been executed.

     Section 8.9. Consent To Jurisdiction; Agreement As To
Venue. The GUARANTOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland and of the United States
District Court For The District Of Maryland, if a basis for federal
jurisdiction exists. The GUARANTOR agrees that venue shall be proper in any
circuit court of the State of Maryland selected by the SECURED PARTIES or in
the United States District Court For The District Of Maryland if a basis for
federal jurisdiction exists and waives any right to object to the maintenance
of a suit in any of the state or federal courts of the State of Maryland on the
basis of improper venue or of inconvenience of forum.

     Section 8.10. Actions Against Secured Parties. Any
action brought by the GUARANTOR against the SECURED PARTIES which is based,
directly or indirectly, on this AGREEMENT or any matter in or related to this
AGREEMENT or any of the OBLIGATIONS, shall be brought only in the courts of the
State of Maryland. The GUARANTOR may not file a counterclaim against the
SECURED PARTIES in a suit brought by the SECURED PARTIES against the GUARANTOR
in a state other than the State of Maryland unless under the rules of procedure
of the court in which the SECURED PARTIES brought the action or the
counterclaim is mandatory, and not merely permissive, and will be considered
waived unless filed as a counterclaim in the action instituted by the SECURED
PARTIES. The GUARANTOR agrees that any forum other than the State of Maryland
is an inconvenient forum and that a suit brought by the GUARANTOR against the
SECURED PARTIES in a court of any state other than the State of Maryland should
be forthwith dismissed or transferred to a court located in the State of
Maryland by that court.

     Section 8.11. Number, Gender, And Captions. As used
herein, the singular includes the plural and the plural includes the singular.
The use of any gender applies to all genders. The captions contained herein
are for purposes of convenience only and are not a part of this AGREEMENT.

     Section 8.12. Photocopies Sufficient. A carbon,
photographic, photocopy or other reproduction of a security agreement or
financing statement shall be sufficient as a financing statement.

     Section 8.13. Notices. Any notice required or
permitted by or in connection with this AGREEMENT shall be in writing and shall
be made by facsimile (confirmed on the date the facsimile is sent by one of the
other methods of giving notice provided for in this Section) or by hand
delivery, by Federal Express, or other similar overnight delivery service, or
by certified mail, unrestricted delivery, return receipt requested, postage
prepaid, addressed to the SECURED PARTIES or the GUARANTOR at the appropriate
address set forth below or to such other address as may be hereafter specified
by written notice by the SECURED PARTIES or the GUARANTOR. Notice shall be
considered given as of the date of the facsimile or the hand delivery, one (1)
calendar day after delivery to Federal Express or similar overnight delivery
service, or three (3) calendar days after the date of mailing, independent of
the date of actual delivery or whether delivery is ever in fact made, as the
case may be, provided the giver of notice can establish the fact that notice
was given as provided herein. If notice is tendered pursuant to the provisions
of this Section and is refused by the intended recipient thereof, the notice,
nevertheless, shall be considered to have been given and shall be effective as
of the date herein provided.

10

 

     If to the SECURED PARTIES:

          MANUFACTURERS AND TRADERS TRUST COMPANY, Individually And
          In
Its Capacity As Administrative Agent For Various Other Lenders
          25
S. Charles Street, 12th Floor
          Baltimore,
Maryland 21201
          Attn:
Hugh E. Giorgio, Vice President
          Facsimile:
(410) 244-4447

     If to the GUARANTOR:

          MARTEK BIOSCIENCES KINGSTREE CORPORATION
          c/o
Martek Biosciences Corporation
          6480
Dobbin Road
          Columbia,
Maryland 21045
          Attn.:
George P. Barker, Esquire
          Fax
No.: (410) 740-2985

     With A Courtesy Copy To:

          HOGAN & HARTSON L.L.P.
          111
South Calvert Street, Suite 1600
          Baltimore,
Maryland 21202
          Attn.:
Kevin G. Gralley, Esquire
          Fax
No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the GUARANTOR in the manner
provided herein.

     Section 8.14. Effective Date. This AGREEMENT shall be
effective as of the date first above written, independent of the date of
execution or delivery hereof.

     Section 8.15. Waiver Of Trial By Jury. Each party to
this AGREEMENT agrees that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this AGREEMENT or any other SECURITY
DOCUMENT or which in any way relates, directly or indirectly, to the
OBLIGATIONS or any event, transaction, or occurrence arising out of or in any
way connected with the OBLIGATIONS, or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. The GUARANTOR acknowledges and agrees that this Section is a
specific and material aspect of this AGREEMENT and the understandings of the
parties.

[Signatures Begin On The Following Page]

11

 

     IN WITNESS WHEREOF, the GUARANTOR has duly executed this AGREEMENT under
seal as of the date first above written.

  	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	GUARANTOR:
	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES
        KINGSTREE CORPORATION
	 	 	 	 	 	 	 
	 	 	 By: 	Peter L. Buzy	 	(SEAL)
	
	 	 	
        

        	 	 
	 	 	 	Peter L. Buzy,	 	 
	 	 	 	Chief Financial
        Officer and Treasurer	 	 
	 	 	 	 	 	 	 
	 	 	ADMINISTRATIVE
        AGENT:
	 	 	 	 	 	 	 
	 	 	MANUFACTURERS AND
        TRADERS TRUST COMPANY,

        AS ADMINISTRATIVE AGENT
	 	 	 	 	 	 	 
	 	 	 By: 	/s/ Hugh E. Giorgio	 	(SEAL)
	
	 	 	
        

        	 	 
	 	 	 	Name:	Hugh E. Giorgio	 	 
	 	 	 	 	
        

        	 	 
	 	 	 	Title:	VP	 	 
	 	 	 	 	
        

        	 	 

Schedules

	 	 	 
	Schedule 1.13	 	
Permitted Liens
	Schedule 3.4	 	
Status of Guarantor
	Schedule 3.6	 	
Compliance with Laws
	Schedule 3.8	 	
Location of Inventory

12

 

STOCK PLEDGE AGREEMENT

(Stock In Martek Biosciences Boulder Corporation)

     THIS STOCK PLEDGE AGREEMENT (“PLEDGE AGREEMENT”) is made as of this 26th
day of January, 2004, by MARTEK BIOSCIENCES CORPORATION, a Delaware corporation
(“PLEDGOR”), for the benefit of MANUFACTURERS AND TRADERS TRUST COMPANY,
individually and in its capacity as the Administrative Agent (“ADMINISTRATIVE
AGENT”) for the “LENDERS” that are now or hereafter parties to a Loan And
Security Agreement (“LOAN AGREEMENT”) of even date herewith by and among the
PLEDGOR, the ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A., as Syndication Agent,
and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and the LENDERS are
collectively referred to as the “SECURED PARTIES.”

RECITALS

     The LENDERS have agreed to provide credit facilities (collectively,
“LOANS”) to the PLEDGOR in accordance with the terms of the LOAN AGREEMENT.
The terms of the LOAN AGREEMENT require that the PLEDGOR secure the LOANS inter
alia with the pledge of the PLEDGOR’S stock ownership in Martek Biosciences
Boulder Corporation. The PLEDGOR has executed and delivered this PLEDGE
AGREEMENT in order to satisfy such requirements.

     NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the PLEDGOR agrees as follows:

     Section 1. Definitions. As used in this PLEDGE
AGREEMENT, the following terms have the following meanings. Terms defined in
this Section 1 or elsewhere in this PLEDGE AGREEMENT are in all capital letters
throughout this PLEDGE AGREEMENT. The singular use of any defined term
includes the plural and the plural use includes the singular.

          Section 1.1. Account, Chattel Paper, Deposit Account, Document,
General Intangibles, Instrument, Investment Property, Letter-Of-Credit Right,
And Payment Intangible. The terms “ACCOUNT,” “CHATTEL PAPER,”
“DEPOSIT ACCOUNT,” “DOCUMENT,” “GENERAL INTANGIBLES,” “INSTRUMENT,” “INVESTMENT
PROPERTY,” “LETTER-OF-CREDIT RIGHT,” and “PAYMENT INTANGIBLE” shall have the
same respective meanings as are given to those terms in the Uniform
Commercial Code-Secured Transactions, Title 9, Commercial
Law Article, Annotated Code of Maryland, as amended from time to
time.

          Section 1.2. Collateral. The term “COLLATERAL”
collectively means:(a) the PLEDGED STOCK and the proceeds, profits, and
products of the PLEDGED STOCK; (b) all dividends (cash and stock) and
distributions of any kind made from time to time with respect to the PLEDGED
STOCK or which arise as a result of the ownership of the PLEDGED STOCK; (c) all
certificates representing the PLEDGED STOCK and certificates representing any
subsequent stock dividends or other distributions of stock paid or made in
connection with the PLEDGED STOCK; (d) all distributions of cash or stock made
in connection with or arising from any increase or reduction of capital,
reclassification, merger, consolidation, stock split or other transactions
involving the CORPORATION or the PLEDGED STOCK; (e) all options, warrants or
rights of the PLEDGOR with respect to the CORPORATION and/or the PLEDGED STOCK,
whether as an addition to or in substitution or in exchange for the PLEDGED
STOCK; (f) all ACCOUNTS, CHATTEL PAPER, DEPOSIT ACCOUNTS, DOCUMENTS, GENERAL
INTANGIBLES, INSTRUMENTS, INVESTMENT PROPERTY, LETTER-OF-CREDIT RIGHTS, and
PAYMENT INTANGIBLES of the PLEDGOR which arise out of or relate in any respect
to the PLEDGED STOCK or the ownership by the PLEDGOR of the PLEDGED STOCK; (g)
the products and proceeds of all of the foregoing; and (h) all RECORDS relating
or pertaining to any of the foregoing.

          Section 1.3. Corporation. The term “CORPORATION” means
Martek Biosciences Boulder Corporation, a Delaware corporation.

          Section 1.4. Event Of Default. The term “EVENT OF
DEFAULT” has the meaning provided to such term in the LOAN AGREEMENT.

 

          Section 1.5. Governmental Authority. The term
“GOVERNMENTAL AUTHORITY” means any nation or government, any state or other
political subdivision thereof and any municipality, court or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

          Section 1.6. Laws. The term “LAWS” means all
ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees
of any GOVERNMENTAL AUTHORITY.

          Section 1.7. Obligations. The term “OBLIGATIONS” shall
have the same meaning as given to that term in the LOAN AGREEMENT.

          Section 1.8. Person. The term “PERSON” means any
individual, corporation, partnership, limited liability company, association,
joint-stock company, trust, business trust, unincorporated organization, joint
venture, court, or GOVERNMENTAL AUTHORITY.

          Section 1.9. Pledged Stock. The term “PLEDGED STOCK”
means all shares of stock of the CORPORATION owned by the PLEDGOR and all
additional shares of stock in the CORPORATION acquired by the PLEDGOR from time
to time in any manner, together with all rights, options, and issuances
therefrom, including but not limited to one hundred (100) shares of the common
stock of the CORPORATION, as evidenced by Certificate No. C-261.

          Section 1.10. Records. The term “RECORDS” means
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary, computer or
machine language.

     Section 2. Pledge; Grant Of Security Interests And
Liens. In order to secure the payment and performance of the
OBLIGATIONS when and as due, the PLEDGOR hereby assigns, grants and pledges to
the SECURED PARTIES a continuing first priority security interest, pledge and
lien in and to all of the COLLATERAL, whether now owned or hereafter acquired
by the PLEDGOR, together with all substitutions, replacements, renewals,
products and proceeds thereof. Future advances are secured. The PLEDGOR
agrees to execute and deliver to the SECURED PARTIES such UCC-1 and other
public filings as the SECURED PARTIES request to evidence in the public records
the pledge and granting of security interests and liens from the PLEDGOR to the
SECURED PARTIES provided for in this PLEDGE AGREEMENT.

     Section 3. Delivery Of Certificates. The PLEDGOR shall
deliver to the ADMINISTRATIVE AGENT any certificates representing the PLEDGED
STOCK, together with stock powers duly executed by the PLEDGOR in accordance
with the SECURED PARTIES’ instructions.

     Section 4. Future Receipt Of Collateral. Except as
expressly authorized to the contrary by the terms of this PLEDGE AGREEMENT or
as otherwise agreed to by the SECURED PARTIES, the PLEDGOR shall accept as the
agent and in trust for the SECURED PARTIES all COLLATERAL received by the
PLEDGOR after the date of this PLEDGE AGREEMENT, and shall promptly deliver all
of such COLLATERAL to the SECURED PARTIES.

     Section 5. Voting Rights; Rights Incidental To
Collateral. Unless an EVENT OF DEFAULT has occurred and is
continuing and the SECURED PARTIES shall have provided the written election
described below, the PLEDGOR shall retain all voting rights with respect to the
PLEDGED STOCK, not inconsistent with the terms of this PLEDGE AGREEMENT, and,
for that purpose, the SECURED PARTIES shall execute and deliver to the PLEDGOR
any necessary proxies. Immediately upon the occurrence and during the
continuance of an EVENT OF DEFAULT and without regard as to whether the PLEDGED
STOCK has been registered in the names of the SECURED PARTIES or the nominee of
the SECURED PARTIES, the SECURED PARTIES shall have the right (but not the
obligation) to make a written election to exercise all voting rights as to the
PLEDGED STOCK, together with all conversion, exchange, subscription or other
rights, privileges or options
pertaining thereto as if the SECURED PARTIES were the absolute owner
thereof, including, without limitation, the right to exchange any or all of the
PLEDGED STOCK upon the merger, consolidation, reorganization, recapitalization
or other readjustment of the CORPORATION, or upon the exercise by the
CORPORATION of any right, privilege, or option pertaining to the PLEDGED STOCK,
and, in connection therewith, to deliver any of the PLEDGED STOCK to any
committee, depository, transfer agent, registrar or other designated agency
upon such terms and conditions as the SECURED PARTIES may determine to be
appropriate, all without liability except

2

 

to account for property actually
received by the SECURED PARTIES or the nominee of the SECURED PARTIES. The
SECURED PARTIES shall have no duty to exercise any of the aforesaid rights,
privileges or options. The SECURED PARTIES shall not be deemed or construed to
have exercised any voting rights with respect to the PLEDGED STOCK unless and
until the SECURED PARTIES have made the above-described written election to
exercise such voting rights.

     Section 6. Cash Dividends And Cash Distributions. All
cash dividends and cash distributions made upon the PLEDGED STOCK shall be paid
to the PLEDGOR until the occurrence of an EVENT OF DEFAULT except to the extent
otherwise prohibited by the terms and conditions of the LOAN AGREEMENT or any
other agreements between the PLEDGOR and/or the CORPORATION and the SECURED
PARTIES. During the continuance of any EVENT OF DEFAULT, all cash dividends
and cash distributions shall be paid to the SECURED PARTIES, and if any such
dividends or distributions are paid to the PLEDGOR, the PLEDGOR shall accept
the same as the SECURED PARTIES’ agent, in trust for the SECURED PARTIES, and
shall deliver such dividends or distributions forthwith to the SECURED PARTIES
in exactly the form received with, as applicable, the PLEDGOR’S endorsement
thereon. During the continuance of any EVENT OF DEFAULT, all cash dividends,
cash distributions, and other distributions paid with respect to the PLEDGED
STOCK shall be applied to the repayment of the OBLIGATIONS, in such order of
application as the SECURED PARTIES determine, regardless of when the amounts
due upon the OBLIGATIONS mature and are due and payable.

     Section 7. Warranties And Representations. The PLEDGOR
represents and warrants to the SECURED PARTIES that:

          Section 7.1. Authority. The PLEDGOR has, and has duly
exercised, all requisite power and authority to enter into this PLEDGE
AGREEMENT, to pledge the PLEDGED STOCK for the purposes described herein and to
carry out the transactions contemplated by this PLEDGE AGREEMENT.

          Section 7.2. Ownership. The PLEDGOR is the sole
registered, legal and beneficial owner of one hundred percent (100%) of the
issued and outstanding common stock of the CORPORATION, calculated on a fully
diluted basis.

          Section 7.3. Status Of Pledged Stock. All of the
shares of the PLEDGED STOCK currently outstanding have been duly and validly
issued, are fully paid and nonassessable, and are owned by the PLEDGOR free of
any pledge, mortgage, hypothecation, lien, charge, encumbrance or security
interest in such shares or the proceeds thereof, except for the security
interests and pledges granted herein and in the LOAN AGREEMENT.

          Section 7.4. No Violation Of Restrictions. The
execution and delivery of this PLEDGE AGREEMENT by the PLEDGOR and the consent
by the CORPORATION thereto, and the performance of this PLEDGE AGREEMENT in
accordance with its stated terms, will not violate or constitute a default
under the terms of any organizational documents of the CORPORATION, or any
agreement, restrictive shareholder’s agreement, indenture or other instrument,
license, judgment, decree, order, or LAWS applicable to or binding upon the
PLEDGOR, the CORPORATION, the PLEDGED STOCK, or any of the property of the
PLEDGOR or the CORPORATION.

