Document:

Exhibit
10.5

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights
Agreement (this “Agreement”) is made and entered into as of July 31, 2003,
by and between Digital Angel Corporation, a Delaware corporation (the
“Company”), and Laurus Master Fund, Ltd., a Cayman Islands company (the
“Purchaser”).

 

This Agreement is being
entered into in connection with a Securities Purchase Agreement dated as of the
date hereof between the Purchase and the Company (the “Purchase Agreement”) and
pursuant to the Note and Warrant.

 

The Company and the
Purchaser hereby agree as follows:

 

1.                                       Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement shall have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following terms shall have the
following meanings:

 

“Commission” means the U.S. Securities and
Exchange Commission.

 

“Effectiveness Date” means
the 90th day following the Closing Date.

 

“Effectiveness Period” shall
have the meaning set forth in Section 2(a).

 

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

 

“Filing Date” means, with
respect to the Registration Statement required to be filed hereunder, the 30th
day following the Closing Date.

 

“Holder” or “Holders”
means the Purchaser or any of its affiliates or transferees to the extent any
of them hold Registrable Securities.

 

“Indemnified Party” shall
have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall
have the meaning set forth in Section 5(c).

 

“Losses” shall have the
meaning set forth in Section 5(a).

 

“Note” means the convertible
promissory note issued by the Company to the Purchaser on the date hereof.

 

“Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced
or threatened.

 

“Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities

 

 

covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

 

“Registrable Securities”
means the shares of Common Stock issued upon the conversion of the Note and
issuable upon exercise of the Warrant.

 

“Registration Statement”
means the registration statement required to be filed hereunder, including the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.

 

“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“Securities Act” means the Securities Act
of 1933, as amended.

 

“Warrant” means the Common
Stock purchase warrant issued pursuant to the Purchase Agreement.

 

2.                                       Registration.

 

(a)                                  On
or prior to the Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form
S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith).  The Company shall cause the Registration Statement to become
effective and remain effective as provided herein.  The Company shall use its reasonable commercial efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event no later than
the Effectiveness Date, and shall keep the Registration Statement continuously
effective under the Securities Act until the date which is the earlier date of
when (i) all Registrable Securities have been sold or (ii) all Registrable
Securities may be sold immediately without registration under the Securities
Act and without volume restrictions pursuant to Rule 144(k), as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company’s transfer agent and the affected
Holders (the “Effectiveness Period”).

 

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(b)                                 If:
(i) any Registration Statement is not filed on or prior to the Filing Date;
(ii) a Registration Statement filed hereunder is not declared effective by the
Commission by the Effectiveness Date; (iii) after a Registration Statement is
filed with and declared effective by the Commission, such Registration
Statement ceases to be effective (by suspension or otherwise) as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period (without being succeeded immediately
by an additional registration statement filed and declared effective) for a
period of time which shall exceed 30 days in the aggregate per year or more
than 20 consecutive calendar days (defined as a period of 365 days commencing
on the date the Registration Statement is declared effective); or (iv) the
Common Stock is not listed or quoted, or is suspended from trading on any
Trading Market, for a period of three (3) consecutive Trading Days (provided
the Company shall not have been able to cure such trading suspension within 30
days of the notice thereof or list the Common Stock on any of the NASD OTC
Bulletin Board, BBX Exchange, NASDAQ SmallCap Market, the Nasdaq National
Market, American Stock Exchange or New York Stock Exchange (the “Trading
Market”)) (any such failure or breach being referred to as an “Event,” and for
purposes of clause (i), (ii) or (iv) the date on which such Event occurs, or
for purposes of clause (iii) the date which such 30 day or 20 consecutive day
period (as the case may be) is exceeded, or for purposes of clause (iv) the
date on which such three (3) Trading Day period is exceeded, being referred to
as “Event Date”), then until the applicable Event is cured, the Company shall
pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 2.0% for each thirty (30) day period (prorated for partial
periods) on a daily basis of the original principal amount of the Note.  Such liquidation damages shall be paid not
less than each thirty (30) days during an Event and within three (3) days
following the date on which such Event has been cured by the Company.

 

3.                                       Registration
Procedures.  If and whenever
the Company is required by the provisions hereof to effect the registration of
the Registrable Securities under the Act, the Company will, as expeditiously as
possible:

 

(a)                                  prepare
and file with the Commission a registration statement with respect to such
securities, promptly as possible respond to any comments received from the
Commission and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), and promptly provide to the Purchaser
copies of all filings and Commission letters of comment;

 

(b)                                 prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by the registration statement and
to keep such registration statement effective until the earlier of: (i) six
months after the latest exercise period of the Warrant; (ii) four years after
the Closing Date; or (iii) the date on which the Purchaser has disposed of all
of the Registrable Securities covered by such registration statement in
accordance with the Purchaser’s intended method of disposition set forth in
such registration statement for such period;

 

(c)                                  furnish
to the Purchaser such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as the

 

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Purchaser reasonably may request to facilitate the public sale or
disposition of the securities covered by such registration statement;

 

(d)                                 use
its commercially reasonable efforts to register or qualify the Purchaser’s
Registrable Securities covered by such registration statement under the
securities or “blue sky” laws of such jurisdictions as the Purchaser reasonably
requests; provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;

 

(e)                                  list
the Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed;

 

(f)                                    immediately
notify the Purchaser at any time when a prospectus relating thereto is required
to be delivered under the Securities Act of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing; and

 

(g)                                 make
available for inspection by the Purchaser and any attorney, accountant or other
agent retained by the Purchaser all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the attorney, accountant or agent of the Purchaser.

 

4.                                       Registration
Expenses.  All expenses
relating to the Company’s compliance with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the
Company, fees and expenses (including reasonable counsel fees) incurred in
connection with complying with state securities or “blue sky” laws, fees of the
NASD, transfer taxes, fees of transfer agents and registrars, fees of, and
disbursements incurred by, one counsel for the Holders, and costs of insurance
are called “Registration Expenses”. All selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Holders beyond those included in Registration Expenses,
are called “Selling Expenses.”   The
Company shall be responsible for all Registration Expenses and for all Selling
Expenses, other than Selling Expenses consisting of brokerage commissions.

 

5.                                       Indemnification.

 

(a)                                  In
the event of a registration of any Registrable Securities under the Securities
Act pursuant to this Agreement, the Company will indemnify and hold harmless
the Purchaser, and its officers, directors and each other person, if any, who
controls the Purchaser within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Purchaser or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof)

 

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arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to
this Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Purchaser, and each such person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of the Purchaser or any such person in writing specifically for use in
any such document.

 

(b)                                 In
the event of a registration of the Registrable Securities under the Securities
Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless
the Company, and its officers, directors and each other person, if any, who
controls the Company within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact which was furnished in writing by or on behalf
of the Purchaser to the Company expressly for use in (and such information is
contained in) the registration statement under which such Registrable
Securities were registered under the Securities Act pursuant to this Agreement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the Purchaser
will be liable in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by or on behalf
of the Purchaser specifically for use in any such document.  Notwithstanding the provisions of this
paragraph, the Purchaser shall not be required to indemnify any person or
entity in excess of the amount of the aggregate net proceeds received by the
Purchaser of Registrable Securities in connection with any such registration
under the Securities Act.

 

(c)                                  Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party hereunder, notify the indemnifying
party in writing thereof, but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to such indemnified
party other than under this Section 5(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section 5(c)
if and to the extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the

 

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extent it shall wish, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 5(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof; if the indemnified party retains its own counsel, then the indemnified
party shall pay all fees, costs and expenses of such counsel, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.

 

(d)                                 In
order to provide for just and equitable contribution in the event of joint
liability under the Securities Act in any case in which either (i) the
Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification pursuant to this Section 5(c) but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 5(c) provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 5(c); then, and in each such
case, the Company and the Purchaser will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Purchaser is responsible only for
the portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.

 

6.                                       Representations
and Warranties.

 

(a)                                  The
Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act and, since January 1, 2002, the Company has timely filed
all proxy statements, reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act, except for the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.  The Company has filed (i) its Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 and (ii) its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003
(collectively, the “SEC Reports”).  The
Company is eligible to file with the Commission a registration statement on
Form S-3 pursuant to Instruction I.B.3 thereof.  Each SEC Report was, at the time of its filing, in substantial
compliance with the

 

6

 

requirements of its respective form, and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports,
as of their respective filing dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. 
The financial statements of the Company included in the SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles (“GAAP”) applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes
or may be condensed) and fairly present in all material respects the financial
condition, the results of operations and the cash flows of the Company and its
subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such SEC Report.

 

(b)                                 The
Company Common Stock is listed for trading on the American Stock Exchange and
satisfies all requirements for the continuation of such listing.  The Company has not received any notice that
its Common Stock will be delisted from the American Stock Exchange or that the
Common Stock does not meet all requirements for the continuation of such
listing.

 

(c)                                  Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Registrable Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Common Stock pursuant to
Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions.  Nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Registrable Securities to be
integrated with other offerings.

 

(d)                                 The
Registrable Securities are restricted securities under the Securities Act as of
the date of this Agreement.  The Company
will not issue any stop transfer order or other order impeding the sale and
delivery of any of the Registrable Securities at such time as the Registrable
Securities are registered for public sale or an exemption from registration is
available, except as required by federal or state securities laws.

 

(e)                                  The
Company understands the nature of the Registrable Securities issuable upon the
conversion of the Note and the exercise of the Warrant and recognizes that the
Registrable Securities may have a potential dilutive effect.  The Company specifically acknowledges that
its obligation to issue the Registrable Securities is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.

 

(f)                                    Except
for agreements made in the ordinary course of business, there is no agreement
that has not been filed with the Commission as an exhibit to a registration
statement or to a form required to be filed by the Company under the Exchange
Act the breach of which

 

7

 

could have a material and adverse effect on the Company and its
subsidiaries, or would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement
in any material respect.

 

(g)                                 The
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of the Note and exercise of the
Warrant.

 

7.                                       Miscellaneous.

 

(a)                                  Remedies.  In the event of a breach by the Company or
by a Holder of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.

 

(b)                                 No Piggyback
on Registrations.  Except as
and to the extent specified in Schedule 7(b) hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right for inclusion of
shares in the Registration Statement to any of its security holders. Except as
and to the extent specified in Schedule 7(b) hereto, the Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that has not been fully
satisfied.

 

(c)                                  Compliance.  Each Holder covenants and agrees that it
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

 

(d)                                 Discontinued
Disposition.  Each Holder
agrees by its acquisition of such Registrable Securities that, upon receipt of
a notice from the Company of the occurrence of a Discontinuation Event (as
hereinafter defined), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder’s receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus
or Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. For purposes of this Section 7(d), a
“Discontinuation Event” shall mean (i) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement; (ii) whenever
the Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); (iii) any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iv)
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose; (v) the receipt by

 

8

 

the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any Proceeding for such purpose; and (vi) the occurrence of any event or
passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to the Registration Statement, Prospectus or
other documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.

 

(e)                                  Piggy-Back
Registrations.  If at any
time during the Effectiveness Period, there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
fifteen days after receipt of such notice, any such Holder shall so request in
writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered,
subject to customary underwriter cutbacks applicable to all holders of
registration rights and subject to the consent of any selling stockholder(s)
under such registration statement.

 

(f)                                    Amendments
and Waivers.  The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

 

(g)                                 Notices.  Any notice or request hereunder may be given
to the Company or Purchaser at the respective addresses set forth below or as
may hereafter be specified in a notice designated as a change of address under
this Section 7(g).  Any notice or
request hereunder shall be given by registered or certified mail, return
receipt requested, hand delivery, overnight mail or telecopy (confirmed by
mail).  Notices and requests shall be,
in the case of those by hand delivery, deemed to have been given when delivered
to any officer of the party to whom it is addressed, in the case of those by
mail or overnight mail, deemed to have been given when deposited in the mail or
with the overnight mail carrier, and, in the case of a telecopy, when
confirmed.  The address for such notices
and communications shall be as follows:

 

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If to the Company:                                             Digital
Angel Corporation

490 Villaume Avenue 

South St. Paul, MN 55075 

Attention:  Mr. James P. Santelli

Facsimile:  651-455-0217

 

With a copy to:                                                             Michele
D. Vaillancourt, Esq.

Winthrop & Weinstine, P.A.

Suite 3500

225 South Sixth Street

Minneapolis, MN  55402

Facsimile:  612-604-6800

 

If to a Purchaser:                                                      To
the address set forth under 

such Purchaser name on the

signature pages hereto.

 

If to any other Person
who is then the registered Holder:

 

To the address of
such Holder as it

appears in the stock transfer books

of the Company

 

or such other address as
may be designated in writing hereafter, in the same manner, by such Person.

 

(h)                                 Successors
and Assigns.  This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of each Holder.
The Company may not assign its rights or obligations hereunder without the
prior written consent of each Holder. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the Note.

 

(i)                                     Execution
and Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.

 

(j)                                     Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in the
state courts of New York or in the federal courts located in the state of New
York.  Both parties and the individual
signing this Agreement on behalf of the Company agree to submit to the
jurisdiction of such courts.  The
prevailing party shall be entitled to recover from the other party its
reasonable attorneys’ fees and costs. 
In the event that any provision of this Agreement is invalid or unenforceable
under

 

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any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid
or unenforceable under any law shall not affect the validity or
unenforceability of any other provision of this Agreement.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement, all documents, instruments and agreements entered
into in connection herewith and/or the transactions contemplated hereby.

 

(k)                                  Cumulative
Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

 

(l)                                     Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

(m)                               Headings.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

 

IN WITNESS WHEREOF, the
parties have executed this Registration Rights Agreement as of the date first
written above.

 

	
   

  	
  DIGITAL
  ANGEL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF PURCHASER TO FOLLOW]

 

11

 

IN WITNESS WHEREOF, the
parties have executed this Registration Rights Agreement as of the date first
written above.

 

	
   

  	
  LAURUS
  MASTER FUND, LTD.

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	 

	
   

  	
   

  	
  Name:

  	 

	
   

  	
   

  	
  Title:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Address
  for Notice:

  	 

	
   

  	
   

  	
   

  
	
   

  	
  c/o
  Laurus Capital Management, LLC

  152 West 57th Street, 4th Floor

  New York, New York 10019

  Attention:  David Grin

  	 

					

 

12EXHIBIT
10.1

 

POST-PETITION
FINANCING AGREEMENT

 

 

The CIT Group/Business Credit, Inc.

 

(as Lender)

 

And

 

Crown Pacific Limited Partnership,

a Debtor and a Debtor-in-Possession

 

(as Borrower)

 

Dated:  June 29, 2003

 

 

 

 

	
  

  SECTION 1. Definitions, Construction

  
	
   

  
	
  SECTION 2. Conditions

  
	
   

  
	
  SECTION 3. Revolving Loans

  
	
   

  
	
  SECTION 4. Intentionally
  Omitted

  
	
   

  
	
  SECTION 5. Letters of Credit

  
	
   

  
	
  SECTION 6. Collateral

  
	
   

  
	
  SECTION 7.
  Representations, Warranties and Covenants

  
	
   

  
	
  SECTION 8. Interest, Fees
  and Expenses

  
	
   

  
	
  SECTION 9.
  Powers

  
	
   

  
	
  SECTION 10. Events of
  Default and Remedies

  
	
   

  
	
  SECTION 11. Term and
  Termination

  
	
   

  
	
  SECTION 12. Miscellaneous

  
	
   

  
	
  SCHEDULES

  
	
   

  
	
  Schedule 1 – Loan Documents

  
	
   

  
	
  Schedule 2 - Collateral
  Information

  

 

i

 

THE CIT GROUP/BUSINESS CREDIT, INC.,
a New York corporation, with offices located at 300 South Grand Avenue, Third
Floor, Los Angeles, California 90071 (hereinafter “CIT”), is pleased to confirm
the terms and conditions under which CIT shall make post-petition revolving
loans and other financial accommodations to CROWN PACIFIC LIMITED PARTNERSHIP, a
Delaware limited partnership and a debtor and debtor-in-possession in the
Bankruptcy Case (as identified herein), with a principal place of business at
805 S.W. Broadway, Suite 1500, Portland Oregon 97205 (herein the
“Company”).

 

RECITALS

 

A.                                   On
June 29, 2003, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.

 

B.                                     The
Company is continuing to operate its business and manage its properties as a
debtor-in-possession under Sections 1107 and 1108 of the Bankruptcy Code.

 

C.                                     An
immediate and on-going need exists for the Company to obtain additional funds
in order to continue the operation of its business as a debtor-in-possession
under Chapter 11 of the Bankruptcy Code, and accordingly, the Company has
requested that CIT provide post-petition revolving loan and letter of credit
financing to the Company.

 

D.                                    To
secure such post-petition financing, the Company has agreed to grant to CIT, on
a post-petition basis, a first-priority security interest in, and lien on, the
Collateral.

 

E.                                      CIT
is willing to provide such post-petition secured financing to the Company on
the terms and subject to the conditions set forth in this Agreement.

 

F.                                      The
Interim Financing Order approves, and the Final Financing Order, when entered
by the Bankruptcy Court, will approve, this Agreement; and the Interim
Financing Order authorizes, and the Final Financing Order, when entered by the
Bankruptcy Court, will authorize, the Company to incur secured and
superpriority Indebtedness, obligations and other liabilities under the terms
and subject to the conditions of this Agreement pursuant to Sections 363 and
364 of the Bankruptcy Code.

 

G.                                     In
accordance with the Interim Financing Order, the Final Financing Order (when
entered by the Bankruptcy Court) and this Agreement, CIT will provide
post-petition revolving loan and letter of credit financing to the Company.

 

NOW,
THEREFORE, in consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereby agree as follows:

 

1

 

SECTION 1.                            Definitions,
Construction

 

1.1                               Definitions.

 

When used herein, the
following terms shall have the respective meanings assigned to each below:

 

Accounts
shall mean:  (a) accounts (as defined
in the UCC), and any and all other receivables (whether or not specifically
listed on schedules furnished to CIT), including, without limitation, all
accounts created by, or arising from, all sales, leases, rentals of goods or
rendition of services to customers, including but not limited to, those
accounts arising under any trade names or styles, or through any divisions; (b) instruments,
documents and chattel paper (including electronic chattel paper) (all as
defined in the UCC); (c) unpaid seller’s or lessor’s rights
(including rescission, replevin, reclamation, repossession and stoppage in
transit) relating to the foregoing or arising therefrom; (d) rights
to any goods represented by any of the foregoing, including rights to returned,
reclaimed or repossessed goods; (e) reserves and credit balances
arising in connection with or pursuant hereto; (f) guarantees,
supporting obligations, payment intangibles and letter of credit rights (all as
defined in the UCC) relating to any of the foregoing; (g) insurance policies
or rights thereunder relating to any of the foregoing; (h) general intangibles
pertaining to any and all of the foregoing (including all rights to payment,
including those arising in connection with bank and non-bank credit cards),
including books and records and any electronic media and software pertaining
thereto; (i) notes,
deposits or property of account debtors to the Company securing the obligations
of any such account debtors to the Company to the extent the Company is not
prohibited from assigning the same as contemplated hereby; and (j) cash
and non-cash proceeds (as defined in the UCC) of any and all of the
foregoing.

