Document:

Exhibit
10.6

 

GUARANTY OF PAYMENT AGREEMENT

 

THIS GUARANTY OF PAYMENT AGREEMENT (this “Agreement”)
is made this 30th day of April, 2010, by SURPLUS ACQUISITION VENTURE, LLC, a
limited liability company organized under the laws of the State of Delaware
(the “Guarantor”), for the benefit of BANK OF AMERICA, N.A., a national banking
association, its successors and assigns (the “Lender”).

 

RECITALS

 

A.            LIQUIDITY SERVICES, INC., a corporation
organized under the laws of the State of Delaware (the “Borrower”) has applied
to the Lender for a revolving credit facility in the maximum principal amount
of Thirty Million Dollars ($30,000,000) and, as part of that revolving credit facility, a letter of credit facility in
the maximum principal amount of Ten Million Dollars ($10,000,000) (collectively, the “Credit Facilities”),
which is to be advanced pursuant to the terms of a Financing and Security
Agreement of even date herewith by and between the Borrower and the Lender (as
amended, modified, restated, substituted, extended and renewed at any time and
from time to time, the “Financing Agreement”).

 

B.            All defined terms used in this Agreement
and not defined herein shall have the meaning given to such terms in the
Financing Agreement.

 

C.            The Guarantor has requested that the
Lender enter into the Financing Agreement with the Borrower and make the Credit
Facilities available to the Borrower.

 

D.            The Lender has required, as a condition
to entering into the Financing Agreement, that the Guarantor execute, among
other things, that certain Security Agreement of even date herewith by
Guarantor in favor of Lender, as amended from time to time, that certain
Pledge, Assignment and Security Agreement of even date herewith by Guarantor in
favor of Lender, as amended from time to time, and this Agreement as additional
security for the payment and performance of the Obligations.

 

NOW, THEREFORE, in order to induce the Lender to enter
into the Financing Agreement, the Guarantor covenants and agrees with the
Lender as follows:

 

ARTICLE I 

THE GUARANTY

 

Section 1.1             Guaranty.

 

In order to induce the Lender to make the Credit
Facilities available to Borrower, the Guarantor hereby unconditionally and
irrevocably guarantees to the Lender:

 

(a)           the due and punctual payment in full (and not merely
the collectibility) of the principal of the Obligations and the interest
thereon, in each case when due and payable, all according to the terms of any
promissory note evidencing all or any part of the Obligations, 

 

 

including without limitation, the Revolving Credit
Note, and the other Financing Documents (as that term is defined in the
Financing Agreement);

 

(b)           the due and punctual payment in full (and not merely
the collectibility) of all other sums and charges which may at any time be due
and payable in accordance with, or secured by, any promissory note evidencing
all or any part of the Obligations or any of the other Financing Documents;

 

(c)           the due and punctual performance of all of the other
terms, covenants and conditions contained in the Financing Documents; and

 

(d)           all indebtedness, obligations and liabilities of any
kind and nature of the Borrower to the Lender, whether now existing or
hereafter created or arising, direct or indirect, matured or unmatured, and
whether absolute or contingent, joint, several or joint and several, and
howsoever owned, held or acquired.

 

Section 1.2             Guaranty Unconditional.

 

The obligations and liabilities of the Guarantor under
this Agreement shall be absolute and unconditional, irrespective of the
genuineness, validity, priority, regularity or enforceability of the Financing
Agreement, any promissory note evidencing all or any part of the Obligations,
or any of the other Financing Documents or any other circumstance which might
otherwise constitute a legal or equitable discharge of a surety or
guarantor.  The Guarantor expressly
agrees that the Lender may, in its sole and absolute discretion, without notice
to or further assent of the Guarantor and without in any way releasing,
affecting or in any way impairing the obligations and liabilities of the
Guarantor hereunder:

 

(a)           waive compliance with, or any defaults
under, or grant any other indulgences under or with respect to any of the
Financing Documents;

 

(b)           modify, amend, change or terminate any
provisions of any of the Financing Documents;

 

(c)           grant extensions or renewals of or with
respect to any promissory note evidencing all or any part of the Obligations,
any of the other Financing Documents or any of the Obligations;

 

(d)           effect any release, subordination,
compromise or settlement in connection with any promissory note evidencing all
or any part of the Obligations, any of the other Financing Documents, or any of
the Obligations;

 

(e)           agree to the substitution, exchange,
release or other disposition of the Collateral or any part thereof, or any
other collateral for the Obligations or to the subordination of any lien or
security interest therein;

 

(f)            make advances for the purpose of
performing any term, provision or covenant contained in the Financing Agreement
or any of the other Financing Documents with respect to which the Borrower
shall then be in default;

 

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(g)           make future advances to the Borrower
pursuant to the Financing Agreement or any of the other Financing Documents;

 

(h)           assign, pledge, hypothecate or otherwise
transfer the Financing Agreement, any of the Financing Documents or this
Agreement or any interest therein;

 

(i)            deal in all respects with the Borrower as
if this Agreement were not in effect; and

 

(j)            effect any release, compromise or
settlement with another guarantor.

 

Section 1.3             Guaranty Primary.

 

The obligations and liabilities of the Guarantor under
this Agreement shall be primary, direct and immediate, shall not be subject to
any counterclaim, recoupment, setoff, reduction or defense based upon any claim
that the Guarantor may have against the Borrower, the Lender and/or any other
guarantor and shall not be conditional or contingent upon pursuit or
enforcement by the Lender of any remedies it may have against the Borrower with
respect to any promissory note evidencing all or any part of the Obligations or
any of the other Financing Documents, whether pursuant to the terms thereof or
by operation of law.  Without limiting
the generality of the foregoing, the Lender shall not be required to make any
demand upon the Borrower, or to sell the Collateral or otherwise pursue,
enforce or exhaust its remedies against the Borrower or the Collateral either
before, concurrently with or after pursuing or enforcing its rights and
remedies hereunder.  Any one or more
successive or concurrent actions or proceedings may be brought against the
Guarantor under this Agreement, either in the same action, if any, brought
against the Borrower or in separate actions or proceedings, as often as the
Lender may deem expedient or advisable. 
Without limiting the foregoing, it is specifically understood that any
modification, limitation or discharge of any of the liabilities or obligations
of the Borrower, any other guarantor or any obligor under any of the Financing
Documents, arising out of, or by virtue of, any bankruptcy, arrangement,
reorganization or similar proceeding for relief of debtors under federal or
state law initiated by or against the Borrower or the Guarantor or any obligor
under any of the Financing Documents shall not modify, limit, lessen, reduce,
impair, discharge, or otherwise affect the liability of the Guarantor hereunder
in any manner whatsoever, and this Agreement shall remain and continue in full
force and effect.  It is the intent and
purpose of this Agreement that the Guarantor shall and does hereby waive all
rights and benefits which might accrue to any other guarantor by reason of any
such proceeding, and the Guarantor agrees that it shall be liable for the full
amount of the obligations and liabilities under this Agreement, regardless of,
and irrespective to, any modification, limitation or discharge of the liability
of the Borrower, any other guarantor or any obligor under any of the Financing
Documents, that may result from any such proceedings.

 

Section 1.4             Certain Waivers by the Guarantor.

 

The Guarantor hereby unconditionally, irrevocably and
expressly waives:

 

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(a)           presentment and demand for payment of the
principal of or interest on any promissory note evidencing all or any part of
the Obligations and protest of non-payment;

 

(b)           notice of acceptance of this Agreement
and of presentment, demand and protest thereof;

 

(c)           notice of any default hereunder or under
the Financing Agreement, or any of the other Financing Documents and notice of
all indulgences;

 

(d)           notice of any increase in the amount of
any portion of or all of the indebtedness guaranteed by this Agreement;

 

(e)           demand for observance, performance or
enforcement of any of the terms or provisions of this Agreement, the Financing
Agreement or any of the other Financing Documents;

 

(f)            all errors and omissions in connection
with the Lender’s administration of all indebtedness guaranteed by this
Agreement, except errors and omissions resulting from acts of bad faith;

 

(g)           any right or claim of right to cause a
marshalling of the assets of the Borrower;

 

(h)           any act or omission of the Lender (except
acts or omissions in bad faith) which changes the scope of the Guarantor’s risk
hereunder; and

 

(i)            all other notices and demands otherwise
required by law which the Guarantor may lawfully waive.

 

Section 1.5             Reimbursement for Expenses.

 

In the event the Lender shall commence any action or
proceeding for the enforcement of this Agreement, then the Guarantor will
reimburse the Lender, promptly upon demand, for any and all expenses incurred
by the Lender in connection with such action or proceeding including, without
limitation, reasonable attorneys’ fees together with interest thereon at the
Post-Default Rate.

 

Section 1.6             Events of Default.

 

The occurrence of any one or more of the following
events shall constitute an “Event of Default” under the provisions of this
Agreement (individually, an “Event of Default” and collectively, the “Events of
Default”):

 

(a)           The failure of the Guarantor to pay any
of the Obligations as and when due and payable in accordance with the
provisions of this Agreement.

 

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(b)           Any representation or warranty made in
this Agreement or in any report, statement, schedule, certificate, opinion
(including any opinion of counsel for the Guarantor), financial statement or
other document furnished in connection with this Agreement, shall prove to have
been false or misleading when made (or, if applicable, when reaffirmed) in any
material respect.

 

(c)           The failure of the Guarantor to perform,
observe or comply with any covenant, condition or agreement contained in this
Agreement.

 

(d)           A Default shall occur under any of the
other Financing Documents and such Default is not cured within any applicable
grace period provided therein.

 

(e)           The Guarantor shall (i) apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or
any of its property, (ii) admit in writing its inability to pay its debts
as they mature, (iii) make a general assignment for the benefit of
creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a
voluntary petition in bankruptcy or a petition or an answer seeking or
consenting to reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law, or take action for the purposes of effecting any of the foregoing, or (vi) by
any act indicate its consent to, approval of or acquiescence in any such
proceeding or the appointment of any receiver of or trustee for any of its
property, or suffer any such receivership, trusteeship or proceeding to
continue undischarged for a period of sixty (60) days, or (vii) by any act
indicate its consent to, approval of or acquiescence in any order, judgment or
decree by any court of competent jurisdiction or any Governmental Authority
enjoining or otherwise prohibiting the operation of a material portion of the
Guarantor’s business or the use or disposition of a material portion of the
Guarantor’s assets.