          Section 7.5. Approvals. No approvals, consents,
orders, authorizations, or licenses are required from any PERSON or
GOVERNMENTAL AUTHORITY for the execution and delivery by the PLEDGOR of this
AGREEMENT and the consummation of the transactions described herein.

          Section 7.6. Restrictions. There are no restrictions
upon the voting rights or upon the transfer of any of the PLEDGED STOCK other
than as physically appear upon the face of the certificates evidencing the
PLEDGED STOCK.

          Section 7.7. Valid And Binding Obligation. This PLEDGE
AGREEMENT is the valid and binding obligation of the PLEDGOR, fully enforceable
in accordance with all stated terms.

          Section 7.8. Valid Pledge And Lien. The pledge of the
COLLATERAL pursuant to this PLEDGE AGREEMENT creates a valid and perfected
first priority lien in the COLLATERAL securing the payment and performance of
the OBLIGATIONS.

3

 

          Section 7.9. No Margin Stock. The PLEDGED STOCK is not
“Margin Stock,” as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System (12 C.F.R. 221).

     Section 8. No Duties Other Than Custodial Duties. The
SECURED PARTIES shall have no duty with respect to any of the COLLATERAL other
than the duty to use reasonable care in maintaining the safe physical custody
of the certificates evidencing the PLEDGED STOCK.

     Section 9. Secured Parties Have No Obligation To Monitor
Collateral. The SECURED PARTIES shall have no duty or responsibility
for collecting or receiving any amounts payable on or with respect to the
PLEDGED STOCK or any of the other COLLATERAL or for ascertaining, monitoring,
or enforcing any maturities, calls, conversions, exchanges, offers, tenders, or
similar matters relating to the PLEDGED STOCK or any of the other COLLATERAL or
for informing the PLEDGOR with respect to any of such matters. The SECURED
PARTIES shall have no liability to the PLEDGOR for any decline in the value of
the PLEDGED STOCK which may occur while the COLLATERAL is subject to the terms
of this PLEDGE AGREEMENT. The PLEDGOR represents to the SECURED PARTIES that
the PLEDGOR has made its own arrangements for keeping informed of changes or
potential changes affecting the COLLATERAL, including, but not limited to,
rights to convert, rights to subscribe, payment of dividends, reorganization or
other exchanges, tender offers and voting rights.

     Section 10. Reporting Of Income. All income,
dividends, earnings and profits with respect to the COLLATERAL shall be
reported for federal and state income tax purposes as attributable to the
PLEDGOR and not to the SECURED PARTIES. The CORPORATION and any other PERSON
authorized to report income distributions or earnings are authorized to issue
any required reports and forms indicating the PLEDGOR as the sole recipient of
such distributions or earnings.

     Section 11. No Obligation To Preserve Rights. The
SECURED PARTIES shall be under no obligation to take any steps to preserve
rights or privileges in or to the COLLATERAL against any PERSON.

     Section 12. Covenants Of Pledgor. The PLEDGOR agrees
that, until all of the OBLIGATIONS have been paid, performed and satisfied in
full, the PLEDGOR, in addition to the covenants of the PLEDGOR set forth in the
LOAN AGREEMENT, will comply with each of the following covenants:

          Section 12.1. No Transfers. The PLEDGOR will not
sell, convey, or otherwise dispose of any of the COLLATERAL or any interest
therein, or create, incur, or permit to exist any pledge, mortgage, lien,
charge, encumbrance or any security interest whatsoever in or with respect to
any of the COLLATERAL or the proceeds thereof, except as may be expressly
consented to by the SECURED PARTIES in writing.

          Section 12.2. Warrant Title. The PLEDGOR will, at the
PLEDGOR’S sole expense, warrant and defend the right, title, special property
and security interests and pledges of the SECURED PARTIES in and to the
COLLATERAL against the claims of any PERSON, firm, the CORPORATION, or other
entity.

          Section 12.3. No Additional Shares. The PLEDGOR will
not consent to or approve the issuance of any additional shares of any class of
capital stock in the CORPORATION or any securities convertible voluntarily by
the holder thereof or automatically upon the occurrence or non-occurrence of
any event or condition into, or exchangeable for, any such shares; or any
warrants, options, rights, or other commitments entitling any person to
purchase or otherwise acquire any such shares.

          Section 12.4. Delivery Of Notices Concerning
Collateral. The PLEDGOR agrees to promptly forward to the SECURED
PARTIES, copies of any written notices or other communications received by the
PLEDGOR which relate or pertain to the COLLATERAL.

          Section 12.5. Further Assurances. The PLEDGOR shall
execute and deliver from time to time such writings, and documents which, in
the reasonable opinion of the SECURED PARTIES or the SECURED PARTIES’ counsel,
may be necessary to perfect, confirm, establish, reestablish, continue, or
complete the security interests, pledges and liens of the SECURED PARTIES in
the COLLATERAL, it being the intention of the PLEDGOR to provide hereby a full
and absolute warranty of further assurance to the SECURED PARTIES.

4

 

          Section 12.6. Cooperation With Enforcement Activities.
The PLEDGOR, upon the occurrence of an EVENT OF DEFAULT and the written
request therefor by the SECURED PARTIES, will promptly execute and deliver to
the SECURED PARTIES such documents, letters, or written representations as may
reasonably be requested by the SECURED PARTIES or any broker, from time to time
in order to accomplish the sale of all or any part of the COLLATERAL, including
but not limited to, all forms and documents required under any applicable LAWS.

     Section 13. Waivers. No course of dealing between the
PLEDGOR and the SECURED PARTIES, nor any failure to exercise, nor any delay in
exercising, any right, power or privilege of the SECURED PARTIES hereunder or
under any other agreement between the PLEDGOR and the SECURED PARTIES, or under
any agreement between the SECURED PARTIES and the CORPORATION, shall operate as
a waiver of any term or condition of this PLEDGE AGREEMENT; nor shall any
single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.

     Section 14. Sale Of Collateral.

          Section 14.1. Terms Of Sale. In addition to all other
rights and remedies available to the SECURED PARTIES pursuant to any other
agreements with the PLEDGOR or as otherwise provided by applicable LAWS, the
SECURED PARTIES, may upon the occurrence of an EVENT OF DEFAULT sell or
otherwise dispose of and deliver all or any portion of the COLLATERAL, in one
or more parcels, at public or private sale or sales, at any exchange, broker’s
board or at any location selected by the SECURED PARTIES, at such prices and on
such terms as the SECURED PARTIES may deem best for cash or on credit, or for
future delivery without assumption of any credit risk. Any such sale shall be
in compliance with all applicable LAWS. Any purchaser of the COLLATERAL,
including the SECURED PARTIES, shall purchase the COLLATERAL in whole or in
part free of any right or equity of redemption in the PLEDGOR, which right or
equity is hereby expressly waived and released by the PLEDGOR, to the extent
permitted by applicable LAWS. The PLEDGOR acknowledges that the terms of sale
for the COLLATERAL may include: (a) a requirement that the COLLATERAL be sold
to only one individual purchaser for such purchaser’s own account and not as a
representative of any purchaser; (b) a requirement that any purchaser of all or
any part of the COLLATERAL represent in writing that such purchaser is
purchasing the shares constituting the COLLATERAL for investment purposes only
and without any intention to make a distribution thereof; (c) a requirement
that the certificates for any PLEDGED STOCK bear a legend to the effect that
the stock may not be resold without compliance with applicable federal and
state securities laws; and (d) a requirement that any purchaser of the
COLLATERAL make such representations and warranties to the SECURED PARTIES as
deemed necessary by the SECURED PARTIES.

          Section 14.2. Delays In Sale; Private Sales. The
PLEDGOR acknowledges that it will be commercially reasonable for the SECURED
PARTIES to:(a) defer disposing of all or any portion of the COLLATERAL after an
EVENT OF DEFAULT has occurred for as long as the CORPORATION or the SECURED
PARTIES may require to comply with any requirements of applicable LAWS,
notwithstanding the fact that the value of the COLLATERAL may decline during
the time that disposition is deferred; and (b) sell all or any part of the
COLLATERAL at private sale, subject to investment letter or in any other manner
which will not require the COLLATERAL, or any part thereof, to be registered in
accordance with the Securities Act of 1933, as amended, or
the rules and regulations promulgated thereunder, or any other applicable LAW.
The PLEDGOR acknowledges that the SECURED PARTIES may, in the SECURED PARTIES’
sole and absolute discretion,
approach a restricted number of potential purchasers and that a sale under
such circumstances may yield a lower price for the COLLATERAL or any portions
thereof than would otherwise be obtainable if the COLLATERAL were registered
and sold in the open market. The PLEDGOR acknowledges that a private sale of
the COLLATERAL would be a commercially reasonable sale.

          Section 14.3. Application Of Proceeds Of Disposition.
The proceeds from any sale or from any other disposition of the COLLATERAL
shall be applied as follows:

               a. First, to the costs and expenses incurred in
connection with the sale or disposition of the COLLATERAL, including but not
limited to all costs incurred in the care or safekeeping of the COLLATERAL,
reasonable attorneys’ fees, broker’s commissions, appraiser’s fees and other
expenses incurred by the SECURED PARTIES;

               b. Second, to the satisfaction of the OBLIGATIONS
regardless of when the amounts due upon the OBLIGATIONS mature and are due and
payable;

5

 

               c. Third, to the payment of any other amounts or to
such other application as required by applicable LAWS or as required by the
decree, directive or injunction issued by a GOVERNMENTAL AUTHORITY; and

               d. Fourth, to the PLEDGOR to the extent of any surplus
proceeds.

          Section 14.4. Notice; Procedures Of Sale. The SECURED
PARTIES need not give more than ten (10) business days notice of the time and
place of any public sale or of the time after which a private sale of any or
all of the COLLATERAL may take place, which notice the PLEDGOR hereby agrees to
be commercially reasonable. The SECURED PARTIES shall be entitled to purchase
any or all of the COLLATERAL in any sale in the name or names of the SECURED
PARTIES, or in the name of any designee or nominee of the SECURED PARTIES. In
connection with any sale or transfer of any or all of the COLLATERAL, the
nominee of the SECURED PARTIES shall have the right to execute any document or
form, in the name of the SECURED PARTIES or in the name of the PLEDGOR, which
may be necessary or desirable in order to implement such sale, including
without limitation any forms required pursuant to Rule 144
promulgated by the Securities And Exchange Commission. The PLEDGOR hereby
agrees to cooperate fully with the SECURED PARTIES in order to permit the
SECURED PARTIES to sell, at foreclosure or other private sale, any or all of
the COLLATERAL in compliance with all applicable LAWS.

     Section 15. Remedies And Rights Cumulative. The rights
and remedies provided in this PLEDGE AGREEMENT and in the LOAN AGREEMENT or
otherwise provided by any other agreement between the PLEDGOR and the SECURED
PARTIES shall be cumulative, and the exercise of any particular right or remedy
shall not preclude the exercise of any other rights or remedies.

     Section 16. Invalidity Of Any Part. If any provision
or part of any provision of this PLEDGE AGREEMENT shall for any reason be held
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions or the remaining part
of any effective provisions of this PLEDGE AGREEMENT, and this PLEDGE AGREEMENT
shall be construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality, or unenforceability.

     Section 17. Amendment Or Waiver. This PLEDGE AGREEMENT
may be amended only by a writing duly executed by the PLEDGOR and by the
ADMINISTRATIVE AGENT with the consent of those other SECURED PARTIES as may be
required under the LOAN AGREEMENT. No waiver by the SECURED PARTIES of any of
the provisions of this PLEDGE AGREEMENT or of any of the rights or remedies of
the SECURED PARTIES with respect hereto shall be considered effective or
enforceable unless in writing.

     Section 18. Fees And Expenses; Indemnification. The
PLEDGOR shall pay all fees, expenses, costs and charges, including reasonable
attorney’s fees, which may be incurred by the SECURED PARTIES in connection
with enforcing any term or provision of this PLEDGE AGREEMENT. The PLEDGOR
shall indemnify and hold the SECURED PARTIES harmless from and against,
and reimburse the SECURED PARTIES with respect to, any and all loss, damage,
liability, cost or expense (including reasonable attorneys’ fees) incurred by
the SECURED PARTIES from time to time which in any manner relate or pertain to
this PLEDGE AGREEMENT and the actions and transactions contemplated herein.
The foregoing indemnification obligation shall include, but is not limited to,
indemnification of the SECURED PARTIES with respect to all claims brought
against the SECURED PARTIES based upon allegations that any prospectus,
memorandum or other disclosure document furnished to the purchaser of any of
the COLLATERAL contains any untrue or allegedly untrue statement of a material
fact which statement is derived from statements or representations made by the
PLEDGOR.

     Section 19. Notices. Any notice required or permitted
by or in connection with this AGREEMENT shall be in writing and shall be made
by facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the SECURED PARTIES or the PLEDGOR at the appropriate address set
forth below or to such other address as may be hereafter specified by written
notice by the SECURED PARTIES or the PLEDGOR. Notice shall be considered given
as of the date of the facsimile or the hand delivery, one (1) calendar day
after delivery to Federal Express or similar overnight

6

 

delivery service, or
three (3) calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case may be,
provided the giver of notice can establish the fact that notice was given as
provided herein. If notice is tendered pursuant to the provisions of this
Section and is refused by the intended recipient thereof, the notice,
nevertheless, shall be considered to have been given and shall be effective as
of the date herein provided.

	 
	MANUFACTURERS AND TRADERS TRUST COMPANY,
	As Administrative Agent
	25 S. Charles Street,
12th Floor
	Baltimore, Maryland 21201
	Attn: Hugh E. Giorgio, Vice President
	Facsimile: (410) 244-4447

          If to the PLEDGOR:

	 
	MARTEK BIOSCIENCES CORPORATION
	6480 Dobbin Road
	Columbia, Maryland 21045
	Attn.: George P. Barker, Esquire
	Fax No.: (410) 740-2985

          With A Courtesy Copy To:

	 
	HOGAN & HARTSON L.L.P.
	111 South Calvert Street, Suite 1600
	Baltimore, Maryland 21202
	Attn.: Kevin G. Gralley, Esquire
	Fax No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the PLEDGOR in the manner provided
herein.

     Section 20. Binding Effect. This PLEDGE AGREEMENT
shall inure to the benefit of and shall be binding upon the respective
successors and assigns of the parties hereto.

     Section 21. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this PLEDGE AGREEMENT and the
rights and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this PLEDGE AGREEMENT and
its various provisions and the consequences
and legal effect of all transactions and events which resulted in the
execution of this PLEDGE AGREEMENT or which occurred or were to occur as a
direct or indirect result of this PLEDGE AGREEMENT having been executed.

     Section 22. Consent To Jurisdiction; Agreement As To
Venue. The PLEDGOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland and, if a basis for federal
jurisdiction exists, of the United States District Court For The District Of
Maryland. The PLEDGOR agrees that venue shall be proper in any circuit court
of the State of Maryland selected by the SECURED PARTIES or in the United
States District Court For The District Of Maryland if a basis for federal
jurisdiction exists and waives any right to object to the maintenance of a suit
in any of the state or federal courts of the State of Maryland on the basis of
improper venue or of inconvenience of forum.

     Section 23. Photocopies Sufficient. The PLEDGOR agrees
that the SECURED PARTIES may record photographic or carbon copies of this
PLEDGE AGREEMENT or any financing statement executed by the PLEDGOR in
connection with this transaction, and that such copies shall be as fully
effective and valid as original documents.

     Section 24. Number, Gender And Captions. As used
herein, the singular shall include the plural and the plural may refer to only
the singular. The use of any gender shall be applicable to all genders. The
captions contained herein are for purposes of convenience only and are not a
part of this PLEDGE AGREEMENT.

7

 

     Section 25. Final Agreement. This PLEDGE AGREEMENT
contains the final and entire understanding of the parties relating to the
pledge and assignment of the PLEDGED STOCK and any terms and conditions not set
forth in this PLEDGE AGREEMENT relating to the pledge and assignment of the
PLEDGED STOCK are not a part of this PLEDGE AGREEMENT and the understandings of
the parties.

     Section 26. Actions Against Secured Parties. Any
action brought by the PLEDGOR against the SECURED PARTIES which is based,
directly or indirectly, upon this PLEDGE AGREEMENT or any matter related to
this PLEDGE AGREEMENT or any action taken by the SECURED PARTIES in enforcing
or construing this PLEDGE AGREEMENT shall be brought only in the courts of the
State of Maryland. The PLEDGOR agrees that any forum other than the State of
Maryland is an inconvenient forum and that a suit brought by the PLEDGOR
against the SECURED PARTIES in a court of any state other than the State of
Maryland should be forthwith dismissed or transferred to a court located in the
State of Maryland by that court.