 

Administrative
Management Fee shall mean, as applicable, $25,000,
$50,000 or $75,000, which shall be earned by, and paid to, CIT as described in
Paragraph 8.8 hereof to offset the expenses and costs (excluding
Out-of-Pocket Expenses and auditor fees) of CIT in connection with
administration, record keeping, analyzing and evaluating the Collateral.

 

Affiliate
shall mean, as to any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with,
such Person.  A Person shall be deemed
to be “controlled by” any other Person if such other Person possesses, directly
or indirectly, power to direct or cause the direction of the management and
policies of such Person whether by contract, ownership of voting securities or
otherwise.

 

Agreement
shall mean this Post-Petition Financing Agreement, as amended, supplemented or
modified from time to time.

 

Alliance
Sale shall mean the sale by the Company pursuant to
Section 363 of the Bankruptcy Code of all or substantially all of the
property and assets of the Company’s Alliance segment (including, without
limitation, General Intangibles).

 

Allowed
Claim  shall mean a Claim that is allowed as to both
amount and priority by a final unappealable order of a court of competent
jurisdiction.

 

2

 

Audit
shall have the meaning set forth in Paragraph 8.9.

 

Audit
Fees and Expenses shall have the meaning set forth in
Paragraph 8.9.

 

Authorizing
Entity shall have the meaning set forth in clause
(c) of Paragraph 2.1 of this Agreement.

 

Availability
shall mean, at any time of determination, the amount by which: (a) the
Borrowing Base exceeds (b) the outstanding aggregate amount of all
Obligations, including without limitation, all Obligations with respect to
Revolving Loans, but excluding the Letters of Credit, the Letter of Credit
Guaranties and all other contingent Obligations.

 

Availability
Reserve shall mean the sum of: (a) (i) three
(3) months rental payments or similar charges for any of the Company’s
leased premises or other Collateral locations for which the Company has not
delivered to CIT a landlord’s waiver in form and substance satisfactory to CIT
in its commercially reasonable credit judgment within fifteen (15) days
after the Closing Date, plus (ii) three (3) months estimated payments
plus any other fees or charges owing by the Company to any applicable
warehousemen or third party processor (as determined by CIT in its reasonable business
judgment) with respect to each warehouse or processing facility at which
Collateral is located and for which CIT has not received a satisfactory
warehouse or processor bailment agreement, as applicable, within fifteen
(15) days after the Closing Date, provided that any of the
foregoing amounts shall be adjusted from time to time hereafter upon
(x) delivery to CIT of any such acceptable landlord waiver or warehouse or
processor bailment agreement; (y) the opening or closing of a Collateral
location; and/or (z) any change in the amount of rental, storage or
processor payments or similar charges; (b) any reserve which CIT may
require in its commercially reasonable credit judgment from time to time
pursuant to this Agreement, including without limitation, for Letters of Credit
pursuant to Paragraph 5.1 hereof; and (c) such other reserves as CIT
deems necessary or appropriate in the exercise of its commercially reasonable
credit judgment and which are customary either in the commercial finance
industry or in the lending practices of CIT, which result from
(i) negative forecasts and/or trends in the Company’s business, industry,
prospects, profits, operations or financial condition, (ii) returns,
discounts, claims, credits and allowances, damages or other matters for which credit
memoranda are issued in the ordinary course of the Company’s business; or
(iii) special order goods, discontinued, slow-moving and obsolete
Inventory, market value declines, shrinkage, spoilage and any applicable
customs, freight, duties and taxes, loggers liens and other statutory liens
affecting the Company’s business or the Collateral.

 

Avoidance
Action shall mean any cause of action arising under
Sections 506, 510, 542-551 (both inclusive) or 553 of the Bankruptcy Code.

 

Bankruptcy
Case shall mean the case commenced under Chapter 11
of the Bankruptcy Code as a result of the Petition.

 

Bankruptcy
Code shall mean the Bankruptcy Reform Act of 1978, as
amended, or any successor statute.

 

3

 

Bankruptcy
Court shall mean (i) the United States Bankruptcy
Court for the District of Arizona, and (ii) any other court having
competent jurisdiction over the Bankruptcy Case.

 

Borrowing
Base shall mean, at any time of determination, the sum of
(a) eighty-five percent (85%) of the Company’s aggregate outstanding
Eligible Accounts Receivable, provided that if the then applicable
Dilution Percentage is greater than five percent (5%), the advance rate for
Eligible Accounts Receivable shall be reduced by the amount of such excess
Dilution Percentage over five percent (5%), plus (b) the lesser of
(i) twenty-five percent (25%) of the Company’s aggregate outstanding
Eligible Stumpage Receivables or (ii) $5,000,000, plus (c) the lesser of
(i) sixty percent (60%) of the aggregate value of the Company’s
Eligible Inventory, valued at the lower of average cost or market, provided
that at no time shall the aggregate outstanding principal amount of Revolving
Loans made on the basis of Eligible Inventory consisting of logs exceed $4,000,000,
or (ii) the then applicable Inventory Loan Cap, less (d) any applicable
Availability Reserves.

 

Business
Day shall mean any day on which CIT and JPMorgan Chase
Bank are open for business.

 

Capital
Expenditures shall mean, for any period, the aggregate
expenditures of the Company during such period on account of, property, plant,
equipment or similar fixed assets that in conformity with GAAP, are required to
be reflected in the balance sheet of the Company as fixed assets.

 

Capital
Improvements shall mean Equipment acquired or installed
for use in the Company’s business operations.

 

Capital
Lease shall mean any lease of property (whether real,
personal or mixed) which, in conformity with GAAP, is accounted for as a
capital lease or a Capital Expenditure in the balance sheet of the Company.

 

Cash
Budget Projections shall mean, collectively, the initial
thirteen-week cash budget projection required by clause (h) of
Paragraph 2.1 and each subsequent thirteen-week cash budget projection
required by clause (g) of Paragraph 7.2.

 

Change
of Law shall have the meaning set forth in Paragraph
8.11.

 

Chase
Bank Rate shall mean the rate of interest per annum
announced by JPMorgan Chase Bank from time to time as its prime rate in effect
at its principal office in New York City. 
(The prime rate is not intended to be the lowest rate of interest
charged by JPMorgan Chase Bank to its borrowers).

 

Chase
Bank Rate Loans shall mean any loans or advances pursuant
to this Agreement made or maintained at a rate of interest based upon the Chase
Bank Rate.

 

Claim
shall have the meaning set forth in Section 101(5) of the
Bankruptcy Code.

 

4

 

Closing
Date shall mean the date on which all of the conditions
specified in Paragraph 2.1 have been satisfied or waived by CIT.

 

Collateral
shall have the meaning set forth in Paragraph 6.1.

 

Collateral
Reports shall have the meaning set forth in Paragraph
3.2.

 

Collection
Days shall mean one (1) Business Day to provide
for the deposit, clearance and collection of checks or other instruments
representing the proceeds of Collateral, the amount of which has been credited
to the Company’s Revolving Loan Account, and for which interest may be charged
on the aggregate amount of such deposits, at the rate provided for in
Paragraph 8.1 of Section 8 of this Agreement.

 

Consolidated
Financial Statements  shall mean a consolidated or
compiled, as applicable, balance sheet, income statement and cash flow
statement for the Parent and its consolidated Subsidiaries, including the
Company, eliminating all inter-company transactions and prepared in accordance
with GAAP.

 

Consolidating
Financial Statements  shall mean consolidating financial
statements for the Parent and its consolidated Subsidiaries, including the Company,
including individual balance sheets, income statements and cash flow statements
for each, showing all eliminations of inter-company transactions, all prepared
in accordance with GAAP.

 

Contra
Accounts shall mean Trade Accounts Receivable owed to the
Company by account debtors to which the Company owes offsetting accounts
payable obligations.

 

Copyrights
shall mean all copyrights, copyright registrations, recordings, applications,
designs, styles, licenses, marks, prints and labels bearing any of the
foregoing, goodwill, any and all general intangibles, intellectual property and
rights pertaining thereto, and all cash and non-cash proceeds thereof.

 

Debtors
shall mean the Company and Crown Pacific Partners, L.P., a Delaware limited
partnership; CP Air, Inc., an Oregon corporation; CP Acquisition Co., an Oregon
corporation; CP Acquisition II Co., an Oregon corporation; and CP Acquisition
III Co., an Oregon corporation.

 

Default
shall mean any event specified in Paragraph 10.1 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act, has been satisfied.

 

Default
Rate of Interest  shall mean a rate of interest per
annum equal to the sum of:  (a) two
percent (2%) plus (b) the applicable increment over the Chase Bank
Rate (as set forth in Paragraph 8.1 hereof) plus the Chase Bank Rate, or
the applicable increment over the LIBOR Rate (as set forth in
Paragraph 8.14) plus the LIBOR Rate.

 

Depository
Accounts shall mean the collection accounts, which are
subject to CIT’s instructions, as specified in Paragraph 3.4 of this
Agreement.

 

5

 

Dilution
Percentage  shall mean, as of any time of determination,
the sum of the Company’s credits, claims, allowances, discounts, write-offs,
contras, off-sets and deductions at such time divided by the total sales at
such time, all calculated on a rolling ninety (90) day average, as
determined and calculated by CIT from time to time, or at such other time as
the Company and CIT may agree.

 

Disposition
shall have the meaning set forth in clause (h) of Paragraph 7.2.

 

Documents
of Title shall mean documents (as defined in the  UCC), and any and all warehouse receipts,
bills of lading, shipping documents, chattel paper, instruments and similar
documents, all whether negotiable or not and all goods and Inventory relating
thereto and all cash and non-cash proceeds of the foregoing.

 

EBITDDA
shall mean, in any period, all earnings of the Company before all (i) interest expense
and tax expense or provision, (ii) depreciation, (iii) depletion and (iv)
amortization for said period, all determined in accordance with GAAP on a
consistent basis with the latest audited financial statements of the Company,
but excluding the effects of any extraordinary, non-recurring and/or non-cash
gains or losses for such  period.

 

Eligible
Accounts Receivable shall mean the gross amount of the
Company’s Trade Accounts Receivable that are subject to a valid perfected first
priority security interest in favor of CIT, which conform to the warranties
applicable to Trade Accounts Receivable and set forth in Paragraph 3.3 hereof
and which do not arise from or are subject to or include, as applicable:
(i) sales to the United States of America, any state or other governmental
entity or to any agency, department or division thereof, except for any such
sales as to which the Company has complied with the Assignment of Claims Act of
1940 or any other applicable statute, rules or regulation, to CIT’s satisfaction
in the exercise of its commercially reasonable credit judgment;
(ii) foreign sales, other than sales which otherwise comply with all of
the other criteria for eligibility hereunder and are (x) secured by
letters of credit (in form and substance satisfactory to CIT in the exercise of
its commercially reasonable credit judgment) issued or confirmed by, and
payable at, banks having a place of business in the United States of America,
or (y) to customers residing or having a place of business in Canada provided
such Accounts do not exceed $1,000,000 in the aggregate at any one time;
(iii) Accounts owed by sawmills that remain unpaid for more than thirty
(30) days from invoice date, and any other Account that remains unpaid
more than ninety (90) days from invoice date or sixty (60) days from
due date; (iv) Contra Accounts; (v) sales to the Parent or to any
Subsidiary or Affiliate of the Parent or the Company; (vi) bill and hold
(deferred shipment) or consignment sales; (vii) sales to any customer
which is: (A) insolvent, (B) the debtor in any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceedings
under any federal or state law, (C) negotiating, or has called a meeting
of its creditors for purposes of negotiating, a compromise of all or
substantially all its debts, or (D) financially unacceptable to CIT or has
a credit rating unacceptable to CIT, in either case, as determined by CIT in
its commercially reasonable credit judgment, consistent with its normal
practices; (viii) all sales to any customer if fifty percent (50%) or
more of  the
aggregate dollar amount of all outstanding invoices to such customer are unpaid
more than ninety (90) days from invoice date or sixty (60) days from
due date; (ix) pre-billed receivables and receivables arising from
progress billing; (x) sales not payable in United States currency; and
(xi) in the case of an

 

6

 

account debtor whose total Trade Accounts Receivable
owing to the Company exceed fifteen percent (15%) of the Company’s total Trade
Accounts Receivable, that portion of such account debtor’s Trade Accounts
Receivable which exceeds fifteen percent (15%) of the Company’s total Trade
Accounts Receivable.

 

Eligible
Inventory  shall mean the gross amount of the Company’s
Inventory that is subject to a valid, perfected, first priority security
interest in favor of CIT and which conforms to the representations and
warranties applicable to Inventory set forth in Paragraph 3.3 hereof and which
are not (a) supplies (other than raw materials), (b) Inventory not
present in the United States of America, (c) Inventory returned or
rejected by the Company’s customers (other than goods that are undamaged
and  resaleable in the normal course of
business) and goods to be returned to the Company’s suppliers, and
(d) Inventory in transit or Inventory in the possession of a warehouseman,
bailee, third party processor, or other third party, unless such warehouseman,
bailee or third party has executed a notice of security interest agreement (in
form and substance satisfactory to CIT in the exercise of its commercially
reasonable credit judgment) and CIT shall have a first priority perfected
security interest in such Inventory.

 

Eligible
Stumpage Receivables shall mean the gross amount of the
Company’s Accounts arising from the sale of logging rights or land and trees,
which satisfy all of the requirements for being Eligible Accounts Receivables
set forth in the definition thereof other than being Trade Accounts Receivable.

 

Equipment
shall mean all equipment (as defined in the UCC) including, without
limitation, all machinery, equipment, furnishings and fixtures, and all
additions, substitutions and replacements thereof, wherever located, together
with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto and all proceeds thereof of whatever sort.

 

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

 

Eurocurrency
Reserve Requirements shall mean for any day, as applied
to a LIBOR Loan, the aggregate (without duplication) of the maximum rates
of reserve requirements (expressed as a decimal fraction) in effect with respect
to CIT or any present or future lender or participant pursuant hereto
(including, without limitation, basic, supplemental, marginal and emergency
reserves under Regulation D or any other applicable regulations of the
Board of Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto, as now and from time to
time in effect, dealing with reserve requirements prescribed for Eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of such Board) maintained by CIT and/or any such lenders
or participants (such rate to be adjusted to the nearest one sixteenth of one
percent (1/16 of 1%) or, if there is not a nearest one sixteenth of one
percent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16 of
1%)).

 

Event of
Default shall mean any event specified in Paragraph 10.1
hereof.

 

Final
Financing Order shall mean an order entered by the
Bankruptcy Court as to which no stay has been entered, that has not been
vacated, modified or overturned, that is entitled to the

 

7

 

protections of Section 364(e) of the
Bankruptcy Code, that is free from objections by the Revolving Lenders and the
Term Lenders, and that is in form and substance acceptable to CIT in its sole
discretion, authorizing the incurrence by the Company of permanent
post-petition, first-priority secured and superpriority Indebtedness in
accordance with this Agreement and the other Loan Documents.

 

Fiscal
Quarter shall mean, with respect to the Company, each
three (3) month period ending on March 31, June 30, September 30 and
December 31 of each Fiscal Year.

 

Fiscal
Year shall mean each twelve (12) month period
commencing on January 1 of each year and ending on the following December 31.

 

Free
Cash Flow  shall
mean, for the relevant period, EBITDDA minus the sum of the following:
(a) all interest expenses paid or due on all Indebtedness; (b) the amount of
principal repaid or scheduled to be repaid on all Indebtedness (including
adequate protection payments, if any, to any holder of a deed of trust or
mortgage on any timber of the Company); (c) non-financed Capital Expenditures
actually incurred; (d) dividends paid; and (e) all federal, state and local
income tax expenses due and payable.

 

GAAP
shall mean generally accepted accounting principles as in effect from time to
time and for the period as to which such accounting principles are to apply in
the United States of America, provided that in the event the Company modifies
its accounting principles and procedures as in effect as of the Closing Date,
the Company shall provide such statements of reconciliation as shall be in form
and substance acceptable to CIT in its commercially reasonable credit judgment.

 

General
Intangibles shall mean all general intangibles (as
defined in the UCC), and shall include, without limitation, all present and
future right, title and interest in and to: (a) all Patents, together with
any improvements on said Patents, utility models, industrial models, and
designs, (b) Copyrights, (c) trade secrets, (d) licenses,
permits and franchises, (e) all applications with respect to the
foregoing, (f) all right, title and interest in and to any and all
extensions and renewals of any of the foregoing, (g) goodwill with respect
to any of the foregoing, (h) all distribution agreements, supply
agreements, blueprints, indemnification rights and tax refunds, together with
all monies and claims for monies now or hereafter due and payable in connection
with any of the foregoing or otherwise, and all cash and non-cash proceeds
thereof, including, without limitation, the proceeds or royalties of any
licensing agreements between the Company and any licensee of any of the
foregoing, but shall specifically exclude all Trademarks and all customer
lists.

 

Indebtedness
shall mean, without duplication, all liabilities, contingent or otherwise,
which are any of the following: (a) obligations in respect of borrowed
money or for the deferred purchase price of (i) property, (ii) services or
(iii) assets, other than Inventory, or (b) lease obligations which, in
accordance with GAAP, have been, or which should be capitalized.

 

Insurance
Proceeds shall mean proceeds or payments from an
insurance carrier with respect to any loss, casualty or damage to Collateral.

 

Interest
Period shall mean:

 

8

 

(a)                                  with
respect to any initial request by the Company for a LIBOR Loan, a one month,
two month or three month period commencing on the borrowing or conversion date
with respect to a LIBOR Loan and ending one, two or three months thereafter, as
applicable; and

 

(b)                                 thereafter
with respect to any continuation of, or conversion to, a LIBOR Loan, at the
option of the Company, any one month, two month or three month period
commencing on the last day of the immediately preceding Interest Period
applicable to such LIBOR Loan and ending one, two or three months thereafter,
as applicable;

 

provided  that, the foregoing
provisions relating to Interest Periods are subject to the following:

 

(i)  if
any Interest Period would otherwise end on a day which is not a Working Day,
that Interest Period shall be extended to the next succeeding Working Day,
unless the result of such extension would extend such payment into another
calendar month in which event such Interest Period shall end on the immediately
preceding Working Day;

 

(ii)  any
Interest Period that begins on the last Working 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
Working  Day of a calendar month; and

 

(iii)  for
purposes of determining the availability of Interest Periods, such Interest
Periods shall be deemed available if (x) Chase Manhattan Bank quotes an
applicable rate or CIT determines LIBOR, as provided in the definition of
LIBOR, (y) the LIBOR determined by Chase Manhattan Bank or CIT will
adequately and fairly reflect the cost of maintaining or funding its Revolving
Loans bearing interest at LIBOR, for such Interest Period as determined in the
commercially reasonable credit judgment of CIT in accordance with its normal
business practices, and (z) such Interest Period will end on or before the
last day of the term of this Agreement. 
If a requested Interest Period shall be unavailable in accordance with
the foregoing sentence, the Company shall continue to pay interest on the
Obligations outstanding under the Revolving Loan Account at the applicable per
annum rate based upon the Chase Bank Rate.