 

(f)            (i) An order for relief shall be
entered in any involuntary case brought against the Guarantor under the
Bankruptcy Code, or (ii) any such case shall be commenced against the
Guarantor and shall not be dismissed within sixty (60) days after the filing of
the petition, or (iii) an order, judgment or decree under any other Law is
entered by any court of competent jurisdiction or by any other Governmental
Authority on the application of a Governmental Authority or of a Person other
than the Guarantor (A) adjudicating the Guarantor bankrupt or insolvent,
or (B) appointing a receiver, trustee or liquidator of the Guarantor, or
of a material portion of the Guarantor’s assets, or (C) enjoining,
prohibiting or otherwise limiting the operation of a material portion of the
Guarantor’s business or the use or disposition of a material portion of the
Guarantor’s assets, and such order, judgment or decree continues unstayed and
in effect for a period of thirty (30) days from the date entered.

 

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(g)           Unless adequately insured, the entry of a
final judgment for the payment of money involving more than $2,000,000 against
the Guarantor, and the failure by the Guarantor to discharge the same, or cause
it to be discharged, within thirty (30) days from the date of the order, decree
or process under which or pursuant to which such judgment was entered, or to
secure a stay of execution pending appeal of such judgment.

 

(h)           If the Guarantor shall liquidate,
dissolve or terminate its existence or any Change in Control of the Guarantor
occurs without the prior written consent of the Lender.

 

(i)            Any execution or attachment shall be
levied against any collateral for this Agreement having an aggregate value in
excess of Five Hundred Thousand Dollars ($500,000), or any part thereof, and
such execution or attachment shall not be set aside, discharged or stayed
within thirty (30) days after the same shall have been levied.

 

Section 1.7             Rescission of Election to Accelerate.

 

In the event the Lender shall elect to accelerate the
maturity of any promissory note evidencing all or any part of the Obligations
as to the Guarantor pursuant to the provisions of this Agreement, such election
may be rescinded by written acknowledgment to that effect by the Lender;
provided, however, that the acceptance of a partial payment on account of any
promissory note evidencing all or any part of the Obligations shall not alone
effect or rescind such election.

 

Section 1.8             Subordination; Subrogation.

 

In the event the Guarantor shall advance any sums to
the Borrower, or in the event the Borrower has heretofore or shall hereafter
become indebted to the Guarantor before the Obligations have been paid in full,
all such advances and indebtedness shall be subordinate in all respects to the
Obligations (the “Guarantor Subordinated Debt”).  Any payment to the Guarantor on account of
the Guarantor Subordinated Debt shall be collected and received by the Lender
or the Guarantor in trust for the Lender and shall be paid over to the Lender
on account of the Obligations without impairing or releasing the obligations of
the Guarantor hereunder.

 

Without the prior written consent of the Lender, the
Guarantor shall not ask, demand, receive, accept, sue for, set off, collect or
enforce the Guarantor Subordinated Debt or any collateral and security
therefor.  The Guarantor represents and
warrants to the Lender that the Guarantor Subordinated Debt is unsecured and agrees
not to receive or accept any collateral or security therefor without the prior
written permission of the Lender.  The
Guarantor shall not assign, transfer, hypothecate or dispose of the Guarantor
Subordinated Debt while this Agreement is in effect.  In the event of any sale, receivership, insolvency
or bankruptcy proceeding, or assignment for the benefit of creditors, or any
proceeding by or against the Borrower for any relief under any bankruptcy or
insolvency law or other laws relating to the relief of debtors, readjustment of
indebtedness, reorganizations, compositions or extensions, then and in any such
event any payment or distribution of any kind or character, either in cash,
securities or other property, which shall be payable or deliverable upon, or
with respect to, all or 

 

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any part of the Guarantor
Subordinated Debt or otherwise shall be paid or delivered directly to the
Lender for application to the obligations and liabilities of the Guarantor
under this Agreement (whether due or not due and in such order and manner as
the Lender may determine in the exercise of its sole discretion) until the
obligations of the Guarantor hereunder shall have been fully paid and
satisfied.  The Guarantor hereby
irrevocably authorizes and empowers the Lender to demand, sue for, collect and
receive every such payment or distribution on account of the Guarantor
Subordinated Debt and give acquittance therefor and to file claims and take
such other proceedings in the Lender’s own name or in the name of the Guarantor
or otherwise, as the Lender may deem necessary or advisable to carry out the
provisions of this Agreement.  The
Guarantor hereby agrees to execute and deliver to the Lender such powers of
attorney, assignments, endorsements or other instruments as may be requested by
the Lender in order to enable the Lender to enforce any and all claims upon, or
with respect to, the Guarantor Subordinated Debt, and to collect and receive
any and all payments or distributions which may be payable or deliverable at
any time upon or with respect thereto.

 

So as to secure the performance by the Guarantor of
the provisions of this Agreement, the Guarantor assigns, pledges and grants to
the Lender a security interest in, and lien on, the Guarantor Subordinated
Debt, all proceeds thereof and all and any security and collateral
therefor.  Upon the request of the
Lender, the Guarantor shall endorse, assign and deliver to the Lender all
notes, instruments and agreements evidencing, securing, guarantying or made in
connection with the Guarantor Subordinated Debt.

 

Nothing contained in this Agreement shall be construed
to give the Guarantor any right of subrogation in or to the Obligations or any
of the Financing Documents, or all or any part of the interest of the Lender
therein, until the Obligations have been paid in full.

 

ARTICLE II 

REPRESENTATIONS AND WARRANTIES

 

Section 2.1             Representations and Warranties.

 

The Guarantor represents and warrants to the Lender as
follows:

 

2.1.1        Good Standing.

 

The Guarantor (a) is duly organized, existing and
in good standing under the laws of the State of Delaware, (b) has the
power to own its property and to carry on its business as now being conducted,
and (c) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary,
except in each case referred to in clause (c), to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect.

 

2.1.2        Power and Authority.

 

The Guarantor has full power and authority to execute
and deliver this Agreement and the other Financing Documents to which it is a
party and to incur and perform the Obligations whether under this Agreement,
the other Financing Documents or otherwise, all 

 

7

 

of which have been duly
authorized by all proper and necessary action under the governing documents of
the Guarantor.  No consent or approval of
owners or any creditors of the Guarantor, and no consent, approval, filing or
registration with or notice to any Governmental Authority on the part of the
Guarantor, is required as a condition to the execution, delivery, validity or
enforceability of this Agreement or the other Financing Documents or the
performance by the Guarantor of the Obligations other than filings for the
perfection of Liens.

 

2.1.3        Binding Agreements.

 

This Agreement and the other Financing Documents
executed and delivered by the Guarantor have been properly executed and
delivered and constitute the valid and legally binding obligations of the
Guarantor and are fully enforceable against the Guarantor in accordance with
their respective terms.

 

2.1.4        No Conflicts.

 

Neither the execution, delivery and performance of the
terms of this Agreement or of any of the other Financing Documents executed and
delivered by the Guarantor nor the consummation of the transactions
contemplated by this Agreement will conflict with, violate or be prevented by (a) the
Guarantor’s organizational documents, (b) any existing mortgage,
indenture, contract or agreement binding on the Guarantor or affecting its
property, or (c) any Laws, except in each case referred to in clause (b) or
(c), as would not reasonably be expected to have a Material Adverse Effect.

 

2.1.5        Compliance with Laws.

 

The Guarantor is not in violation of any applicable
Laws (including, without limitation, any Laws relating to employment practices,
to environmental, occupational and health standards and controls) or order,
writ, injunction, decree or demand of any court, arbitrator or any Governmental
Authority affecting the Guarantor or any of its properties, the violation of
which, considered in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

 

2.1.6        Litigation.

 

There are no proceedings, actions or investigations
pending or, so far as the Guarantor knows, threatened before or by any court,
arbitrator or any Governmental Authority which, in any one case or in the
aggregate, if determined adversely to the interests of the Guarantor, would
reasonably be expected to have a Material Adverse Effect.

 

2.1.7        Full Disclosure.

 

The financial statements referred to in the Financing
Documents (including, without limitation, this Agreement), and the statements,
reports or certificates furnished by the Guarantor in connection with the
Financing Documents when taken in their entirety (a) do not contain any
untrue statement of a material fact and (b) do not omit any material fact
necessary to make the statements contained therein not misleading.  There is no fact known to the Guarantor and
existing on the Closing Date which Borrower or Guarantor has not disclosed to
the Lender in writing prior to the date of this Agreement and there is no fact
known 

 

8

 

to Guarantor arising
after the Closing Date, and existing at the time of the remaking by Borrower of
the representations under the Financing Agreement, which Borrower or Guarantor
has not disclosed to Lender in writing or publicly filed with the Securities
Exchange Commission, with respect to the transactions contemplated by the
Financing Documents, prior to the remaking by Borrower of the representations
under the Financing Agreement, that in the reasonable opinion of the Guarantor
could materially adversely affect the condition, financial or other wise,
results of operations, business, or assets of the Guarantor.

 

2.1.8        Financial Interest.

 

The Guarantor will derive a benefit from the Credit
Facilities extended to and the Obligations incurred by the Borrower.

 

Section 2.2             Survival; Updates of Representations and Warranties.

 

All representations and warranties contained in or
made under or in connection with this Agreement and the other Financing
Documents shall survive the Closing Date, the making of any advance under the
Financing Agreement and the incurring of any Obligations.

 

ARTICLE III 

AFFIRMATIVE COVENANTS

 

The Guarantor hereby covenants and agrees as follows:

 

Section 3.1             Further Assurances.

 

The Guarantor will make, execute, acknowledge and
deliver all and every such further acts and assurances as the Lender shall from
time to time require for confirming or carrying out the intentions or
facilitating the performance of the terms of this Agreement.

