Document:

deep_ex1001.htm

    EXHIBIT 10.1

     

    
       

       

      CREDIT
AGREEMENT

       

      $6,000,000

       

      Dated
as of August 6, 2007

       

      by
and among

       

      DEEP
DOWN, INC.,

       

      as
Borrower,

       

      THE
FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,

       

      as
Lenders, and

       

      PROSPECT
CAPITAL CORPORATION,

       

       

      as
Agent

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        TABLE
OF CONTENTS

      

       

      
        
          	 	Page 
	
                  ARTICLE
      I DEFINITIONS; CERTAIN TERMS

                	
                  1

                
	
                  Section
      1.01 Definitions

                	
                  1

                
	
                  Section
      1.02 Terms Generally

                	
                  15

                
	
                  Section
      1.03 Accounting and Other Terms

                	
                  15

                
	
                  Section
      1.04 Time References

                	
                  15

                
	 
      	 
      
	
                  ARTICLE
      II THE LOANS .

                	
                  15

                
	
                  Section
      2.01 Commitments

                	
                  15

                
	
                  Section
      2.02 Making the Loans

                	
                  16

                
	
                  Section
      2.03 Repayment of Loans; Evidence of Debt

                	
                  16

                
	
                  Section
      2.04 Interest

                	
                  17

                
	
                  Section
      2.05 Reduction of Commitment; Prepayment of Loans

                	
                  18

                
	
                  Section
      2.06 Structuring Fee

                	
                  19

                
	
                  Section
      2.07 Taxes

                	
                  19

                
	 
      	 
      
	
                  ARTICLE
      III FEES, PAYMENTS AND OTHER COMPENSATION

                	
                  20

                
	
                  Section
      3.01 Payments; Computations, Statements and Debt Service Reserve
      Account

                	
                  20

                
	
                  Section
      3.02 Sharing of Payments, Etc

                	
                  21

                
	
                  Section
      3.03 Apportionment of Payments

                	
                  21

                
	 
      	 
      
	
                  ARTICLE
      IV CONDITIONS TO LOANS

                	
                  22

                
	
                  Section
      4.01 Conditions Precedent to Effectiveness

                	
                  22

                
	 
      	 
      
	
                  ARTICLE
      V REPRESENTATIONS AND WARRANTIES

                	
                  25

                
	
                  Section
      5.01 Organization, Good Standing, Etc

                	
                  25

                
	
                  Section
      5.02 Authorization, Etc

                	
                  25

                
	
                  Section
      5.03 Governmental Approvals

                	
                  25

                
	
                  Section
      5.04 Enforceability of Loan Documents

                	
                  25

                
	
                  Section
      5.05 Capitalization; Subsidiaries

                	
                  26

                
	
                  Section
      5.06 Litigation; Commercial Tort Claims

                	
                  26

                
	
                  Section
      5.07 Financial Condition.

                	
                  26

                
	
                  Section
      5.08 Compliance with Law, Etc

                	
                  26

                
	
                  Section
      5.09 ERISA

                	
                  26

                
	
                  Section
      5.10 Taxes, Etc

                	
                  27

                
	
                  Section
      5.11 Regulations T, U and X

                	
                  27

                
	
                  Section
      5.12 Nature of Business

                	
                  27

                
	
                  Section
      5.13 Adverse Agreements, Etc

                	
                  27

                
	
                  Section
      5.14 Permits, Etc

                	
                  28

                
	
                  Section
      5.15 Properties.

                	
                  28

                
	
                  Section
      5.16 Full Disclosure

                	
                  28

                
	
                  Section
      5.17 Operating Lease Obligations

                	
                  29

                
	
                  Section
      5.18 Environmental Matters

                	
                  29

                
	
                  Section
      5.19 Insurance

                	
                  29

                

        

        

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

        

        
          	
                  Section
      5.20 Use of Proceeds

                	
                  29

                
	
                  Section
      5.21 Solvency

                	
                  29

                
	
                  Section
      5.22 Location of Bank Accounts

                	
                  30

                
	
                  Section
      5.23 Material Contracts

                	
                  30

                
	
                  Section
      5.24 Investment Company Act

                	
                  30

                
	
                  Section
      5.25 Employee and Labor Matters

                	
                  30

                
	
                  Section
      5.26 Customers and Suppliers

                	
                  30

                
	
                  Section
      5.27 No Bankruptcy Filing

                	
                  30

                
	
                  Section
      5.28 Casualty Events

                	
                  31

                
	