 

Interim
Financing Order shall mean an order, in form and
substance satisfactory to CIT in its sole discretion, entered by the Bankruptcy
Court pursuant to Sections 364(c) and (d) of the Bankruptcy Code
and Bankruptcy Rule 4001(c), that is entitled to the protection of
Section 364(e) of the Bankruptcy Code, that is free from objections
by the Revolving Lenders and the Term Lenders, and that authorizes the Company
to incur post-petition, first-priority secured and superpriority Indebtedness,
obligations and other liabilities in accordance with this Agreement and the
other Loan Documents on an interim basis.

 

Inventory
shall mean inventory (as defined in the UCC) and including, without
limitation, all merchandise, inventory and goods (including logs and other raw
materials, work in process and

 

9

 

finished goods), and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials used
or usable in manufacturing, processing, packaging or shipping same in all
stages of production from raw materials through work-in-process to finished
goods, and all proceeds thereof of whatever sort.

 

Inventory
Loan Cap  shall mean the amount of (i) $25,000,000
prior to the Alliance Sale or (ii) $15,000,000 following the Alliance
Sale, as applicable.

 

Investment
Property shall mean investment property (as defined in
the UCC) and all proceeds thereof.

 

Issuing
Bank shall mean the bank issuing Letters of Credit.

 

Letters
of Credit shall mean all letters of credit issued by the
Issuing Bank for or on behalf of the Company with a Letter of Credit Guaranty.

 

Letter
of Credit Guaranty shall mean, in respect of a Letter of
Credit, (i) CIT’s joinder in the application of a Letter of Credit such that
CIT, together with the Company, is jointly and severally liable thereon and
(ii) a guaranty delivered by CIT to the Issuing Bank of the Company’s
reimbursement obligations under the Issuing Bank’s reimbursement agreement,
application for Letter of Credit or other like document.

 

Letter
of Credit Guaranty Fee shall mean the fee CIT may charge
the Company under Paragraph  8.3 of this Agreement for issuing a Letter of
Credit Guaranty.

 

Letter
of Credit Sub-Line shall mean the commitment of CIT to
assist the Company in obtaining Letters of Credit, pursuant to Section 5
hereof, in an aggregate amount of $10,000,000 at any one time outstanding.

 

LIBOR
shall mean, at any time of determination, and subject to availability, for each
applicable Interest Period, a variable rate of interest equal to:  (a) at CIT’s election (i) the rate
set forth in the New York edition of The Wall Street Journal under the “Money
Rates” Section for “London Interbank Offered Rates”, (ii) the
applicable LIBOR quoted to CIT by JP Morgan Chase Bank (or any successor
thereof), or (iii) the rate of interest determined by CIT at which
deposits in U.S. dollars are offered for the relevant Interest Period based on
information presented on Telerate Systems at Page 3750 (or any successor
thereof) as of 11:00 A.M. (London time) on the day which is two
(2) Business Days prior to the first day of such Interest Period, provided
that, if at least two such offered rates appear on the Telerate Page
3750 (or any successor thereof) in respect of such Interest Period, the
arithmetic mean of all such rates (as determined by CIT) will be the rate
used; divided
by (b) a number of equal to 1.0 minus the aggregate (but
without duplication) of the rates (expressed as a decimal fraction) of
Eurocurrency Reserve Requirements in effect on the day which is two
(2) Business Days prior to the beginning of such Interest Period.

 

LIBOR
Lending Office shall mean, with respect to CIT, the
office of JPMorgan Chase Bank, or any successor thereof,  maintained at 270 Park Avenue, New
York, NY  10017.

 

10

 

LIBOR
Loan shall mean any Revolving Loans which are made or
maintained at a rate of interest based upon LIBOR.

 

Loan
Documents shall mean this Agreement and the other closing
documents identified in Schedule 1 to this Agreement to be executed by
the Company and the other Debtors, and any other ancillary loan and security
agreements, if any, executed by the Company or any of the other Debtors from time
to time after the Closing Date in connection with this Agreement, all as may be
renewed, amended, extended, increased or supplemented from time to time.

 

Loan
Facility Fee shall mean the fee payable to CIT in
accordance with, and pursuant to, the provisions of Paragraph 8.7 of this
Agreement.

 

Material
Adverse Effect 
shall mean any set of circumstances or events which (a) has had, or
would in CIT’s commercially reasonable credit judgment be expected to have, a
material adverse effect upon the validity or enforceability of any Loan
Documents, (b) has been, or would in CIT’s commercially reasonable credit
judgment be expected to be, material and adverse to the business or condition
(financial or otherwise) of the Parent and its Subsidiaries, taken as a whole
or (c) has materially impaired, or would in CIT’s commercially reasonable
credit judgment reasonably be expected to materially impair, the ability of the
Company to repay the Obligations when due.

 

Obligations
shall mean all loans, advances and extensions of credit made by CIT to the
Company or, at the Company’s request, to others for the Company’s account
(including, without limitation, all Revolving Loans and Letter of Credit
Guaranties) incurred by the Company under this Agreement, from time to time
during the term hereof; and whether principal, interest, fees, costs, expenses
or otherwise.  Obligations shall also
include indebtedness owing to CIT by the Company under any other Loan Document
or under any other agreement or arrangement now or hereafter entered into
between the Company and CIT; indebtedness or obligations incurred by, or
imposed on, CIT as a result of environmental claims arising out of the
Company’s operations, premises or waste disposal practices or sites in
accordance with Paragraph 7.7 hereof; the Company’s liability to CIT as
endorser of any promissory note or other instrument for the payment of money
from an account debtor with respect to an Eligible Account; the Company’s
liability to CIT under any instrument of guaranty or indemnity, or arising
under any guaranty, endorsement or undertaking which CIT may make or issue to
others for the Company’s account, including any accommodation extended by CIT
with respect to applications for Letters of Credit, CIT’s acceptance of drafts
or CIT’s endorsement of notes or other instruments for the Company’s account
and benefit; and any and all indebtedness, liabilities or obligations of every
kind, nature and description owing by the Company to any affiliate of CIT; provided,
however, that in no event shall Obligations include any Claim, whether
now or hereafter existing, against the Company of which CIT is an assignee or
transferee.

 

Operating
Leases shall mean all leases of property (whether real,
personal or mixed) other than Capital Leases.

 

Other
Collateral shall mean lockbox, blocked account and any
other deposit accounts maintained with any bank or financial institutions into
which the proceeds of Collateral are or

 

11

 

may be deposited; all other deposit accounts and all
Investment Property; all cash and other monies and property in the possession
or control of CIT; all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information relating
to any of the Collateral described herein or otherwise necessary or helpful in
the collection thereof or realization thereon; and all cash and non-cash
proceeds of the foregoing.

 

Out-of-Pocket
Expenses shall mean all reasonable and necessary expenses
incurred by CIT (including reasonable and necessary expenses incurred by CIT if
it elects to employ the services of third parties) and pertaining to this
Agreement or any other Loan Document, whether now or hereafter incurred, which
expenses shall include, without being limited to: the cost of record searches,
all costs and expenses incurred by CIT in opening bank accounts, depositing
checks, receiving and transferring funds, and wire transfer charges, any
charges imposed on CIT due to returned items and “insufficient funds” of
deposited checks and CIT’s standard fees relating thereto, any amounts paid by,
incurred by or charged to, CIT by the Issuing Bank under a Letter of Credit
Guaranty or the Company’s reimbursement agreement, application for Letters of
Credit or other like document which pertain to such Letters of Credit, and
CIT’s standard fees relating to the Letters of Credit and any drafts
thereunder, travel, lodging and similar out-of-pocket expenses of CIT’s
personnel or of third parties engaged by CIT in connection with inspecting and
monitoring the Collateral from time to time hereunder, any applicable counsel
fees and disbursements, fees and taxes relative to the filing of financing
statements, and all expenses, costs and fees set forth in Paragraph 10.3
of this Agreement.

 

Overadvances
shall mean the amount by which (a) the sum of all outstanding Revolving
Loans, Letters of Credit and advances made hereunder exceed (b) the
Borrowing Base.

 

Parent
shall mean Crown Pacific Partners, L.P., a Delaware limited partnership.

 

Patents
shall mean patents, patent applications, registrations, any reissues or
renewals thereof, licenses, any inventions and improvements claimed thereunder,
and all general intangible, intellectual property and patent rights with
respect thereto of the Company, and all income, royalties, cash and non-cash
proceeds thereof.

 

Permitted
Encumbrances shall mean (a) liens existing on the
date hereof on specific items of Equipment and other liens expressly permitted,
or consented to in writing by CIT; (b) Purchase Money Liens;
(c) liens of local or state authorities for franchise or other like Taxes,
provided that the aggregate amounts of such liens shall not exceed $250,000.00
in the aggregate at any one time outstanding; (d) statutory liens of
landlords and liens of carriers, warehousemen, bailees, mechanics, materialmen
and other like liens imposed by law, created in the ordinary course of business
and for amounts not yet due (or which are being contested in good faith, by
appropriate proceedings or other appropriate actions which are sufficient to
prevent imminent foreclosure of such liens) and with respect to which
adequate reserves or other appropriate provisions are being maintained by the
Company in accordance with GAAP; (e) deposits made (and the liens
thereon) in the ordinary course of business of the Company (including,
without limitation, security deposits for leases, indemnity bonds, surety bonds
and appeal bonds) in connection with workers’ compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of 

 

12

 

borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; (f) liens granted to or for the
benefit of CIT by the Company; (g) liens of judgment creditors provided such
liens do not exceed, in the aggregate, at any time, $50,000.00 (other than
liens bonded or insured to the reasonable satisfaction of CIT); (h) Tax
liens securing amounts which are not yet due and payable or which are being
diligently contested in good faith by the Company by appropriate proceedings,
and which liens are not (x) the subject of imminent foreclosure,
(y) senior to the liens of CIT or (z) for Taxes due the United States
of America or any state thereof having similar priority statutes, as further
set forth in Paragraph 7.6 hereof; and (i) liens on any assets of the
Company approved by the Bankruptcy Court and granted to secured creditors of
the Company as adequate protection, provided that such liens are junior and
subordinate to the security interests and liens on any assets of the Company
approved by the Bankruptcy Court and granted to CIT as security for the
Obligations.

 

Permitted
Expenses and Indebtedness shall mean, with respect to the
Company and the other Debtors: (i) fees required to be paid to the Office
of the United States Trustee pursuant to 28 U.S.C. Section 1930(a);
(ii) fees payable to the clerk of the Bankruptcy Court; (iii) subject
to the limits set forth in the Interim Order and the Final Order, compensation
for services rendered or reimbursement of expenses incurred that are permitted
by the Bankruptcy Court to be paid under Sections 330 or 331 of the
Bankruptcy Code to professionals retained pursuant to an order of the
Bankruptcy Court, so long as such fees and expenses are included within the
Cash Budget Projections; (iv) so long as no Event of Default has occurred
and is continuing, expenses set forth in the Cash Budget Projections;
(v) current Indebtedness maturing in less than one year and incurred in
the ordinary course of business for raw materials, supplies, equipment,
services, Taxes or labor; (vi) Indebtedness maturing in more than one year for
the deferred purchase price of services; (vii) Indebtedness secured by
Purchase Money Liens;  (viii) Subordinated Debt;
(ix) Indebtedness arising under Letters of Credit and this Agreement;
(x) deferred Taxes; and (xi) other Indebtedness and accounts payable
existing on the date of execution of this Agreement and listed in the most
recent financial statement delivered to CIT or otherwise disclosed to CIT in
writing prior to the Closing Date.

 

Person
shall mean any individual, trustee, corporation, general partnership, limited
partnership, limited liability company, joint stock company, trust,
unincorporated organization, bank, business, association, firm, joint venture
or governmental authority.

 

Petition
shall mean the voluntary petition filed by the Company for relief under
Chapter 11 of the Bankruptcy Code with the Bankruptcy Court on the
Petition Date.

 

Petition
Date shall mean June 29, 2003.

 

Post-Petition
Charges shall mean all federal, state, county, city,
municipal, local, foreign or other taxes payable to any governmental authority,
levies, assessments, charges, liens, claims or encumbrances levied or arising
after the Petition Date upon or relating to (i) the Obligations,
(ii) the employees, payroll, income or gross receipts of the Company,
(iii) the Company’s ownership or use of any properties or other assets, or
(iv) any other aspect of the Company’s business.

 

13

 

Purchase
Money Liens shall mean liens on any item of Equipment
acquired (or leased pursuant to a financing lease) after the date of this
Agreement provided that (a) each such lien shall attach only
to the property to be acquired (or leased pursuant to a financing lease), (b) a
description of the Equipment so acquired or so leased is furnished to CIT, and (c) the
debt incurred in connection with such acquisitions shall not exceed, in the
aggregate, $3,000,000 outstanding at any time.

 

Revolving
Lenders shall mean the lenders party to the Amended and
Restated Facility B Credit Agreement, dated as of December 1, 1999, as amended,
among the Company, such lenders and Bank of America, N.A., as agent.  (The Revolving Lenders are commonly referred
to as the “Facility B Lenders”.)

 

Revolving
Line of Credit shall mean the aggregate commitment of CIT
to make Revolving Loans to the Company pursuant to Section 3 of this
Agreement and issue Letter of Credit Guaranties pursuant to Section 5
hereof, in the aggregate amount equal to the sum of (i) $40,000,000,
following the entry of the Final Financing Order but prior to the Alliance
Sale, or (ii) $20,000,000, following the Alliance Sale, as applicable.

 

Revolving
Line of Credit Fee shall mean the fee due CIT at the end
of each fiscal quarter for the Revolving Line of Credit, 

determined by multiplying the difference between
(i) the then applicable Revolving Line of Credit and (ii) the sum,
for said fiscal quarter, of (x) the average daily balance of Revolving
Loans plus the average daily balance of Letters of Credit outstanding in
respect of which CIT has issued a Letter of Credit Guaranty for said quarter,
by three-eighths percent (0.375%) per annum for the number of days in said
fiscal quarter.

 

Revolving
Loan Account shall mean the account maintained in the
Company’s name on CIT’s books and which reflects Obligations which have become
due and owing by the Company and amounts paid by the Company, including from
the proceeds of Collateral or otherwise credited thereon.

 

Revolving
Loans shall mean the loans and advances made, from time
to time, to or for the account of the Company by CIT pursuant to Section 3
of this Agreement.

 

Subordinated
Debt shall mean debt due a Subordinating Creditor (and
the note(s) evidencing the same) which has been subordinated, by a
Subordination Agreement, to the prior payment and satisfaction of the
Obligations of the Company to CIT.

 

Subordinating
Creditor shall mean any party that executes a
Subordination Agreement.

 

Subordination
Agreement shall mean an agreement (in form and substance
satisfactory to CIT) among the Company (and/or other relevant Debtor), a
Subordinating Creditor and CIT, pursuant to which Subordinated Debt is
subordinated to the prior payment and satisfaction of the Company’s Obligations
to CIT and/or the security interest of a Subordinating Creditor is subordinated
to CIT’s security interest in the Collateral.

 

Subsidiary
shall mean, as to any Person, a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other

 

14

 

interest having ordinary voting power for the election
of directors or other governing body (other than securities or interest having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled, by such
Person.

 

Taxes
shall mean all federal, state, municipal and other governmental taxes, levies,
charges, claims and assessments which are or may be due by the Company with
respect to its business, operations, Collateral or otherwise.

 

Term
Lenders shall mean the lenders party to the Amended and
Restated Credit Agreement, dated as of December 1, 1999, as amended, among the
Company, such lenders, and Bank of America, N.A., as agent for such
lenders.  (The Term Lenders are commonly
referred to as the “Facility A Lenders.”)

 

Trade
Accounts Receivable shall mean that portion of the
Company’s Accounts which arises from the sale of Inventory or the rendition of
services in the ordinary course of the Company’s business.

 

Trademarks
shall mean trademarks, trademark registrations, recordings, applications,
tradenames, trade styles, service marks, prints and labels (on which any of the
foregoing may appear), licenses, reissues, renewals, and any other intellectual
property and trademark rights pertaining to any of the foregoing, together with
the goodwill associated therewith, and all cash and non-cash proceeds thereof.

 

UCC
shall mean the Uniform Commercial Code as the same may be amended and in effect
from time to time in the state of California.

 

Unrestricted
Cash shall mean, at any time of determination, the sum of
(i) the total amount of the Company’s cash on hand plus (ii) the total of the
Company’s cash in banks less the amount of outstanding checks at
such time of determination.

 

Work Fee
shall mean the amount of $150,000.00 paid by the Company to CIT pursuant to the
Commitment Letter dated May 16, 2003 agreed to by the Company and CIT.

 

Working
Day shall mean any Business Day on which dealings in
foreign currencies and exchanges between banks may be transacted.

 

1.2                               Construction.

 

With
reference to this Agreement and any other Loan Document, unless otherwise
specified herein or therein;

 

(a)                                  The
meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.

 

(b)                                  Article,
Section, Exhibit and Schedule references are to this Agreement or the Loan
Document in which such reference appears.

 

15

 

(c)                                  All
computations pursuant to this Agreement or any other Loan Document, for example
of the Borrowing Base, the Obligations and the Revolving Loan Account, shall be
determined without duplication of any kind.

 

SECTION 2.                            Conditions

 

2.1                               Conditions
to Initial Extension of Credit.

 

The
obligation of CIT to make the initial Revolving Loans or issue the initial
Letter of Credit Guaranties hereunder is subject to the satisfaction of,
extension of or waiver (in writing) of the following conditions precedent;
provided, however, that the condition set forth in clause (a) below shall
not be applicable in the case of any Revolving Loan made or Letter of Credit
Guaranty issued pursuant to the authorization of the Interim Financing Order:

 

(a)                                  Lien
Searches - CIT shall have received tax, judgment and Uniform Commercial
Code searches satisfactory to CIT for the following filing offices:  (i) the Delaware Secretary of State; (ii)
the Washington Department of Licensing; and (iii) the Oregon Secretary of
State.

 

(b)                                  Casualty
Insurance - The Company shall have delivered to CIT evidence
satisfactory to CIT that casualty insurance policies covering the Collateral
and listing CIT as additional insured or loss payee, as the case may be, and
which otherwise meet the requirements of Paragraph 7(d)(i) and are in full
force and effect.

 

(c)                                  Authorizing
Resolution - CIT shall have received a copy of appropriate resolutions
authorizing the Company’s execution, delivery and performance of (i) this
Agreement and (ii) any related agreements, in each case certified by the
Secretary or Assistant Secretary of the applicable partner of the Company (the
“Authorizing Entity”) which has adopted such resolutions as of the date
hereof, together with a certificate of the Secretary or Assistant Secretary of
the Authorizing Entity as to the incumbency and signature of the officers of
the Authorizing Entity executing such Loan Documents and any certificate or
other documents to be delivered by them pursuant hereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary.