 

Section 3.2             Financial Records.

 

The Guarantor will maintain or cause to be maintained
full, complete, accurate and adequate records and books of account in
accordance with generally accepted accounting principles consistently applied.

 

Section 3.3             Estoppel Certificates.

 

Within ten (10) days following any request of the
Lender so to do, the Guarantor will furnish the Lender and such other persons
as the Lender may direct with a written certificate, duly acknowledged stating
in detail whether or not any credits, offsets or defenses exist with respect to
this Agreement.

 

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ARTICLE IV 

MISCELLANEOUS

 

Section 4.1             Notices.

 

All notices, requests and demands to or upon the
parties to this Agreement shall be in writing and shall be deemed to have been
given or made when delivered by hand on a Business Day, or two (2) days
after the date when deposited in the mail, postage prepaid by registered or
certified mail, return receipt requested, or when sent by overnight courier, on
the Business Day next following the day on which the notice is delivered to
such overnight courier, addressed as follows:

 

	
   

  	
  Guarantor:

  	
  Surplus Acquisition
  Venture, LLC

  
	
   

  	
   

  	
  1920 L Street NW, 6th Floor

  
	
   

  	
   

  	
  Washington, D.C. 20036

  
	
   

  	
   

  	
  Attention: James M.
  Rallo, CFO and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
  Gibson, Dunn &
  Crutcher LLP

  
	
   

  	
   

  	
  200 Park Avenue

  
	
   

  	
   

  	
  New York, New York
  10166

  
	
   

  	
   

  	
  Attention: Aaron F.
  Adams, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  Lender:

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
  1101 Wootton Parkway,
  4th Floor

  
	
   

  	
   

  	
  Rockville, Maryland
  20852

  
	
   

  	
   

  	
  Attention: Michael J. Radcliffe, SVP

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
  Troutman Sanders LLP

  
	
   

  	
   

  	
  1660 International
  Drive, Suite 600

  
	
   

  	
   

  	
  McLean, Virginia 22102

  
	
   

  	
   

  	
  Attention: Richard M.
  Pollak, Esq.

  

 

By written notice, each party to this Agreement may
change the address to which notice is given to that party, provided that such
changed notice shall include a street address to which notices may be delivered
by overnight courier in the ordinary course on any Business Day.

 

Section 4.2             Amendments; Waivers.

 

This Agreement may not be amended, modified, or
changed in any respect except by an agreement in writing signed by the Lender
and the Guarantor.  No waiver of any
provision of this Agreement, nor consent to any departure by the Guarantor therefrom,
shall in any event be effective unless the same shall be in writing.  No course of dealing between the Guarantor
and the Lender and no act or failure to act from time to time on the part of
the Lender shall constitute a waiver, amendment or modification of any
provision of this Agreement or any right or remedy under this Agreement or
under applicable Laws.

 

Without implying any limitation on the foregoing:

 

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(a)           Any waiver or consent shall be effective
only in the specific instance, for the terms and purpose for which given,
subject to such conditions as the Lender may specify in any such instrument.

 

(b)           No waiver of any Default or Event of
Default shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereto.

 

(c)           No notice to or demand on the Guarantor
in any case shall entitle the Guarantor to any other or further notice or
demand in the same, similar or other circumstance.

 

(d)           No failure or delay by the Lender to
insist upon the strict performance of any term, condition, covenant or
agreement of this Agreement or of any of the other Financing Documents, or to
exercise any right, power or remedy consequent upon a breach thereof, shall
constitute a waiver, amendment or modification of any such term, condition,
covenant or agreement or of any such breach or preclude the Lender from
exercising any such right, power or remedy at any time or times.

 

(e)           By accepting payment after the due date
of any amount payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.

 

Section 4.3             Cumulative Remedies.

 

The rights, powers and remedies provided in this
Agreement and in the other Financing Documents are cumulative, may be exercised
concurrently or separately, may be exercised from time to time and in such
order as the Lender shall determine and are in addition to, and not exclusive
of, rights, powers and remedies provided by existing or future applicable Laws.  In order to entitle the Lender to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement.  Without limiting the generality
of the foregoing, the Lender may:

 

(a)           proceed against the Guarantor with or
without proceeding against the Borrower or any other Person who may be liable
for all or any part of the Obligations;

 

(b)           proceed against the Guarantor with or
without proceeding under any of the other Financing Documents or against any
Collateral or other collateral and security for all or any part of the
Obligations;

 

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(c)           without
reducing or impairing the obligation of the Guarantor and without notice,
release or compromise with any other Person liable for all or any part of the
Obligations under the Financing Documents or otherwise; or

 

(d)           without
reducing or impairing the obligations of the Guarantor and without notice
thereof:  (i) fail to perfect the
Lien in any or all Collateral or to release any or all the Collateral or to
accept substitute Collateral, (ii) approve the making of advances under
the credit facilities under the Financing Agreement, (iii) waive any
provision of this Agreement or the other Financing Documents, (iv) exercise
or fail to exercise rights of set-off or other rights, or (v) accept
partial payments or extend from time to time the maturity of all or any part of
the Obligations.

 

Section 4.4                                      Severability.

 

In case one or more provisions, or part thereof,
contained in this Agreement or in the other Financing Documents shall be
invalid, illegal or unenforceable in any respect under any Law, then without
need for any further agreement, notice or action:

 

(a)           the
validity, legality and enforceability of the remaining provisions shall remain
effective and binding on the parties thereto and shall not be affected or
impaired thereby;

 

(b)           the
obligation to be fulfilled shall be reduced to the limit of such validity;

 

(c)           if
such provision or part thereof pertains to repayment of the Obligations, then,
at the sole and absolute discretion of the Lender, all of the Obligations shall
become immediately due and payable; and

 

(d)           if
the affected provision or part thereof does not pertain to repayment of the
Obligations, but operates or would prospectively operate to invalidate this
Agreement in whole or in part, then such provision or part thereof only shall
be void, and the remainder of this Agreement shall remain operative and in full
force and effect.

 

Section 4.5                                      Assignments by Lender.

 

The Lender may, with the consent of the Borrower and
the Guarantor, sell, assign or transfer to or participate with any Person or
Persons all or any part of the Obligations, and each such Person or Persons
shall have the right to enforce the provisions of this Agreement and any of the
other Financing Documents as fully as the Lender, provided that the Lender
shall continue to have the unimpaired right to enforce the provisions of this
Agreement and any of the other Financing Documents as to so much of the
Obligations that the Lender has not sold, assigned or transferred.  In connection with the foregoing, the Lender
shall have the right to disclose to any such actual or potential purchaser,
assignee, transferee or participant all financial records, information,
reports, financial statements and documents obtained in connection with this
Agreement and any of the other Financing Documents or otherwise; provided that
each such 

 

12

 

recipient shall have
executed and delivered to the Guarantor a confidentiality agreement containing
substantially the same terms as Section 8.21 of the Financing Agreement.

 

Section 4.6                                      Successors and Assigns.

 

This Agreement shall be binding upon the Guarantor and
its successors and assigns, and shall inure to the benefit of the Lender and
its successors and assigns.

 

Section 4.7                                      Continuing Agreements.

 

All covenants, agreements, representations and
warranties made by the Guarantor in this Agreement and in any certificate
delivered pursuant hereto shall survive the making by the Lender of advances
and other extensions of credit under the Credit Facilities and the execution
and delivery of each promissory note evidencing all or any part of the
Obligations, shall be binding upon the Guarantor regardless of how long before
or after the date hereof any of the Obligations were or are incurred, and shall
continue in full force and effect so long as any of the Obligations are
outstanding and unpaid.  From time to
time upon the Lender’s request, and as a condition of the release of any one or
more of the Security Documents, the Guarantor and other Persons obligated with
respect to the Obligations shall provide the Lender with such acknowledgments
and agreements as the Lender may require to the effect that there exists no
defenses, rights of setoff or recoupment, claims, counterclaims, actions or
causes of action of any kind or nature whatsoever against the Lender, its
agents and others, or to the extent there are, the same are waived and
released.

 

Section 4.8                                      Enforcement Costs.

 

The Guarantor agrees to pay to the Lender on demand
all Enforcement Costs, together with interest thereon from the date incurred or
advanced until paid in full at a per annum rate of interest equal at all times
to the Post-Default Rate.  Enforcement
Costs shall be immediately due and payable at the time advanced or incurred,
whichever is earlier.  Without implying
any limitation on the foregoing, the Guarantor agrees, as part of the
Enforcement Costs, to pay upon demand any and all stamp and other Taxes and
fees payable or determined to be payable in connection with the execution and
delivery of this Agreement and to save the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay any Taxes or fees referred to in this Section.  The provisions of this Section shall
survive the execution and delivery of this Agreement, the repayment of the
other Obligations and shall survive the termination of this Agreement.

 

Section 4.9                                      Applicable Law.

 

As a material inducement to the Lender to enter into
this Agreement, the Guarantor acknowledges and agrees that the Financing
Documents, including, this Agreement, shall be governed by the Laws of the
State, as if each of the Financing Documents and this Agreement had each been
executed, delivered, administered and performed solely within the State even
though for the convenience and at the request of the Borrower, one or more of
the Financing Documents may be executed elsewhere.  The Lender acknowledges, however, that
remedies under certain of the Financing Documents that relate to property
outside the State may be subject to the laws of the state in which the property
is located.

 

13

 

Section 4.10                                Duplicate Originals and Counterparts.

 

This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute but one and the same instrument.

 

Section 4.11                                Financing Documents.

 

This Agreement is one of the Financing Documents
defined in the Financing Agreement.

 

Section 4.12                                Headings; Etc.

 

The headings in this Agreement are included herein for
convenience only, shall not constitute a part of this Agreement for any other
purpose, and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.  The above
Recitals are part of this Agreement.

 

Section 4.13                                No Partnership; Third Parties.