     Section 27. Waiver Of Trial By Jury. The PLEDGOR and
the SECURED PARTIES, by their execution and acceptance, respectively, of this
PLEDGE AGREEMENT, agree that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by any party hereto or any successor or
assign of any party on or with respect to this PLEDGE AGREEMENT or which in any
way relates, directly or indirectly, to this PLEDGE AGREEMENT or any event,
transaction, or occurrence arising out of or in any way connected with this
PLEDGE AGREEMENT, or the dealings of the parties with respect thereto, shall be
tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

8

 

     IN WITNESS WHEREOF, the parties have duly executed this PLEDGE AGREEMENT
under seal as of the date first above written.

  	 	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	THE PLEDGOR:
	 	 	 	 	 	 	 	 	 
	 	 	 	 	MARTEK BIOSCIENCES
        CORPORATION,
	 	 	 	 	A Delaware Corporation
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	/s/ Peter L. Buzy	 	(SEAL)
	
	 	 	 	 	 	
        

        	 	 
	 	 	 	 	 	 	Peter L. Buzy,	 	 
	 	 	 	 	 	 	Chief Financial Officer	 	 

9

 

ACKNOWLEDGMENT AND AGREEMENT OF CORPORATION

     MARTEK BIOSCIENCES BOULDER CORPORATION, a Delaware corporation
(“CORPORATION”), acknowledges this
     day of January, 2004, the receipt of
an executed copy of the Stock Pledge Agreement (“PLEDGE AGREEMENT”) annexed
hereto from MARTEK BIOSCIENCES CORPORATION (“PLEDGOR”), for the benefit of
MANUFACTURERS AND TRADERS TRUST COMPANY, individually and in its capacity as
the Administrative Agent (“ADMINISTRATIVE AGENT”) for the “LENDERS” that are
now or hereafter parties to a Loan And Security Agreement (“LOAN AGREEMENT”) of
even date herewith by and among the PLEDGOR, the ADMINISTRATIVE AGENT, and the
LENDERS (hereafter, the ADMINISTRATIVE AGENT and the LENDERS are collectively
referred to as the “SECURED PARTIES”). The CORPORATION agrees to evidence such
receipt and acknowledgment, and the pledges and security interests granted to
the SECURED PARTIES therein, upon the stock registry and books and records of
the CORPORATION. The CORPORATION consents to each of the pledges, grants of
security interests, liens and covenants and agreements of the PLEDGOR set forth
in the PLEDGE AGREEMENT. The CORPORATION agrees that the CORPORATION will not
make any payments or take any actions which would cause the PLEDGOR to be in
violation of the terms of the PLEDGE AGREEMENT, or which would otherwise not be
in compliance with the PLEDGE AGREEMENT. The CORPORATION agrees to pay to the
SECURED PARTIES upon the written request of the SECURED PARTIES all cash
dividends and other distributions which in the absence of the SECURED PARTIES’
request would otherwise be payable to the PLEDGOR.

  	 	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	MARTEK BIOSCIENCES BOULDER CORPORATION,
	 	 	A Delaware Corporation
	 	 	 	 	 	 	 	 	 
	
        
	 	 By: 	 	/s/ Peter L. Buzy	 	(SEAL)	 	 
	 	 	 	 	

	 	 	 	 
	 	 	 	 	Peter L. Buzy,	 	 	 	 
	 	 	 	 	Chief Financial
Officer and Treasures	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	Date:
January  26, 2004	 	 	 	 

10

 

STOCK PLEDGE AGREEMENT

(Stock In Martek Biosciences Kingstree Corporation)

     THIS STOCK PLEDGE AGREEMENT (“PLEDGE AGREEMENT”) is made as of this 26th
day of January, 2004, by MARTEK BIOSCIENCES CORPORATION, a Delaware corporation
(“PLEDGOR”), for the benefit of MANUFACTURERS AND TRADERS TRUST COMPANY,
individually and in its capacity as the Administrative Agent (“ADMINISTRATIVE
AGENT”) for the “LENDERS” that are now or hereafter parties to a Loan And
Security Agreement (“LOAN AGREEMENT”) of even date herewith by and among the
PLEDGOR, the ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A., as Syndication Agent,
and the LENDERS. Hereafter, the ADMINISTRATIVE AGENT and the LENDERS are
collectively referred to as the “SECURED PARTIES.”

RECITALS

     The LENDERS have agreed to provide credit facilities (collectively,
“LOANS”) to the PLEDGOR in accordance with the terms of the LOAN AGREEMENT.
The terms of the LOAN AGREEMENT require that the PLEDGOR secure the LOANS inter
alia with the pledge of the PLEDGOR’S stock ownership in Martek Biosciences
Kingstree Corporation. The PLEDGOR has executed and delivered this PLEDGE
AGREEMENT in order to satisfy such requirements.

     NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the PLEDGOR agrees as follows:

     Section 1. Definitions. As used in this PLEDGE
AGREEMENT, the following terms have the following meanings. Terms defined in
this Section 1 or elsewhere in this PLEDGE AGREEMENT are in all capital letters
throughout this PLEDGE AGREEMENT. The singular use of any defined term
includes the plural and the plural use includes the singular.

          Section 1.1. Account, Chattel Paper, Deposit Account, Document,
General Intangibles, Instrument, Investment Property, Letter-Of-Credit Right,
And Payment Intangible. The terms “ACCOUNT,” “CHATTEL PAPER,”
“DEPOSIT ACCOUNT,” “DOCUMENT,” “GENERAL INTANGIBLES,” “INSTRUMENT,” “INVESTMENT
PROPERTY,” “LETTER-OF-CREDIT RIGHT,” and “PAYMENT INTANGIBLE” shall have the
same respective meanings as are given to those terms in the Uniform
Commercial Code-Secured Transactions, Title 9, Commercial
Law Article, Annotated Code of Maryland, as amended from time to
time.

          Section 1.2. Collateral. The term “COLLATERAL”
collectively means:(a) the PLEDGED STOCK and the proceeds, profits, and
products of the PLEDGED STOCK; (b) all dividends (cash and stock) and
distributions of any kind made from time to time with respect to the PLEDGED
STOCK or which arise as a result of the ownership of the PLEDGED STOCK; (c) all
certificates representing the PLEDGED STOCK and certificates representing any
subsequent stock dividends or other distributions of stock paid or made in
connection with the PLEDGED STOCK; (d) all distributions of cash or stock made
in connection with or arising from any increase or reduction of capital,
reclassification, merger, consolidation, stock split or other transactions
involving the CORPORATION or the PLEDGED STOCK; (e) all options, warrants or
rights of the PLEDGOR with respect to the CORPORATION and/or the PLEDGED STOCK,
whether as an addition to or in substitution or in exchange for the PLEDGED
STOCK; (f) all ACCOUNTS, CHATTEL PAPER, DEPOSIT ACCOUNTS, DOCUMENTS, GENERAL
INTANGIBLES, INSTRUMENTS, INVESTMENT PROPERTY, LETTER-OF-CREDIT RIGHTS, and
PAYMENT INTANGIBLES of the PLEDGOR which arise out of or relate in any respect
to the PLEDGED STOCK or the ownership by the PLEDGOR of the PLEDGED STOCK; (g)
the products and proceeds of all of the foregoing; and (h) all RECORDS relating
or pertaining to any of the foregoing.

          Section 1.3. Corporation. The term “CORPORATION” means
Martek Biosciences Kingstree Corporation, a Delaware corporation.

          Section 1.4. Event Of Default. The term “EVENT OF
DEFAULT” has the meaning provided to such term in the LOAN AGREEMENT.

 

 

          Section 1.5. Governmental Authority. The term
“GOVERNMENTAL AUTHORITY” means any nation or government, any state or other
political subdivision thereof and any municipality, court or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

          Section 1.6. Laws. The term “LAWS” means all
ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees
of any GOVERNMENTAL AUTHORITY.

          Section 1.7. Obligations. The term “OBLIGATIONS” shall
have the same meaning as given to that term in the LOAN AGREEMENT.

          Section 1.8. Person. The term “PERSON” means any
individual, corporation, partnership, limited liability company, association,
joint-stock company, trust, business trust, unincorporated organization, joint
venture, court, or GOVERNMENTAL AUTHORITY.

          Section 1.9. Pledged Stock. The term “PLEDGED STOCK”
means all shares of stock of the CORPORATION owned by the PLEDGOR and all
additional shares of stock in the CORPORATION acquired by the PLEDGOR from time
to time in any manner, together with all rights, options, and issuances
therefrom, including but not limited to one hundred (100) shares of the common
stock of the CORPORATION, as evidenced by Certificate No. 2.

          Section 1.10. Records. The term “RECORDS” means
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary, computer or
machine language.

     Section 2. Pledge; Grant Of Security Interests And
Liens. In order to secure the payment and performance of the
OBLIGATIONS when and as due, the PLEDGOR hereby assigns, grants and pledges to
the SECURED PARTIES a continuing first priority security interest, pledge and
lien in and to all of the COLLATERAL, whether now owned or hereafter acquired
by the PLEDGOR, together with all substitutions, replacements, renewals,
products and proceeds thereof. Future advances are secured. The PLEDGOR
agrees to execute and deliver to the SECURED PARTIES such UCC-1 and other
public filings as the SECURED PARTIES request to evidence in the public records
the pledge and granting of security interests and liens from the PLEDGOR to the
SECURED PARTIES provided for in this PLEDGE AGREEMENT.

     Section 3. Delivery Of Certificates. The PLEDGOR shall
deliver to the ADMINISTRATIVE AGENT any certificates representing the PLEDGED
STOCK, together with stock powers duly executed by the PLEDGOR in accordance
with the SECURED PARTIES’ instructions.

     Section 4. Future Receipt Of Collateral. Except as
expressly authorized to the contrary by the terms of this PLEDGE AGREEMENT or
as otherwise agreed to by the SECURED PARTIES, the PLEDGOR shall accept as the
agent and in trust for the SECURED PARTIES all COLLATERAL received by the
PLEDGOR after the date of this PLEDGE AGREEMENT, and shall promptly deliver all
of such COLLATERAL to the SECURED PARTIES.

     Section 5. Voting Rights; Rights Incidental To
Collateral. Unless an EVENT OF DEFAULT has occurred and is
continuing and the SECURED PARTIES shall have provided the written election
described below, the PLEDGOR shall retain all voting rights with respect to the
PLEDGED STOCK, not inconsistent with the terms of this PLEDGE AGREEMENT, and,
for that purpose, the SECURED PARTIES shall execute and deliver to the PLEDGOR
any necessary proxies. Immediately upon the occurrence and during the
continuance of an EVENT OF DEFAULT and without regard as to whether the PLEDGED
STOCK has been registered in the names of the SECURED PARTIES or the nominee of
the SECURED PARTIES, the SECURED PARTIES shall have the right (but not the
obligation) to make a written election to exercise all voting rights as to the
PLEDGED STOCK, together with all conversion, exchange, subscription or other
rights, privileges or options pertaining thereto as if the SECURED PARTIES were
the absolute owner thereof, including, without limitation, the right to
exchange any or all of the PLEDGED STOCK upon the merger, consolidation,
reorganization,
recapitalization or other readjustment of the CORPORATION, or upon the
exercise by the CORPORATION of any right, privilege, or option pertaining to
the PLEDGED STOCK, and, in connection therewith, to deliver any of the PLEDGED
STOCK to any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as the SECURED PARTIES may
determine to be appropriate, all without liability except to account for
property actually received by the SECURED PARTIES or the nominee of the SECURED
PARTIES. The

2

 

SECURED PARTIES shall have no duty to exercise any of the
aforesaid rights, privileges or options. The SECURED PARTIES shall not be
deemed or construed to have exercised any voting rights with respect to the
PLEDGED STOCK unless and until the SECURED PARTIES have made the
above-described written election to exercise such voting rights.

     Section 6. Cash Dividends And Cash Distributions. All
cash dividends and cash distributions made upon the PLEDGED STOCK shall be paid
to the PLEDGOR until the occurrence of an EVENT OF DEFAULT except to the extent
otherwise prohibited by the terms and conditions of the LOAN AGREEMENT or any
other agreements between the PLEDGOR and/or the CORPORATION and the SECURED
PARTIES. During the continuance of any EVENT OF DEFAULT, all cash dividends
and cash distributions shall be paid to the SECURED PARTIES, and if any such
dividends or distributions are paid to the PLEDGOR, the PLEDGOR shall accept
the same as the SECURED PARTIES’ agent, in trust for the SECURED PARTIES, and
shall deliver such dividends or distributions forthwith to the SECURED PARTIES
in exactly the form received with, as applicable, the PLEDGOR’S endorsement
thereon. During the continuance of any EVENT OF DEFAULT, all cash dividends,
cash distributions, and other distributions paid with respect to the PLEDGED
STOCK shall be applied to the repayment of the OBLIGATIONS, in such order of
application as the SECURED PARTIES determine, regardless of when the amounts
due upon the OBLIGATIONS mature and are due and payable.

     Section 7. Warranties And Representations. The PLEDGOR
represents and warrants to the SECURED PARTIES that:

          Section 7.1. Authority. The PLEDGOR has, and has duly
exercised, all requisite power and authority to enter into this PLEDGE
AGREEMENT, to pledge the PLEDGED STOCK for the purposes described herein and to
carry out the transactions contemplated by this PLEDGE AGREEMENT.

          Section 7.2. Ownership. The PLEDGOR is the sole
registered, legal and beneficial owner of one hundred percent (100%) of the
issued and outstanding common stock of the CORPORATION, calculated on a fully
diluted basis.

          Section 7.3. Status Of Pledged Stock. All of the
shares of the PLEDGED STOCK currently outstanding have been duly and validly
issued, are fully paid and nonassessable, and are owned by the PLEDGOR free of
any pledge, mortgage, hypothecation, lien, charge, encumbrance or security
interest in such shares or the proceeds thereof, except for the security
interests and pledges granted herein and in the LOAN AGREEMENT.

          Section 7.4. No Violation Of Restrictions. The
execution and delivery of this PLEDGE AGREEMENT by the PLEDGOR and the consent
by the CORPORATION thereto, and the performance of this PLEDGE AGREEMENT in
accordance with its stated terms, will not violate or constitute a default
under the terms of any organizational documents of the CORPORATION, or any
agreement, restrictive shareholder’s agreement, indenture or other instrument,
license, judgment, decree, order, or LAWS applicable to or binding upon the
PLEDGOR, the CORPORATION, the PLEDGED STOCK, or any of the property of the
PLEDGOR or the CORPORATION.

          Section 7.5. Approvals. No approvals, consents,
orders, authorizations, or licenses are required from any PERSON or
GOVERNMENTAL AUTHORITY for the execution and delivery by the PLEDGOR of this
AGREEMENT and the consummation of the transactions described herein.

          Section 7.6. Restrictions. There are no restrictions
upon the voting rights or upon the transfer of any of the PLEDGED STOCK other
than as physically appear upon the face of the certificates evidencing the
PLEDGED STOCK.

          Section 7.7. Valid And Binding Obligation. This PLEDGE
AGREEMENT is the valid and binding obligation of the PLEDGOR, fully enforceable
in accordance with all stated terms.

          Section 7.8. Valid Pledge And Lien. The pledge of the
COLLATERAL pursuant to this PLEDGE AGREEMENT creates a valid and perfected
first priority lien in the COLLATERAL securing the payment and performance of
the OBLIGATIONS.

3

 

          Section 7.9. No Margin Stock. The PLEDGED STOCK is not
“Margin Stock,” as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System (12 C.F.R. 221).

     Section 8. No Duties Other Than Custodial Duties. The
SECURED PARTIES shall have no duty with respect to any of the COLLATERAL other
than the duty to use reasonable care in maintaining the safe physical custody
of the certificates evidencing the PLEDGED STOCK.

     Section 9. Secured Parties Have No Obligation To Monitor
Collateral. The SECURED PARTIES shall have no duty or responsibility
for collecting or receiving any amounts payable on or with respect to the
PLEDGED STOCK or any of the other COLLATERAL or for ascertaining, monitoring,
or enforcing any maturities, calls, conversions, exchanges, offers, tenders, or
similar matters relating to the PLEDGED STOCK or any of the other COLLATERAL or
for informing the PLEDGOR with respect to any of such matters. The SECURED
PARTIES shall have no liability to the PLEDGOR for any decline in the value of
the PLEDGED STOCK which may occur while the COLLATERAL is subject to the terms
of this PLEDGE AGREEMENT. The PLEDGOR represents to the SECURED PARTIES that
the PLEDGOR has made its own arrangements for keeping informed of changes or
potential changes affecting the COLLATERAL, including, but not limited to,
rights to convert, rights to subscribe, payment of dividends, reorganization or
other exchanges, tender offers and voting rights.