 

(d)                                  Partnership
Organization - CIT shall have received (i) a copy of the
Certificate of Limited Partnership of the Company, certified by the Delaware
Secretary of State, (ii) a copy of the limited partnership agreement of
the Company certified by the Secretary or Assistant Secretary of the
Authorizing Entity, and (iii) a copy of the charter and organizational
documents of each of the managing general partner of the Company and the
Authorizing Entity, all as amended through the date hereof.

 

(e)                                  Officer’s
Certificate - CIT shall have received an executed Officer’s Certificate
of the Authorizing Entity, reasonably satisfactory in form and substance to
CIT, certifying that (i) the representations and warranties contained
herein are true and correct in all material respects on and as of the Closing
Date; and (ii) no Default or Event of Default exists on the Closing Date.

 

16

 

(f)                                    Absence
of Default - No Default or Event of Default shall have occurred and be
continuing on the Closing Date and no Material Adverse Effect shall have
occurred since May 31, 2003.

 

(g)                                 Legal
Restraints/Litigation - As of the Closing Date, there shall be no:
(x) litigation, investigation or proceeding (judicial or
administrative) pending or threatened against the Company or its assets,
by any agency, division or department of any county, city, state or federal
government arising out of this Agreement; (y) injunction, writ or
restraining order restraining or prohibiting the financing arrangements
contemplated under this Agreement, other than the Bankruptcy Case; or
(z) suit, action, investigation or proceeding (judicial or
administrative) pending against the Company or its assets, which, in the
reasonable judgment of CIT, if adversely determined, would reasonably be
expected to have a Material Adverse Effect.

 

(h)                                 Cash
Budget Projections - CIT shall have received, reviewed and been
satisfied with the initial thirteen-week cash budget projection prepared by the
Company.

 

(i)                                    Additional
Documents - The Company and the other Debtors shall have executed and
delivered to CIT all of the Loan Documents identified in Schedule 1 to
this Agreement.

 

(j)                                    Disbursement
Authorization - The Company shall have delivered to CIT all information
necessary for CIT to issue wire transfer instructions on behalf of the Company
for the initial and subsequent Revolving Loans including, but not limited to,
disbursement authorizations in form acceptable to CIT.

 

(k)                                Updated
Examination & Verification – CIT shall have completed, to its
satisfaction, an update to its May 16, 2003 examination and verification of the
Accounts, Inventory, financial statements and books and records of the Company,
which updated examination shall indicate that, after giving effect to all
Revolving Loans to be made, and Letters of Credit to be issued, on the Closing
Date, the sum of (i) the Company’s opening remaining Availability, as
evidenced by a Borrowing Base certificate delivered by the Company to CIT as of
the Closing Date, plus (ii) Unrestricted Cash shall equal at least
$10,000,000; provided, however, if such sum is less than
$19,750,000, CIT and the Company shall have amended this Agreement to increase
the applicable covenant levels for the minimum Free Cash Flow covenant set
forth in Paragraph 7.2(i) dollar for dollar by the amount of such deficiency,
with such deficiency allocated among the various covenant compliance periods as
CIT and the Company shall have mutually agreed, acting reasonably and in good
faith; provided, however, that if such sum is $15,000,000 or
more, such deficiency shall be allocated to those covenant compliance periods
on and after October 31, 2003.  It is
understood that such requirement contemplates that all debts and obligations
(other than payables) are current, and that all payables are being handled in
the normal course of the Company’s business and consistent with its past
practice.

 

(l)                                    Interim
Financing Order. - The Bankruptcy Court shall have entered the Interim
Financing Order.

 

17

 

Upon the execution of this Agreement and the initial
disbursement of Revolving Loans or the initial issuance of a Letter of Credit
Guaranty, all of the above conditions precedent shall have been deemed
satisfied except as otherwise set forth hereinabove and as the Company and CIT
shall otherwise agree in writing.

 

2.2                               Conditions
to Each Extension of Credit.

 

Except
to the extent expressly set forth in this Agreement, the agreement of CIT to
make any Revolving Loan or issue any Letter of Credit Guaranty requested to be
made by it to or for the account of the Company on any date (including without
limitation, the initial Revolving Loan or Letter of Credit Guaranty) is
subject to the satisfaction of the following conditions precedent:

 

(a)                                  Representations,
Warranties and Covenants - Each of the representations and warranties
made by the Company in or pursuant to this Agreement shall be true and correct
in all material respects on and as of such date as if made on and as of such
date, and the Company shall be in compliance in all material respects with all
of its covenants under this Agreement on and as of such date.

 

(b)                                  No
Default - No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the Revolving Loan or
issuance of Letter of Credit Guaranty requested to be made on such date, and no
Material Adverse Effect shall have occurred since the date on which the last
Revolving Loan was made or Letter of Credit Guaranty was issued, as applicable.

 

(c)                                  Borrowing
Base - Except as may be otherwise agreed to from time to time by CIT
and the Company in writing, after giving effect to the Revolving Loan or
issuance of Letter of Credit Guaranty requested by the Company to be made on
such date, the aggregate outstanding balance of the Revolving Loans and
outstanding Letters of Credit owing by the Company will not exceed the lesser
of (i) the Revolving Line of Credit or (ii) the Borrowing Base.

 

(d)                                  Financing
Order - The Interim Financing Order or the Final Financing Order shall
be in full force and effect.

 

Each borrowing by the Company hereunder shall
constitute a representation and warranty by the Company as of the date of such
Revolving Loan that each of the representations and warranties contained in
this Agreement are true and correct in all material respects and that each of
the covenants contained in this Agreement have been satisfied in all material
respects, except as the Company and CIT shall otherwise agree herein or in a
separate writing.

 

SECTION 3.                            Revolving
Loans

 

3.1                               CIT
agrees, subject to the terms and conditions of (i) this Agreement and
(ii) the Interim Financing Order and the Final Financing Order, one of
which shall be in effect at all times during the term of this Agreement, from
time to time (but subject to CIT’s right to make “Overadvances”), to make loans
to the Company on a revolving basis (i.e., subject to the limitations set forth
herein, the Company may borrow, repay and re-borrow such loans).

 

18

 

Requests for such loans shall be in amounts not to
exceed the lesser of (a) the Availability or (b) the then applicable
Revolving Line of Credit.  All requests
for such loans must be received by an officer of CIT no later than
(i) 2:00 p.m., New York time, on the Business Day on which any such Chase
Bank Rate Loans are required or (ii) three Business Days prior to any
requested LIBOR Loan.  Should CIT for
any reason honor requests for Overadvances, any such Overadvances shall be made
in CIT’s sole discretion and subject to any additional terms CIT deems
necessary.

 

3.2                               In
furtherance of the continuing assignment and security interest in the Company’s
Accounts and Inventory, the Company will execute and deliver to CIT in such
form and manner as CIT may require in writing in the exercise of its
commercially reasonable credit judgment, solely for CIT’s convenience in maintaining
records of Collateral, such confirmatory schedules of Accounts and Inventory as
CIT may request in the exercise of its commercially reasonable credit judgment,
including, without limitation, schedules of Accounts and Inventory, all in form
and substance satisfactory to CIT in the exercise of its commercially
reasonable credit judgment, and such other appropriate reports designating,
identifying and describing the Accounts and Inventory as CIT may request in
writing in the exercise of its commercially reasonable credit judgment
(collectively, “Collateral Reports”). 
So long as Availability plus Unrestricted Cash is $10,000,000.00 or
greater, the Company shall deliver Collateral Reports to CIT monthly.  If at any time Availability plus
Unrestricted Cash is less than $10,000,000.00, the Company shall deliver
Collateral Reports to CIT weekly, and if at any time Availability plus
Unrestricted Cash is less than $5,000,000.00, the Company shall deliver
Collateral Reports to CIT daily.  In
addition, upon CIT’s written request, the Company shall provide CIT with copies
of agreements with, or purchase orders from, the Company’s customers, and
copies of invoices to customers, proof of shipment or delivery, access to its
computers, electronic media and software programs associated therewith
(including any electronic records, contracts and signatures) and such
other documentation and information relating to Accounts and other Collateral
as CIT may require in the exercise of its commercially reasonable credit judgment.  Failure to provide CIT with any of the
foregoing shall in no way affect, diminish, modify or otherwise limit the
security interests granted herein.  The
Company hereby authorizes CIT to regard the Company’s printed name or rubber
stamp signature on assignment schedules or invoices as the equivalent of a
manual signature by one of the Company’s authorized officers or agents.

 

3.3                               The
Company hereby represents and warrants that: each Trade Account Receivable is
based on an actual and bona fide sale and delivery of Inventory or rendition of
services to customers, made by the Company in the ordinary course of its
business; each Eligible Stumpage Receivable is based on an actual and bona fide
sale and delivery of logging rights or land and trees; the Inventory being
sold, and the Trade Accounts Receivable and Eligible Stumpage Receivables
created, are the exclusive property of the Company and are not and shall not be
subject to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Trade Accounts Receivable and Eligible Stumpage
Receivables are in the name of the Company; and, to the best knowledge of the
Company, the customers of the Company have accepted the Inventory, services or
logging rights, land and trees, owe and are obligated to pay the full amounts
stated in the invoices according to their terms, without dispute, offset,
defense, or counterclaim, except for disputes and other matters arising in the
ordinary course of business

 

19

 

with respect to which the Company has complied with
the notification requirements of Paragraph 3.5.  The Company confirms to CIT that any and all Taxes or fees relating
to its business, its sales, the Accounts or Inventory relating thereto, are its
sole responsibility and that same will be paid by the Company when due, subject
to Paragraph 7.2(e).  The Company
hereby further represents and warrants that it shall not acquire any Inventory
on a consignment basis, nor co-mingle its Inventory with any of its customers
or any other person, including pursuant to any bill and hold sale or otherwise,
and to the best of its knowledge that its Inventory is marketable to its customers
in the ordinary course of business of the Company, except as it may otherwise
report in writing to CIT pursuant to Paragraph 3.5 hereof from time to
time.

 

3.4                               The
Company also warrants and represents that it is a duly and validly existing
limited partnership and is qualified in all states where the failure to so
qualify would have an adverse effect on the business of the Company or the
ability of the Company to enforce collection of Accounts due from customers
residing in that state.  The Company agrees
to maintain such books and records regarding Accounts and Inventory as CIT may
require in the exercise of its commercially reasonable business judgment and
agrees that the books and records of the Company will reflect CIT’s interest in
the Accounts and Inventory.

 

3.5                               (a) The
Company, at its expense, shall implement a lockbox arrangement as required by
CIT with respect to collections and proceeds of Collateral, all as further
described in Paragraph 7.2(t).  Any
checks, cash, credit card sales and receipts, notes or other instruments or
property received by the Company with respect to any Collateral, including
Accounts, outside of the lockbox arrangement shall be held by the Company in
trust for CIT, separate from the Company’s own property and funds, and promptly
turned over to CIT with proper assignments or endorsements by deposit to the
lockbox Depository Accounts.  In
furtherance of the foregoing, the Company shall: (i) except in the case of
sales generated by the Company’s Alliance segment, indicate on all of its
invoices that funds should be delivered to and deposited in a Depository
Account; (ii) direct all of its account debtors, except for account
debtors of the Company’s Alliance segment, to deposit any and all proceeds of
Collateral into the Depository Accounts; (iii) irrevocably authorize and
direct any banks which maintain the Company’s initial receipt of cash, checks
and other items to promptly wire transfer all available funds to a Depository
Account; and (iv) advise all such banks of CIT’s security interest in such
funds.  The Company shall provide CIT
with prior written notice of any and all deposit accounts opened or to be
opened subsequent to the Closing Date. 
Subject to Collection Days, all amounts received by CIT in payment of
Accounts will be credited to the Revolving Loan Account when CIT is advised by
its bank of its receipt of “collected funds” at CIT’s lockbox in New York, New
York on the Business Day of such advice if advised no later than 1:00 p.m.  PST
or on the next succeeding Business Day if so advised after 1:00 p.m. PST.  No checks, drafts or other instrument
received by CIT shall constitute final payment to CIT unless and until such
instruments have actually been collected.

 

3.6                               The
Company agrees to notify CIT: (a) of any matters affecting, in any
material respect, the value, enforceability or collectibility of any Account
and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections and all reclaimed or repossessed merchandise or goods, and
of any adverse effect in the value of its Inventory, in its weekly or monthly  Collateral
Reports (as applicable) provided to CIT under Paragraph 3.2, in such
detail

 

20

 

and format as CIT may require in the exercise of its
commercially reasonable credit judgment from time to time; and
(b) promptly of any such matters which are material, as a whole, to the
Accounts and/or the Inventory.  The
Company agrees to issue credit memoranda promptly (with duplicates to CIT upon
request after the occurrence of an Event of Default) upon accepting
returns or granting allowances.  Upon
the occurrence of an Event of Default (which is not waived in writing by
CIT) and on notice from CIT, the Company agrees that all returned, reclaimed
or repossessed merchandise or goods shall be set aside by the Company, marked
with CIT’s name (as secured party) and held by the Company for CIT’s
account.

 

3.7                               CIT
shall maintain a Revolving Loan Account on its books in which the Company will
be charged with all Revolving Loans made by CIT to it or for its account, and
with any other Obligations when due and payable, including any and all
reasonable and necessary costs and expenses, including reasonable attorney’s
fees which CIT incurs in connection with the exercise by or for CIT of any of
the rights or powers herein conferred upon CIT, or in the prosecution or
defense of any action or proceeding to enforce or protect any rights of CIT in
connection with this Agreement, the other Loan Documents or the Collateral
assigned hereunder, or any Obligations owing by the Company.  The Company will be credited with all
amounts received by CIT from the Company or from others for the Company’s
account, including, as above set forth, all amounts received by CIT in payment
of Accounts, and such amounts will be applied to payment of the Obligations
outstanding under the Revolving Loan Account as set forth herein.  In no event shall prior recourse to any
Accounts or other security granted to or by the Company be a prerequisite to
CIT’s right to demand payment of any Obligation outstanding under the Revolving
Loan Account.  Further, it is understood
that CIT shall have no obligation whatsoever to perform in any respect any of the
Company’s contracts or obligations relating to the Accounts.

 

3.8                               After
the end of each month, CIT shall promptly send the Company a statement showing
the accounting for the charges, Revolving Loans, Letter of Credit Guaranties
and other transactions occurring between CIT and the Company during that
month.  Absent manifest error, the
monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CIT unless CIT
receives a written statement of the exceptions within thirty (30) days
after the date of the monthly statement. 
Notwithstanding any manifest error, the monthly statements in any event
shall be deemed correct and binding upon the Company and shall constitute an
account stated between the Company and CIT unless CIT receives a written
statement of the exceptions within one hundred twenty (120) days after the date
of the monthly statement.

 

3.9                               Prior
to the occurrence and continuance of an Event of Default, CIT shall apply all
cash proceeds of the Collateral and other payments to the Obligations
outstanding under the Revolving Loan Account in the following order: first,
to any outstanding costs and expenses of CIT that are reimbursable by the
Company pursuant to Paragraph 3.7; second, only if interest is due and
payable on the date CIT receives such proceeds or other payment, to accrued and
unpaid interest; and third, to outstanding principal.  Following the occurrence and during the
continuance of an Event of Default, CIT may apply cash proceeds of the
Collateral and other payments to the Obligations outstanding under the
Revolving Loan Account in such order as CIT may elect in the exercise of its
commercially reasonable credit judgment.

 

21

 

3.10                        In the
event that any requested Revolving Loan exceeds Availability or that
(a) the sum of (i) the outstanding balance of Revolving Loans and
(ii) outstanding balance of Letters of Credit exceeds (b)(x) the
Borrowing Base or (y) the Revolving Line of Credit, any such nonconsensual
Overadvance shall be due and payable to CIT immediately upon CIT’s demand
therefor.

 

SECTION 4.                            Intentionally
Omitted

 

SECTION 5.                            Letters
of Credit

 

In
order to assist the Company in establishing or opening  Letters of Credit with an
Issuing Bank, the Company has requested CIT to join in the applications for
such Letters of Credit thereby being jointly and severally liable thereon or
guarantee payment or performance of such Letters of Credit and any drafts or
acceptances thereunder through the issuance of Letter of Credit Guaranties,
thereby lending CIT’s credit to the Company and CIT has agreed to do so.  These arrangements shall be handled by CIT
subject to the terms and conditions set forth below.

 

5.1                               Within
the Revolving Line of Credit and Availability, CIT shall assist the Company in
obtaining Letter(s) of Credit in an amount not to exceed the outstanding
amount of the Letter of Credit Sub-Line. 
CIT’s assistance for amounts in excess of the limitation set forth
herein shall at all times and in all respects be in CIT’s sole discretion.  It is understood that the term, form and
purpose of each Letter of Credit and all documentation in connection therewith,
and any amendments, modifications or extensions thereof, must be mutually
acceptable to CIT, the Issuing Bank and the Company, provided that Letters of
Credit shall not be used for the purchase of domestic Inventory or to secure
present or future debt owing to domestic Inventory suppliers. Any and all
outstanding Letters of Credit shall be reserved dollar for dollar from
Availability as an Availability Reserve.

 

5.2                               CIT
shall have the right, without notice to the Company, to charge the Company’s
Revolving Loan Account with the amount of any and all indebtedness, liability
or obligation of any kind incurred by CIT under any Letter of Credit Guaranty
at the earlier of (a) payment by CIT under such Letter of Credit Guaranty;
or (b) the occurrence of an Event of Default.  Any amount charged to Company’s Revolving Loan Account shall be
deemed a Revolving Loan hereunder and shall incur interest at the rate provided
in Paragraph 8.1 of this Agreement.

 

5.3                               The
Company unconditionally indemnifies CIT and holds CIT harmless from any and all
loss, claim or liability incurred by CIT arising from any transactions or
occurrences relating to Letters of Credit established or opened for the
Company’s account, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such loss
or claim due to any errors, omissions, negligence, misconduct or action taken
by any Issuing Bank, other than for any such loss, claim or liability arising
out of the gross negligence or willful misconduct by CIT.  This indemnity shall survive termination of
this Agreement.  The Company agrees that
any charges made by the Issuing Bank and incurred by CIT for the Company’s
account shall be conclusive on CIT and may be charged to the Company’s
Revolving Loan Account.

 

22

 

5.4                               CIT
shall not be responsible for: (a) the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; (b) any difference or variation in the
character, quality, quantity, condition, packing, value or delivery of the
goods from that expressed in the documents; (c) the validity, sufficiency
or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (d) the time, place, manner or order
in which shipment is made; (e) partial or incomplete shipment, or failure
or omission to ship any or all of the goods referred to in the Letters of
Credit or documents; (f) any deviation from instructions; (g) delay,
default, or fraud by the shipper and/or anyone else in connection with the
goods or the shipping thereof; or (h) any breach of contract between the
shipper or vendors and the Company.