 

Nothing contained in this Agreement shall be construed
in a manner to create any relationship between the Guarantor and the Lender
other than the relationship of guarantor and lender and the Guarantor and the
Lender shall not be considered partners or co-venturers for any purpose.  The terms and provisions of this Agreement
are for the benefit of the Lender and its successors, assigns, endorsees and
transferees and all persons claiming under or through it and no other person
shall have any right or cause of action on account thereof.  The Lender has no obligation to make any
advance of any loan provided for in the Financing Agreement or otherwise for
the benefit of the Guarantor; the Guarantor has no beneficial interest in the
proceeds of any of the loans or otherwise under the Obligations or rights or
claims under the Financing Agreement or any of the other Financing
Documents.  The obligations and
liabilities of the Guarantor shall in no manner be affected by the actual use
of the proceeds of the Credit Facilities or otherwise or whether the Lender
waives any or all of the conditions to advances set forth in the Financing
Agreement or any of the other Financing Documents.

 

Section 4.14                                Consent to Jurisdiction.

 

The Guarantor irrevocably submits to the nonexclusive
jurisdiction of the courts of the State of New York sitting in New York County
and of the United States District Court of the Southern District of New York,
and any appellate court from any thereof over any suit, action, or proceeding
arising out of or relating to this Agreement. 
The Guarantor irrevocably waives, to the fullest extent permitted by law,
any objection that it may now or hereafter have to laying the venue of any such
suit, action, or proceeding brought in any such court and any claim that any
such suit, action, or proceeding brought in any such court has been brought in
an inconvenient forum.  Final judgment in
any such suit, action, or proceeding brought in any such court shall be
conclusive and binding upon the Guarantor and may be enforced in any court to
the jurisdiction of which the Guarantor is subject, by a suit upon such
judgment provided that service of process is effected upon the Guarantor in a
manner specified in this Agreement or as otherwise permitted by applicable law.

 

14

 

Section 4.15                                Service of Process.

 

The Guarantor hereby consents to process being served
in any suit, action, or proceeding instituted in connection with this Agreement
by the mailing of a copy thereof by certified mail, postage prepaid, return
receipt requested, to the Guarantor at the Guarantor’s address designated in Section 4.1
(Notices).  The Guarantor irrevocably
agrees that such service (y) shall be deemed in every respect to be
effective service of process upon it in any such suit, action, or proceeding
and (z) shall, to the fullest extent permitted by law, be taken and held
to be valid personal service upon the Guarantor.  Nothing in this Section shall affect the
right of the Lender to serve process in any manner otherwise permitted by law
or limit the right of the Lender otherwise to bring proceedings against the
Guarantor in the courts of any other appropriate jurisdiction or jurisdictions.

 

Section 4.16                                WAIVER OF TRIAL BY JURY.

 

THE GUARANTOR AND THE LENDER HEREBY JOINTLY AND
SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE GUARANTOR
AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS
AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE
COLLATERAL.  THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.

 

THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY
MADE BY THE GUARANTOR AND THE LENDER, AND THE GUARANTOR AND THE LENDER HEREBY
REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT.  THE GUARANTOR AND
THE LENDER FURTHER REPRESENT THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF
THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.

 

Section 4.17                                Liability of the Lender.

 

The Guarantor hereby agrees that the Lender shall not
be chargeable for any negligence, mistake, act or omission of any accountant,
examiner, agency or attorney employed by the Lender in making examinations,
investigations or collections, or otherwise in perfecting, maintaining,
protecting or realizing upon any lien or security interest or any other
interest in the Collateral or other security for the Obligations.

 

By inspecting the Collateral or any other properties
of the Borrower or by accepting or approving anything required to be observed,
performed or fulfilled by the Borrower or to be given to the Lender pursuant to
this Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality, 

 

15

 

effectiveness or legal
effect of the same, and such acceptance or approval shall not constitute any
warranty or representation with respect thereto by the Lender.

 

Section 4.18                                Reinstatement.

 

If at any time any payment, or portion thereof, made
by, or for the account of, the Borrower or the Guarantor on account of any of
the obligations and liabilities arising hereunder or under any of the Financing
Documents is set aside by any court or trustee having jurisdiction as a voidable
preference or fraudulent conveyance or must otherwise be restored or returned
by the Lender to the Borrower or to the Guarantor under any insolvency,
bankruptcy or other federal and/or state laws or as a result of any
dissolution, liquidation or reorganization of the Borrower or upon, or as a
result of, the appointment of any receiver, intervenor or conservator of, or
trustee, or similar officer for, the Borrower or any substantial part of its
properties or assets, the Guarantor hereby agrees that this Agreement shall
continue and remain in full force and effect or be reinstated, as the case may
be, all as though such payment(s) had not been made.

 

Section 4.19                                Complete and Final Expression of
Agreement.

 

This Agreement and the other Financing Documents are intended
by the Lender and the Guarantor to be a complete, exclusive and final
expression of the agreements contained herein. 
Neither the Lender nor the Guarantor shall hereafter have any rights
under any prior agreements pertaining to the matters addressed by this
Agreement but shall look solely to this Agreement for definition and
determination of all of their respective rights, liabilities and
responsibilities under this Agreement. 
No course of dealing, course of performance or trade usage, and no parol
evidence of any nature, shall be used to supplement or modify any terms of this
Agreement.  The Lender and the Guarantor
further agree that there are no conditions to the full effectiveness of this
Agreement, unless otherwise expressly stated herein.  The Guarantor has unconditionally delivered
this Agreement to the Lender, and failure to sign this or any other guarantee
by any other person shall not discharge the liability of the Guarantor
hereunder.

 

[SIGNATURES APPEAR ON THE
FOLLOWING PAGE]

 

16

 

IN WITNESS WHEREOF, this Agreement is executed and
delivered as of the date first set forth above.

 

	
   

  	
  SURPLUS ACQUISITION
  VENTURE, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ James M. Rallo

  
	
   

  	
  Name: James M. Rallo

  
	
   

  	
  Title: Treasurer

  

 

[Signature Page to
Guaranty of Payment Agreement]Exhibit
10.7

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the
“Agreement”) is made this 30th day of April, 2010, by SURPLUS ACQUISITION
VENTURE, LLC, a limited liability company organized under the laws of the State
of Delaware (the “Debtor”), for the benefit of BANK OF AMERICA, N.A., a
national banking association, its successors and assigns (the “Lender”).

 

RECITALS

 

A.            LIQUIDITY SERVICES, INC., a corporation organized
under the laws of the State of Delaware (the “Borrower”) has applied to the
Lender for a revolving credit facility in the maximum principal amount of
Thirty Million Dollars ($30,000,000) and, as part of that revolving credit facility, a letter
of credit facility in the maximum principal amount of Ten Million Dollars
($10,000,000)
(collectively, the “Credit Facilities”), which is to be advanced pursuant to
the terms of a Financing and Security Agreement of even date herewith by and
between the Borrower and the Lender (as amended, modified, restated,
substituted, extended and renewed at any time and from time to time, the “Financing
Agreement”).

 

B.            All defined terms used in this Agreement and not
defined herein shall have the meaning given to such terms in the Financing
Agreement.

 

C.            The payment and performance of all Obligations of the
Borrower under the Financing Documents are unconditionally and irrevocably
guaranteed by Debtor pursuant to the terms and conditions of that certain
Guaranty of Payment Agreement of even date herewith, executed by Debtor in
favor of Lender (as amended, modified, substituted, extended and renewed from
time to time the “Guaranty”).

 

D.            The Lender has required, as a condition to entering
into the Financing Agreement, that the Debtor execute, among other things, the
Guaranty and this Agreement as additional security for the payment and
performance of the Guaranty.

 

AGREEMENTS

 

NOW, THEREFORE, in
consideration of the premises, the mutual agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Debtor and the Lender hereby agree as follows:

 

ARTICLE
I

COLLATERAL

 

As security for the payment
of all of the Obligations evidenced by the Financing Documents and for the
Debtor’s performance of, and compliance with, all of the terms, covenants, conditions,
stipulations and agreements contained in the Guaranty and all other Obligations
of the Debtor to the Lender, whether now existing or hereafter created, the
Debtor hereby grants to the Lender and agrees that the Lender shall have a
perfected, continuing security interest in all of the following property and
assets of the Debtor, wherever situated (the “Collateral”):

 

 

(a)           All inventory, both now owned and hereafter acquired
and as the same may now and hereafter from time to time be constituted (the “Inventory”);

 

(b)           All accounts and contract rights, chattel paper,
instruments and documents, both now owned and hereafter created or acquired
(individually, an “Account” and collectively, the “Accounts”);

 

(c)           All equipment, furniture and fixtures, both now owned
and hereafter acquired, together with (i) all additions, parts, fittings,
accessories, special tools, attachments and accessions now and hereafter
affixed thereto and/or used in connection therewith and (ii) all
replacements thereof and substitutions therefore (the “Equipment”);

 

(d)           All general intangibles (including, without
limitation, all books and records, things in action, contractual rights, tax
returns, goodwill, literary rights, rights to performance, copyrights,
trademarks and patents), both now owned and hereafter acquired;

 

(e)           All notes, notes receivable, drafts, acceptances and
similar instruments and documents, both now owned and hereafter created or
acquired;

 

(f)            all proceeds (cash and non-cash) and products thereof,
and all returned, rejected or repossessed goods, the sale or lease of which
shall have given or shall give rise to an Account and all cash and non-cash
proceeds and products of all such goods;

 

provided, however,
notwithstanding the foregoing, “Collateral” shall not include (i) any
rights or obligations of the Debtor under any DoD Contract, (ii) any
equity interest (including, without limitation, any “ownership interest” as
such term is used in any DoD Contract) in Government Liquidation, (iii) any
permit, lease, license, contract, instrument or other agreement belonging to
the Debtor that prohibits, or requires the consent of any Person other than the
Debtor as a condition to, the creation of a Lien thereon, or any permit, lease,
license contract or other agreement belonging to the Debtor to the extent that
any requirement of law applicable thereto prohibits the creation of a Lien
thereon, but only, in each case, to the extent, and for so long as, such
prohibition is not terminated or rendered unenforceable or otherwise deemed
ineffective by the Uniform Commercial Code, Bankruptcy Code or any other
requirement of Law, (iv) any United States intent-to-use trademark or
service mark application to the extent, and solely during the period in which
the grant of a Lien therein would impair the validity or the enforceability of
such intent-to-use trademark or service mark under federal law, and (v) any
property subject to a Lien permitted by the Financing Agreement, if and for so
long as the contractual obligation governing such Lien prohibits the Lien of
this Agreement applying to such property.