                  Section
      5.29 Organizational Information

                	
                  31

                
	
                  Section
      5.30 Equipment

                	
                  31

                
	
                  Section
      5.31 Locations of Collateral

                	
                  31

                
	
                  Section
      5.32 Security Interests

                	
                  31

                
	
                  Section
      5.33 Schedules

                	
                  31

                
	
                  Section
      5.34 Representations and Warranties in Documents; No
    Default

                	
                  31

                
	
                  Section
      5.35 Reliance

                	
                  32

                
	
                  Section
      5.36 Brokers

                	
                  32

                
	
                  Section
      5.37 Use of Loans

                	
                  32

                
	 
      	 
      
	
                  ARTICLE
      VI AFFIRMATIVE COVENANTS

                	
                  32

                
	
                  Section
      6.01 Reporting Requirements

                	
                  32

                
	
                  Section
      6.02 Additional Guaranties and Collateral Security

                	
                  35

                
	
                  Section
      6.03 Compliance with Laws, Etc

                	
                  35

                
	
                  Section
      6.04 Preservation of Existence, Etc

                	
                  35

                
	
                  Section
      6.05 Keeping of Records and Books of Account

                	
                  36

                
	
                  Section
      6.06 Inspection Rights

                	
                  36

                
	
                  Section
      6.07 Maintenance of Properties, Etc

                	
                  36

                
	
                  Section
      6.08 Maintenance of Insurance

                	
                  36

                
	
                  Section
      6.09 Obtaining of Permits, Etc

                	
                  37

                
	
                  Section
      6.10 Environmental

                	
                  37

                
	
                  Section
      6.11 Further Assurances

                	
                  37

                
	
                  Section
      6.12 Change in Collateral; Collateral Records

                	
                  37

                
	
                  Section
      6.13 Landlord Waivers; Collateral Access Agreements

                	
                  37

                
	
                  Section
      6.14 Subordination

                	
                  38

                
	
                  Section
      6.15 Fiscal Year

                	
                  38

                
	
                  Section
      6.16 Key Man Life Insurance

                	
                  38

                
	
                  Section
      6.17 Agent Observers.

                	
                  38

                
	
                  Section
      6.18 Management

                	
                  39

                
	
                  Section
      6.19 Budget

                	
                  39

                
	
                  Section
      6.20 Material Contracts

                	
                  39

                
	
                  Section
      6.21 Right of First Refusal

                	
                  39

                
	
                  Section
      6.22 Amegy Factoring Agreement

                	
                  39

                
	
                  Section
      6.23 Properties

                	
                  39

                
	 
      	 
      
	
                  ARTICLE
      VII Negative Covenants

                	
                  39

                
	
                  Section
      7.01 Liens, Etc

                	
                  40

                
	
                  Section
      7.02 Fundamental Changes; Dispositions

                	
                  40

                

        

        

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

        

        
          	
                  Section
      7.03 Change in Nature of Business

                	
                  40

                
	
                  Section
      7.04 Loans, Advances, Investments, Etc

                	
                  40

                
	
                  Section
      7.05 Lease Obligations

                	
                  41

                
	
                  Section
      7.06 Restricted Payments

                	
                  41

                
	
                  Section
      7.07 Federal Reserve Regulations; Use of Proceeds

                	
                  41

                
	
                  Section
      7.08 Transactions with Affiliates

                	
                  41

                
	
                  Section
      7.09 Limitations on Dividends and Other Payment Restrictions Affecting
      Subsidiaries

                	
                  41

                
	
                  Section
      7.10 Capital Stock

                	
                  42

                
	
                  Section
      7.11 Modifications of Indebtedness, Organizational Documents and Certain
      Other Agreements; Etc

                	
                  42

                
	
                  Section
      7.12 Investment Company Act of 1940

                	
                  43

                
	
                  Section
      7.13 Compromise of Accounts Receivable

                	
                  43

                
	
                  Section
      7.14 ERISA

                	
                  43

                
	
                  Section
      7.15 Environmental

                	
                  43

                
	
                  Section
      7.16 Certain Agreements; Permits; Authorizations.