 

5.5                               The
Company agrees that any action taken by CIT, if taken in good faith and so long
as the same does not constitute gross negligence or willful misconduct, under
or in connection with the Letters of Credit, the Letter of Credit Guarantees,
the drafts or acceptances, or the Collateral, shall be binding on the Company
and shall not result in any liability whatsoever of CIT to the Company.  In furtherance thereof, but subject to CIT’s
acting in good faith and so long as CIT’s actions (or failure to act) do not
constitute gross negligence or willful misconduct, CIT shall have the full
right and authority to: (a) clear and resolve any questions of
non-compliance of documents; (b) give any instructions as to acceptance or
rejection of any documents or goods; (c) execute any and all steamship or
airways guaranties (and applications therefor), indemnities or delivery orders;
(d) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and (e) agree
to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in CIT’s sole name.  The Issuing Bank shall be entitled to comply
with and honor any and all such documents or instruments executed by or
received solely from CIT, all without any notice to or any consent from the
Company.  Notwithstanding any prior
course of conduct or dealing with respect to the foregoing, including
amendments and non-compliance with documents and/or the Company’s instructions
with respect thereto, CIT may exercise its rights hereunder in its sole and
commercially reasonable business judgment. 
In addition, without CIT’s express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders; to grant any extensions
of the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances or documents; or to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; and (b) after the occurrence of an Event of Default which is
not cured within any applicable grace period, if any, or waived by CIT, not to
(i) clear and resolve any questions of non-compliance of documents, or
(ii) give any instructions as to acceptances or rejection of any documents
or goods.

 

5.6                               The
Company agrees that: (a) any necessary import, export or other licenses or
certificates for the import or handling of the Collateral will have been
promptly procured; (b) all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or the
financing thereof will have been promptly and fully complied with; and
(c) any certificates in that regard that CIT may at any time request will
be

 

23

 

promptly furnished. 
In connection herewith, the Company warrants and represents that all
shipments made under any such Letters of Credit are in accordance with the laws
and regulations of the countries in which the shipments originate and
terminate, and are not prohibited by any such laws and regulations.  The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign Taxes, duties, or levies.  Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision, where
the Collateral is or may be located, or wherein payments are to be made, or
wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Company’s risk, liability and responsibility.

 

5.7                               Upon
any payments made to the Issuing Bank under the Letter of Credit Guaranty, CIT
shall acquire by subrogation, any rights, remedies, duties or obligations
granted or undertaken by the Company to the Issuing Bank in any application for
Letters of Credit, any standing agreement relating to Letters of Credit or
otherwise, all of which shall be deemed to have been granted to CIT and apply
in all respects to CIT and shall be in addition to any rights, remedies, duties
or obligations contained herein.

 

SECTION 6.                            Collateral

 

6.1                               As
security for the prompt payment in full of all Obligations, the Company hereby
pledges and grants to CIT a continuing general lien upon, and security interest
in, all of the following personal property of the Company, whether now existing
or hereafter acquired or arising (collectively, the “Collateral”), to the
extent that such personal property (i) arises or is acquired by the
Company on or after the Petition Date, (ii) arose or was acquired by the
Company prior to the Petition Date but was subject to a security interest in
favor of the agent for the Revolving Lenders, or (iii) was not subject to
any security interest or lien in favor of any third party as of the Petition
Date:

 

(a)                                  Accounts;

 

(b)                                  Inventory;

 

(c)                                  General
Intangibles;

 

(d)                                  Documents
of Title;

 

(e)                                  Other
Collateral; and

 

(f)                                    Equipment;

 

provided, however, that in no event shall Collateral
include any of the Company’s right, title or interest in or to any Avoidance
Actions.  The Obligations also shall be
secured by all personal property of the other Debtors that is unencumbered as
of the Petition Date pursuant to the terms of the security documents between
CIT and the other Debtors identified on Schedule 1.

 

6.2                               The
security interests granted hereunder shall extend and attach to:

 

24

 

(a)                                  All
Collateral which is owned by the Company or in which the Company has any
interest, whether held by the Company or others for its account, and, in the
case of Collateral consisting of Equipment, whether the Company’s interest in
such Equipment is as owner, finance lessee or conditional vendee;

 

(b)                                  All
Collateral consisting of Equipment, irrespective of whether the same
constitutes a trade fixture, including, but without limiting the generality of
the foregoing, all dies, jigs, tools, benches, molds, tables, accretions,
component parts thereof and additions thereto, as well as all accessories,
motors, engines and auxiliary parts used in connection with, or attached to,
the Equipment; and

 

(c)                                  All
Inventory and any portion thereof which may be returned, rejected, reclaimed or
repossessed by either CIT or the Company from the Company’s customers, as well
as to all supplies, goods, incidentals, packaging materials, labels and any
other items which contribute to the finished goods or products manufactured or
processed by the Company, or to the sale, promotion or shipment thereof.

 

6.3                               The
Company agrees to safeguard, protect and hold all Inventory for CIT’s account
and make no disposition thereof except in the ordinary course of business of
the Company, as herein provided.  The
Company represents and warrants that Inventory will be sold and shipped by the
Company to its customers only in the ordinary course of the Company’s business,
and then only on open account and on terms currently being extended by the
Company to its customers, provided that, absent the prior written consent of
CIT, the Company shall not sell Inventory on a consignment basis nor retain any
lien or security interest in any sold Inventory. Upon the sale, exchange, or
other disposition of Inventory, as herein provided, the security interest in
the Inventory provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, Trade Accounts Receivable,
Eligible Stumpage Receivables, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sale, exchange or
disposition.  As to any such sale,
exchange or other disposition, CIT shall have all of the rights of an unpaid
seller, including stoppage in transit, replevin, rescission and
reclamation.  The Company hereby agrees
to immediately forward any and all cash proceeds of Collateral to the
Depository Account, and to hold any other proceeds (including any notes and
instruments), in trust for CIT pending delivery to CIT.  Irrespective of whether CIT holds a
perfected security interest in any particular item of intellectual property of
the Company, the Company hereby irrevocably grants CIT a royalty free license
to use any and all Patents, Trademarks, Copyrights, customer lists or licenses
with respect to any of the foregoing, or other General Intangibles of the
Company to sell, or otherwise dispose of or transfer, in accordance with
Paragraph 10.3 of this Agreement, and the applicable terms hereof, any of
the Inventory upon the occurrence and continuance of an Event of Default.

 

6.4                               The
Company agrees at its own cost and expense to keep the Equipment in as good and
substantial repair and condition as the same is now or is in at the time the
lien and security interest granted herein shall attach thereto, reasonable wear
and tear excepted, making any and all repairs and replacements when and where
necessary.  The Company also agrees to
safeguard, protect and hold all Equipment in accordance with the terms hereof
and subject to

 

25

 

CIT’s security interest.  Absent CIT’s prior written consent, any sale, exchange or other
disposition of any Equipment shall be made by the Company in the ordinary
course of business and as set forth hereinbelow in this Paragraph 6.4.  The Company may, in the ordinary course of
business, sell, exchange or otherwise dispose of obsolete or surplus Equipment;
provided, however, that the proceeds of any such sales or
dispositions shall be held in trust by the Company for CIT and shall be
immediately delivered to CIT by deposit to the Depository Account, except that
the Company may retain and use such proceeds to purchase forthwith replacement
Equipment which the Company determines in its reasonable judgment to have a
fair market value at least equal to the value of the Equipment so disposed of
or sold; provided, further, however, that the aforesaid
right to purchase replacement equipment shall automatically cease upon the
occurrence and during the continuance of an Event of Default.  Upon the sale, exchange, or other
disposition of the Equipment, as herein provided, the security interest
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, Accounts, documents of title, shipping
documents, chattel paper and all other cash and non-cash proceeds of such
sales, exchange or disposition.

 

6.5                               The
rights and security interests granted to CIT hereunder are to continue in full
force and effect in accordance with Section 11 hereof, notwithstanding that the
Revolving Loan Account may from time to time be temporarily in a credit
position; provided, however, that in the event the credit amount in the
Revolving Loan Account shall at any time exceed $100,000, CIT shall promptly
return such excess to the Company.

 

6.6                               Notwithstanding
CIT’s security interest in the Collateral and to the extent that the
Obligations are now or hereafter secured by any assets or property other than
the Collateral or by the guarantee, endorsement, assets or property of any
other person, CIT shall have the right in its sole discretion to determine
which rights, liens, security interests or remedies CIT shall at any time
pursue, foreclose upon, relinquish, subordinate, modify or take any other
action with respect to, without in any way modifying or affecting any of them,
or any of CIT’s rights hereunder.

 

6.7                               Any
balances to the credit of the Company and any other property or assets of the
Company in the possession or control of CIT may be held by CIT as security for
any Obligations and applied in whole or partial satisfaction of such
Obligations charged to the Revolving Loan Account when due.  The liens and security interests granted
herein, and any other lien or security interest CIT may have in any other
assets of the Company, shall secure payment and performance of all now existing
and future Obligations.  CIT may in its
discretion charge any or all of the Obligations when due to the Revolving Loan
Account.

 

6.8                               The
Company possesses all General Intangibles and rights thereto necessary to
conduct its business as conducted as of the Closing Date and the Company shall
maintain its rights in, and the value of, the foregoing in the ordinary course
of its business, including, without limitation, by making timely payment with
respect to any applicable licensed rights. 
The Company shall deliver to CIT, and/or shall cause the appropriate
party to deliver to CIT, from time to time such pledge or security agreements
with respect to General Intangibles (now or hereafter acquired) of the
Company as CIT shall require to obtain valid first liens thereon.  In furtherance of the foregoing, the Company
shall provide timely notice to CIT of any additional

 

26

 

Patents and Copyrights acquired or applied for
subsequent to the Closing Date and the Company shall execute such documentation
as CIT may reasonably require to obtain and perfect its lien thereon.

 

6.9                               Promptly
following the closing of the Alliance Sale or any other sale of assets of the
Company not in the ordinary course of business of the Company the net proceeds
of which is in excess of $100,000.00, the Company shall remit to CIT for
application to the Obligations outstanding under the Revolving Loan Account an
amount equal to the lesser of (i) the aggregate amount of the Obligations
outstanding under the Revolving Loan Account and (ii) the net book value
of that portion of such sold assets as constitute part of the Collateral.

 

SECTION 7.                            Representations,
Warranties and Covenants

 

7.1                               Representations
and Warranties.  The Company
warrants and represents that: (i) it has disclosed to CIT (A) the
location of the Company's chief executive office, (B) the Company's
Collateral locations, and (C) the Company's tradenames; (ii) except
for the Permitted Encumbrances, after filing of financing statements in all
filing offices required under the UCC and upon the entry of the Interim
Financing Order by the Bankruptcy Court, this Agreement creates a valid,
perfected and first priority security interest in the Collateral and the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral; (iii) except for the Permitted
Encumbrances, the Company is, or will be, at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of others; (iv) the Company will,
at its expense, forever warrant and, at CIT’s request, defend the same from any
and all claims and demands of any other person other than a holder of a
Permitted Encumbrance; (v) the Company will not grant, create or permit to
exist, any lien upon, or security interest in, the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; and that the Equipment does not comprise a part of the Inventory
of the Company; and (vi) the Equipment is and will only be used by the Company
in its operations and will not be held for sale or lease, or removed from its
premises, or otherwise disposed of by the Company except as otherwise permitted
in this Agreement.

 

7.2                               Covenants.

 

(a)                                  The
Company agrees to maintain books and records pertaining to the Collateral in
accordance with GAAP and in such additional detail, form and scope as CIT shall
require in the exercise of its commercially reasonable credit judgment.  The Company agrees that, prior to the occurrence
and continuance of an Event of Default, CIT or its agents may enter upon the
Company’s premises upon three (3) Business Days prior written notice at any
time during normal business hours, and following the occurrence and during the
continuance of an Event of Default, CIT or its agents may enter upon the
Company’s premises at any time and from time to time in its reasonable business
judgment during normal business hours, for the purpose of inspecting such books
and records as well as the Collateral and any and all other records pertaining thereto.  The Company agrees to afford CIT thirty
(30) days prior written notice of any change in the location of any
Collateral, other than to locations, that as of the Closing Date, are known to
CIT 

 

27

 

and at which CIT has filed financing statements and
otherwise fully perfected its liens thereon. The Company shall also advise CIT
promptly, in sufficient detail, of any material adverse change relating to the
type, quantity or quality of the Collateral or the security interests granted
to CIT therein.

 

(b)                                  The
Company agrees to execute and deliver to CIT, from time to time, solely for
CIT’s convenience in maintaining a record of the Collateral, such written
statements and schedules as CIT may require in the exercise of its commercially
reasonable credit judgment, designating, identifying or describing the
Collateral. The Company’s failure, however, to promptly give CIT such
statements or schedules shall not affect, diminish, modify or otherwise limit CIT’s
security interests in the Collateral.

 

(c)                                  The
Company agrees to comply with the requirements of all state and federal laws in
order to grant to CIT valid and perfected first-priority security interests in
the Collateral, subject only to the Permitted Encumbrances.  CIT is hereby authorized by the Company to
file (including pursuant to the applicable terms of the UCC) from time to
time any financing statements, continuations or amendments covering the Collateral.  The Company hereby consents to and ratifies
the filing of financing statements by CIT at any time after the Closing
Date.  The Company agrees to do whatever
CIT may request in writing in the exercise of its commercially reasonable
credit judgment, from time to time after the Closing Date, by way of:  (a) filing notices of liens, financing
statements, amendments, renewals and continuations thereof;
(b) cooperating with CIT’s agents and employees; (c) keeping
Collateral records; (d) transferring proceeds of Collateral to CIT’s
possession; and (e) performing such further acts as CIT may require in the
exercise of its commercially reasonable credit judgment in order to effect the
purposes of this Agreement, including but not limited to obtaining control
agreements with respect to deposit accounts and/or Investment Property.

 

(d)                                  (i)                                     The
Company agrees to maintain insurance on the Equipment and Inventory under such
policies of insurance, with such insurance companies, in such reasonable
amounts and covering such insurable risks as are at all times reasonably
satisfactory to CIT.  All policies
covering the Equipment and Inventory are, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to CIT, to be made payable to
CIT, in case of loss, under a standard non-contributory “lender” or “secured
party” clause and are to contain such other provisions as CIT may require to
fully protect CIT’s interest in the Inventory and Equipment and in any payments
to be made under such policies.  All original
policies or true copies thereof are to be delivered to CIT, premium prepaid,
with the loss payable endorsement in CIT’s favor, and shall provide for not
less than thirty (30) days prior written notice to CIT of the exercise of
any right of cancellation.  At the
Company’s request, or if the Company fails to maintain such insurance, CIT may
arrange for such insurance, but at the Company’s expense and without any
responsibility on CIT’s part for: 
(A) obtaining the insurance; (B) the solvency of the insurance
companies; (C) the adequacy of the coverage; or (D) the collection of
claims. Upon the occurrence of an Event of Default which is not waived in
writing by CIT, CIT shall, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to CIT, have the sole right, in the name of
CIT or the Company, to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be payable thereunder,
and to execute any and all endorsements, receipts, releases, assignments,
reassignments or other documents that 

 

28

 

may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.

 

(ii)                                  (A)                              In
the event of any loss or damage by fire or other casualty, insurance proceeds
relating to Inventory shall be applied first to reduce the Company’s Revolving
Loans and shall then be applied to any other Obligations, all in accordance
with Paragraph 3.9. Upon the occurrence and during the continuance of an Event
of Default, such Insurance Proceeds may be applied to reduce the Company’s
outstanding balance in the Revolving Loan Account in such order as CIT may
elect in the exercise of its commercially reasonable credit judgment;

 

(B)                                In
the event any part of the Collateral consisting of Equipment is damaged by fire
or other casualty and the Insurance Proceeds for such damage or other casualty
is less than or equal to $100,000.00, CIT shall promptly apply such Proceeds to
reduce the Company’s outstanding balance in the Revolving Loan Account. Upon
the occurrence of an Event of Default, such Insurance Proceeds may be applied
to reduce the Company’s outstanding balance in the Revolving Loan Account in
such order as CIT may elect;

 

(C)                                Absent
the occurrence and continuance of an Event of Default, and provided that (x)
the Company has sufficient business interruption insurance to replace the lost
profits of any of the Company’s facilities which suffers the relevant damages
or other casualty, and (y) the insurance Proceeds are in excess of $100,000.00,
the Company may elect (by delivering written notice to CIT) to replace, repair
or restore such Collateral consisting of Equipment to substantially the
equivalent condition prior to such fire or other casualty as set forth herein;

 

(D)                               If
the Company does not elect to use the Insurance Proceeds as set forth above,
CIT may, subject to the rights of any holders of Permitted Encumbrances holding
claims senior to CIT, apply the Insurance Proceeds to reduce the Company’s
outstanding balance in the Revolving Loan Account in accordance with Paragraph
3.9; and

 

(E)                                 If
the Company so elects to use the Insurance Proceeds for the repair, replacement
or restoration of any Collateral consisting of Equipment in accordance with the
foregoing clause (C), (x) such Insurance Proceeds will be promptly paid over to
the Company.  In connection with the
foregoing, CIT shall have the right to set up an Availability Reserve in the
amount of said Insurance Proceeds paid over to the Company, which Availability
Reserve shall be reduced dollar-for-dollar upon receipt by CIT of executed
purchase orders, delivery receipts or contracts for the replacement, repair or
restoration of such Equipment.

 

(iii)                               In
the event the Company fails to provide CIT with timely evidence, acceptable to
CIT, of its maintenance of insurance coverage required pursuant to
Paragraph 7.2(d)(i), CIT may purchase, at the Company’s expense, insurance
to protect CIT’s interest in the Collateral. 
The insurance acquired by CIT may, but need not, protect the Company’s
interest in the Collateral, and therefore such insurance may not pay claims
which the Company may have with respect to the Collateral or pay any claim
which may be made against the Company in connection with the Collateral.  In the event CIT purchases, obtains or
acquires 

 

29

 

insurance covering all or
any portion of the Collateral, the Company shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
applicable Chase Bank Rate for Revolving Loans set forth in Paragraph 8.1
hereof), fees and any other charges with respect thereto, until the effective
date of the cancellation or the expiration of such insurance.  CIT may charge all of such premiums, fees,
costs, interest and other charges to the Company’s Revolving Loan Account.  The Company hereby acknowledges that the
costs of the premiums of any insurance acquired by CIT may exceed the costs of
insurance which the Company may be able to purchase on its own.  In the event that CIT purchases such
insurance, CIT will notify the Company of said purchase within thirty
(30) days of the date of such purchase. 
If, within thirty (30) days of the date of such notice, the Company
provides CIT with proof that the Company had the insurance coverage required
pursuant to Paragraph 7.2(d)(i) (in form and substance reasonably
satisfactory to CIT) as of the date on which CIT purchased insurance and
the Company continued at all times to have such insurance, then CIT agrees to
cancel the insurance purchased by CIT and credit the Company’s Revolving Loan
Account with the amount of all costs, interest and other charges associated
with any insurance purchased by CIT, including with any amounts previously
charges to the Revolving Loan Account.