 

The Debtor further agrees
that the Lender shall have in respect thereof all of the rights and remedies of
a secured party under the Uniform Commercial Code as well as those provided in
this Agreement.  The Debtor covenants and
agrees to execute and deliver such financing statements and other instruments
and filings as are necessary in the opinion of the Lender to perfect such
security interest.  Notwithstanding the
fact that the proceeds of the Collateral constitute a part of the Collateral,
the Debtor may not dispose of the Collateral, or any part

 

2

 

thereof, other than in the ordinary course of its
business or as otherwise may be permitted by this Agreement.

 

ARTICLE
II

REPRESENTATIONS AND WARRANTIES

 

Debtor represents and
warrants to the Lender that:

 

Section 2.1             Title to Properties.

 

Debtor has good and
marketable title to all of its properties, including, without limitation, the
Collateral and Debtor has legal, enforceable and uncontested rights to use
freely such property and assets, except, in each case, as could not reasonably
be expected to have a Material Adverse Effect.

 

Section 2.2             Accounts.

 

With respect to all Accounts
and to the best of Debtor’s knowledge (a) they are genuine, and are not
evidenced by a judgment, an Instrument, or Chattel Paper (unless such judgment
has been assigned and such Instrument or Chattel Paper has been endorsed and
delivered to Lender); (b) they represent bona fide transactions completed
in accordance with the terms and provisions contained in the invoices, purchase
orders and other contracts relating thereto, and the underlying transaction
therefor is in accordance with all applicable Laws; and (c) the amounts
shown on Debtor’s books and records, with respect thereto are actually and
absolutely owing to Debtor and are not contingent or subject to reduction for
any reason other than regular discounts, credits or adjustments allowed by
Debtor in its reasonable discretion.

 

Section 2.3             Inventory.

 

Substantially all of the
Inventory of Debtor is located at the places of business set forth on the
Collateral Disclosure List or as permitted by Section 6.2.14 of the
Financing Agreement.

 

Section 2.4             Patents, Trademarks, Etc.

 

Each of Debtor and its
Subsidiaries owns, possesses, or has the right to use all necessary patents,
licenses, trademarks, copyrights, permits and franchises to own its properties
and to conduct its business as now conducted, without known conflict with the
rights of any other Person, except, in each case, as would not reasonably be
expected to have a Material Adverse Effect. 
Any and all obligations to pay royalties or other charges with respect
to such properties and assets are properly reflected on the financial
statements previously furnished to Lender, to the extent required by GAAP.

 

Section 2.5             Business Names and Addresses.

 

Debtor has not changed its
name, identity or corporate structure in a manner which could result in a
Material Adverse Effect, since the date Debtor or Borrower last delivered a
Collateral Disclosure List to Lender.

 

3

 

Section 2.6             Presence of Hazardous
Materials or Hazardous Materials Contamination.

 

To the best of Debtor’s
knowledge, (a) no Hazardous Materials are located on any real property
owned, controlled or operated by of Debtor or for which Debtor is, or is
claimed to be, responsible, except for reasonable quantities of necessary
supplies for use by Debtor in the ordinary course of its current line of
business and stored, used and disposed in accordance with applicable Laws; and (b) no
property owned, controlled or operated by Debtor or for which Debtor has, or is
claimed to have, responsibility has ever been used as a manufacturing, storage,
or dump site for Hazardous Materials nor is affected by Hazardous Materials
Contamination at any other property.  “Hazardous
Materials” means (a) any “hazardous waste” as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to time, and
regulations promulgated thereunder; (b) any “hazardous substance” as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; (c) any substance the presence of which on any property now or
hereafter owned, acquired or operated by Debtor is prohibited by any Law
similar to those set forth in this definition; and (d) any other substance
which by Law requires special handling in its collection, storage, treatment or
disposal.  “Hazardous Materials
Contamination” means the contamination (whether presently existing or occurring
after the date of this Agreement) by Hazardous Materials of any property owned,
operated or controlled by Debtor or for which Debtor has responsibility,
including, without limitation, improvements, facilities, soil, ground water,
air or other elements on, or of, any property now or hereafter owned, acquired
or operated by Debtor, and any other contamination by Hazardous Materials for
which Debtor is, or is claimed to be, responsible.

 

Section 2.7             Perfection and Priority of
Collateral.

 

Lender has, or upon
execution of this Agreement and filing of any financing statement required
under the Uniform Commercial Code, will have a valid and perfected Lien on and
security interest in all Collateral, free of all other Liens, claims and rights
of third parties whatsoever except Permitted Liens.

 

Section 2.8             Collateral Disclosure List.

 

As of the Closing Date, and
at all times thereafter, whenever a Collateral Disclosure List is delivered to
Lender pursuant to the Financing Agreement, the information contained in the
Collateral Disclosure List is complete and correct in all material respects.  The Collateral Disclosure List completely and
accurately identifies (a) the type of entity, the state of organization
and the chief executive office of Debtor, (b) each other place of business
of Debtor, (c) the location of all books and records pertaining to the Collateral,
and (d) each location, other than the foregoing, where any of the
Collateral is located and other than as permitted by Section 6.2.14 of the
Financing Agreement.

 

Section 2.9             No Suspension or Debarment.

 

Neither Debtor nor any
Subsidiary nor any of their respective directors, officers or employees has
received any notice of, or information concerning, any proposed, contemplated
or initiated suspension or debarment, be it temporary or permanent, due to an
administrative or a 

 

4

 

statutory
basis, of Debtor or any Subsidiary by the United States of America or any
department, agency or instrumentality thereof. 
Debtor and each Subsidiary further warrants and represents that neither
Debtor nor any Subsidiary has defaulted under any DoD Contract, which default
is reasonably likely to result in the termination of such DoD Contract.

 

Section 2.10           Taxes.

 

Each of Debtor and its
Subsidiaries has filed all returns, reports and forms for taxes that, to the
knowledge of Debtor, are required to be filed, and has paid all taxes as shown
on such returns or on any assessment received by it, to the extent that such
taxes have become due, unless and to the extent only that such taxes,
assessments and governmental charges are currently contested in good faith and
by appropriate proceedings by Debtor, such taxes are not the subject of any
Liens other than Permitted Liens, and adequate reserves therefor have been
established as required under GAAP.  All
tax liabilities of Debtor were, as of the date of the audited financial
statements previously furnished to Lender, and are now, adequately provided for
on the books of Debtor or its Subsidiaries, as appropriate.

 

Section 2.11           ERISA.

 

With respect to any Plan
that is maintained or contributed to by Debtor and/or by any Commonly
Controlled Entity or as to which Debtor retains material liability: (a) no
“accumulated funding deficiency” as defined in Code §412 or ERISA §302 has
occurred, whether or not that accumulated funding deficiency has been waived; (b) no
Reportable Event has occurred other than events for which reporting has been
waived; (c) no termination of any plan subject to Title IV of ERISA has
occurred; (d) neither Debtor nor any Commonly Controlled Entity has
incurred a “complete withdrawal” within the meaning of ERISA §4203 from any
Multi-employer Plan; (e) neither Debtor nor any Commonly Controlled Entity
has incurred a “partial withdrawal” within the meaning of ERISA §4205 with
respect to any Multi-employer Plan; (f) no Multi-employer Plan to which
Debtor or any Commonly Controlled Entity has an obligation to contribute is in “reorganization”
within the meaning of ERISA §4241 nor has notice been received by Debtor or any
Commonly Controlled Entity that such a Multi-employer Plan will be placed in “reorganization”.  “Commonly Controlled Entity” means an entity,
whether or not incorporated, which is under common control with Debtor within
the meaning of Section 414(b) or (c) of the Internal Revenue
Code.  “Plan” means any pension plan that
is covered by Title IV of ERISA and in respect of which Debtor or a Commonly
Controlled Entity is an “employer” as defined in Section 3 of ERISA.  “Multi-employer Plan” means a Plan that is a
Multi-employer plan as defined in Section 4001(a)(3) of ERISA.

 

ARTICLE
III

AFFIRMATIVE COVENANTS OF DEBTOR

 

Until payment in full and
the performance of all of the Obligations, the Debtor agrees with Lender as
follows:

 

5

 

Section 3.1             Compliance with Laws.

 

Debtor shall comply, and
cause each of its Subsidiaries to comply, with all applicable Laws and observe
the valid requirements of Governmental Authorities, the noncompliance with or
the nonobservance of which could reasonably be expected to have a Material
Adverse Effect.

 

Section 3.2             Insurance Generally.

 

(a)           Debtor shall maintain insurance in an amount customary
and consistent with Debtor’s current practice, covering property damage
(including loss of use and occupancy) to any of Debtor’s properties, business
interruption insurance, public liability insurance including coverage for
contractual liability, product liability and workers’ compensation, and any
other insurance which is usual for Debtor’s business.  Each policy shall provide for at least thirty
(30) days prior notice to Lender of any cancellation thereof and name Lender as
loss payee or additional insured, as appropriate.

 

(b)           In addition to the insurance requirements stated
above, Debtor shall also maintain all risk property damage insurance policies
covering the tangible property comprising the Collateral to the extent and in
amounts customary and consistent with Debtor’s current practice.  The insurance must include a lender’s loss
payable endorsement in favor of Lender in a form acceptable to Lender in its
reasonable discretion and shall provide for at least thirty (30) days prior
notice to Lender of any cancellation thereof.

 

(c)           Upon the request of Lender, Debtor shall deliver to
Lender a copy of each insurance policy, or, if permitted by Lender, a
certificate of insurance listing all insurance in force.

 

Section 3.3             Existence.

 

Debtor shall maintain its
existence in good standing in the State of Delaware and in each other
jurisdiction where it is required to register or qualify to do business if the
failure to do so in such other jurisdiction could reasonably be expected to
have a Material Adverse Effect and remain a Registered Organization under the
laws of the State of Delaware.