     Section 10. Reporting Of Income. All income,
dividends, earnings and profits with respect to the COLLATERAL shall be
reported for federal and state income tax purposes as attributable to the
PLEDGOR and not to the SECURED PARTIES. The CORPORATION and any other PERSON
authorized to report income distributions or earnings are authorized to issue
any required reports and forms indicating the PLEDGOR as the sole recipient of
such distributions or earnings.

     Section 11. No Obligation To Preserve Rights. The
SECURED PARTIES shall be under no obligation to take any steps to preserve
rights or privileges in or to the COLLATERAL against any PERSON.

     Section 12. Covenants Of Pledgor. The PLEDGOR agrees
that, until all of the OBLIGATIONS have been paid, performed and satisfied in
full, the PLEDGOR, in addition to the covenants of the PLEDGOR set forth in the
LOAN AGREEMENT, will comply with each of the following covenants:

          Section 12.1. No Transfers. The PLEDGOR will not
sell, convey, or otherwise dispose of any of the COLLATERAL or any interest
therein, or create, incur, or permit to exist any pledge, mortgage, lien,
charge, encumbrance or any security interest whatsoever in or with respect to
any of the COLLATERAL or the proceeds thereof, except as may be expressly
consented to by the SECURED PARTIES in writing.

          Section 12.2. Warrant Title. The PLEDGOR will, at the
PLEDGOR’S sole expense, warrant and defend the right, title, special property
and security interests and pledges of the SECURED PARTIES in and to the
COLLATERAL against the claims of any PERSON, firm, the CORPORATION, or other
entity.

          Section 12.3. No Additional Shares. The PLEDGOR will
not consent to or approve the issuance of any additional shares of any class of
capital stock in the CORPORATION or any securities convertible voluntarily by
the holder thereof or automatically upon the occurrence or non-occurrence of
any event or condition into, or exchangeable for, any such shares; or any
warrants, options, rights, or other commitments entitling any person to
purchase or otherwise acquire any such shares.

          Section 12.4. Delivery Of Notices Concerning
Collateral. The PLEDGOR agrees to promptly forward to the SECURED
PARTIES, copies of any written notices or other communications received by the
PLEDGOR which relate or pertain to the COLLATERAL.

          Section 12.5. Further Assurances. The PLEDGOR shall
execute and deliver from time to time such writings, and documents which, in
the reasonable opinion of the SECURED PARTIES or the SECURED PARTIES’ counsel,
may be necessary to perfect, confirm, establish, reestablish, continue, or
complete the security interests, pledges and liens of the SECURED PARTIES in
the COLLATERAL, it being the intention of the PLEDGOR to provide hereby a full
and absolute warranty of further assurance to the SECURED PARTIES.

4

 

          Section 12.6. Cooperation With Enforcement Activities.
The PLEDGOR, upon the occurrence of an EVENT OF DEFAULT and the written
request therefor by the SECURED PARTIES, will promptly execute and deliver to
the SECURED PARTIES such documents, letters, or written representations as may
reasonably be requested by the SECURED PARTIES or any broker, from time to time
in order to accomplish the sale of all or any part of the COLLATERAL, including
but not limited to, all forms and documents required under any applicable LAWS.

     Section 13. Waivers. No course of dealing between the
PLEDGOR and the SECURED PARTIES, nor any failure to exercise, nor any delay in
exercising, any right, power or privilege of the SECURED PARTIES hereunder or
under any other agreement between the PLEDGOR and the SECURED PARTIES, or under
any agreement between the SECURED PARTIES and the CORPORATION, shall operate as
a waiver of any term or condition of this PLEDGE AGREEMENT; nor shall any
single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.

     Section 14. Sale Of Collateral.

          Section 14.1. Terms Of Sale. In addition to all other
rights and remedies available to the SECURED PARTIES pursuant to any other
agreements with the PLEDGOR or as otherwise provided by applicable LAWS, the
SECURED PARTIES, may upon the occurrence of an EVENT OF DEFAULT sell or
otherwise dispose of and deliver all or any portion of the COLLATERAL, in one
or more parcels, at public or private sale or sales, at any exchange, broker’s
board or at any location selected by the SECURED PARTIES, at such prices and on
such terms as the SECURED PARTIES may deem best for cash or on credit, or for
future delivery without assumption of any credit risk. Any such sale shall be
in compliance with all applicable LAWS. Any purchaser of the COLLATERAL,
including the SECURED PARTIES, shall purchase the COLLATERAL in whole or in
part free of any right or equity of redemption in the PLEDGOR, which right or
equity is hereby expressly waived and released by the PLEDGOR, to the extent
permitted by applicable LAWS. The PLEDGOR acknowledges that the terms of sale
for the COLLATERAL may include: (a) a requirement that the COLLATERAL be sold
to only one individual purchaser for such purchaser’s own account and not as a
representative of any purchaser; (b) a requirement that any purchaser of all or
any part of the COLLATERAL represent in writing that such purchaser is
purchasing the shares constituting the COLLATERAL for investment purposes only
and without any intention to make a distribution thereof; (c) a requirement
that the certificates for any PLEDGED STOCK bear a legend to the effect that
the stock may not be resold without compliance with applicable federal and
state securities laws; and (d) a requirement that any purchaser of the
COLLATERAL make such representations and warranties to the SECURED PARTIES as
deemed necessary by the SECURED PARTIES.

          Section 14.2. Delays In Sale; Private Sales. The
PLEDGOR acknowledges that it will be commercially reasonable for the SECURED
PARTIES to:(a) defer disposing of all or any portion of the COLLATERAL after an
EVENT OF DEFAULT has occurred for as long as the CORPORATION or the SECURED
PARTIES may require to comply with any requirements of applicable LAWS,
notwithstanding the fact that the value of the COLLATERAL may decline during
the time that disposition is deferred; and (b) sell all or any part of the
COLLATERAL at private sale, subject to investment letter or in any other manner
which will not require the COLLATERAL, or any part thereof, to be registered in
accordance with the Securities Act of 1933, as amended, or
the rules and regulations promulgated thereunder, or any other applicable LAW.
The PLEDGOR acknowledges that the SECURED PARTIES may, in the SECURED PARTIES’
sole and absolute discretion, approach a restricted number of potential
purchasers and that a sale under such circumstances may yield a lower price for
the COLLATERAL or any portions thereof than would otherwise be obtainable if
the COLLATERAL were registered and sold in the open market. The PLEDGOR
acknowledges that a private sale of the COLLATERAL would be a commercially
reasonable sale.

          Section 14.3. Application Of Proceeds Of Disposition.
The proceeds from any sale or from any other disposition of the COLLATERAL
shall be applied as follows:

               a. First, to the costs and expenses incurred in
connection with the sale or disposition of the COLLATERAL, including but not
limited to all costs incurred in the care or safekeeping of the COLLATERAL,
reasonable attorneys’ fees, broker’s commissions, appraiser’s fees and other
expenses incurred by the SECURED PARTIES;

               b. Second, to the satisfaction of the OBLIGATIONS
regardless of when the amounts due upon the OBLIGATIONS mature and are due and
payable;

5

 

               c. Third, to the payment of any other amounts or to
such other application as required by applicable LAWS or as required by the
decree, directive or injunction issued by a GOVERNMENTAL AUTHORITY; and

               d. Fourth, to the PLEDGOR to the extent of any surplus
proceeds.

          Section 14.4. Notice; Procedures Of Sale. The SECURED
PARTIES need not give more than ten (10) business days notice of the time and
place of any public sale or of the time after which a private sale of any or
all of the COLLATERAL may take place, which notice the PLEDGOR hereby agrees to
be commercially reasonable. The SECURED PARTIES shall be entitled to purchase
any or all of the COLLATERAL in any sale in the name or names of the SECURED
PARTIES, or in the name of any designee or nominee of the SECURED PARTIES. In
connection with any sale or transfer of any or all of the COLLATERAL, the
nominee of the SECURED PARTIES shall have the right to execute any document or
form, in the name of the SECURED PARTIES or in the name of the PLEDGOR, which
may be necessary or desirable in order to implement such sale, including
without limitation any forms required pursuant to Rule 144
promulgated by the Securities And Exchange Commission. The PLEDGOR hereby
agrees to cooperate fully with the SECURED PARTIES in order to permit the
SECURED PARTIES to sell, at foreclosure or other private sale, any or all of
the COLLATERAL in compliance with all applicable LAWS.

     Section 15. Remedies And Rights Cumulative. The rights
and remedies provided in this PLEDGE AGREEMENT and in the LOAN AGREEMENT or
otherwise provided by any other agreement between the PLEDGOR and the SECURED
PARTIES shall be cumulative, and the exercise of any particular right or remedy
shall not preclude the exercise of any other rights or remedies.

     Section 16. Invalidity Of Any Part. If any provision
or part of any provision of this PLEDGE AGREEMENT shall for any reason be held
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions or the remaining part
of any effective provisions of this PLEDGE AGREEMENT, and this PLEDGE AGREEMENT
shall be construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality, or unenforceability.

     Section 17. Amendment Or Waiver. This PLEDGE AGREEMENT
may be amended only by a writing duly executed by the PLEDGOR and by the
ADMINISTRATIVE AGENT with the consent of those other SECURED PARTIES as may be
required under the LOAN AGREEMENT. No waiver by the SECURED PARTIES of any of
the provisions of this PLEDGE AGREEMENT or of any of the rights or remedies of
the SECURED PARTIES with respect hereto shall be considered effective or
enforceable unless in writing.

     Section 18. Fees And Expenses; Indemnification. The
PLEDGOR shall pay all fees, expenses, costs and charges, including reasonable
attorney’s fees, which may be incurred by the SECURED PARTIES in connection
with enforcing any term or provision of this PLEDGE AGREEMENT. The PLEDGOR
shall indemnify and hold the SECURED PARTIES harmless from and against, and
reimburse the SECURED PARTIES with respect to, any and all loss, damage,
liability, cost or expense (including reasonable attorneys’ fees) incurred by
the SECURED PARTIES from time to time which in any manner relate or pertain to
this PLEDGE AGREEMENT and the actions and transactions contemplated herein.
The foregoing indemnification obligation
shall include, but is not limited to, indemnification of the SECURED
PARTIES with respect to all claims brought against the SECURED PARTIES based
upon allegations that any prospectus, memorandum or other disclosure document
furnished to the purchaser of any of the COLLATERAL contains any untrue or
allegedly untrue statement of a material fact which statement is derived from
statements or representations made by the PLEDGOR.

     Section 19. Notices. Any notice required or permitted
by or in connection with this AGREEMENT shall be in writing and shall be made
by facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the SECURED PARTIES or the PLEDGOR at the appropriate address set
forth below or to such other address as may be hereafter specified by written
notice by the SECURED PARTIES or the PLEDGOR. Notice shall be considered given
as of the date of the facsimile or the hand delivery, one (1) calendar day
after delivery to Federal Express or similar overnight

6

 

delivery service, or
three (3) calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case may be,
provided the giver of notice can establish the fact that notice was given as
provided herein. If notice is tendered pursuant to the provisions of this
Section and is refused by the intended recipient thereof, the notice,
nevertheless, shall be considered to have been given and shall be effective as
of the date herein provided.

	 
	MANUFACTURERS AND TRADERS TRUST COMPANY,
	As Administrative Agent
	25 S. Charles Street,
12th Floor
	Baltimore, Maryland 21201
	Attn: Hugh E. Giorgio, Vice President
	Facsimile: (410) 244-4447

               If to the PLEDGOR:

	 
	MARTEK BIOSCIENCES CORPORATION
	6480 Dobbin Road
	Columbia, Maryland 21045
	Attn.: George P. Barker, Esquire
	Fax No.: (410) 740-2985

               With A Courtesy Copy To:

	 
	HOGAN & HARTSON L.L.P.
	111 South Calvert Street, Suite 1600
	Baltimore, Maryland 21202
	Attn.: Kevin G. Gralley, Esquire
	Fax No.: (410) 539-6981

The failure of the SECURED PARTIES to send the above courtesy copy shall not
impair the effectiveness of notice given to the PLEDGOR in the manner provided
herein.

     Section 20. Binding Effect. This PLEDGE AGREEMENT
shall inure to the benefit of and shall be binding upon the respective
successors and assigns of the parties hereto.

     Section 21. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this PLEDGE AGREEMENT and the
rights and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this PLEDGE AGREEMENT and
its various provisions and the consequences and legal effect of all
transactions and events which resulted in the execution of this PLEDGE
AGREEMENT or which occurred or were to occur as a direct or indirect result of
this PLEDGE AGREEMENT having been executed.

     Section 22. Consent To Jurisdiction; Agreement As To
Venue. The PLEDGOR irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland and, if a basis for federal
jurisdiction
exists, of the United States District Court For The District Of Maryland.
The PLEDGOR agrees that venue shall be proper in any circuit court of the State
of Maryland selected by the SECURED PARTIES or in the United States District
Court For The District Of Maryland if a basis for federal jurisdiction exists
and waives any right to object to the maintenance of a suit in any of the state
or federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.

     Section 23. Photocopies Sufficient. The PLEDGOR agrees
that the SECURED PARTIES may record photographic or carbon copies of this
PLEDGE AGREEMENT or any financing statement executed by the PLEDGOR in
connection with this transaction, and that such copies shall be as fully
effective and valid as original documents.

     Section 24. Number, Gender And Captions. As used
herein, the singular shall include the plural and the plural may refer to only
the singular. The use of any gender shall be applicable to all genders. The
captions contained herein are for purposes of convenience only and are not a
part of this PLEDGE AGREEMENT.

7

 

     Section 25. Final Agreement. This PLEDGE AGREEMENT
contains the final and entire understanding of the parties relating to the
pledge and assignment of the PLEDGED STOCK and any terms and conditions not set
forth in this PLEDGE AGREEMENT relating to the pledge and assignment of the
PLEDGED STOCK are not a part of this PLEDGE AGREEMENT and the understandings of
the parties.

     Section 26. Actions Against Secured Parties. Any
action brought by the PLEDGOR against the SECURED PARTIES which is based,
directly or indirectly, upon this PLEDGE AGREEMENT or any matter related to
this PLEDGE AGREEMENT or any action taken by the SECURED PARTIES in enforcing
or construing this PLEDGE AGREEMENT shall be brought only in the courts of the
State of Maryland. The PLEDGOR agrees that any forum other than the State of
Maryland is an inconvenient forum and that a suit brought by the PLEDGOR
against the SECURED PARTIES in a court of any state other than the State of
Maryland should be forthwith dismissed or transferred to a court located in the
State of Maryland by that court.

     Section 27. Waiver Of Trial By Jury. The PLEDGOR and
the SECURED PARTIES, by their execution and acceptance, respectively, of this
PLEDGE AGREEMENT, agree that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by any party hereto or any successor or
assign of any party on or with respect to this PLEDGE AGREEMENT or which in any
way relates, directly or indirectly, to this PLEDGE AGREEMENT or any event,
transaction, or occurrence arising out of or in any way connected with this
PLEDGE AGREEMENT, or the dealings of the parties with respect thereto, shall be
tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

8

 

     IN WITNESS WHEREOF, the parties have duly executed this PLEDGE AGREEMENT
under seal as of the date first above written.

  	 	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	THE PLEDGOR:
	 	 	 	 	 	 	 	 	 
	 	 	 	 	MARTEK BIOSCIENCES
        CORPORATION,
	 	 	 	 	A Delaware Corporation
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/s/ Peter L. Buzy	 	 
	
	 	 	 	By: 	 	
        

        	 	(SEAL)
	 	 	 	 	 	 	Peter L. Buzy,	 	 
	 	 	 	 	 	 	Chief Financial Officer	 	 

9

 

ACKNOWLEDGMENT AND AGREEMENT OF CORPORATION

     MARTEK BIOSCIENCES KINGSTREE CORPORATION, a Delaware corporation
(“CORPORATION”), acknowledges this
        day of January, 2004, the receipt of
an executed copy of the Stock Pledge Agreement (“PLEDGE AGREEMENT”) annexed
hereto from MARTEK BIOSCIENCES CORPORATION (“PLEDGOR”), for the benefit of
MANUFACTURERS AND TRADERS TRUST COMPANY, individually and in its capacity as
the Administrative Agent (“ADMINISTRATIVE AGENT”) for the “LENDERS” that are
now or hereafter parties to a Loan And Security Agreement (“LOAN AGREEMENT”) of
even date herewith by and among the PLEDGOR, the ADMINISTRATIVE AGENT, and the
LENDERS (hereafter, the ADMINISTRATIVE AGENT and the LENDERS are collectively
referred to as the “SECURED PARTIES”). The CORPORATION agrees to evidence such
receipt and acknowledgment, and the pledges and security interests granted to
the SECURED PARTIES therein, upon the stock registry and books and records of
the CORPORATION. The CORPORATION consents to each of the pledges, grants of
security interests, liens and covenants and agreements of the PLEDGOR set forth
in the PLEDGE AGREEMENT. The CORPORATION agrees that the CORPORATION will not
make any payments or take any actions which would cause the PLEDGOR to be in
violation of the terms of the PLEDGE AGREEMENT, or which would otherwise not be
in compliance with the PLEDGE AGREEMENT. The CORPORATION agrees to pay to the
SECURED PARTIES upon the written request of the SECURED PARTIES all cash
dividends and other distributions which in the absence of the SECURED PARTIES’
request would otherwise be payable to the PLEDGOR.