 

(e)                                  The
Company agrees to pay, when due, all Taxes, including sales taxes, assessments,
claims and other charges lawfully levied or assessed upon the Company or the
Collateral unless such Taxes are being diligently contested in good faith by
the Company by appropriate proceedings and adequate reserves are established in
accordance with GAAP.  Notwithstanding
the foregoing, if any lien shall be filed or claimed thereunder (i) for
Taxes due the United States of America, or (ii) which in CIT’s opinion
might create a valid obligation having priority over the rights granted to CIT
herein, such lien shall not be deemed to be a Permitted Encumbrance hereunder
and the Company shall immediately pay such tax and remove the lien of
record.  If the Company fails to do so
promptly, then at CIT’s election, CIT may (A) create an Availability
Reserve in such amount as it may deem appropriate in its commercially
reasonable credit judgment, or (B) upon the occurrence of an Event of Default,
imminent risk of seizure, filing of any priority lien, forfeiture, or sale of
the Collateral, pay Taxes on the Company’s behalf, and the amount thereof shall
be an Obligation secured hereby and due on demand.

 

(f)                                    The
Company:  (i) agrees to comply with
all acts, rules, regulations and orders of any legislative, administrative or
judicial body or official, the failure to comply with which would have a
material and adverse impact on the Collateral, or any material part thereof, or
on the business or operations of the Company, provided that the Company may
contest any acts, rules, regulations, orders and directions of such bodies or
officials in any reasonable manner which will not, in CIT’s commercially
reasonable credit judgment, materially and adversely affect CIT’s rights or
priority in the Collateral; (ii) agrees to comply with all environmental
statutes, acts, rules, regulations or orders as presently existing or as
adopted or amended in the future, applicable to the Collateral, the ownership
and/or use of its real property and operation of its business, the failure to
comply with which would have a material and adverse impact on the Collateral,
or any material part thereof, or on the operation of the business of the
Company; and (iii) shall not be deemed to have breached any provision of
this Paragraph 7.2(f) if (A) the failure to comply with the
requirements of this Paragraph 7.2(f) resulted from good faith error
or innocent omission, (B) the Company promptly commences and diligently
pursues a cure of such 

 

30

 

breach, and (C) such
failure is cured within (30) days following the Company’s receipt of
notice of such failure, or if such cannot in good faith be cured within thirty
(30) days, then such breach is cured within a reasonable time frame based
upon the extent and nature of the breach and the necessary remediation, and in
conformity with any applicable consent order, consensual agreement and
applicable law.

 

(g)                                 Until
termination of this Agreement and payment and satisfaction of all Obligations
due hereunder or provision thereof in accordance with Section 11 hereof, the
Company agrees that, unless CIT shall have otherwise consented in writing, the
Company will furnish to CIT: (i) within ninety (90) days after the
end of each Fiscal Year of the Company, audited Consolidated Financial
Statements, with Consolidating Financial Statements attached thereto, as at the
close of such year, audited by Pricewaterhouse Coopers LLP or such other independent
public accountants selected by the Company and satisfactory to CIT in the
exercise of its commercially reasonable credit judgment; (ii) within
thirty (30) days after the end of each month Consolidated Financial
Statements, with Consolidating Financial Statements attached thereto, as at the
end of such period, (iii) at least one week prior to the end of the
thirteen-week period covered by the most recent Cash Budget Projections
delivered by the Company to CIT, a Cash Budget Projection for the next thirteen-week
period; and (iv) from time to time, such further information regarding the
business affairs and financial condition of the Parent, the Company and any
Subsidiaries thereof as CIT may request in writing in the exercise of its
commercially reasonable credit judgment, including, without limitation
(A) the annual audit management letter issued by the Company’s independent
public accountants and (B) annual cash flow projections in form
satisfactory to CIT.  Each financial
statement which the Company is required to submit hereunder must be accompanied
by an officer’s certificate, signed by the Chief Financial Officer of the
Company, pursuant to which such officer must certify that: (x) the
financial statement(s) fairly and accurately represent(s) the
Company’s financial condition at the end of the particular accounting period,
as well as the Company’s operating results during such accounting period,
subject to year-end audit adjustments; and (y) during the particular
accounting period: (A) there has been no Default or Event of Default under
this Agreement, provided, however, that if such officer has knowledge that any
such Default or Event of Default has occurred during such period, the existence
of and a description in reasonable detail of same shall be set forth in such
officer’s certificate; (B) the Company has not received any notice of
cancellation with respect to its property insurance policies; (C) the
Company has not received any notice that could result in a material adverse
affect on the value of the Collateral taken as a whole; and (D) the
exhibits attached to such financial statement(s) constitute calculations
in reasonable detail showing compliance with all financial covenants contained
in this Agreement.

 

(h)                                 Until
termination of the Agreement and payment and satisfaction of all Obligations
hereunder or provision therefor in accordance with Section 11 hereof, the
Company agrees that, without the prior written consent of CIT, except as
otherwise herein provided, the Company will not:

 

(i)                                     Mortgage,
assign, pledge, transfer or otherwise permit any lien, charge, security
interest, encumbrance or judgment (whether as a result of a purchase money or
title retention transaction, or other security interest, or otherwise) to
exist on any of  the Company’s 

 

31

 

Collateral or any other
assets, whether now owned or hereafter acquired, except for the Permitted
Encumbrances;

 

(ii)                                  Incur
or create any Indebtedness other than the Permitted Expenses and Indebtedness;

 

(iii)                               Sell,
lease, assign, transfer or otherwise dispose (any or all of the foregoing, a
“Disposition”) of (i) Collateral, except for the Alliance Sale, which the
Company shall have the right to complete subject to the principal prepayment
requirement set forth in Paragraph 6.9 and with the resulting reductions in the
Inventory Loan Cap and the Revolving Line of Credit and except as otherwise
specifically permitted by this Agreement, or (ii) except with the approval
of the Bankruptcy Court, all or substantially all of the Company’s assets that
do not constitute Collateral;

 

(iv)                              Merge,
consolidate or otherwise alter or modify its corporate name, principal place of
business, structure, or existence, re-incorporate or re-organize, or enter into
or engage in any operation or activity materially different from that presently
being conducted by the Company, except that the Company may change its
corporate name or address; provided that: (A) the Company shall
give CIT thirty (30) days prior written notice thereof, and (B) the
Company shall execute and deliver, prior to or simultaneously with any such
action, any and all documents and agreements requested by CIT to confirm the
continuation and preservation of all security interests and liens granted to
CIT hereunder;

 

(v)                                 Assume,
guarantee, endorse, or otherwise become liable upon the obligations of any
person, firm, entity or corporation, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;

 

(vi)                              Declare
or pay any dividend or distributions of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding;

 

(vii)                           Make
any advance or loan to, or any investment in, any firm, entity, person or
corporation, or purchase or acquire all or substantially all of the stock or
assets of any entity, person or corporation; or

 

(viii)                        Pay any
management, consulting or other similar fees to any Affiliate other than as
provided for in the Cash Budget Projections.

 

In
connection with any Disposition of the Collateral or any part thereof permitted
by or in accordance with the foregoing clause (h)(iii) of this Paragraph 7.2,
including, without limitation, the Alliance Sale, CIT agrees that it shall
release its liens and security interests thereon.

 

(i)                                    Until
termination of this Agreement and payment and satisfaction in full of all
Obligations hereunder or provision thereof in accordance with Section 11,
subject to the terms of the following sentence, the Company shall achieve Free
Cash Flow, determined as of the last day 

 

32

 

of each month on a
cumulative basis from the Closing Date, of not less than the correlative
amounts indicated below for the specified months:

 

	
  Month Ending

  	
   

  	
  Minimum
  Free Cash Flow

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  July
  31, 2003

  	
   

  	
  $

  	
  (3,000,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  August
  31, 2003

  	
   

  	
  $

  	
  (4,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  September
  30, 2003

  	
   

  	
  $

  	
  (6,000,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  October
  31, 2003

  	
   

  	
  $

  	
  (7,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  November
  30, 2003

  	
   

  	
  $

  	
  (8,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  December
  31, 2003

  	
   

  	
  $

  	
  (9,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  January
  31, 2004

  	
   

  	
  $

  	
  (10,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  February
  28, 2004

  	
   

  	
  $

  	
  (11,250,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  March
  31, 2004

  	
   

  	
  $

  	
  (11,750,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  April
  30, 2004

  	
   

  	
  $

  	
  (12,250,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  May
  31, 2004

  	
   

  	
  $

  	
  (12,750,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  June
  30, 2004

  	
   

  	
  $

  	
  (13,250,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  July
  31, 2004

  	
   

  	
  $

  	
  (13,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  August
  31, 2004

  	
   

  	
  $

  	
  (13,750,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  September
  30, 2004

  	
   

  	
  $

  	
  (14,000,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  October
  31, 2004

  	
   

  	
  $

  	
  (14,250,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  November
  30, 2004

  	
   

  	
  $

  	
  (14,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  December
  31, 2004

  	
   

  	
  $

  	
  (14,750,000

  	
  )

  

 

The Company shall be required to comply with the
foregoing minimum Free Cash Flow covenant only if (i) the Company’s average
daily Availability plus Unrestricted Cash for any month is less than
$10,000,000.00 and (ii) if the Company’s average daily borrowings for
such month is greater than Zero Dollars ($0). 
If compliance with the foregoing covenant is required in accordance with
the preceding sentence, such covenant shall apply and be tested as of the last
day of the month most recently ended and shall remain applicable monthly
thereafter until the Company maintains for any month either (x) average
daily Availability plus Unrestricted Cash of 

 

33

 

at least $10,000,000.00 or (y) average daily
borrowings under the Revolving Line of Credit of Zero Dollars ($0).

 

(j)                                    The
Company agrees to advise CIT in writing of: 
(i) all expenditures (actual or anticipated) in excess of
$150,000.00 from the budgeted amount therefor in any Fiscal Year for
(A) environmental clean-up, (B) environmental compliance or
(C) environmental testing and the impact of said expenses on the Company’s
working capital; and (ii) any notices the Company receives from any local,
state or federal authority advising the Company of any environmental liability
(real or potential) stemming from the Company’s operations, its premises,
its waste disposal practices, or waste disposal sites used by the Company and
to provide CIT with copies of all such notices if so required.

 

(k)                                The
Company hereby agrees to indemnify and hold harmless CIT and its officers,
directors, employees, attorneys and agents (each an “Indemnified
Party”) from, and holds each of them harmless against, any and all losses,
liabilities, obligations, claims, actions, damages, costs and expenses
(including attorney’s fees) and any payments made by CIT pursuant to any
indemnity provided by CIT with respect to or to which any Indemnified Party
could be subject insofar as such losses, liabilities, obligations, claims,
actions, damages, costs, fees or expenses with respect to the Loan Documents,
including without limitation those which may arise from or relate to:
(i) the Depository Account, the Blocked Accounts, the lockbox and/or any
other depository account and/or the agreements executed in connection
therewith; and (ii) any and all claims or expenses asserted against CIT as
a result of any environmental pollution, hazardous material or environmental
clean-up relating to any real estate of the Company; or any claim or expense
which results from the Company’s operations (including, but not limited to, the
Company’s off-site disposal practices) and use of such real estate, which
CIT may sustain or incur (other than solely as a result of the physical actions
of CIT on the Company’s premises which are determined to constitute gross
negligence or willful misconduct by a court of competent jurisdiction), all
whether through the alleged or actual negligence of such person or otherwise,
except and to the extent that the same results solely and directly from the
gross negligence or willful misconduct of such Indemnified Party as finally
determined by a court of competent jurisdiction. The Company hereby agrees that
this indemnity shall survive termination of this Agreement, as well as payments
of Obligations which may be due hereunder. CIT may, in its commercially
reasonable credit judgement, establish such Availability Reserves with respect
thereto as it may deem advisable under the circumstances and, upon any
termination hereof, hold such reserves as cash reserves for any such contingent
liabilities.

 

(l)                                    Without
the prior written consent of CIT, the Company agrees that it will not enter
into any transaction, including, without limitation, any purchase, sale, lease,
loan or exchange of property with the Parent or any subsidiary or affiliate of
either the Company or Parent, provided that, except as otherwise set
forth in this Agreement, the Company may enter into sale and service
transactions in the ordinary course of its business and pursuant to the
reasonable requirements of the Company, and upon standard terms and conditions
and fair and reasonable terms, no less favorable to the Company than the
Company could obtain in a comparable arms length transaction with an unrelated
third party.

 

34

 

(m)                              Unless
otherwise permitted or prohibited by the Bankruptcy Code, the Company will pay
and discharge, as the same shall become due and payable, (i) all its
obligations, liabilities, including all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons which, in
any such case, if unpaid, might by law give rise to a lien upon any of its
properties or assets and (ii) all lawful taxes, assessments and charges or
levies made upon the Company, upon its income or profits or upon its properties
or assets by any governmental authority, except where any of the items in
clause (i) or (ii) above may be diligently contested in good
faith by appropriate proceedings and where the Company shall have set aside on
its books, if required under GAAP, appropriate reserves for the accrual of any
such items.

 

(n)                                 Except
to the extent the payment or discharge thereof otherwise is prohibited under,
of if nonpayment is otherwise permitted by, the Bankruptcy Code, the Company
shall pay and discharge or cause to be paid and discharged promptly all
Post-Petition Charges payable by it, including (i) Post-Petition Charges
imposed upon it, its income and profits or any of its other assets and all
Post-Petition Charges with respect to tax, social security and unemployment
withholding with respect to its employees, and (ii) lawful claims incurred
after the Petition Date for labor, materials, supplies and services or
otherwise, before any thereof shall become past due.  The Company may in good faith contest the validity or amount of
any such Post-Petition Charges or claims, provided that (A) at the time of
commencement of any such contest, no Event of Default shall have occurred and
be continuing, (B) adequate reserves with respect to such contest shall be
maintained on the books of the Company in accordance with GAAP; (C) such
contest is maintained and prosecuted continuously and with diligence and operates
to suspend collection or enforcement of such Post-Petition Charges or claims or
any lien in respect thereof; (D) no lien shall be imposed to secure
payment of such Post-Petition Charges or claims, other than Permitted
Encumbrances; (E) the Company shall promptly pay or discharge such
contested Post-Petition Charges or claims and all additional charges, interest,
penalties and expenses, if any, and shall deliver to CIT evidence satisfactory
to CIT of such compliance, payment or discharge, if such contest is terminated
or discontinued adversely to the Company or the conditions set forth herein are
no longer satisfied; and (F) CIT shall not have advised the Company in
writing that CIT, in the exercise of its commercially reasonable credit
judgment, believes that nonpayment or non-discharge thereof could reasonably be
expected to have or result in a material adverse effect on the Collateral or
the financial condition of the Company.

 

(o)                                  The
Company shall not apply to the Bankruptcy Court for authority to (i) take
any action that is prohibited by the terms of this Agreement or any other Loan
Document or that has not been approved by CIT, (ii) refrain from taking
any action that is required to be taken by the terms of this Agreement or any
other Loan Document or (iii) permit any Indebtedness or Claim to be pari
passu with or senior to any of the Obligations.

 

(p)                                  The
Company shall not consent to any amendment, supplement, extension or other
modification of any of the terms or provisions contained in, or applicable to,
the Interim Financing Order, any other order entered by the Bankruptcy Court on
or about the Petition Date, or the Final Financing Order, respectively, without
CIT’s prior written consent.

 

35

 

(q)                                  Without
obtaining the prior written consent of CIT, which consent shall not be
unreasonably withheld or delayed, (i) the Company shall not reject any
material unexpired lease or executory contract, and (ii) the Company shall
not apply to the Bankruptcy Court to assume any material executory contract or
unexpired lease, unless, in the case of any unexpired lease, the order (which
shall be in a form acceptable to CIT in its sole discretion) authorizing
such assumption specifically provides that, notwithstanding such assumption,
the Company may later assign the relevant lease under Bankruptcy Code
Section 365(f) without, among other things, obtaining the consent of
the relevant lessor (but after complying with the other requirements of
Bankruptcy Code Section 365).

 

(r)                                  The
Company shall furnish to CIT concurrently (i) with the filing thereof,
copies of all pleadings, motions, applications, financial information and other
papers and documents of any kind filed by or on behalf of the Company in the
Bankruptcy Case; (ii) with the furnishing thereof, copies of all written
statements, reports, information and other papers and documents of any kind
furnished by or on behalf of the Company to any official or unofficial
committee in the Bankruptcy Case, and (iii) with the furnishing thereof,
copies of all written statements, reports, information and other papers and
documents of any kind furnished to any other creditor of the Company pursuant
to the terms of any indenture, loan or credit or similar agreement.

 

(s)                                  The
Company shall use the proceeds of the Revolving Loans solely: (i) to make
any payments required under this Agreement or any of the other Loan Documents,
whether for principal, interest, fees or expenses; or (ii): to pay expenses in
the respective amounts set forth in the Cash Budget Projections, including,
without limitation, Permitted Expenses and Indebtedness of the Company and the
other Debtors to the extent included therein and including the Company’s
working capital requirements and other general corporate purposes; provided,
however, that the Company shall have the right to exceed the amounts set
forth in the Cash Budget Projections by the variances permitted by the Interim
Financing Order and the Final Financing Order and to carry over and spend
unspent amounts previously authorized as permitted by the Interim Financing
Order and the Final Financing Order; and provided  further, that
no amounts shall be paid or used for, and Permitted Expenses and Indebtedness
shall not mean or include, fees and disbursements incurred by professionals,
including, without limitation, any professional retained by the Company, to the
extent incurred to contest in any proceeding or any other action (i) the
validity, binding effect or enforceability of this Agreement or the amount of
the Revolving Loans or other Obligations of the Company hereunder, or
(ii) any other rights or interests of CIT under the Loan Documents.  Nothing herein shall in any way prejudice or
prevent CIT from objecting, for any reason, to any requests or applications made
by the Company for compensation or reimbursement of expenses pursuant to
Section 330 or 331 of the Bankruptcy Code for which the Company may seek
to use proceeds of the Revolving Loans as a Permitted Expense and Indebtedness.

 

(t)                                    Within
fifteen (15) days after the Closing Date, the Company shall establish a
system of lockbox and bank accounts with respect to the collection of Accounts
and the deposit of proceeds of Collateral as shall be acceptable to CIT in all
respects.  Such accounts shall be
subject to tri-party agreements (between the Company, CIT and the depository
bank), which shall be in form and substance satisfactory to CIT in its
commercially reasonable business judgment.

 

36

 

(u)                                 Within
thirty (30) days after the Closing Date, the Company shall cause the
lessor of each leased facility occupied by the Company, the operator of each
warehouse at which any Inventory is stored, and each processor in possession of
any Inventory to execute a satisfactory landlord waiver, or warehouse or
processor bailment agreement, as applicable, in favor of CIT.  Notwithstanding anything contained herein or
elsewhere to the contrary, the Company’s failure to comply with this Paragraph shall
not constitute an Event of Default but shall entitle CIT to establish the
reserves described above in the definition of “Availability Reserve”.

 

(v)                                   Within
thirty (30) days after the Closing Date, the Company shall cause the depository
bank at which the Company maintains its primary operating deposit account to
enter into a satisfactory deposit account control agreement with CIT.