 

Section 3.4             Maintenance of Properties.

 

Debtor will, and will cause
each of its Subsidiaries to, at all times (a) maintain, preserve, protect
and keep its properties, whether owned or leased, in good operating condition,
working order and repair (ordinary wear and tear excepted), and from time to
time will make all proper repairs, maintenance, replacements, additions and
improvements thereto needed to maintain such properties in good operating
condition, working order and repair, and (b) do or cause to be done all
things necessary to preserve and to keep in full force and effect its material
franchises, leases of real and personal property, trade names, patents,
trademarks, copyrights and permits which are necessary for the orderly
continuance of its business, except, in each case, where the failure to do so could
not reasonably be expected to have a Material Adverse Effect.

 

6

 

Section 3.5             Maintenance of the
Collateral.

 

Debtor will maintain the
Collateral in the condition purchased, excepting ordinary wear and tear, and
will not permit anything to be done to the Collateral that may materially
impair the value thereof, taken a whole. 
Lender shall not have any duty to, and Debtor hereby releases Lender
from all claims of loss or damage caused by the delay or failure to collect or
enforce any of the receivables of Debtor or to, preserve any rights against any
other party with an interest in the Collateral.

 

Section 3.6             Taxes.

 

Except to the extent that
the validity or amount thereof is being contested in good faith and by
appropriate proceedings, Debtor will, and will cause each of its Subsidiaries
to, pay and discharge all taxes prior to the date when any interest or penalty
would accrue for the nonpayment thereof.

 

Section 3.7             ERISA.

 

Debtor will, and will cause
each of its Commonly Controlled Entities to, comply with the funding
requirements of ERISA with respect to Plans for its respective employees.  Debtor will not permit with respect to any
Plan (a) any prohibited transaction or transactions under ERISA or the Internal
Revenue Code, which results, or may result, in any material liability of Debtor
and/or any Subsidiary and/or Affiliate, or (b) any Reportable Event if,
upon termination of the Plan or Plans with respect to which one or more such
Reportable Events shall have occurred, there is or would be any material
liability of Debtor and/or any Subsidiary and/or Affiliate to the PBGC.  Upon Lender’s request, Debtor will deliver to
Lender a copy of the most recent actuarial report, financial statements and
annual report completed with respect to any Plan.

 

Section 3.8             Hazardous Materials;
Contamination.

 

Debtor agrees to:

 

(a)           give notice to Lender immediately upon Debtor’s
acquiring knowledge of the presence of any Hazardous Materials or any Hazardous
Materials Contamination on any property owned, operated or controlled by Debtor
or for which Debtor is, or is claimed to be, responsible (provided that such
notice shall not be required for Hazardous Materials placed or stored on such
property in accordance with applicable Laws in the ordinary course (including,
without limitation, quantity) of Debtor’s line of business expressly described
in this Agreement), with a full description thereof;

 

(b)           promptly comply with any Laws requiring the removal,
treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide Lender with satisfactory evidence of such compliance;

 

(c)           provide Lender, within thirty (30) days after a demand
by Lender, with a bond, letter of credit or similar financial assurance
evidencing to Lender’s satisfaction that the necessary funds are available to
pay the cost of removing, treating, and disposing of such Hazardous Materials
or Hazardous Materials Contamination and discharging any Lien which 

 

7

 

may be established as a
result thereof on any property owned, operated or controlled by Debtor or for
which Debtor is, or is claimed to be, responsible; and

 

(d)           as part of the Obligations of Debtor, defend,
indemnify and hold harmless Lender and its agents, employees, trustees,
successors and assigns from any and all claims which may now or in the future
(whether before or after the termination of this Agreement) be asserted as a
result of the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by Debtor or for
which Debtor is, or is claimed to be, responsible.  Debtor acknowledges and agrees that this
indemnification shall survive the termination of this Agreement and the payment
and performance of all of the other Obligations.

 

Section 3.9             Other Liens, Security
Interests, Etc.

 

Debtor will keep the
Collateral free from all liens, security interests and claims of every kind and
nature, other than the security interest granted to the Lender pursuant to this
Agreement and the Permitted Liens.

 

Section 3.10           Defense of Title and Further
Assurances.

 

At its expense, Debtor will
defend the title to the Collateral (and any part thereof), and will, except as
otherwise set forth in this Section 3.10, immediately execute, acknowledge
and deliver any renewal, affidavit, deed, assignment, security agreement,
certificate or other document which Lender may require in order to perfect,
preserve, maintain, continue, protect and/or extend the Lien granted to Lender
under this Agreement and the first priority of that Lien, subject only to the
Permitted Liens.  Debtor hereby
authorizes the filing of any financing statement or continuation statement
required under the Uniform Commercial Code. 
Debtor will take any and all steps and observe such formalities as
Lender may require, in order to create and maintain a valid Lien upon, pledge
of, or paramount security interest in, the Collateral, subject to the Permitted
Liens.  Debtor shall pay to Lender on
demand all taxes, costs and expenses incurred by Lender in connection with the
preparation, execution, recording and filing of any such document or
instrument.  To the extent that the
proceeds of any of the Accounts or receivables of Debtor are expected to become
subject to the control of, or in the possession of, a party other than Debtor
or Lender, Debtor shall cause all such parties to execute and deliver security
documents or other documents as requested by Lender and as may be necessary to
evidence and/or perfect the security interest of Lender in those proceeds.  Debtor hereby irrevocably appoints Lender as
Debtor’s attorney-in-fact, with power of substitution, in the name of Lender or
in the name of Debtor or otherwise, for the use and benefit of Lender, but at
the cost and expense of Debtor and without notice to Debtor, to execute and
deliver any and all of the instruments and other documents and take any action
which Lender may require pursuant the foregoing provisions of this Section 3.10.

 

Section 3.11           Landlord’s Waivers.

 

Debtor shall use
commercially reasonable efforts to deliver to Lender a waiver in form
acceptable to Lender and its counsel in their reasonable discretion from each
landlord for Debtor’s premises listed on Schedule 6.1.14 of the Financing
Agreement.

 

8

 

Section 3.12           Government Accounts.

 

Debtor will promptly notify
Lender if any of the Receivables arise out of contracts with the United States
of America or any department, agency or instrumentality thereof for the sale of
products or provision of services and, as appropriate and at request of Lender,
within thirty (30) days of such request, execute any documents and take any
steps required by Lender in order that all moneys due and to become due under
such contracts shall be assigned to Lender and notice thereof given to the
applicable Governmental Authority under the Federal Assignment of Claims Act or
any other applicable Laws.  Debtor shall
provide Lender with all necessary information and will execute and deliver such
documents as are required to comply with the Federal Assignment of Claims Act
of 1940 (31 U.S.C. §3727 and 41 U.S.C. §15).

 

Section 3.13           Use of Premises and
Equipment.

 

Debtor agrees that until the
Obligations are fully paid and Lender has no further obligation to extend any
credit to Borrower, during the occurrence and continuance of an Event of
Default, Lender shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Debtor’s owned or leased property.

 

Section 3.14           Protection of Collateral.

 

Debtor agrees that Lender
may at any time following an Event of Default take such steps as Lender deems
reasonably necessary to protect the interest of Lender in, and to preserve the
Collateral, including, the hiring of such security guards or the placing of
other security protection measures as Lender deems appropriate, may employ and
maintain at any of Debtor’s premises a custodian who shall have full authority
to do all acts necessary to protect the interests of Lender in the Collateral
and may lease warehouse facilities to which Lender may move all or any part of
the Collateral to the extent commercially reasonable.  Debtor agrees to cooperate fully with Lender’s
efforts to preserve the Collateral and will take such actions to preserve the
Collateral as Lender may reasonably direct. 
All of Lender’s expenses of preserving the Collateral, including any
reasonable expenses relating to the compensation and bonding of a custodian,
shall be part of the Enforcement Costs.

 

Section 3.15           Business Names; Locations.

 

Debtor will notify and cause
each of its Subsidiaries to notify Lender not less than thirty (30) days prior
to (a) any change in the name under which Debtor or the applicable
Subsidiary conducts its business, (b) any change of the location of the
chief executive office of Debtor or the applicable Subsidiary, and (c) the
opening of any new place of business or the closing of any existing place of
business, and (d) any change in the location of the places where the
Collateral, or any part thereof, or the books and records, or any part thereof,
are kept other than as permitted by Section 6.2.14 of the Financing
Agreement.

 

9

 

ARTICLE
IV

NEGATIVE COVENANTS OF DEBTOR

 

Until payment in full and
the performance of all of the Obligations, without the prior written consent of
the Lender, the Debtor will not directly or indirectly:

 

Section 4.1             Liens; Confessed Judgment.

 

(a) Create, incur,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, or permit any Subsidiary so to do,
except for Permitted Liens, (b) assume or suffer to exist any provision in
any instrument or other document for confession of judgment, cognovit or other
similar right or remedy, (c) allow or suffer to exist any Permitted Liens
to be superior to Lender’s Liens on the Collateral, (d) enter into any
contracts for the consignment of goods, will not execute or suffer the filing
of any financing statements or the posting of any signs giving notice of
consignments, and will not, as a material part of its business, engage in the
sale of goods belonging to others, and (e) allow or suffer to exist the
failure of any Lien described herein to attach to, and/or remain at all times
perfected on, any of the Collateral.

 

Section 4.2             ERISA Compliance.

 

And will not allow any
Commonly Controlled Entity to:  (a) engage
in or permit any “prohibited transaction” (as defined in ERISA); (b) cause
any “accumulated funding deficiency” as defined in ERISA and/or the Internal
Revenue Code; (c) terminate any pension plan in a manner which could
result in the imposition of a lien on the property of Debtor pursuant to ERISA;
(d) terminate or consent to the termination of any Multi-employer Plan; or
(e) incur a complete or partial withdrawal with respect to any
Multi-employer Plan.

 

Section 4.3             Prohibition on Hazardous
Materials.

 

Debtor shall not place,
manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, operated or controlled by Debtor or
for which Debtor is responsible other than Hazardous Materials placed or stored
on such property in accordance with applicable Laws in the ordinary course of
Debtor’s business expressly described in this Agreement.