  	 	 	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	MARTEK
BIOSCIENCES KINGSTREE CORPORATION,
	 	 	A Delaware Corporation
	 	 	 	 	 	 	 	 	 
	
        
	 	 By: 	 	/s/ Peter L. Buzy	 	(SEAL)	 	 
	 	 	 	 	

	 	 	 	 
	 	 	 	 	Peter L. Buzy,	 	 	 	 
	 	 	 	 	Chief Financial
Officer and Treasures	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 Date: January
        26, 2004	 	 	 	 

10<PAGE>

                                                                    EXHIBIT 10.1

                          Supplemental Agreement No. 30

                                       to

                           Purchase Agreement No. 1810

                                     between

                               THE BOEING COMPANY

                                       and

                             SOUTHWEST AIRLINES CO.

                    Relating to Boeing Model 737-7H4 Aircraft

         THIS SUPPLEMENTAL AGREEMENT, entered into as of October 6, 2003, by and
between THE BOEING COMPANY, a Delaware corporation with its principal offices in
Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas corporation
with its principal offices in Dallas, Texas (Buyer);

         WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;

         WHEREAS, Buyer has agreed to exercise four (4) August 2004 Block U
Option Aircraft (as Block T Aircraft) and;

         NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:

1.       The Table of Contents of the Agreement is deleted in its entirety and a
new Table of Contents is attached hereto and incorporated into the Agreement by
this reference.

2.       Table 1 is deleted in its entirety and replaced by a new Table 1 which
is attached hereto and is incorporated into the Agreement by this reference.

***PURSUANT TO 17 CFR 240.24b-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A CONFIDENTIAL TREATMENT APPLICATION FILED WITH THE COMMISSION.

P.A. No. 1810           SA-30-1
K/SWA
<PAGE>

3.       Buyer and Boeing agree to document the four exercised option aircraft
in a subsequent Supplemental Agreement. Consequently, Table 2 will be revised in
the subsequent Supplemental Agreement to reflect the exercise of four option
aircraft.

    NOTE - Buyer now has twenty-nine (29) `banked' Rollover Option Aircraft as a
    result of the option exercises covered by Supplemental Agreement No. 21, 23,
    24, 26, 27, 28, 29, and 30 that may be converted to Option Aircraft at a
    future date subject to the terms of Letter Agreement No. 6-1162-RLL-933R19.

4.       Letter Agreement No. 6-1162-JMG-747 entitled "***," is attached hereto
and is hereby incorporated into the Agreement by this reference.

5.       All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of two
hundred sixty-five (265) Model 737-7H4 Aircraft, fifty-eight (58) Model 737-7H4
Option Aircraft and two hundred seventeen (217) Model 737-7H4 Rollover Option
Aircraft, to the extent such reference is not specifically addressed herein.

6.       The Advance Payments due upon signing assuming execution of this
Supplemental Agreement in October 2003 are:

    $***   for the August 2004 aircraft

Buyer will pay the $*** directly to Boeing upon execution of this agreement.

The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.

EXECUTED IN DUPLICATE as of the day and year first above written.

THE BOEING COMPANY                          SOUTHWEST AIRLINES CO.

By: /s/ John A. McGarvey                           By: /s/ Laura Wright
    ---------------------                             ------------------

Its:    Attorney-In-Fact                           Its: VP-Finance &
                                                        Treasurer

P.A. No. 1810           SA-30-2
K/SWA
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page           SA
ARTICLES                                                                              Number        Number
--------                                                                              ------        ------
<S>                                                                                   <C>           <C>
1.           Subject Matter of Sale................................................     1-1         SA-13

2.           Delivery, Title and Risk of Loss......................................     2-1         SA-28

3.           Price of Aircraft.....................................................     3-1         SA-28

4.           Taxes.................................................................     4-1

5.           Payment...............................................................     5-1

6.           Excusable Delay.......................................................     6-1

7.           Changes to the Detail Specification...................................     7-1          SA-1

8.           Federal Aviation Requirements and  Certificates and Export License....     8-1

9.           Representatives, Inspection, Flights and Test Data....................     9-1

10.          Assignment, Resale or Lease...........................................    10-1

11.          Termination for Certain Events........................................    11-1

12.          Product Assurance; Disclaimer and Release; Exclusion of
             Liabilities; Customer Support; Indemnification
             and Insurance.........................................................    12-1
</TABLE>

<PAGE>

<TABLE>
<S>                                                                               <C>
13.          Buyer Furnished Equipment and Spare Parts......................      13-1

14.          Contractual Notices and Requests...............................      14-1

15.          Miscellaneous..................................................      15-1
</TABLE>

P.A. No. 1810                          i                                   SA-30
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                         SA
                                                                       Number
                                                                       ------
<S>                                                                    <C>
TABLE

1.          Aircraft Information Table                                  SA-30

2.          Option Aircraft Information Table                           SA-29

EXHIBITS

A           Aircraft Configuration                                      SA-13

B           Product Assurance Document                                  SA-1

C           Customer Support Document

D           Price Adjustments Due to
            Economic Fluctuations - Aircraft                            SA-13

E           Buyer Furnished Equipment
            Provisions Document

F           Defined Terms Document

LETTER AGREEMENTS

1810-1      Waiver of Aircraft Demonstration Flight
</TABLE>

P.A. No. 1810                          ii                                 SA-30
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                               SA
RESTRICTED LETTER AGREEMENTS                                                 Number
----------------------------                                                 ------
<S>                                                                          <C>
6-1162-RLL-932R2        Promotional Support                                   SA-13

6-1162-RLL-933R19       Option Aircraft                                       SA-28

6-1162-RLL-934R3        Disclosure of Confidential                            SA-14
                        Information

6-1162-RLL-935R1        Performance Guarantees                                SA-1

6-1162-RLL-936R4        Certain Contractual Matters                           SA-4

6-1162-RLL-937          Alternate Advance Payment Schedule

6-1162-RLL-938          ***

6-1162-RLL-939R1        Certification Flight Test Aircraft                    SA-1

6-1162-RLL-940R1        Training Matters                                      SA-1

6-1162-RLL-941R2        Other Matters                                         SA-13

6-1162-RLL-942          Open Configuration Matters

6-1162-RLL-943R1        Substitution Rights                                   SA-6

6-1162-RLL-944          Airframe Maintenance Material Cost
                        Protection Program

6-1162-RLL-945          Comparison of 737-7H4 and 737-3H4
                        Block Fuel Burn

6-1162-RLL-1855R3       Additional Contractual Matters                        SA-4

6-1162-RLL-1856         ***                                                   SA-1

6-1162-RLL-1857         Service Ready Validation Program                      SA-1
                        Field Test

6-1162-RLL-1858R1       Escalation Matters                                    SA-4
</TABLE>

P.A. No. 1810                          iii                                 SA-30
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                               SA
RESTRICTED LETTER AGREEMENTS                                                 Number
----------------------------                                                 ------
<S>                                                                          <C>
6-1162-RLL-2036         Amortization of Costs for
                        Customer Unique Changes                               SA-1

6-1162-RLL-2037         Reconciliation of the Aircraft                        SA-1
                        Basic Price

6-1162-RLL-2073         Maintenance Training Matters                          SA-1

6-1162-KJJ-054          Business Matters                                      SA-13

6-1162-KJJ-055R1        Structural Matters                                    SA-25

6-1162-KJJ-056          Noise and Emission Matters                            SA-13

6-1162-KJJ-057          Product Development Matters                           SA-13

6-1162-KJJ-058          Additional Substitution Rights                        SA-13

6-1162-KJJ-150          Flight Control Computer & Mode                        SA-14
                        Control Panel Spares Matter

6-1162-MSA-185R3        Delivery Change Contractual                           SA-21
                        Matters

6-1162-JMG-669          Special Matters                                       SA-29

6-1162-JMG-747          ***                                                   SA-30
</TABLE>

P.A. No. 1810                          iv                                  SA-30
K/SWA

<PAGE>

                                   Table 1 to
                           Purchase Agreement No. 1810
                           Aircraft information Table

<TABLE>
<CAPTION>
                                 BASE AIRCRAFT         SPECIAL         AIRCRAFT BASIC       BASE YEAR
                                     PRICE            FEATURES             PRICE             DOLLARS
<S>                              <C>                  <C>              <C>                  <C>
BLOCK A, B, C, D & E AIRCRAFT         ***                ***                ***             July 1992
BLOCK F & G AIRCRAFT                  ***                ***                ***             July 1992
BLOCK H AIRCRAFT                      ***                ***                ***             July 1992
BLOCK I AIRCRAFT                      ***                ***                ***             July 1992
BLOCK J AIRCRAFT                      ***                ***                ***             July 1992
BLOCK K AIRCRAFT                      ***                ***                ***             July 1992
BLOCK L AIRCRAFT                      ***                ***                ***             July 1992
BLOCK T AIRCRAFT                      ***                ***                ***             July 1999
</TABLE>

<TABLE>
<CAPTION>
                                                ESCALATION ESTIMATE
DELIVERY      NUMBER OF         AIRCRAFT          ADV PAYMENT BASE
  DATE         AIRCRAFT           BLOCK             PRICE PER A/P
--------      ---------         --------        -------------------
<S>           <C>               <C>             <C>
Dec-2000          2                 E                    ***
Jan-2001          1                 E                    ***
Feb-2001          1                 E                    ***
Mar-2001          2                 E                    ***
Jun-2001          3                 E                    ***
Sep-2001          3                 E                    ***
Oct-1998          1                 F                    ***
Nov-1998          2                 F                    ***
Dec-1998          2                 F                    ***
Mar-1999          2                 G                    ***
Jun-1999          2                 H                    ***
Jul-1999          1                 H                    ***
Aug-1999          1                 H                    ***
Sep-1999          2                 H                    ***
Oct-1999          1                 H                    ***
Mar-2000          1                 H                    ***
Apr-2000          2                 H                    ***
Sep-2000          1                 H                    ***
Oct-2000          2                 H                    ***
Mar-2001          2                 H                    ***
Apr-2001          1                 H                    ***
Oct-2001          3                 H                    ***
Nov-2001          2                 I                    ***
Dec-2001          1                 I                    ***
Jan-2002          1                 I                    ***
Mar-2002          4                 I                    ***
Apr-2002          2                 I                    ***
</TABLE>

<PAGE>

<TABLE>
<S>               <C>               <C>                  <C>
Dec-2002          2                 I                    ***
May-2003          1                 I                    ***
Jun-2003          2                 I                    ***
Jul-2003          1                 I                    ***
Aug-2003          1                 I                    ***
Sep-2003          3                 I                    ***
Nov-2002          1                 J                    ***
Dec-2002          1                 J                    ***
Nov-2003          2                 J                    ***
Dec-2003          2                 J                    ***
Mar-2004          1                 J                    ***
Mar-2004          1                 K                    ***
Apr-2004          3                 K                    ***
May-2004          1                 K                    ***
Jun-2004          2                 K                    ***
Jul-2004          2                 K                    ***
Sep-2004          1                 K                    ***
Oct-2004          4                 K                    ***
Oct-1999          1                 L                    ***
Nov-1999          2                 L                    ***
Dec-1999          1                 L                    ***
Jun-2000          3                 L                    ***
Jul-2000          3                 L                    ***
Sep-2000          1                 L                    ***
Oct-2000          1                 L                    ***
Nov-2000          4                 L                    ***
Dec-2000          1                 L                    ***
Jan-2001          1                 L                    ***
Feb-2001          1                 L                    ***
Jul-2001          1                 L                    ***
Sep-2001          1                 L                    ***
Oct-2001          1                 L                    ***
Mar-2003          2                 L                    ***
Jul-2003          1                 L                    ***
Aug-2003          2                 L                    ***
Nov-2001          1                 T                    ***
Feb-2002          1                 T                    ***
Jan-2004          2                 T                    ***
Feb-2004          1                 T                    ***
Apr-2004          3                 T                    ***
May-2004          1                 T                    ***
Jun-2004          6                 T                    ***
Jul-2004          2                 T                    ***
Aug-2004          6                 T                    ***
Sep-2004          3                 T                    ***
Oct-2004          1                 T                    ***
Nov-2004          3                 T                    ***
Dec-2004          3                 T                    ***
</TABLE>

<PAGE>

<TABLE>
<S>               <C>               <C>                  <C>
Jan-2005          5                 T                    ***
Feb-2005          2                 T                    ***
Mar-2005          1                 T                    ***
Apr-2005          2                 T                    ***
May-2005          1                 T                    ***
Jun-2005          3                 T                    ***
Jul-2005          2                 T                    ***
Aug-2005          1                 T                    ***
Sep-2005          2                 T                    ***
Oct-2005          1                 T                    ***
Nov-2005          1                 T                    ***
Dec-2005          1                 T                    ***
Feb-2006          4                 T                    ***
May-2006          3                 T                    ***
Jun-2006          4                 T                    ***
Jul-2006          1                 T                    ***
Aug-2006          3                 T                    ***
Sep-2006          3                 T                    ***
Nov-2006          2                 T                    ***
Dec-2006          2                 T                    ***
Jan-2007          2                 T                    ***
Feb-2007          3                 T                    ***
Mar-2007          2                 T                    ***
Apr-2007          2                 T                    ***
May-2007          2                 T                    ***
Jun-2007          2                 T                    ***
Jul-2007          2                 T                    ***
Aug-2007          2                 T                    ***
Sep-2007          2                 T                    ***
Oct-2007          2                 T                    ***
Nov-2007          2                 T                    ***
Dec-2007          2                 T                    ***
Jan-2008          1                 T                    ***
Feb-2008          1                 T                    ***
Mar-2008          1                 T                    ***
Apr-2008          1                 T                    ***
May-2008          1                 T                    ***
Jun-2008          1                 T                    ***
</TABLE>

<PAGE>

6-1162-JMG-747

Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235

Subject:     ***

This Letter Agreement amends Purchase Agreement No. 1810 dated as of January 19,
1994 (the Agreement) between The Boeing Company (Boeing) and Southwest Airlines
Co. (Buyer) relating to the sale by Boeing and the purchase by Buyer of four (4)
additional Model 737-7H4 Block "T" Aircraft to be delivered in August 2004***.

All terms used and not defined herein will have the same meaning as in the
Agreement.

1.       ***.

***.

Southwest Airlines Co.
6-1162-JMG-747
Page 2

2.       Confidential Treatment.

Buyer understands that certain commercial and financial information contained in
this Letter Agreement including any attachments hereto is considered by Boeing
as confidential. Buyer agrees that it will treat this Letter Agreement and the
information contained herein as confidential and will not, without the prior
written consent of Boeing, disclose this Letter Agreement or any information
contained herein to any other person or entity except as provided in Letter
Agreement No. 6-1162-RLL-934, as amended.

Very truly yours,

THE BOEING COMPANY

By /s/ John A. McGarvey

Its Attorney-In-Fact

<PAGE>

ACCEPTED AND AGREED TO this

date:October 6, 2003

Southwest Airlines Co.

By: /s/ Deborah Ackerman

Its VP-General Counsel

<PAGE>

                          Supplemental Agreement No. 31

                                       to

                           Purchase Agreement No. 1810

                                     between

                               THE BOEING COMPANY

                                       and

                             SOUTHWEST AIRLINES CO.

                    Relating to Boeing Model 737-7H4 Aircraft

         THIS SUPPLEMENTAL AGREEMENT, entered into as of October 29, 2003, by
and between THE BOEING COMPANY, a Delaware corporation with its principal
offices in Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas
corporation with its principal offices in Dallas, Texas (Buyer);

         WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;

         WHEREAS, Buyer has agreed to exercise one (1) February 2005 Block U
Option Aircraft (as Block T Aircraft) and;

         WHEREAS, Buyer and Boeing agreed to update Table 2 to reflect the
exercise of the following four (4) option aircraft as a part of Supplemental
Agreement No. 30 to the Agreement and;

                  One (1) January 2006 Aircraft
                  One (1) August 2006 Aircraft
                  One (1) November 2006 Aircraft
                  One (1) December 2006 Aircraft

         NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:

***PURSUANT TO 17 CFR 240.24b-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A CONFIDENTIAL TREATMENT APPLICATION FILED WITH THE COMMISSION.