 

SECTION 8.                            Interest,
Fees and Expenses

 

8.1                               (a)                                  Interest
shall be payable monthly as of the end of each month.  Chase Bank Rate Loans shall bear interest at a rate per annum
equal to the Chase Bank Rate plus one-half percent (0.50%) per annum on
the average of the net balances owing by the Company to CIT in the Revolving
Loan Account at the close of each day during such month.  In the event of any change in the Chase Bank
Rate, the rate hereunder for Chase Bank Rate Loans shall change, as of the date
of such change, so as to remain one-half percent (0.50%) above the Chase
Bank Rate.  The rate hereunder for Chase
Bank Rate Loans shall be calculated based on a 360-day year.  CIT shall be entitled to charge all accrued
interest (calculated at the rate provided for herein) when due to the Revolving
Loan Account.

 

(b)                                  Intentionally
Omitted.

 

(c)                                  Upon
and after the occurrence of an Event of Default and the giving of any required
notice by CIT in accordance with the provisions of Section 10,
Paragraph 10.2 hereof, all Obligations charged to the Revolving Loan
Account shall bear interest at the Default Rate of Interest.

 

8.2                               Intentionally
Omitted.

 

8.3                               In
consideration of the Letter of Credit Guaranty of CIT, the Company shall pay
CIT the Letter of Credit Guaranty Fee which shall be an amount equal to three
percent (3.0%) per annum, payable monthly, on the face amount of each
standby Letter of Credit less the amount of any and all amounts previously
drawn under such standby Letter of Credit.

 

8.4                               Any
and all charges, fees, commissions, costs and expenses charged to CIT for the
Company’s account by any Issuing Bank in connection with, or arising out of,
Letters of Credit or out of transactions relating thereto will be charged to
the Revolving Loan Account in full when charged to, or paid by CIT, or as may
be due upon any termination of this Agreement hereof, and when made by any such
Issuing Bank shall be conclusive on CIT.

 

8.5                               The
Company shall reimburse or pay CIT, as the case may be, for all Out-of-Pocket
Expenses.

 

37

 

8.6                               Upon
the last Business Day of each fiscal quarter, commencing on  June 30, 2003, the Company
shall pay to CIT the Revolving Line of Credit Fee, and upon the last Business
Day of each month, commencing on June 30, 2003, the Company shall pay to CIT
interest on the Collection Days. 
Interest on the Collection Days will be computed at the rate, and in the
manner, set forth in Paragraph 8.1 of this Agreement.

 

8.7                               To
induce CIT to enter into this Agreement and to extend to the Company the
Revolving Loan and Letters of Credit Guaranties, the Company shall pay to CIT a
one-time Loan Facility Fee in the amount of $400,000.00. Such Loan Facility Fee
shall be payable in one or more installments on or before the Closing Date, and
the Company shall be entitled to a credit against the balance of the Loan
Facility Fee an amount equal to the unused portion of the Work Fee.  In connection with the foregoing, CIT hereby
expressly agrees and acknowledges that as of the date hereof, the Company has
already paid to CIT, and CIT has received, a portion of the Loan Facility Fee
equal to $200,000.00.

 

8.8                               The
Company shall pay to CIT an Administrative Management Fee which shall be earned
by CIT, and due and payable by the Company if, as and when earned by CIT, as
follows:

 

(a)                                  $25,000
shall be earned by CIT on the Closing Date, and such $25,000 shall be due and
payable by the Company on the Closing Date;

 

(b)                                  an
additional $25,000 shall be earned by CIT on that date which is six months
after the Closing Date (if this Agreement shall not have then terminated, or
been terminated), and such $25,000 if so earned by CIT shall be due and payable
on such date; provided, however, that such additional $25,000 shall not be
earned by CIT, or be due and payable by the Company, if on or prior to such
date which is six months after the Closing Date, Company shall have forwarded
to CIT a notice of termination of this Agreement as contemplated by Section 11;
and

 

(c)                                  $25,000
shall be earned by CIT on that date which is the first anniversary of the
Closing Date (if this Agreement shall not have then terminated or been
terminated), and such $25,000 if so earned by CIT shall be due and payable by
the Company on such first anniversary of the Closing Date; provided, however,
that such additional $25,000 shall not be earned by CIT, or be due and payable
by the Company, if on or prior to such first anniversary date, the Company
shall have forwarded to CIT a notice of termination of this Agreement as
contemplated by Section 11.

 

8.9                               Subject
to the second and third sentences of this Paragraph 8.9, the Company shall pay
CIT’s standard charges and fees for CIT’s personnel used by CIT, and the
actual, out-of-pocket costs and expenses incurred by CIT if it elects to employ
the services of third parties, for reviewing the books and records of the
Company and for verifying, appraising, testing, protecting, safeguarding,
preserving or disposing (any or all of the foregoing, an “Audit”) of all or any
part of the Collateral (collectively, the “Audit Fees and Expenses”) (which
fees shall be in addition to the Administrative Management Fee and any
Out-of-Pocket Expenses).  Except during
the occurrence and continuance of an Event of Default, (i) the Audit Fees and
Expenses incurred during any calendar quarter which the Company shall be
obligated to pay or reimburse 

 

38

 

CIT shall not exceed $10,000 and (ii) the Company
shall not be obligated to pay or reimburse CIT for Audit Fees and Expenses more
than once each calendar quarter.  CIT
further agrees that so long as no Event of Default shall have then occurred and
be continuing, it shall not conduct any Audits at any time after the Company
shall have forwarded to CIT a notice of termination of this Agreement as
contemplated by Section 11.

 

8.10                        The
Company hereby authorizes CIT to charge the Revolving Loan Account with the
amount of all payments due hereunder as such payments become due.  The Company confirms that any charges which
CIT may so make to the Revolving Loan Account as herein provided will be made
as an accommodation to the Company and solely at CIT’s discretion.

 

8.11                        In the
event that CIT or any participant hereunder (or any financial institution which
may from time to time become a participant or lender hereunder) shall have
determined in the exercise of its commercially reasonable credit judgment that,
subsequent to the Closing Date, any change in applicable law, rule, regulation
or guideline regarding capital adequacy, or any change in the interpretation or
administration thereof, or compliance by CIT or such participant with any new
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency
(any of the foregoing, a “Change in Law”), has or would have the effect of
reducing the rate of return on CIT’s or such participant’s capital as a
consequence of its obligations hereunder to a level below that which CIT or
such participant could have achieved but for such adoption, change or
compliance (taking into consideration CIT or such participant’s policies with
respect to capital adequacy) by an amount reasonably deemed by CIT or such
participant to be material, then, from time to time, the Company shall pay no
later than ten (10) days following written demand to CIT or such
participant such additional amount or amounts as will compensate CIT’s or such
participant’s for such reduction.  In
determining such amount or amounts, CIT or such participant may use any
reasonable averaging or attribution methods. 
A certificate of CIT or such participant setting forth such amount or
amounts as shall be necessary to compensate CIT or such participant with
respect to this Section 8 and the calculation thereof (which shall be in
reasonable detail) when delivered to the Company shall be conclusive on the
Company absent manifest error. 
Notwithstanding anything in this Paragraph to the contrary, in the
event CIT or such participant (a) requests compensation under this
Paragraph 8.11, it shall make such request within thirty (30) days after the
date of such Change of Law and (b) has exercised its rights pursuant to this
paragraph, and subsequent thereto determines that the additional amounts paid
by the Company in whole or in part exceed the amount which CIT or such
participant actually required to be made whole, the excess, if any, shall be
returned to the Company by CIT or such participant.

 

8.12                        In the
event that subsequent to the Closing Date, any Change of Law shall:

 

(a)                                  subject
CIT or such participant to any tax of any kind whatsoever with respect to this
Agreement or change the basis of taxation of payments to CIT or such
participant of principal, fees, interest or any other amount payable hereunder
or under any other documents (except for changes in the rate of tax on the
overall net income of CIT or such participant by the federal government or the jurisdiction
in which it maintains its principal office);

 

39

 

(b)                                  impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
Revolving Loans, or other credit extended by CIT or such participant by reason
of or in respect to this Agreement and the Loan Documents, including (without
limitation) pursuant to Regulation D of the Board of Governors of the Federal
Reserve System; or

 

(c)                                  impose
on CIT or such participant any other condition with respect to this Agreement
or any other document, and the result of any of the foregoing is to increase
the cost to CIT or such participant of making, renewing or maintaining its
Revolving Loans hereunder by an amount that CIT or such participant deems to be
material in the exercise of its reasonable business judgement or to reduce the
amount of any payment (whether of principal, interest or otherwise) in
respect of any of the Revolving Loans by an amount that CIT or such participant
deems to be material in the exercise of its reasonable business judgement,
then, in any case the Company shall pay CIT or such participant, within ten
(10) days following its written demand, such additional cost or such
reduction, as the case may be.  CIT or
such participant shall certify the amount of such additional cost or reduced
amount to the Company and the calculation thereof (which shall be in reasonable
detail) and such certification shall be conclusive upon the Company absent
manifest error.  Notwithstanding
anything in this Paragraph to the contrary, in the event CIT or such
participant (a) requests compensation under this Paragraph 8.12, it shall make
such request within thirty (30) days after the date of such Change of Law and
(b) has exercised its rights pursuant to this paragraph, and subsequent thereto
determine that the additional amounts paid by the Company in whole or in part
exceed the amount which CIT or such participant actually required pursuant
hereto, the excess, if any, shall be returned to the Company by CIT or such
participant.

 

8.13                        The
Company may request LIBOR Loans on the following terms and conditions:

 

(a)                                  The
Company may elect, subsequent to the Closing Date and from time to time
thereafter  (i) to request any
Revolving Loan to be a LIBOR Loan as of the date of such Revolving Loan or
(ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may elect from
time to time to convert LIBOR Loans to Chase Bank Rate Loans by giving CIT at
least three (3) Business Days’ prior irrevocable notice of such election,
provided that any such conversion of LIBOR Loans to Chase Bank Rate Loans shall
only be made, subject to the second following sentence, on the last day of an
Interest Period with respect thereto. 
Should the Company elect to convert Chase Bank Rate Loans to LIBOR
Loans, it shall give CIT at least four Business Days’ prior irrevocable notice
of such election.  If the last day of an
Interest Period with respect to a Revolving Loan that is to be converted is not
a Business Day or Working Day, then such conversion shall be made on the next
succeeding Business Day or Working Day, as the case may be, and during the
period from such last day of an Interest Period to such succeeding Business
Day, as the case may be, such Revolving Loan shall bear interest as if it were
an Chase Bank Rate Loan.  All or any
part of outstanding Chase Bank Rate Loans then outstanding may be converted to
LIBOR Loans as provided herein, provided that partial conversions shall be in
multiples in an aggregate principal amount of $500,000 or more.

 

(b)                                  Any
LIBOR Loans may be continued as such upon the expiration of an Interest Period,
provided the Company so notifies  CIT,
at least three (3) Business Days’ prior to the 

 

40

 

expiration of said Interest Period, and provided
further that no LIBOR Loan may be continued as such upon the occurrence of any
Default or Event of Default under this Agreement, but shall be automatically
converted to a Chase Bank Rate Loan on the last day of the Interest Period
during which occurred such Default or Event of Default.  Absent such notification, LIBOR Rate Loans
shall convert to Chase Bank Rate Loans on the last day of the applicable
Interest Period.  Each notice of
election, conversion or continuation furnished by the Company pursuant hereto
shall specify whether such election, conversion or continuation is for a one,
two, or three month period. 
Notwithstanding anything to the contrary contained herein, CIT (or any
participant, if applicable) shall not be required to purchase United
States Dollar deposits in the London interbank market or from any other
applicable LIBOR Rate market or source or otherwise “match fund” to fund LIBOR
Rate Loans, but any and all provisions hereof relating to LIBOR Rate Loans
shall be deemed to apply as if CIT (and any participant, if
applicable) had purchased such deposits to fund any LIBOR Rate Loans.

 

(c)                                  The
Company may request a LIBOR Loan, convert any Chase Bank Rate Loan or continue
any LIBOR Loan provided there is then no Default or Event of Default in effect.

 

8.14                        (a)                                  The
LIBOR Loans shall bear interest for each Interest Period with respect thereto
on the unpaid principal amount thereof at a rate per annum equal to the LIBOR
determined for each Interest Period in accordance with the terms hereof plus
three percent (3%):

 

(b)                                  If all or a portion
of the outstanding principal amount of the Obligations charged to the Revolving
Loan Account shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a
LIBOR Loan, shall be converted to a Chase Bank Rate Loan at the end of the last
Interest Period therefor.

 

(c)                                  The Company may not
have more than four (4) LIBOR Loans outstanding at any given time.

 

8.15                        (a) 
Interest in respect of the LIBOR Loans shall be calculated on the basis of a
360 day year and shall be payable as of the end of each month.

 

(b)                                 CIT
shall, at the request of the Company, deliver to the Company a statement
showing the quotations given by JPMorgan Chase Bank and the computations used
in determining any interest rate pursuant to Paragraph 8.14 of
Section 8 hereof.

 

8.16                        As
further set forth in Paragraph 8.12 above, in the event that CIT (or any
financial institution which may become a participant hereunder) shall have
determined in the exercise of its reasonable business judgment (which
determination shall be conclusive and binding upon the Company) that by reason
of circumstances affecting the interbank LIBOR market, adequate and reasonable
means do not exist for ascertaining LIBOR applicable for any Interest Period
with respect to; (a) a proposed loan that the Company has requested be
made as a LIBOR Loan; (b) a LIBOR Loan that will result from the requested
conversion of a Chase Bank Rate Loan into a LIBOR Loan; or (c) the
continuation of LIBOR Loans beyond the expiration of the then current Interest
Period with respect thereto, CIT shall forthwith give written notice of such
determination to the Company at least one Business Day prior to, as the case
may be, the 

 

41

 

requested borrowing date for such LIBOR Loan, the
conversion date of such Chase Bank Rate Loan or the last day of such Interest
Period.  If such notice is given
(i) any requested LIBOR Loan shall be made as a Chase Bank Rate Loan,
(ii) any Chase Bank Rate Loan that was to have been converted to a LIBOR
Loan shall be continued as a Chase Bank Rate Loan, and (iii) any
outstanding LIBOR Loan shall be converted, on the last day of then current
Interest Period with respect thereto, to a Chase Bank Rate Loan.  Until such notice has been withdrawn by CIT,
no further LIBOR Loan shall be made nor shall the Company have the right to
convert a Chase Bank Rate Loan to a LIBOR Loan.

 

8.17                        If any
payment on a LIBOR Loan becomes due and payable on a day other than a Business
Day or Working Day, the maturity thereof shall be extended to the next
succeeding Business Day or Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Business Day or Working Day.

 

8.18                        Notwithstanding
any other provisions herein, if any law, regulation, treaty or directive or any
change therein or in the interpretation or application thereof, shall make it
unlawful for CIT to make or maintain LIBOR Loans as contemplated herein, the
then outstanding LIBOR Loans, if any, shall be converted automatically to Chase
Bank Rate Loans as of the end of such month, or within such earlier period as
required by law.  The Company hereby
agrees promptly to pay CIT, upon demand, any additional amounts necessary to
compensate CIT for any actual costs incurred by CIT in making any conversion in
accordance with this Section 8 including, but not limited to, any interest
or fees payable by CIT to lenders of funds obtained by CIT in order to make or
maintain LIBOR Loans hereunder.

 

8.19                        The
Company agrees to indemnify and to hold CIT (including any
participant) harmless from any loss or expense which  CIT or such participant may sustain or incur
as a consequence of:  (a) Default
by the Company in payment of the principal amount of or interest on any LIBOR
Loans, as and when the same shall be due and payable in accordance with the
terms of this Agreement, including, but not limited to, any such loss or
expense arising from interest or fees payable by  CIT or such participant to lenders of funds obtained by either of
them in order to maintain the LIBOR Loans hereunder; (b) default by the
Company in making a borrowing or conversion after the Company has given a
notice in accordance with Paragraph 8.13 hereof; (c) any prepayment
of LIBOR Loans on a day which is not the last day of the Interest Period
applicable thereto, including, without limitation, prepayments arising as a
result of the application of the proceeds of Collateral to the Revolving Loans;
and (d) default by the Company in making any prepayment after the Company
had given notice to CIT thereof.  The
determination by CIT of the amount of any such loss or expense, when set forth
in a written notice to the Company, containing CIT’s calculations thereof in
reasonable detail, shall be conclusive on the Company in the absence of
manifest error.  Calculation of all
amounts payable under this Paragraph with regard to LIBOR Loans shall be
made as though CIT had actually funded the LIBOR Loans through the purchase of
deposits in the relevant market and currency, as the case may be, bearing
interest at the rate applicable to such LIBOR Loans in an amount equal to the
amount of the LIBOR Loans and having a maturity comparable to the relevant
interest period; provided, however, that CIT may fund each of the LIBOR Loans
in any manner CIT sees fit and the foregoing assumption shall be used only for
calculation of amounts payable

 

42

 

under this paragraph. 
In addition, notwithstanding anything to the contrary contained herein,
CIT shall apply all proceeds of Collateral and all other amounts received by it
from or on behalf of the Company (i) initially to the Chase Bank Rate
Loans and (ii) subsequently to LIBOR Loans; provided, however,
(x) upon the occurrence of an Event of Default or (y) in the event
the aggregate amount of outstanding LIBOR Rate Loans exceeds Availability or
the applicable maximum levels set forth therefor, CIT may apply all such
amounts received by it to the payment of Obligations under the Revolving Loan
Account in such manner and in such order as CIT may elect in its reasonable
business judgment.  In the event that
any such amounts are applied to Revolving Loans which are LIBOR Loans, such
application shall be treated as a prepayment of such Revolving Loans and CIT
shall be entitled to indemnification hereunder.  This covenant shall survive termination of this Agreement and
payment of the outstanding Obligations.

 

8.20                        Notwithstanding
anything to the contrary in this Agreement, in the event that, by reason of any
Regulatory Change (for purposes hereof “Regulatory Change” shall mean, with
respect to CIT, any change after the date of this Agreement in United States
federal, state or foreign law or regulations (including, without limitation, Regulation
D) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks including CIT of or under any
United States federal, state or foreign law or regulations (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), CIT either (a) incurs any material additional costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of such bank which includes deposits by reference
to which the interest rate on LIBOR Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets of CIT which
includes LIBOR Loans, or (b) becomes subject to any material restrictions
on the amount of such a category of liabilities or assets which it may hold,
then, if CIT so elects by notice to the Company the obligation of CIT to make
or continue, or to convert Chase Bank Rate Loans into LIBOR Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect.

 

8.21                        For
the purposes of this Agreement and Section 8 thereof, any reference to CIT
shall include any financial institution which may become a participant or
co-lender subsequent to the Closing Date.

 

8.22                        CIT
shall endeavor to provide reasonable notice to the Company of any and all
changes in the Chase Bank Rate, provided that any failure by CIT so to provide
any such notice to the Company shall not affect CIT’s right to implement a
change in the Chase Bank Rate in accordance with the terms of this Agreement.

 

8.23                        For
the avoidance of doubt, the Company shall have the right at any time and from
time to time to prepay the principal amount of the Revolving Loans without
premium or penalty of any kind except for the payment of LIBOR breakage costs.