 

Section 4.4             Transfer of Collateral.

 

Transfer, or permit the
transfer, to a location not listed on the Collateral Disclosure List, of the
books and records related to any of the Collateral or of any of the Collateral
having an aggregate value in excess of Five Hundred Thousand Dollars ($500,000)
except for (a) Collateral in transit, (b) Collateral maintained at a
temporary location for a period not to exceed six (6) months or (c) Collateral
located at a customer’s place of business which is offered for sale in the
ordinary course of business; provided, however, after the occurrence and
continuance of an Event of Default, Debtor will promptly disclose the locations
of all of the Collateral to Lender.

 

10

 

Section 4.5             Sale and Leaseback.

 

Directly or indirectly enter
into any arrangement to sell or transfer all or any substantial part of its
fixed assets then owned by it and thereupon or within one year thereafter rent
or lease the assets so sold or transferred.

 

Section 4.6             DoD Contracts.

 

Without the prior written
consent of the Lender, which consent shall not be unreasonably withheld or
delayed, amend, modify or change any provision in any DoD Contract which would
affect, in a manner materially adverse to the Lender, either (i) the
entities receiving distributions under any such DoD Contract or (ii) the
timing of distributions under any such DoD Contract.

 

Section 4.7             Sale of Accounts.

 

Except in the ordinary
course of its business, sell, discount, allow credits or allowances, transfer,
assign, extend the time for payment on, convey, lease, assign, transfer or
otherwise dispose of the Collateral, except, prior to an Event of Default,
dispositions expressly permitted elsewhere in this Agreement, the sale of Inventory
in the ordinary course of business.

 

ARTICLE
V

EVENTS OF DEFAULT

 

The occurrence of one or
more of the following events shall be “Events of Default” under this Agreement,
and the terms “Event of Default” or “default” shall mean, whenever they are
used in this Agreement, any one or more of the following events:

 

Section 5.1             Failure to Pay.

 

The Debtor shall fail to pay
or perform any of the Obligations, when and as the same shall become due and
payable under the Guaranty.

 

Section 5.2             Breach of Representations
and Warranties.

 

Any representation or
warranty made in this Agreement or in any report, statement, schedule,
certificate, opinion (including any opinion of counsel for Debtor), financial
statement or other document furnished in connection with this Agreement, any of
the other Financing Documents, or the Obligations, shall prove to have been
false or misleading when made (or, if applicable, when reaffirmed) in any
material respect.

 

Section 5.3             Failure to Comply with
Covenants.

 

The failure of Debtor to
perform, observe or comply with any covenant, condition or agreement contained
in Sections Section 3.2, 3.3, 3.6 or 3.8 hereof or in Section 4
hereof.

 

11

 

Section 5.4             Other Defaults.

 

The failure of Debtor to
perform, observe or comply with any covenant, condition or agreement contained
in this Agreement other than those set forth in Sections 5.1, 5.2, or 5.3
above, which default shall remain un-remedied for thirty (30) days after
written notice thereof to the Debtor by the Lender.

 

Section 5.5             Default Under Other
Financing Documents.

 

A default shall occur under
any of the other Financing Documents, and such default is not cured within any
applicable grace period provided therein.

 

Section 5.6             Receiver; Bankruptcy.

 

Debtor or any Subsidiary
shall (a) apply for or consent to the appointment of a receiver, trustee
or liquidator of itself or any of its property, (b) admit in writing its
inability to pay its debts as they mature, (c) make a general assignment
for the benefit of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file
a voluntary petition in bankruptcy or a petition or an answer seeking or
consenting to reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law, or take corporate action for the purposes of effecting any of the
foregoing, (f) by any act indicate its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any of its property, or suffer any such receivership, trusteeship
or proceeding to continue undischarged for a period of sixty (60) days, or (g) by
any act indicate its consent to, approval of or acquiescence in any order,
judgment or decree by any court of competent jurisdiction or any Governmental
Authority enjoining or otherwise prohibiting the operation of a material
portion of Debtor’s or any Subsidiary’s business or the use or disposition of a
material portion of Debtor’s or any Subsidiary’s assets.

 

Section 5.7             Involuntary Bankruptcy, etc.

 

(a) An order for relief
shall be entered in any involuntary case brought against Debtor or any
Subsidiary under the Bankruptcy Code, or (b) any such case shall be
commenced against Debtor or any Subsidiary and shall not be dismissed within
sixty (60) days after the filing of the petition, or (c) an order,
judgment or decree under any other Law is entered by any court of competent
jurisdiction or by any other Governmental Authority on the application of a
Governmental Authority or of a Person other than Debtor or any Subsidiary (i) adjudicating
Debtor, or any Subsidiary bankrupt or insolvent, or (ii) appointing a
receiver, trustee or liquidator of Debtor or of any Subsidiary, or of a
material portion of Debtor’s or any Subsidiary’s assets, or (iii) enjoining,
prohibiting or otherwise limiting the operation of a material portion of Debtor’s
or any Subsidiary’s business or the use or disposition of a material portion of
Debtor’s or any Subsidiary’s assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.

 

12

 

Section 5.8             Judgment.

 

Unless adequately insured in
the opinion of Lender, the entry of a final judgment for the payment of money
involving more than Two Million Dollars ($2,000,000) against Debtor or any
Subsidiary, and the failure by Debtor or such Subsidiary to discharge the same,
or cause it to be discharged, within thirty (30) days from the date of the
order, decree or process under which or pursuant to which such judgment was
entered, or to secure a stay of execution pending appeal of such judgment.

 

Section 5.9             Execution; Attachment.

 

Any execution or attachment
shall be levied against Collateral having an aggregate value in excess of Five
Hundred Thousand Dollars ($500,000), or any part thereof, and such execution or
attachment shall not be set aside, discharged or stayed within thirty (30) days
after the same shall have been levied.

 

Section 5.10           Debarment or Suspension.

 

Debtor is debarred or
suspended, whether temporarily or permanently, by the United States of America
or any department, agency or instrumentality thereof.

 

Section 5.11           Liquidation, Termination or
Dissolution.

 

Debtor shall liquidate,
dissolve or terminate its existence or shall suspend or terminate a substantial
portion of its business operations.

 

Section 5.12           Default Under Other
Borrowings.

 

Default shall be made with
respect to any evidence of indebtedness or liability for borrowed money (other
than under the Credit Facilities and other unsecured Indebtedness of up to One
Million Dollars ($1,000,000)) if the effect of such default is to accelerate
the maturity of such evidence of indebtedness or liability or to permit the
holder or obligee thereof to cause any indebtedness to become due prior to its
stated maturity.

 

ARTICLE
VI

RIGHTS AND REMEDIES UPON DEFAULT

 

Section 6.1             Demand; Acceleration.

 

Upon the occurrence of an
Event of Default, and in every such event and at any time thereafter, the
Lender may declare the Obligations due and payable, without presentment,
demand, protest, or any notice of any kind, all of which are hereby expressly
waived, anything contained herein or in any of the other Financing Documents to
the contrary notwithstanding.

 

Section 6.2             Specific Rights With Regard
to Collateral.

 

In addition to all other
rights and remedies provided hereunder or as shall exist at law or in equity
from time to time, the Lender may, without notice to the Debtor:

 

13

 

(a)           request any account debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the Lender
taking control of the cash and non-cash proceeds thereof;

 

(b)           compromise, extend or renew any of the Collateral or
deal with the same as it may deem advisable;

 

(c)           make exchanges, substitutions or surrenders of all or
any part of the Collateral;

 

(d)           remove from any of the Debtor’s place of business all
books, records, ledger sheets, correspondence, invoices and documents, relating
to or evidencing any of the Collateral or without cost or expense to the
Lender, make such use of the Debtor’s place(s) of business as may be
reasonably necessary to administer, control and collect the Collateral;

 

(e)           repair, alter or supply goods if necessary to fulfill in
whole or in part the purchase order of any account debtor;

 

(f)            demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;

 

(g)           institute and prosecute legal and equitable
proceedings to enforce collection of, or realize upon, any of the Collateral;

 

(h)           settle, renew, extend, compromise, compound, exchange
or adjust claims in respect of any of the Collateral or any legal proceedings
brought in respect thereof;

 

(i)            endorse the name of the Debtor upon any items of
payment relating to the Collateral or on any Proof of Claim in Bankruptcy
against an account debtor;

 

(j)            clear Inventory through customs in Lender’s or Debtor’s
name and to sign and deliver to customs officials powers of attorney in Debtor’s
name for such purpose; and

 

(k)           take any other action
necessary or beneficial to realize upon or dispose of the Collateral or to
carry out the terms of this Agreement.

 

Section 6.3             Application of Proceeds.

 

Any proceeds of sale or
other disposition of the Collateral will be applied by Lender to the payment
first of any and all Enforcement Costs, and any balance of such proceeds will
be applied to the Obligations in such order and manner as Lender shall
determine.  If the sale or other
disposition of the Collateral fails to fully satisfy the Obligations, Debtor
and Borrower shall remain liable to Lender for any deficiency.

 

Section 6.4             Performance by Lender.

 

If the Debtor shall fail to
pay the Obligations or otherwise fail to perform, observe or comply with any of
the conditions, covenants, terms, stipulations or agreements contained in this
Agreement or any of the other Financing Documents, the Lender without notice to
or demand 

 

14

 

upon
Debtor and without waiving or releasing any of the Obligations or any Default
or Event of Default, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account and at the
expense of Debtor, and may enter upon the premises of Debtor for that purpose
and take all such action thereon as Lender may consider necessary or
appropriate for such purpose and Debtor hereby irrevocably appoints Lender as
its attorney-in-fact to do so, with power of substitution, in the name of Lender,
in the name of Debtor or otherwise, for the use and benefit of Lender, but at
the cost and expense of Debtor and without notice to Debtor.  All sums so paid or advanced by Lender
together with interest thereon from the date of payment, advance or incurring
until paid in full at the Post-Default Rate and all costs and expenses, shall
be paid by Debtor to Lender on demand, and shall constitute and become a part
of the Obligations.