<PAGE>

1.       The Table of Contents of the Agreement is deleted in its entirety and a
new Table of Contents is attached hereto and incorporated into the Agreement by
this reference.

P.A. No. 1810                   SA-31-1
K/SWA

2.       Table 1 is deleted in its entirety and replaced by a new Table 1 which
is attached hereto and is incorporated into the Agreement by this reference.

3.       Table 2 is deleted in its entirety and replaced by a new Table 2 which
is attached hereto and is incorporated into the Agreement by this reference.

     NOTE - Buyer now has thirty (30) `banked' Rollover Option Aircraft as a
     result of the option exercises covered by Supplemental Agreement No. 21,
     23, 24, 26, 27, 28, 29, 30, and 31 that may be converted to Option Aircraft
     at a future date subject to the terms of Letter Agreement No.
     6-1162-RLL-933R19.

4.       All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of two
hundred sixty-six (266) Model 737-7H4 Aircraft, fifty-seven (57) Model 737-7H4
Option Aircraft and two hundred seventeen (217) Model 737-7H4 Rollover Option
Aircraft, to the extent such reference is not specifically addressed herein.

5.       The Advance Payments due upon signing assuming execution of this
Supplemental Agreement in October 2003 are:

       ***   for the February 2005 aircraft

Buyer will pay the $*** directly to Boeing upon execution of this agreement.

The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.

EXECUTED IN DUPLICATE as of the day and year first above written.

THE BOEING COMPANY                          SOUTHWEST AIRLINES CO.

<PAGE>

By: /s/ Nobuko Wiles                By: /s/ Laura Wright
   -------------------------           ------------------

Its: Attorney-In-Fact               Its: VP-Finance & Treasurer

P.A. No. 1810                   SA-31-2
K/SWA

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                   Page          SA
ARTICLES                                                                          Number       Number
--------                                                                          ------       ------
<S>                                                                               <C>          <C>
1.            Subject Matter of Sale.........................................       1-1         SA-13

2.            Delivery, Title and Risk of Loss...............................       2-1         SA-28

3.            Price of Aircraft..............................................       3-1         SA-28

4.            Taxes..........................................................       4-1

5.            Payment........................................................       5-1

6.            Excusable Delay................................................       6-1

7.            Changes to the Detail Specification............................       7-1          SA-1

8.            Federal Aviation Requirements and Certificates and Export
              License........................................................       8-1

9.            Representatives, Inspection,
              Flights and Test Data..........................................       9-1

10.           Assignment, Resale or Lease....................................      10-1

11.           Termination for Certain Events.................................      11-1

12.           Product Assurance; Disclaimer and Release; Exclusion of
              Liabilities; Customer Support; Indemnification
              and Insurance..................................................      12-1

13.           Buyer Furnished Equipment and Spare Parts......................      13-1

14.           Contractual Notices and Requests...............................      14-1

15.           Miscellaneous..................................................      15-1
</TABLE>

P.A. No. 1810                           i                                  SA-31
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                              SA
                                                                            Number
                                                                            ------
<S>                                                                         <C>
TABLE

1.                    Aircraft Information Table                             SA-31

2.                    Option Aircraft Information Table                      SA-31

EXHIBITS

A                     Aircraft Configuration                                 SA-13

B                     Product Assurance Document                             SA-1

C                     Customer Support Document

D                     Price Adjustments Due to
                      Economic Fluctuations - Aircraft                       SA-13

E                     Buyer Furnished Equipment
                      Provisions Document

F                     Defined Terms Document

LETTER AGREEMENTS

1810-1                Waiver of Aircraft Demonstration Flight
</TABLE>

P.A. No. 1810                          ii                                  SA-31
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                                       SA
RESTRICTED LETTER AGREEMENTS                                                         Number
----------------------------                                                         ------
<S>                                                                                  <C>
6-1162-RLL-932R2       Promotional Support                                           SA-13

6-1162-RLL-933R19      Option Aircraft                                               SA-28

6-1162-RLL-934R3       Disclosure of Confidential                                    SA-14
                       Information

6-1162-RLL-935R1       Performance Guarantees                                        SA-1

6-1162-RLL-936R4       Certain Contractual Matters                                   SA-4

6-1162-RLL-937         Alternate Advance Payment Schedule

6-1162-RLL-938         ***

6-1162-RLL-939R1       Certification Flight Test Aircraft                            SA-1

6-1162-RLL-940R1       Training Matters                                              SA-1

6-1162-RLL-941R2       Other Matters                                                 SA-13

6-1162-RLL-942         Open Configuration Matters

6-1162-RLL-943R1       Substitution Rights                                           SA-6

6-1162-RLL-944         Airframe Maintenance Material Cost
                       Protection Program

6-1162-RLL-945         Comparison of 737-7H4 and 737-3H4
                       Block Fuel Burn

6-1162-RLL-1855R3      Additional Contractual Matters                                SA-4

6-1162-RLL-1856        ***                                                           SA-1

6-1162-RLL-1857        Service Ready Validation Program                              SA-1
                       Field Test

6-1162-RLL-1858R1      Escalation Matters                                            SA-4
</TABLE>

P.A. No. 1810                          iii                                 SA-31
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                                                       SA
RESTRICTED LETTER AGREEMENTS                                                         Number
----------------------------                                                         ------
<S>                                                                                  <C>
6-1162-RLL-2036        Amortization of Costs for
                       Customer Unique Changes                                       SA-1

6-1162-RLL-2037        Reconciliation of the Aircraft                                SA-1
                       Basic Price

6-1162-RLL-2073        Maintenance Training Matters                                  SA-1

6-1162-KJJ-054         Business Matters                                              SA-13

6-1162-KJJ-055R1       Structural Matters                                            SA-25

6-1162-KJJ-056         Noise and Emission Matters                                    SA-13

6-1162-KJJ-057         Product Development Matters                                   SA-13

6-1162-KJJ-058         Additional Substitution Rights                                SA-13

6-1162-KJJ-150         Flight Control Computer & Mode
                       Control Panel Spares Matter                                   SA-14

6-1162-MSA-185R3       Delivery Change Contractual
                       Matters                                                       SA-21

6-1162-JMG-669         Special Matters                                               SA-29

6-1162-JMG-747         ***                                                           SA-30
</TABLE>

P.A. No. 1810                          iv                                  SA-31
K/SWA

<PAGE>

                                   TABLE 1 TO
                           PURCHASE AGREEMENT NO. 1810
                           AIRCRAFT INFORMATION TABLE

<TABLE>
<CAPTION>
                                  BASE AIRCRAFT                            AIRCRAFT BASIC      BASE YEAR
                                      PRICE           SPECIAL FEATURES          PRICE           DOLLARS
<S>                               <C>                 <C>                  <C>                 <C>
BLOCK A, B, C, D & E AIRCRAFT          ***                   ***                 ***           July 1992
BLOCK F & G AIRCRAFT                   ***                   ***                 ***           July 1992
BLOCK H AIRCRAFT                       ***                   ***                 ***           July 1992
BLOCK I AIRCRAFT                       ***                   ***                 ***           July 1992
BLOCK J AIRCRAFT                       ***                   ***                 ***           July 1992
BLOCK K AIRCRAFT                       ***                   ***                 ***           July 1992
BLOCK L AIRCRAFT                       ***                   ***                 ***           July 1992
BLOCK T AIRCRAFT                       ***                   ***                 ***           July 1999
</TABLE>

<TABLE>
<CAPTION>
                                                       ESCALATION ESTIMATE
DELIVERY       NUMBER OF           AIRCRAFT              ADV PAYMENT BASE
  DATE          AIRCRAFT            BLOCK                  PRICE PER A/P
--------       ---------           --------            -------------------
<S>            <C>                 <C>                 <C>
Dec-2000           2                  E                       ***
Jan-2001           1                  E                       ***
Feb-2001           1                  E                       ***
Mar-2001           2                  E                       ***
Jun-2001           3                  E                       ***
Sep-2001           3                  E                       ***
Oct-1998           1                  F                       ***
Nov-1998           2                  F                       ***
Dec-1998           2                  F                       ***
Mar-1999           2                  G                       ***
Jun-1999           2                  H                       ***
Jul-1999           1                  H                       ***
Aug-1999           1                  H                       ***
Sep-1999           2                  H                       ***
Oct-1999           1                  H                       ***
Mar-2000           1                  H                       ***
Apr-2000           2                  H                       ***
Sep-2000           1                  H                       ***
Oct-2000           2                  H                       ***
Mar-2001           2                  H                       ***
Apr-2001           1                  H                       ***
Oct-2001           3                  H                       ***
Nov-2001           2                  I                       ***
Dec-2001           1                  I                       ***
Jan-2002           1                  I                       ***
Mar-2002           4                  I                       ***
</TABLE>

<PAGE>

<TABLE>
<S>                <C>                <C>                     <C>
Apr-2002           2                  I                       ***
Dec-2002           2                  I                       ***
May-2003           1                  I                       ***
Jun-2003           2                  I                       ***
Jul-2003           1                  I                       ***
Aug-2003           1                  I                       ***
Sep-2003           3                  I                       ***
Nov-2002           1                  J                       ***
Dec-2002           1                  J                       ***
Nov-2003           2                  J                       ***
Dec-2003           2                  J                       ***
Mar-2004           1                  J                       ***
Mar-2004           1                  K                       ***
Apr-2004           3                  K                       ***
May-2004           1                  K                       ***
Jun-2004           2                  K                       ***
Jul-2004           2                  K                       ***
Sep-2004           1                  K                       ***
Oct-2004           4                  K                       ***
Oct-1999           1                  L                       ***
Nov-1999           2                  L                       ***
Dec-1999           1                  L                       ***
Jun-2000           3                  L                       ***
Jul-2000           3                  L                       ***
Sep-2000           1                  L                       ***
Oct-2000           1                  L                       ***
Nov-2000           4                  L                       ***
Dec-2000           1                  L                       ***
Jan-2001           1                  L                       ***
Feb-2001           1                  L                       ***
Jul-2001           1                  L                       ***
Sep-2001           1                  L                       ***
Oct-2001           1                  L                       ***
Mar-2003           2                  L                       ***
Jul-2003           1                  L                       ***
Aug-2003           2                  L                       ***
Nov-2001           1                  T                       ***
Feb-2002           1                  T                       ***
Jan-2004           2                  T                       ***
Feb-2004           1                  T                       ***
Apr-2004           3                  T                       ***
May-2004           1                  T                       ***
Jun-2004           6                  T                       ***
Jul-2004           2                  T                       ***
Aug-2004           6                  T                       ***
Sep-2004           3                  T                       ***
Oct-2004           1                  T                       ***
Nov-2004           3                  T                       ***
</TABLE>

<PAGE>

<TABLE>
<S>                <C>                <C>                     <C>
Dec-2004           3                  T                       ***
Jan-2005           5                  T                       ***
Feb-2005           3                  T                       ***
Mar-2005           1                  T                       ***
Apr-2005           2                  T                       ***
May-2005           1                  T                       ***
Jun-2005           3                  T                       ***
Jul-2005           2                  T                       ***
Aug-2005           1                  T                       ***
Sep-2005           2                  T                       ***
Oct-2005           1                  T                       ***
Nov-2005           1                  T                       ***
Dec-2005           1                  T                       ***
Feb-2006           4                  T                       ***
May-2006           3                  T                       ***
Jun-2006           4                  T                       ***
Jul-2006           1                  T                       ***
Aug-2006           3                  T                       ***
Sep-2006           3                  T                       ***
Nov-2006           2                  T                       ***
Dec-2006           2                  T                       ***
Jan-2007           2                  T                       ***
Feb-2007           3                  T                       ***
Mar-2007           2                  T                       ***
Apr-2007           2                  T                       ***
May-2007           2                  T                       ***
Jun-2007           2                  T                       ***
Jul-2007           2                  T                       ***
Aug-2007           2                  T                       ***
Sep-2007           2                  T                       ***
Oct-2007           2                  T                       ***
Nov-2007           2                  T                       ***
Dec-2007           2                  T                       ***
Jan-2008           1                  T                       ***
Feb-2008           1                  T                       ***
Mar-2008           1                  T                       ***
Apr-2008           1                  T                       ***
May-2008           1                  T                       ***
Jun-2008           1                  T                       ***
</TABLE>

<PAGE>
                     TABLE 2 TO PURCHASE AGREEMENT NO. 1810
                    (LETTER AGREEMENT NO. 6-1162-RLL-933R19)
                        OPTION AIRCRAFT INFORMATION TABLE

PRICE DESCTIPTION OF OPTION AIRCRAFT:

<TABLE>
<CAPTION>
                              BASE AIRCRAFT           SPECIAL           AIRCRAFT BASIC      BASE YEAR
                                  PRICE               FEATURES              PRICE            DOLLARS
<S>                           <C>                     <C>               <C>                 <C>
BLOCK U OPTION                     ***                  ***                  ***            July 1999
AIRCRAFT
</TABLE>

DELIVERY OF ROLLOVER OPTION AIRCRAFT:

<TABLE>
<CAPTION>
                 NUMBER OF
 YEAR OF          OPTION
DELIVERY         AIRCRAFT           OPTION AIRCRAFT BLOCK
---------------------------------------------------------
<S>             <C>                 <C>
2007            Twenty (20)                   Q
2008            Twenty (20)                   R
2009              Six (6)                     S
2009-           One Hundred                   V
2012            Seventy-One
                   (171)
</TABLE>

REMAINING OPTION AIRCRAFT:     57

<TABLE>
<CAPTION>
                                                    ADV PAYMENT
AIRCRAFT       NUMBER OF           OPTION              BASE
DELIVERY         OPTION           AIRCRAFT           PRICE PER
MO. & YR.       AIRCRAFT           BLOCK          OPTION AIRCRAFT      OPTION EXERCISE
---------      ---------          --------        ---------------     -----------------
<S>            <C>                <C>             <C>                 <C>
Mar-2005           3                 U                  ***           November 1, 2003
Apr-2005           2                 U                  ***           December 1, 2003
May-2005           1                 U                  ***            January 1, 2004
Jun-2005           1                 U                  ***           February 1, 2004
Aug-2005           1                 U                  ***             April 1, 2004
Sep-2005           1                 U                  ***              May 1, 2004
Oct-2005           1                 U                  ***             June 1, 2004
Nov-2005           1                 U                  ***             July 1, 2004
Jan-2006           1                 U                  ***           September 1, 2004
Mar-2006           3                 U                  ***           November 1, 2004
Apr-2006           2                 U                  ***           December 1, 2004
May-2006           2                 U                  ***            January 1, 2005
Jun-2006           1                 U                  ***           February 1, 2005
Jul-2006           2                 U                  ***             March 1, 2005
Oct-2006           1                 U                  ***             June 1, 2005
Apr-2007           1                 U                  ***           December 1, 2005
May-2007           1                 U                  ***            January 1, 2006
Jun-2007           1                 U                  ***           February 1, 2006
Jul-2007           1                 U                  ***             March 1, 2006
Aug-2007           1                 U                  ***             April 1, 2006
</TABLE>

<PAGE>

<TABLE>
<S>                <C>               <C>                <C>           <C>
Sep-2007           1                 U                  ***              May 1, 2006
Oct-2007           1                 U                  ***             June 1, 2006
Nov-2007           1                 U                  ***             July 1, 2006
Dec-2007           1                 U                  ***            August 1, 2006
Jan-2008           2                 U                  ***           September 1, 2006
Feb-2008           3                 U                  ***            October 1, 2006
Mar-2008           2                 U                  ***           November 1, 2006
Apr-2008           2                 U                  ***           December 1, 2006
May-2008           2                 U                  ***            January 1, 2007
Jun-2008           2                 U                  ***           February 1, 2007
Jul-2008           2                 U                  ***             March 1, 2007
Aug-2008           2                 U                  ***             April 1, 2007
Sep-2008           2                 U                  ***              May 1, 2007
Oct-2008           2                 U                  ***             June 1, 2007
Nov-2008           2                 U                  ***             July 1, 2007
Dec-2008           2                 U                  ***            August 1, 2007
</TABLE>

<PAGE>

                          Supplemental Agreement No. 32

                                       to

                           Purchase Agreement No. 1810

                                     between

                               THE BOEING COMPANY

                                       and

                             SOUTHWEST AIRLINES CO.

                    Relating to Boeing Model 737-7H4 Aircraft

         THIS SUPPLEMENTAL AGREEMENT, entered into as of November 17, 2003, by
and between THE BOEING COMPANY, a Delaware corporation with principal offices in
Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas corporation
with principal offices in Dallas, Texas (Buyer);

         WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;

         WHEREAS, Buyer has agreed to exercise three (3) March 2005 Block U
Option Aircraft (as Block T Aircraft) and;

         WHEREAS, Buyer and Boeing have agreed to reschedule the deliveries of
the November 2003 Aircraft to December 2003, and the December 2003 Aircraft to
November 2003;

         NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:

1.       The Table of Contents of the Agreement is deleted in its entirety and a
new Table of Contents is attached hereto and incorporated into the Agreement by
this reference.