 

SECTION 9.                            Powers

 

The
Company hereby constitutes CIT, or any person or agent CIT may designate, as
its attorney-in-fact, at the Company’s cost and expense, to exercise all of the
following powers, 

 

43

 

which being coupled with an interest, shall be
irrevocable until all Obligations to CIT have been paid in full or provided for
in accordance with Section 11:

 

(a)                                  To
receive, take, endorse, sign, assign and deliver, all in the name of CIT or the
Company, any and all checks, notes, drafts, and other documents or instruments
relating to the Collateral;

 

(b)                                  To
receive, open and dispose of all mail addressed to the Company and to notify
postal authorities to change the address for delivery thereof to such address
as CIT may designate;

 

(c)                                  To
request from customers indebted on Accounts at any time, in the name of CIT
information concerning the amounts owing on the Accounts;

 

(d)                                  To
request from customers indebted on Accounts at any time, in the name of the
Company, in the name of certified public accountant designated by CIT or in the
name of CIT’s designee, information concerning the amounts owing on the
Accounts;

 

(e)                                  To
transmit to customers indebted on Accounts notice of CIT’s interest therein and
to notify customers indebted on Accounts to make payment directly to CIT for
the Company’s account; and

 

(f)                                    To
take or bring, in the name of CIT or the Company, all steps, actions, suits or
proceedings deemed by CIT necessary or desirable to enforce or effect
collection of the Accounts, and for such purpose, the Company hereby grants to
CIT a royalty-free license to use its customer list.

 

Notwithstanding
anything hereinabove contained to the contrary, the powers set forth in (b),
(c), (e) and (f) above may be exercised only after the occurrence and
during the continuance of an Event of Default.

 

SECTION 10.                     Events
of Default and Remedies

 

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

 

(a)                                  breach
by the Company in any material respect of the provisions of either the Interim
Financing Order or the Final Financing Order, which breach continues for a
period of ten (10) days after the Company’s receipt of notice thereof from CIT;

 

(b)                                  cessation
of the operations of the Company;

 

(c)                                  breach
by the Company in any material respect of any warranty, representation or
covenant contained herein (other than those referred to in
sub-Paragraph (d) below) or in any other written agreement
between the Company or CIT, which continues for a period of ten (10) days after
the Company’s receipt of notice thereof from CIT;

 

44

 

(d)                                  breach
by the Company in any material respect of any warranty, representation or
covenant of Paragraphs 3.3 and 3.5 hereof; Paragraphs 6.3 and 6.4 (other than
the first sentence of Paragraph 6.4) hereof; and Paragraphs 7.2(d),
7.2(e), 7.2(f) and 7.2(h) through (t) and 7.2 (v) hereof;

 

(e)                                  failure
of the Company to pay any of the Obligations outstanding under the Revolving
Loan Account within five (5) Business Days after the due date thereof;

 

(f)                                    the
Company shall (i) engage in any “prohibited transaction” as defined in
ERISA, (ii) have any “accumulated funding deficiency” as defined in ERISA,
(iii) have any “reportable event” as defined in ERISA, (iv) terminate
any “plan”, as defined in ERISA or (v) be engaged in any proceeding in
which the Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any “plan”, as defined in ERISA, and
with respect to this sub-Paragraph (h) such event or condition
(x) remains uncured for a period of thirty (30) days from date of
occurrence and (y) would reasonably be expected, in the commercially reasonable
credit judgment of CIT, subject the Company to any material tax, penalty or
other liability material to the business, operations or financial condition of
the Company;

 

(g)                                 the
occurrence of any default or event of default (after giving effect to any
applicable grace or cure periods) under any instrument or agreement
evidencing  any Indebtedness of the
Company entered into subsequent to the Petition Date and having a principal
amount in excess of $250,000;

 

(h)                                 any
judgment or judgments aggregating in excess of $250,000 or any injunction or
attachment is obtained or enforced against the Company and which remains
unstayed for more than ten (10) Business Days, unless such judgment is
stayed pursuant to Section 362 of the Bankruptcy Code; or

 

(i)                                    (A) the
Bankruptcy Court shall enter an order appointing a trustee under
Section 1104(a) of the Bankruptcy Code in the Bankruptcy Case; or
(B) the Interim Financing Order shall cease to be in full force and effect
and the Final Financing Order shall not have been entered prior to such
cessation; or (C) the Final Financing Order shall not have been entered by
the Bankruptcy Court within sixty (60) days after the commencement of the
Bankruptcy Case; or (D) at any time after the date of entry thereof, the
Final Financing Order shall cease to be in full force and effect; or
(E) the Interim Financing Order or the Final Financing Order, as the case
may be, shall be amended, supplemented, stayed, reversed, vacated or otherwise
modified (or the Company shall apply for authority to do so) without CIT’s
prior written consent, which consent CIT agrees not to unreasonably withhold or
delay; or (F) the Bankruptcy Court shall enter an order appointing a
responsible officer or an examiner with powers beyond those set forth in Section 1106(a)(3) and
(4) of the Bankruptcy Code or under Section 1106(b) of the
Bankruptcy Code, in the Bankruptcy Case; or (G) there shall arise any
Allowed Claim having priority senior to or that is pari passu with the Claims
of CIT under the Loan Documents or any other Claim having priority over any and
all administrative expenses of the kind specified in
Section 503(b) or 507(b) of the Bankruptcy Code (other than
Permitted Expenses and Indebtedness), or there shall arise any lien on any asset
of the Company, in each case except as 

 

45

 

expressly permitted under the terms of the Loan
Documents; (H) an order of a court of competent jurisdiction shall be
entered reversing, staying, vacating or rescinded the Interim Financing Order
or Final Financing Order, as the case may be; or (I) the Bankruptcy Court
shall enter an order converting the Bankruptcy Case to a case under
Chapter 7 of the Bankruptcy Code or dismissing the Bankruptcy Case; or (J) the
entry of an order granting relief from the automatic stay to allow any third
party to proceed against assets of the Company that are necessary for the
continued operation of the Company; or (K) the failure of the Company to
comply with the Cash Budget Projections, subject to (i) the variances and (ii)
authority to carry over and spend unspent amounts previously authorized as
permitted by the Interim Financing Order and the Final Financing Order; or
(L) the filing of any plan or reorganization by the Company that does not
provide for the payment or provision in full of the Obligations;

 

10.2                        Upon
the occurrence of a Default and/or an Event of Default, at the option of CIT,
the obligation of CIT to make Revolving Loans and provide Letter of Credit
Guaranties shall cease unless such Default is cured or waived in writing by
CIT, and at the option of CIT upon the occurrence of an Event of Default: (a) all
Obligations outstanding under the Revolving Loan Account shall become
immediately due and payable; (b) CIT may charge the Company the
Default Rate of Interest on all Obligations then outstanding under the
Revolving Loan Account in lieu of the interest provided for in Section 8
of this Agreement, and (c) CIT may immediately terminate this
Agreement upon notice to the Company.  The exercise of any option is not exclusive of any other option,
which may be exercised at any time by CIT.

 

10.3                        In
addition to the rights and remedies described in Paragraph 10.2, upon the
occurrence of any Event of Default, CIT shall be entitled to file, and the
Company hereby agrees not to oppose, CIT’s motion for an expedited hearing to
modify the automatic stay provided by Section 362 of the Bankruptcy Code
for the purpose of authorizing CIT to pursue any and all of its rights and
remedies against the Company and the Collateral, and to seek payment in respect
of all Obligations outstanding under the Revolving Loan Account, and the
Company hereby acknowledges that CIT may request that such hearing be conducted
no less than five (5) Business Days after CIT files such motion.  CIT’s rights and remedies against the
Company and the Collateral referred to in the preceding sentence shall include
the following:

 

(a)                                  the
right to remove from any premises where same may be located any and all books
and records, computers, electronic media and software programs associated with
any Collateral (including any electronic records, contracts and signatures
pertaining thereto), documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CIT may
use, at the Company’s expense, such of the Company’s personnel, supplies or
space at the Company’s places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon;

 

(b)                                  the
right to bring suit, in the name of the Company or CIT, and generally shall
have all other rights respecting said Accounts, including without limitation
the right to:  accelerate or extend the
time of payment, settle, compromise, release in whole or in part any amounts
owing on any Accounts and issue credits in the name of the Company or CIT;

 

46

 

(c)                                  the
right to sell, assign and deliver the Collateral and any returned, reclaimed or
repossessed Inventory, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at CIT’s sole option and discretion,
and CIT may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by the Company;

 

(d)                                  the
right to foreclose the security interests in the Collateral created herein or
by the Loan Documents by any available judicial procedure, or to take
possession of any or all of the Collateral, including any Inventory, Equipment
and/or Other Collateral without judicial process, and to enter any premises
where any Inventory and Equipment and/or Other Collateral may be located for
the purpose of taking possession of or removing the same; and

 

(e)                                  the
right to exercise any other rights and remedies provided in law, in equity, by
contract or otherwise;

 

(f)                                    the
right, without notice or advertisement except as required by the UCC or other
applicable law, to sell, lease, or otherwise dispose of all or any part of the
Collateral, whether in its then condition or after further preparation or
processing, in the name of the Company or CIT, or in the name of such other
party as CIT may designate, either at public or private sale or at any broker’s
board, in lots or in bulk, for cash or for credit, with or without warranties
or representations (including but not limited to warranties of title,
possession, quiet enjoyment and the like), and upon such other terms and
conditions as CIT in its sole discretion may deem advisable, and CIT shall have
the right to purchase at any such sale;

 

(g)                                 if
any Inventory and Equipment shall require rebuilding, repairing, maintenance or
preparation, the right, at CIT’s option, to do such of the aforesaid as is
necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as CIT shall deem appropriate and the reasonable costs thereof
shall be deemed an Obligation hereunder.

 

Notwithstanding anything contained to the contrary
herein or elsewhere, it is not the Company’s intention to waive, and the
Company does not waive, any requirement that any sale, lease or other
disposition of the Collateral or any part thereof be commercially reasonable.

 

The Company agrees, at the request of CIT, to assemble
the Inventory and Equipment and to make it available to CIT at premises of the
Company or elsewhere and to make available to CIT the premises and facilities
of the Company for the purpose of CIT’s taking possession of, removing or
putting the Inventory and Equipment in saleable form.  If notice of intended disposition of any Collateral is required
by law, it is agreed that ten (10) days notice shall constitute reasonable
notification and full compliance with the law. The net cash proceeds resulting
from CIT’s exercise of any of the foregoing rights, (after deducting all
charges, costs and expenses, including reasonable attorneys’ fees) shall
be applied by CIT to the payment of the 
Obligations then due under the Revolving Loan Account in such order as
CIT may elect, and the Company shall remain liable to CIT for any deficiencies,
and CIT in turn agrees to remit to the Company or its successors or assigns,
any surplus resulting therefrom.  The
enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other rights, all
of which shall be cumulative.  The
Company hereby 

 

47

 

indemnifies CIT and holds CIT harmless from any and
all reasonable costs and expenses, claims, liabilities, Out-of-Pocket Expenses
or otherwise, incurred or imposed on CIT by reason of the proper exercise of
any of its rights, remedies and interests hereunder, including, without
limitation, from any sale or transfer of Collateral, preserving, maintaining or
securing the Collateral, defending its interests in Collateral (including
pursuant to any claims brought by the Company, the Company as
debtor-in-possession, any secured or unsecured creditors of the Company, any trustee
or receiver in bankruptcy, or otherwise), and the Company hereby agrees to so
indemnify and hold CIT harmless, absent CIT’s gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction. The
foregoing indemnification shall survive termination of this Agreement until
such time as all Obligations (including the foregoing) have been finally
and indefeasibly paid in full or provided for in accordance with Section 11
hereof.

 

10.4                        Upon
the occurrence of an Event of Default, CIT may direct the Company how and when
to exercise all rights of the Company under Bankruptcy Code Section 365 in
connection with an election by CIT to exercise its remedies under
Paragraph 10.3.  Notwithstanding
anything to the contrary contained herein, if the Company does not fully honor
and take and all actions requested in any such direction within three
(3) Business Days of the delivery of such direction, CIT may move the
Bankruptcy Court on behalf of the Company for the relief specified in the direction.  The Company agrees that it will not contest
a request by CIT for expedited consideration of any such motion to take place
on at least five (5) Business Days’ prior written notice to the Company, any
creditors committee and any landlord or other counter-party to the relevant
lease or contract.

 

10.5                        Upon
the occurrence of an Event of Default, CIT may exercise all other rights and
remedies provided to CIT in the Interim Financing Order and the Final Financing
Order, respectively.

 

SECTION 11.                     Term and
Termination

 

This
Agreement shall have a term ending on the earliest to occur of:
(i) eighteen (18) months after the effective date of this Agreement;
(ii) sixty (60) days after the commencement of the Bankruptcy Case if
the Final Financing Order has not been entered on or before such date; or
(iii) the effective date of the Company’s plan of reorganization or the
earlier date on which the substantial consummation (as defined in the
Bankruptcy Code) of such plan of reorganization has occurred.  CIT may terminate this Agreement immediately
upon the occurrence of an Event of Default. 
The Company may terminate this Agreement at any time upon thirty
(30) days’ prior written notice to CIT, and, provided the Company has no
Obligations outstanding under its Revolving Loan Account at all times during
such thirty-day period, the Company shall have no obligation to pay the
Revolving Line of Credit Fee in respect of such thirty-day period.  All non-contingent Obligations shall become
due and payable as of any termination hereunder or under Section 10 hereof
and, pending a final accounting, CIT may withhold any balances in the Company’s
account (unless supplied with an indemnity satisfactory to CIT) to cover
all of the Obligations, whether absolute or contingent, including, but not
limited to, cash reserves for any contingent Obligations, including an amount
of 110% of the face amount of any outstanding Letters of Credit with an expiry
date on, or within thirty (30) days of 
the effective date of 

 

48

 

termination of this Agreement. All of CIT’s rights,
liens and security interests shall continue after any termination until the
earlier to occur of (i) all Obligations have been paid and satisfied in full or
(ii) provision shall have been made therefor in accordance with the immediately
foregoing sentence.

 

SECTION 12.                     Miscellaneous

 

12.1                        The
Company hereby waives diligence, notice of intent to accelerate, notice of
acceleration, demand, presentment and protest and any notices thereof as well
as notice of nonpayment.  No delay or
omission of CIT or the Company to exercise any right or remedy hereunder,
whether before or after the happening of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such
Event of Default.  No single or partial
exercise by CIT of any right or remedy precludes any other or further exercise
thereof, or precludes any other right or remedy.

 

12.2                        This
Agreement and the Loan Documents executed and delivered in connection therewith
constitute the entire agreement between the Company and CIT;  supersede any prior agreements; can be
changed only by a writing signed by both the Company and CIT; and shall bind
and benefit the Company and CIT and their respective successors and assigns.

 

12.3                        In no
event shall the Company, upon demand by CIT for payment of any Indebtedness
relating hereto, by acceleration of the maturity thereof, or otherwise, be
obligated to pay interest and fees in excess of the amount permitted by
law.  Regardless of any provision herein
or in any agreement made in connection herewith, CIT shall never be entitled to
charge interest on any contingent Obligations, nor to receive, charge or apply,
as interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law.  If CIT ever receives, collects or applies
any such excess, it shall be deemed a partial repayment of principal and treated
as such; and if principal is paid in full, any remaining excess shall be
refunded to the Company.  This
Paragraph shall control every other provision hereof, the Loan Documents
and of any other agreement made in connection herewith.

 

12.4                        If any
provision hereof or of any other agreement made in connection herewith is held
to be illegal or unenforceable, such provision shall be fully severable, and
the remaining provisions of the applicable agreement shall remain in full force
and effect and shall not be affected by such provision’s severance.  Furthermore, in lieu of any such provision,
there shall be added automatically as a part of the applicable agreement a
legal and enforceable provision as similar in terms to the severed provision as
may be possible.

 

12.5                        THE
COMPANY AND CIT EACH HEREBY WAIVE ANY RIGHT TO A  TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER.  THE COMPANY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO 
SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN  RECEIPT REQUESTED.  IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL
OR CONSEQUENTIAL DAMAGES.

 

49

 

12.6                        Except
as otherwise herein provided, any notice or other communication required
hereunder shall be in writing (provided that, any electronic communications
from the Company with respect to any request, transmission, document,
electronic signature, electronic mail or facsimile transmission shall be deemed
binding on the Company for purposes of this Agreement, provided further that
any such transmission shall not relieve the Company from any other obligation
hereunder to communicate further in writing), and shall be deemed to have been
validly served, given or delivered when hand delivered or sent by facsimile, or
three days after deposit in the United State mails, with proper first class
postage prepaid and addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, as
follows:

 

(A)                              if
to CIT, at:

 

The
CIT Group/Business Credit, Inc.

300
South Grand Avenue

Third
Floor

Los
Angeles, California 90071

Attn:  Portfolio Manager

Fax
No.:  (213) 346-2501

 

With a courtesy copy of any material notice to CIT’s
counsel.

 

Sheppard,
Mullin, Richter & Hampton LLP

333
South Hope Street, 48th Floor

Los
Angeles, California 90071

Attn:  Prentice L. O’Leary

Fax
No. (213) 620-1398

 

(B)                                if
to the Company at

 

Crown
Pacific Limited Partnership

805
S.W. Broadway, Suite 1500

Portland,
Oregon  97205

Attn:  Steven Dietrich

Fax
No.:  (503) 294-1247

 

50

 

With a courtesy copy of
any material notice to the Company’s counsel.

 

Andrews
& Kurth, L.L.P.

4200
JP Morgan Chase Tower

600
Travis

Houston,
Texas 77002

Attn:  John Sparacino

Fax
No.:  (713) 220-4285

 

provided, however, that the failure of either party to
provide the other party’s counsel with a copy of such notice shall not
invalidate any notice given to such other party and shall not give such other
Party any rights, claims or defenses due to the failure of such party to
provide such additional notice.

 

12.7                        Notwithstanding
anything contained herein or elsewhere to the contrary, in the event of a
conflict between the terms and provisions hereof or of any Loan Document and
the terms and provisions of the Interim Financing Order or the Final Financing
Order, as the case may be, the terms and provisions of the Interim Financing
Order or the Final Financing Order, as the case may be, shall govern and
control over the provisions of this agreement or any other Loan Document, as
the case may be.

 

12.8                        THE
VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS  FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY THE LAWS OF THE  STATE OF
CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN
EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.

 

51

 

Schedule 1 - Loan Documents

 

	
  1.

  	
   

  	
  Financing
  Agreement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Interim
  Order

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Delaware
  UCC-1 Financing Statement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Secretary’s
  (Assistant Secretary’s) Certificate Pursuant to Paragraph 2.1(d)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Officer’s
  Certificate Pursuant to Paragraph 2.1(e)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Security
  Agreement between the Debtors (other than the Company) and CIT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  UCC-1
  Financing Statement(s) with respect to the Debtors (other than the Company)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Secretary’s
  Certificate regarding resolutions for each of the Debtors (other than the
  Company)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Disbursement
  Instructions Pursuant to Paragraph 2.1(j)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Lockbox
  Agreements

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