 

Section 6.5             Uniform Commercial Code.

 

Lender
shall have all of the rights and remedies of a secured party under the
applicable Uniform Commercial Code and other applicable Laws.  Upon demand by Lender, Debtor shall assemble
the Collateral and make it available to Lender, at a place designated by
Lender.  Lender or its agents may without
notice from time to time enter upon Debtor’s premises to take possession of the
Collateral, to remove it, to render it unusable, to process it or otherwise
prepare it for sale, or to sell or otherwise dispose of it.

 

Any
written notice of the sale, disposition or other intended action by Lender with
respect to the Collateral which is sent by regular mail, postage prepaid, to
Debtor at the address set forth in Section 7.1 (Notices), or such other
address of Debtor which may from time to time be shown on Lender’s records, at
least ten (10) days prior to such sale, disposition or other action, shall
constitute commercially reasonable notice to Debtor.  Lender may alternatively or additionally give
such notice in any other commercially reasonable manner.  Nothing in this Agreement shall require
Lender to give any notice not required by applicable Laws.

 

If
any consent, approval, or authorization of any state, municipal or other
Governmental Authority or of any other Person or of any Person having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, Debtor agrees to execute all such applications
and other instruments, and to take all other action, as may be required in
connection with securing any such consent, approval or authorization.

 

Debtor recognizes that
Lender may be unable to effect a public sale of all or a part of the Collateral
consisting of Investment Property by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and other applicable Federal and
state Laws.  Lender may, therefore, in
its discretion, take such steps as it may deem appropriate to comply with such
Laws and may, for example, at any sale of the Collateral consisting of
securities restrict the prospective bidders or purchasers as to their number,
nature of business and investment intention, including, without limitation, a
requirement that the Persons making such purchases represent and agree to the
satisfaction of Lender that they are purchasing such securities for their
account, for investment, and not with a view to the distribution or resale of
any thereof.  Debtor covenants and agrees
to do or cause to be done promptly all such acts and things as Lender may request
from time to time and as may be necessary to offer and/or sell the securities
or any part thereof in a manner which is valid and binding and in conformance
with all applicable Laws.   Upon any 

 

15

 

such
sale or disposition, Lender shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral consisting of securities so
sold.

 

Section 6.6             Other Remedies.

 

Lender may from time to time
proceed to protect or enforce its rights by an action or actions at law or in
equity or by any other appropriate proceeding, whether for the specific
performance of any of the covenants contained in this Agreement or in any of
the other Financing Documents, or for an injunction against the violation of
any of the terms of this Agreement or any of the other Financing Documents, or
in aid of the exercise or execution of any right, remedy or power granted in
this Agreement, the Financing Documents, and/or applicable Laws.  Lender is authorized to offset and apply to
all or any part of the Obligations all moneys, credits and other property of
any nature whatsoever of Debtor now or at any time hereafter in the possession
of, in transit to or from, under the control or custody of, or on deposit with,
Lender or any Affiliate of Lender.

 

ARTICLE
VII

MISCELLANEOUS

 

Section 7.1             Notices.

 

All notices, certificates or
other communications hereunder shall be given as set forth in Section 4.1
of the Guaranty.

 

Section 7.2             Consents and Approvals.

 

If any consent, approval, or
authorization of any state, municipal or other governmental department, agency
or authority or of any person, or any person, corporation, partnership or other
entity having any interest therein, should be necessary to effectuate any sale
or other disposition of the Collateral, the Debtor agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.

 

Section 7.3             Remedies, Etc. Cumulative.

 

Each right, power and remedy
of the Lender as provided for in this Agreement or in any of the other
Financing Documents or now or hereafter existing at law or in equity or by
statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power or remedy provided for in this Agreement
or in any of the other Financing Documents or now or hereafter existing at law
or in equity, by statute or otherwise, and the exercise or beginning of the
exercise by the Lender of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by the Lender of any or
all such other rights, powers or remedies. 
In order to entitle the Lender to exercise any remedy reserved to it
herein, it shall not be necessary to give any notice, other than such notice as
may be expressly required in this Agreement.

 

16

 

Section 7.4             No Waiver of Rights by the
Lender.

 

No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant
or agreement of this Agreement or of any of the other Financing Documents, or
to exercise any right, power or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant or agreement or of
any such breach or preclude the Lender from exercising any such right, power or
remedy at any later time or times.  By
accepting payment after the due date of any amount payable under this Agreement
or under any of the other Financing Documents, the Lender shall not be deemed
to waive the right either to require prompt payment when due of all other
amounts payable under this Agreement or under any of the other Financing
Documents, or to declare a default for failure to effect such prompt payment of
any such other amount.

 

Section 7.5             Entire Agreement.

 

The Financing Documents
shall completely and fully supersede all other agreements, both written and
oral, between the Lender and the Debtor relating to the Obligations.  Neither the Lender nor the Debtor shall
hereafter have any rights under such prior agreements but shall look solely to
the Financing Documents for definition and determination of all of their
respective rights, liabilities and responsibilities relating to the
Obligations.

 

Section 7.6             Survival of Agreement;
Successors and Assigns.

 

All
covenants, agreements, representations and warranties made by the Debtor herein
and in any certificate, in the Financing Documents and in any other instruments
or documents delivered pursuant hereto shall survive the making by the Lender
of the Credit Facilities and the execution and delivery of the Revolving Credit
Note, and shall continue in full force and effect so long as any of the
Obligations are outstanding and unpaid. 
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the
Debtor, which are contained in this Agreement shall inure to the benefit of the
successors and assigns of the Lender, and all covenants, promises and
agreements by or on behalf of the Lender which are contained in this Agreement
shall inure to the benefit of the permitted successors and permitted assigns of
the Debtor, but this Agreement may not be assigned by the Debtor without the
prior written consent of the Lender.

 

Section 7.7             Enforcement Costs.

 

Debtor shall pay to Lender
on demand all Enforcement Costs, together with interest thereon from the date
incurred or advanced until paid in full at a per annum rate of interest equal
at all times to the Post-Default Rate. 
Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. 
Without implying any limitation on the foregoing, Debtor shall pay, as
part of the Enforcement Costs, upon demand any and all stamp and other Taxes
and fees payable or determined to be payable in connection with the execution
and delivery of this Agreement and the other Financing Documents and to save
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or 

 

17

 

omission
to pay any Taxes or fees referred to in this Section.  The provisions of this Section shall
survive the execution and delivery of this Agreement and the repayment of the
Obligations.

 

Section 7.8             Counterparts.

 

This Agreement may be
executed in any number of counterparts all of which together shall constitute a
single instrument.

 

Section 7.9             Governing Law.

 

(a)           THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE, WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES INSOFAR AS
SUCH PRINCIPLES WOULD DEFER TO THE SUBSTANTIVE LAWS OF SOME OTHER JURISDICTION.

 

(b)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.

 

(c)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER FINANCING
DOCUMENT IN ANY COURT REFERRED TO IN SECTION 7.9(b).  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.

 

Section 7.10           Modifications.

 

No modification or waiver of
any provision of this Agreement, nor consent to any departure by the Debtor
therefrom, shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  No
notice to or demand on the Debtor in any case shall entitle the Debtor to any
other or further notice or demand in the same, similar or other circumstance.

 

18

 

Section 7.11           Illegality.

 

If fulfillment of any
provision hereof or any transaction related hereto or to any of the other
Financing Documents, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity; and if any clause or provisions herein contained other than the
provisions hereof pertaining to repayment of the Obligations operates or would
prospectively operate to invalidate this Agreement in whole or in part, then
such clause or provision only shall be void, as though not herein contained,
and the remainder of this Agreement shall remain operative and in full force
and effect; and if such provision pertains to repayment of the Obligations,
then, at the option of the Lender, all of the Obligations of the Debtor to the
Lender shall become immediately due and payable.

 

Section 7.12           Gender, Etc.

 

Whenever used herein, the
singular number shall include the plural, the plural the singular and the use
of the masculine, feminine or neuter gender shall include all genders.

 

Section 7.13           Headings.

 

The headings in this
Agreement are for convenience only and shall not limit or otherwise affect any
of the terms hereof.

 

Section 7.14           Waiver of Trial by Jury.

 

THE DEBTOR AND THE LENDER
HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE DEBTOR AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY
WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING
DOCUMENTS, OR (C) THE COLLATERAL. 
THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST
ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES
WHO ARE NOT PARTIES TO THIS AGREEMENT.

 

THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY THE DEBTOR AND THE LENDER, AND THE DEBTOR AND
THE LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE
BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY
WAY MODIFY OR NULLIFY ITS EFFECT.  THE
DEBTOR AND THE LENDER FURTHER REPRESENT THAT THEY HAVE BEEN REPRESENTED IN THE
SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

Section 7.15           Liability of the Lender.

 

Debtor hereby agrees that
Lender shall not be chargeable for any negligence, mistake, act or omission of
any accountant, examiner, agency or attorney employed by Lender in making 

 

19

 

examinations,
investigations or collections, or otherwise in perfecting, maintaining,
protecting or realizing upon any lien or security interest or any other
interest in the Collateral or other security for the Obligations.

 

By inspecting the Collateral
or any other properties of Debtor or by accepting or approving anything
required to be observed, performed or fulfilled by Debtor or to be given to
Lender pursuant to this Agreement or any of the other Financing Documents,
Lender shall not be deemed to have warranted or represented the condition,
sufficiency, legality, effectiveness or legal effect of the same, and such
acceptance or approval shall not constitute any warranty or representation with
respect thereto by Lender.

 

[SIGNATURES
APPEAR ON THE FOLLOWING PAGE]

 

20

 

IN WITNESS WHEREOF, the
Debtor has signed this Agreement on the day and year first above written.

 

	
   

  	
  SURPLUS
  ACQUISITION VENTURE, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James M. Rallo

  
	
   

  	
   

  	
  Name:
  James M. Rallo

  
	
   

  	
   

  	
  Title:
  Treasurer

  

 

[Signature
Page to Security Agreement]

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