***PURSUANT TO 17 CFR 240.24b-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A CONFIDENTIAL TREATMENT APPLICATION FILED WITH THE COMMISSION.

2.       Table 1 is deleted in its entirety and replaced by a new Table 1 which
is attached hereto and is incorporated into the Agreement by this reference.

P.A. No. 1810                      SA-32-1
K/SWA

<PAGE>

3.       Table 2 is deleted in its entirety and replaced by a new Table 2 which
is attached hereto and is incorporated into the Agreement by this reference.

         NOTE - Buyer now has thirty (33) `banked' Rollover Option Aircraft as a
         result of the option exercises covered by Supplemental Agreement No.
         21, 23, 24, 26, 27, 28, 29, 30, 31 and 32 that may be converted to
         Option Aircraft at a future date subject to the terms of Letter
         Agreement No. 6-1162-RLL-933R19.

4.       Letter Agreement No. 6-1162-CHL-217 entitled "Rescheduled Flight Test
Aircraft" is attached hereto and is incorporated into the Agreement by this
reference.

5.       All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of two
hundred sixty-nine (269) Model 737-7H4 Aircraft, fifty-four (54) Model 737-7H4
Option Aircraft and two hundred seventeen (217) Model 737-7H4 Rollover Option
Aircraft, to the extent such reference is not specifically addressed herein.

6.       The Advance Payments due upon signing assuming execution of this
Supplemental Agreement in November 2003 are:

         $*** for the March 2005 aircraft (quantity of three)

Buyer will pay the $*** directly to Boeing on or before Monday, November 17,
2003.

The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.

EXECUTED IN DUPLICATE as of the day and year first above written.

<PAGE>

THE BOEING COMPANY                              SOUTHWEST AIRLINES CO.

By: /s/ Charles Leach                           By: /s/ Laura Wright
    ------------------------                       ------------------

Its:    Attorney-In-Fact                        Its: VP-Finance & Treasurer

P.A. No. 1810                      SA-32-2
K/SWA

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page      SA
ARTICLES                                                                  Number   Number
--------                                                                  ------   ------
<S>                                                                       <C>      <C>
1.         Subject Matter of Sale.....................................      1-1    SA-13

2.         Delivery, Title and Risk of Loss...........................      2-1    SA-28

3.         Price of Aircraft..........................................      3-1    SA-28

4.         Taxes......................................................      4-1

5.         Payment....................................................      5-1

6.         Excusable Delay............................................      6-1

7.         Changes to the Detail Specification........................      7-1     SA-1

8.         Federal Aviation Requirements and Certificates and Export
           License....................................................      8-1

9.         Representatives, Inspection, Flights and Test Data.........      9-1

10.        Assignment, Resale or Lease................................     10-1

11.        Termination for Certain Events.............................     11-1

12.        Product Assurance; Disclaimer and Release; Exclusion of
           Liabilities; Customer Support; Indemnification and
           Insurance..................................................     12-1

13.        Buyer Furnished Equipment and Spare Parts..................     13-1

14.        Contractual Notices and Requests...........................     14-1

15.        Miscellaneous..............................................     15-1

P.A. No. 1810                         i                                 SA-32
K/SWA
</TABLE>

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                  SA
                                                Number
                                                ------
<S>                                             <C>
TABLE

1.         Aircraft Information Table            SA-32

2.         Option Aircraft Information Table     SA-32

EXHIBITS

A          Aircraft Configuration                SA-13

B          Product Assurance Document            SA-1

C          Customer Support Document

D          Price Adjustments Due to
           Economic Fluctuations - Aircraft      SA-13

E          Buyer Furnished Equipment
           Provisions Document

F          Defined Terms Document
</TABLE>

LETTER AGREEMENTS

1810-1                Waiver of Aircraft Demonstration Flight

P.A. No. 1810                         ii                                   SA-32
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                          SA
RESTRICTED LETTER AGREEMENTS                            Number
----------------------------                            ------
<S>                                                     <C>
6-1162-RLL-932R2   Promotional Support                    SA-13

6-1162-RLL-933R19  Option Aircraft                        SA-28

6-1162-RLL-934R3   Disclosure of Confidential             SA-14
                   Information

6-1162-RLL-935R1   Performance Guarantees                 SA-1

6-1162-RLL-936R4   Certain Contractual Matters            SA-4

6-1162-RLL-937     Alternate Advance Payment Schedule

6-1162-RLL-938     ***

6-1162-RLL-939R1   Certification Flight Test Aircraft     SA-1

6-1162-RLL-940R1   Training Matters                       SA-1

6-1162-RLL-941R2   Other Matters                          SA-13

6-1162-RLL-942     Open Configuration Matters

6-1162-RLL-943R1   Substitution Rights                    SA-6

6-1162-RLL-944     Airframe Maintenance Material Cost
                   Protection Program

6-1162-RLL-945     Comparison of 737-7H4 and 737-3H4
                   Block Fuel Burn

6-1162-RLL-1855R3  Additional Contractual Matters         SA-4

6-1162-RLL-1856    ***                                    SA-1

6-1162-RLL-1857    Service Ready Validation Program       SA-1
                   Field Test

6-1162-RLL-1858R1  Escalation Matters                     SA-4
</TABLE>

P.A. No. 1810                         iii                                  SA-32
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                          SA
RESTRICTED LETTER AGREEMENTS                            Number
----------------------------                            ------
<S>                                                     <C>
6-1162-RLL-2036    Amortization of Costs for
                   Customer Unique Changes               SA-1

6-1162-RLL-2037    Reconciliation of the Aircraft        SA-1
                   Basic Price

6-1162-RLL-2073    Maintenance Training Matters          SA-1

6-1162-KJJ-054     Business Matters                      SA-13

6-1162-KJJ-055R1   Structural Matters                    SA-25

6-1162-KJJ-056     Noise and Emission Matters            SA-13

6-1162-KJJ-057     Product Development Matters           SA-13

6-1162-KJJ-058     Additional Substitution Rights        SA-13

6-1162-KJJ-150     Flight Control Computer & Mode        SA-14
                   Control Panel Spares Matter

6-1162-MSA-185R3   Delivery Change Contractual           SA-21
                   Matters

6-1162-JMG-669     Special Matters                       SA-29

6-1162-JMG-747     ***                                   SA-30

6-1162-CHL-217     Rescheduled Flight Test Aircraft      SA-32
</TABLE>

P.A. No. 1810                           iv                                 SA-32
K/SWA

<PAGE>

                                   TABLE 1 TO
                           PURCHASE AGREEMENT NO. 1810
                           AIRCRAFT INFORMATION TABLE

<TABLE>
<CAPTION>
                                  BASE AIRCRAFT                          AIRCRAFT BASIC     BASE YEAR
                                      PRICE         SPECIAL FEATURES         PRICE           DOLLARS
<S>                               <C>               <C>                  <C>                <C>
BLOCK A, B, C, D & E AIRCRAFT               ***                  ***                ***     July 1992
BLOCK F & G AIRCRAFT                        ***                  ***                ***     July 1992
BLOCK H AIRCRAFT                            ***                  ***                ***     July 1992
BLOCK I AIRCRAFT                            ***                  ***                ***     July 1992
BLOCK J AIRCRAFT                            ***                  ***                ***     July 1992
BLOCK K AIRCRAFT                            ***                  ***                ***     July 1992
BLOCK L AIRCRAFT                            ***                  ***                ***     July 1992
BLOCK T AIRCRAFT                            ***                  ***                ***     July 1999
</TABLE>

<TABLE>
<CAPTION>
                                  ESCALATION
                                   ESTIMATE
                                 ADV PAYMENT
DELIVERY  NUMBER OF  AIRCRAFT        BASE
  DATE     AIRCRAFT    BLOCK    PRICE PER A/P
--------  ---------  --------   -------------
<S>       <C>        <C>        <C>
Dec-2000      2          E                ***
Jan-2001      1          E                ***
Feb-2001      1          E                ***
Mar-2001      2          E                ***
Jun-2001      3          E                ***
Sep-2001      3          E                ***
Oct-1998      1          F                ***
Nov-1998      2          F                ***
Dec-1998      2          F                ***
Mar-1999      2          G                ***
Jun-1999      2          H                ***
Jul-1999      1          H                ***
Aug-1999      1          H                ***
Sep-1999      2          H                ***
Oct-1999      1          H                ***
Mar-2000      1          H                ***
Apr-2000      2          H                ***
Sep-2000      1          H                ***
Oct-2000      2          H                ***
Mar-2001      2          H                ***
Apr-2001      1          H                ***
Oct-2001      3          H                ***
Nov-2001      2          I                ***
Dec-2001      1          I                ***
</TABLE>

<PAGE>

<TABLE>
<S>           <C>        <C>              <C>
Jan-2002      1          I                ***
Mar-2002      4          I                ***
Apr-2002      2          I                ***
Dec-2002      2          I                ***
May-2003      1          I                ***
Jun-2003      2          I                ***
Jul-2003      1          I                ***
Aug-2003      1          I                ***
Sep-2003      3          I                ***
Nov-2002      1          J                ***
Dec-2002      1          J                ***
Nov-2003      2          J                ***
Dec-2003      2          J                ***
Mar-2004      1          J                ***
Mar-2004      1          K                ***
Apr-2004      3          K                ***
May-2004      1          K                ***
Jun-2004      2          K                ***
Jul-2004      2          K                ***
Sep-2004      1          K                ***
Oct-2004      4          K                ***
Oct-1999      1          L                ***
Nov-1999      2          L                ***
Dec-1999      1          L                ***
Jun-2000      3          L                ***
Jul-2000      3          L                ***
Sep-2000      1          L                ***
Oct-2000      1          L                ***
Nov-2000      4          L                ***
Dec-2000      1          L                ***
Jan-2001      1          L                ***
Feb-2001      1          L                ***
Jul-2001      1          L                ***
Sep-2001      1          L                ***
Oct-2001      1          L                ***
Mar-2003      2          L                ***
Jul-2003      1          L                ***
Aug-2003      2          L                ***
Nov-2001      1          T                ***
Feb-2002      1          T                ***
Jan-2004      2          T                ***
Feb-2004      1          T                ***
Apr-2004      3          T                ***
May-2004      1          T                ***
Jun-2004      6          T                ***
Jul-2004      2          T                ***
Aug-2004      6          T                ***
Sep-2004      3          T                ***
</TABLE>

<PAGE>

<TABLE>
<S>           <C>        <C>              <C>
Oct-2004      1          T                ***
Nov-2004      3          T                ***
Dec-2004      3          T                ***
Jan-2005      5          T                ***
Feb-2005      3          T                ***
Mar-2005      4          T                ***
Apr-2005      2          T                ***
May-2005      1          T                ***
Jun-2005      3          T                ***
Jul-2005      2          T                ***
Aug-2005      1          T                ***
Sep-2005      2          T                ***
Oct-2005      1          T                ***
Nov-2005      1          T                ***
Dec-2005      1          T                ***
Feb-2006      4          T                ***
May-2006      3          T                ***
Jun-2006      4          T                ***
Jul-2006      1          T                ***
Aug-2006      3          T                ***
Sep-2006      3          T                ***
Nov-2006      2          T                ***
Dec-2006      2          T                ***
Jan-2007      2          T                ***
Feb-2007      3          T                ***
Mar-2007      2          T                ***
Apr-2007      2          T                ***
May-2007      2          T                ***
Jun-2007      2          T                ***
Jul-2007      2          T                ***
Aug-2007      2          T                ***
Sep-2007      2          T                ***
Oct-2007      2          T                ***
Nov-2007      2          T                ***
Dec-2007      2          T                ***
Jan-2008      1          T                ***
Feb-2008      1          T                ***
Mar-2008      1          T                ***
Apr-2008      1          T                ***
May-2008      1          T                ***
Jun-2008      1          T                ***
</TABLE>

<PAGE>

                     Table 2 to Purchase Agreement No. 1810
                    (Letter Agreement No. 6-1162-RLL-933R19)
                        Option Aircraft Information Table

PRICE DESCTIPTION OF OPTION AIRCRAFT:

<TABLE>
<CAPTION>
                         BASE AIRCRAFT   SPECIAL    AIRCRAFT BASIC  BASE YEAR
                             PRICE       FEATURES       PRICE        DOLLARS
<S>                      <C>             <C>        <C>             <C>
BLOCK U OPTION
AIRCRAFT                      ***           ***          ***        July 1999
</TABLE>

DELIVERY OF ROLLOVER OPTION AIRCRAFT:

<TABLE>
<CAPTION>
 YEAR OF              NUMBER OF OPTION
DELIVERY                 AIRCRAFT        OPTION AIRCRAFT BLOCK
--------------------------------------------------------------
<S>                  <C>                 <C>
2007                    Twenty (20)               Q
2008                    Twenty (20)               R
2009                      Six (6)                 S
2009-2012            One Hundred                  V
                     Seventy-One
                          (171)
</TABLE>

REMAINING OPTION AIRCRAFT:                      54

<TABLE>
<CAPTION>
 AIRCRAFT   NUMBER OF    OPTION    ADV PAYMENT BASE
 DELIVERY     OPTION    AIRCRAFT      PRICE PER
MO. & YR.    AIRCRAFT    BLOCK     OPTION AIRCRAFT     OPTION EXERCISE
---------   ---------   --------   ----------------    ---------------
<S>         <C>         <C>        <C>                <C>
Apr-2005        2          U             ***          December 1, 2003
May-2005        1          U             ***           January 1, 2004
Jun-2005        1          U             ***          February 1, 2004
Aug-2005        1          U             ***            April 1, 2004
Sep-2005        1          U             ***             May 1, 2004
Oct-2005        1          U             ***            June 1, 2004
Nov-2005        1          U             ***            July 1, 2004
Jan-2006        1          U             ***          September 1, 2004
Mar-2006        3          U             ***          November 1, 2004
Apr-2006        2          U             ***          December 1, 2004
May-2006        2          U             ***           January 1, 2005
Jun-2006        1          U             ***          February 1, 2005
Jul-2006        2          U             ***            March 1, 2005
Oct-2006        1          U             ***            June 1, 2005
Apr-2007        1          U             ***          December 1, 2005
May-2007        1          U             ***           January 1, 2006
Jun-2007        1          U             ***          February 1, 2006
Jul-2007        1          U             ***            March 1, 2006
Aug-2007        1          U             ***            April 1, 2006
</TABLE>

<PAGE>

<TABLE>
<S>             <C>        <C>           <C>          <C>
Sep-2007        1          U             ***             May 1, 2006
Oct-2007        1          U             ***            June 1, 2006
Nov-2007        1          U             ***            July 1, 2006
Dec-2007        1          U             ***           August 1, 2006
Jan-2008        2          U             ***          September 1, 2006
Feb-2008        3          U             ***           October 1, 2006
Mar-2008        2          U             ***          November 1, 2006
Apr-2008        2          U             ***          December 1, 2006
May-2008        2          U             ***           January 1, 2007
Jun-2008        2          U             ***          February 1, 2007
Jul-2008        2          U             ***            March 1, 2007
Aug-2008        2          U             ***            April 1, 2007
Sep-2008        2          U             ***             May 1, 2007
Oct-2008        2          U             ***            June 1, 2007
Nov-2008        2          U             ***            July 1, 2007
Dec-2008        2          U             ***           August 1, 2007
</TABLE>

<PAGE>

6-1162-CHL-217

Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235

Subject: Rescheduled Flight Test Aircraft

This Letter Agreement amends Purchase Agreement No. 1810 dated as of January 19,
1994 (the Agreement) between The Boeing Company (Boeing) and Southwest Airlines
Co. (Buyer) relating to Model 737-7H4 aircraft (Aircraft).

All terms used and not defined herein will have the same meaning as in the
Agreement.

In recognition of the additional time required to complete flight testing and
certification activities related to the Enhanced Digital Flight Control System
and the Global Navigation Satellite Landing System on Buyer's Aircraft
originally scheduled to deliver in November 2003, Buyer and Boeing hereby agree
to reschedule the delivery of the November 2003 Aircraft (YA142, MSN 29841) to
December 2003. Pursuant to Article 2 of the Agreement, Boeing hereby notifies
Buyer that this Aircraft will be tendered for delivery on or about December 3,
2003.

Buyer and Boeing further agree to reschedule the December 2003 Aircraft (YA144,
MSN 33720) to November 2003 and pursuant to Article 2 of the Agreement, Boeing
hereby notifies Buyer that this Aircraft will be tendered for delivery on
November 19, 2003.

The Advance Payment Base Price of the respective Aircraft will remain unchanged
but the Economic Price Adjustment and final Aircraft Price will be calculated
based on the rescheduled month of delivery in accordance with Exhibit D.

Southwest Airlines Co.
6-1162-CHL-217
Page 2

<PAGE>

Very truly yours,

THE BOEING COMPANY

By   /s/ Charles Leach
   --------------------------

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

date:  November 17 , 2003

SOUTHWEST AIRLINES CO.

By /s/ Deborah Ackerman
  -------------------------

Its VP-General Counsel

<PAGE>

                          Supplemental Agreement No. 33

                                       to

                           Purchase Agreement No. 1810

                                     between

                               THE BOEING COMPANY

                                       and

                             SOUTHWEST AIRLINES CO.

                    Relating to Boeing Model 737-7H4 Aircraft

         THIS SUPPLEMENTAL AGREEMENT, entered into as of December 17, 2003, by
and between THE BOEING COMPANY, a Delaware corporation with principal offices in
Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas corporation
with principal offices in Dallas, Texas (Buyer);

         WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;

         WHEREAS, Buyer has agreed to exercise two (2) April 2005 Block U Option
Aircraft (as Block T Aircraft) and;

         NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:

1.       The Table of Contents of the Agreement is deleted in its entirety and a
new Table of Contents is attached hereto and incorporated into the Agreement by
this reference.

***PURSUANT TO 17 CFR 240.24b-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A CONFIDENTIAL TREATMENT APPLICATION FILED WITH THE COMMISSION.

P.A. No. 1810                          SA-33-1
K/SWA

<PAGE>

2.       Table 1 is deleted in its entirety and replaced by a new Table 1 which
is attached hereto and is incorporated into the Agreement by this reference.

3.       Table 2 is deleted in its entirety and replaced by a new Table 2 which
is attached hereto and is incorporated into the Agreement by this reference.

         NOTE - Buyer now has thirty-five (35) `banked' Rollover Option Aircraft
         as a result of the option exercises covered by Supplemental Agreement
         No. 21, 23, 24, 26, 27, 28, 29, 30, 31, 32, and 33 that may be
         converted to Option Aircraft at a future date subject to the terms of
         Letter Agreement No. 6-1162-RLL-933R19.

4.       All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of two
hundred seventy-one (271) Model 737-7H4 Aircraft, fifty-two (52) Model 737-7H4
Option Aircraft and two hundred seventeen (217) Model 737-7H4 Rollover Option
Aircraft, to the extent such reference is not specifically addressed herein.

6.       The Advance Payments due upon signing assuming execution of this
Supplemental Agreement in December 2003 are:

         $*** for the April 2005 aircraft (quantity of two)

Buyer will pay the $*** directly to Boeing on or before Tuesday, December 23,
2003.

The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.

EXECUTED IN DUPLICATE as of the day and year first above written.

THE BOEING COMPANY                 SOUTHWEST AIRLINES CO.

<PAGE>

By: /s/ Nobuko Wiles                By: /s/ Laura Wright
   -------------------------           -----------------

Its:    Attorney-In-Fact            Its: VP-Finance &
                                         Treasurer

P.A. No. 1810                          SA-33-2
K/SWA

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page        SA
ARTICLES                                                                 Number     Number
--------                                                                 ------     ------
<S>                                                                      <C>        <C>
  1.     Subject Matter of Sale....................................        1-1      SA-13

  2.     Delivery, Title and Risk of Loss..........................        2-1      SA-28

  3.     Price of Aircraft.........................................        3-1      SA-28

  4.     Taxes.....................................................        4-1

  5.     Payment...................................................        5-1

  6.     Excusable Delay...........................................       .6-1

  7.     Changes to the Detail Specification.......................        7-1       SA-1

  8.     Federal Aviation Requirements and Certificates and Export
         License...................................................        8-1

  9.     Representatives, Inspection, Flights and Test Data........        9-1

  10.    Assignment, Resale or Lease...............................       10-1

  11.    Termination for Certain Events............................       11-1

  12.    Product Assurance; Disclaimer and Release; Exclusion of
         Liabilities; Customer Support; Indemnification and
         Insurance.................................................       12-1

  13.    Buyer Furnished Equipment and Spare Parts.................       13-1

  14.    Contractual Notices and Requests..........................       14-1

  15.    Miscellaneous.............................................       15-1
</TABLE>

P.A. No. 1810                          i                                   SA-33
   K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                        SA
                                      Number
                                      ------
<S>                                   <C>
TABLE

1. Aircraft Information Table          SA-33

2. Option Aircraft Information Table   SA-33

EXHIBITS

A  Aircraft Configuration              SA-13

B  Product Assurance Document          SA-1

C  Customer Support Document

D  Price Adjustments Due to Economic
   Fluctuations - Aircraft             SA-13

E  Buyer Furnished Equipment
   Provisions Document

F  Defined Terms Document

LETTER AGREEMENTS

1810-1                            Waiver of Aircraft Demonstration Flight
</TABLE>

P.A. No. 1810                          ii                                  SA-33
K/SWA
<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                          SA
                                                        Number
                                                        ------
RESTRICTED LETTER AGREEMENTS
----------------------------
<S>                                                     <C>
6-1162-RLL-932R2   Promotional Support                  SA-13

6-1162-RLL-933R19  Option Aircraft                      SA-28

6-1162-RLL-934R3   Disclosure of Confidential
                   Information                          SA-14

6-1162-RLL-935R1   Performance Guarantees               SA-1

6-1162-RLL-936R4   Certain Contractual Matters          SA-4

6-1162-RLL-937     Alternate Advance Payment Schedule

6-1162-RLL-938     ***

6-1162-RLL-939R1   Certification Flight Test Aircraft   SA-1

6-1162-RLL-940R1   Training Matters                     SA-1

6-1162-RLL-941R2   Other Matters                        SA-13

6-1162-RLL-942     Open Configuration Matters

6-1162-RLL-943R1   Substitution Rights                  SA-6

6-1162-RLL-944     Airframe Maintenance Material Cost
                   Protection Program

6-1162-RLL-945     Comparison of 737-7H4 and 737-3H4
                   Block Fuel Burn

6-1162-RLL-1855R3  Additional Contractual Matters       SA-4

6-1162-RLL-1856    ***                                  SA-1

6-1162-RLL-1857    Service Ready Validation Program
                   Field Test                           SA-1

6-1162-RLL-1858R1  Escalation Matters                   SA-4
</TABLE>

P.A. No. 1810                          iii                                 SA-33
K/SWA

<PAGE>

                             TABLE OF CONTENTS CON'T

<TABLE>
<CAPTION>
                                                          SA
RESTRICTED LETTER AGREEMENTS                            Number
----------------------------                            ------
<S>                                                     <C>
6-1162-RLL-2036    Amortization of Costs for            SA-1
                   Customer Unique Changes

6-1162-RLL-2037    Reconciliation of the Aircraft       SA-1
                   Basic Price

6-1162-RLL-2073    Maintenance Training Matters         SA-1

6-1162-KJJ-054     Business Matters                     SA-13

6-1162-KJJ-055R1   Structural Matters                   SA-25

6-1162-KJJ-056     Noise and Emission Matters           SA-13

6-1162-KJJ-057     Product Development Matters          SA-13

6-1162-KJJ-058     Additional Substitution Rights       SA-13

6-1162-KJJ-150     Flight Control Computer & Mode       SA-14
                   Control Panel Spares Matter

6-1162-MSA-185R3   Delivery Change Contractual          SA-21
                   Matters

6-1162-JMG-669     Special Matters                      SA-29

6-1162-JMG-747     ***                                  SA-30

6-1162-CHL-217     Rescheduled Flight Test Aircraft     SA-32
</TABLE>

P.A. No. 1810                          iv                                  SA-33
K/SWA

<PAGE>

                                   TABLE 1 TO
                           PURCHASE AGREEMENT NO. 1810
                           AIRCRAFT INFORMATION TABLE

<TABLE>
<CAPTION>
                       BASE AIRCRAFT  SPECIAL FEATURES  AIRCRAFT BASIC     BASE YEAR
                          PRICE                              PRICE          DOLLARS
<S>                    <C>            <C>               <C>                <C>
BLOCK A, B, C, D & E
AIRCRAFT                         ***               ***             ***     July 1992
BLOCK F & G AIRCRAFT             ***               ***             ***     July 1992
BLOCK H AIRCRAFT                 ***               ***             ***     July 1992
BLOCK I AIRCRAFT                 ***               ***             ***     July 1992
BLOCK J AIRCRAFT                 ***               ***             ***     July 1992
BLOCK K AIRCRAFT                 ***               ***             ***     July 1992
BLOCK L AIRCRAFT                 ***               ***             ***     July 1992
BLOCK T AIRCRAFT                 ***               ***             ***     July 1999
</TABLE>

<TABLE>
<CAPTION>
                               ESCALATION ESTIMATE
DELIVERY  NUMBER OF  AIRCRAFT   ADV PAYMENT BASE
  DATE    AIRCRAFT     BLOCK      PRICE PER A/P
--------  ---------  --------  -------------------
<S>       <C>        <C>       <C>
Dec-2000      2          E                     ***
Jan-2001      1          E                     ***
Feb-2001      1          E                     ***
Mar-2001      2          E                     ***
Jun-2001      3          E                     ***
Sep-2001      3          E                     ***
Oct-1998      1          F                     ***
Nov-1998      2          F                     ***
Dec-1998      2          F                     ***
Mar-1999      2          G                     ***
Jun-1999      2          H                     ***
Jul-1999      1          H                     ***
Aug-1999      1          H                     ***
Sep-1999      2          H                     ***
Oct-1999      1          H                     ***
Mar-2000      1          H                     ***
Apr-2000      2          H                     ***
Sep-2000      1          H                     ***
Oct-2000      2          H                     ***
Mar-2001      2          H                     ***
Apr-2001      1          H                     ***
Oct-2001      3          H                     ***
Nov-2001      2          I                     ***
Dec-2001      1          I                     ***
</TABLE>

<PAGE>

<TABLE>
<S>           <C>        <C>                   <C>
Jan-2002      1          I                     ***
Mar-2002      4          I                     ***
Apr-2002      2          I                     ***
Dec-2002      2          I                     ***
May-2003      1          I                     ***
Jun-2003      2          I                     ***
Jul-2003      1          I                     ***
Aug-2003      1          I                     ***
Sep-2003      3          I                     ***
Nov-2002      1          J                     ***
Dec-2002      1          J                     ***
Nov-2003      2          J                     ***
Dec-2003      2          J                     ***
Mar-2004      1          J                     ***
Mar-2004      1          K                     ***
Apr-2004      3          K                     ***
May-2004      1          K                     ***
Jun-2004      2          K                     ***
Jul-2004      2          K                     ***
Sep-2004      1          K                     ***
Oct-2004      4          K                     ***
Oct-1999      1          L                     ***
Nov-1999      2          L                     ***
Dec-1999      1          L                     ***
Jun-2000      3          L                     ***
Jul-2000      3          L                     ***
Sep-2000      1          L                     ***
Oct-2000      1          L                     ***
Nov-2000      4          L                     ***
Dec-2000      1          L                     ***
Jan-2001      1          L                     ***
Feb-2001      1          L                     ***
Jul-2001      1          L                     ***
Sep-2001      1          L                     ***
Oct-2001      1          L                     ***
Mar-2003      2          L                     ***
Jul-2003      1          L                     ***
Aug-2003      2          L                     ***
Nov-2001      1          T                     ***
Feb-2002      1          T                     ***
Jan-2004      2          T                     ***
Feb-2004      1          T                     ***
Apr-2004      3          T                     ***
May-2004      1          T                     ***
Jun-2004      6          T                     ***
Jul-2004      2          T                     ***
Aug-2004      6          T                     ***
Sep-2004      3          T                     ***
</TABLE>

<PAGE>

<TABLE>
<S>           <C>        <C>                   <C>
Oct-2004      1          T                     ***
Nov-2004      3          T                     ***
Dec-2004      3          T                     ***
Jan-2005      5          T                     ***
Feb-2005      3          T                     ***
Mar-2005      4          T                     ***
Apr-2005      4          T                     ***
May-2005      1          T                     ***
Jun-2005      3          T                     ***
Jul-2005      2          T                     ***
Aug-2005      1          T                     ***
Sep-2005      2          T                     ***
Oct-2005      1          T                     ***
Nov-2005      1          T                     ***
Dec-2005      1          T                     ***
Feb-2006      4          T                     ***
May-2006      3          T                     ***
Jun-2006      4          T                     ***
Jul-2006      1          T                     ***
Aug-2006      3          T                     ***
Sep-2006      3          T                     ***
Nov-2006      2          T                     ***
Dec-2006      2          T                     ***
Jan-2007      2          T                     ***
Feb-2007      3          T                     ***
Mar-2007      2          T                     ***
Apr-2007      2          T                     ***
May-2007      2          T                     ***
Jun-2007      2          T                     ***
Jul-2007      2          T                     ***
Aug-2007      2          T                     ***
Sep-2007      2          T                     ***
Oct-2007      2          T                     ***
Nov-2007      2          T                     ***
Dec-2007      2          T                     ***
Jan-2008      1          T                     ***
Feb-2008      1          T                     ***
Mar-2008      1          T                     ***
Apr-2008      1          T                     ***
May-2008      1          T                     ***
Jun-2008      1          T                     ***
</TABLE>

<PAGE>

                     Table 2 to Purchase Agreement No. 1810
                    (Letter Agreement No. 6-1162-RLL-933R19)
                        Option Aircraft Information Table

PRICE DESCTIPTION OF OPTION AIRCRAFT:

<TABLE>
<CAPTION>
                         BASE AIRCRAFT   SPECIAL    AIRCRAFT BASIC  BASE YEAR
                             PRICE       FEATURES       PRICE        DOLLARS
<S>                      <C>             <C>        <C>             <C>
BLOCK U OPTION
AIRCRAFT                      ***           ***          ***        July 1999
</TABLE>

DELIVERY OF ROLLOVER OPTION AIRCRAFT:

<TABLE>
<CAPTION>
 YEAR OF              NUMBER OF OPTION
DELIVERY                  AIRCRAFT       OPTION AIRCRAFT BLOCK
--------------------------------------------------------------
<S>                   <C>                <C>
2007                    Twenty (20)               Q
2008                    Twenty (20)               R
2009                      Six (6)                 S
2009-                   One Hundred               V
2012                    Seventy-One
                          (171)
</TABLE>

REMAINING OPTION AIRCRAFT:                      52

<TABLE>
<CAPTION>
AIRCRAFT   NUMBER OF   OPTION   ADV PAYMENT BASE
DELIVERY    OPTION    AIRCRAFT     PRICE PER
MO. & YR.   AIRCRAFT    BLOCK   OPTION AIRCRAFT   OPTION EXERCISE
---------  ---------  --------  ----------------  ---------------
<S>        <C>        <C>       <C>               <C>
May-2005      1           U                  ***   January 1, 2004
Jun-2005      1           U                  ***   February 1, 2004
Aug-2005      1           U                  ***    April 1, 2004
Sep-2005      1           U                  ***     May 1, 2004
Oct-2005      1           U                  ***     June 1, 2004
Nov-2005      1           U                  ***     July 1, 2004
Jan-2006      1           U                  ***  September 1, 2004
Mar-2006      3           U                  ***   November 1, 2004
Apr-2006      2           U                  ***   December 1, 2004
May-2006      2           U                  ***   January 1, 2005
Jun-2006      1           U                  ***   February 1, 2005
Jul-2006      2           U                  ***    March 1, 2005
Oct-2006      1           U                  ***     June 1, 2005
Apr-2007      1           U                  ***   December 1, 2005
May-2007      1           U                  ***   January 1, 2006
Jun-2007      1           U                  ***   February 1, 2006
Jul-2007      1           U                  ***    March 1, 2006
Aug-2007      1           U                  ***    April 1, 2006
</TABLE>

<PAGE>

<TABLE>
<S>           <C>         <C>          <C>        <C>
Sep-2007      1           U            ***           May 1, 2006
Oct-2007      1           U            ***           June 1, 2006
Nov-2007      1           U            ***           July 1, 2006
Dec-2007      1           U            ***          August 1, 2006
Jan-2008      2           U            ***        September 1, 2006
Feb-2008      3           U            ***         October 1, 2006
Mar-2008      2           U            ***         November 1, 2006
Apr-2008      2           U            ***         December 1, 2006
May-2008      2           U            ***         January 1, 2007
Jun-2008      2           U            ***         February 1, 2007
Jul-2008      2           U            ***          March 1, 2007
Aug-2008      2           U            ***          April 1, 2007
Sep-2008      2           U            ***           May 1, 2007
Oct-2008      2           U            ***           June 1, 2007
Nov-2008      2           U            ***           July 1, 2007
Dec-2008      2           U            ***          August 1, 2007
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}]]