                	
                  43

                
	
                  Section
      7.17 Corporate Status

                	
                  43

                
	
                  Section
      7.18 General and Administrative Costs

                	
                  43

                
	
                  Section
      7.19 Indebtedness

                	
                  43

                
	 
      	 
      
	
                  ARTICLE
      VIII Financial Covenants

                	
                  44

                
	
                  Section
      8.01 Debt/EBITDA

                	
                  44

                
	
                  Section
      8.02 Interest Coverage

                	
                  44

                
	
                  Section
      8.03 Free Cash Flow Coverage

                	
                  44

                
	
                  Section
      8.04 EBITDA

                	
                  45

                
	 
      	 
      
	
                  ARTICLE
      IX OPERATING ACCOUNT

                	
                  45

                
	
                  Section
      9.01 Operating Account

                	
                  45

                
	 
      	 
      
	
                  ARTICLE
      X EVENTS OF DEFAULT

                	
                  46

                
	
                  Section
      10.01 Events of Default

                	
                  46

                
	
                  Section
      10.02 Remedies.

                	
                  48

                
	 
      	 
      
	
                  ARTICLE
      XI AGENT

                	
                  49

                
	
                  Section
      11.01 Appointment

                	
                  49

                
	
                  Section
      11.02 Nature of Duties

                	
                  50

                
	
                  Section
      11.03 Rights, Exculpation, Etc

                	
                  50

                
	
                  Section
      11.04 Reliance

                	
                  51

                
	
                  Section
      11.05 Indemnification

                	
                  51

                
	
                  Section
      11.06 Agent Individually

                	
                  51

                
	
                  Section
      11.07 Successor Agent

                	
                  51

                
	
                  Section
      11.08 Collateral Matters

                	
                  52

                
	
                  Section
      11.09 Agency for Perfection

                	
                  53

                
	 
      	 
      
	
                  ARTICLE
      XII MISCELLANEOUS

                	
                  53

                
	
                  Section
      12.01 Notices, Etc

                	
                  53

                
	
                  Section
      12.02 Amendments, Etc

                	
                  54

                

        

        

        
          
            
            

          

          
            iii

            
              

            

          

          
            
            

          

        

        

        

        
          	
                  Section
      12.03 No Waiver; Remedies, Etc

                	
                  54

                
	
                  Section
      12.04 Expenses; Taxes; Attorneys' Fees

                	
                  55

                
	
                  Section
      12.05 Right of Set-off

                	
                  55

                
	
                  Section
      12.06 Severability

                	
                  56

                
	
                  Section
      12.07 Assignments and Participations

                	
                  56

                
	
                  Section
      12.08 Counterparts

                	
                  58

                
	
                  Section
      12.09 GOVERNING LAW

                	
                  59

                
	
                  Section
      12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND
VENUE

                	
                  59

                
	
                  Section
      12.11 WAIVER OF JURY TRIAL, ETC

                	
                  59

                
	
                  Section
      12.12 No Party Deemed Drafter

                	
                  60

                
	
                  Section
      12.13 Reinstatement; Certain Payments

                	
                  60

                
	
                  Section
      12.14 Indemnification

                	
                  60

                
	
                  Section
      12.15 Records

                	
                  61

                
	
                  Section
      12.16 Binding Effect

                	
                  61

                
	
                  Section
      12.17 Interest

                	
                  61

                
	
                  Section
      12.18 Confidentiality

                	
                  62

                
	
                  Section
      12.19 Integration

                	
                  63

                
	
                  Section
      12.20 Waiver

                	
                  63

                
	
                  Section
      12.21 Joint and Several Nature of Obligation

                	
                  63

                

        

        

        

        
          	
                  Schedule
      1.01(A)

                	
                  Lenders
      and Lenders' Commitments

                
	
                  Schedule
      1.01(B)

                	
                  Equipment

                
	
                  Schedule
      2.03

                	
                  Amortization

                
	
                  Schedule
      5.05

                	
                  Capitalization

                
	
                  Schedule
      5.06

                	
                  Litigation;
      Commercial Tort Claims

                
	
                  Schedule
      5.09

                	
                  ERISA

                
	
                  Schedule
      5.15

                	
                  Real
      Property

                
	
                  Schedule
      5.17

                	
                  Operating
      Lease Obligations

                
	
                  Schedule
      5.18

                	
                  Environmental
      Matters

                
	
                  Schedule
      5.19

                	
                  Insurance

                
	
                  Schedule
      5.20

                	
                  Use
      of Proceeds

                
	
                  Schedule
      5.22

                	
                  Bank
      Accounts

                
	
                  Schedule
      5.23

                	
                  Material
      Contracts

                
	
                  Schedule
      5.29

                	
                  Name;
      Jurisdiction of Organization; Organizational ID Number; Chief Place of
      Business; Chief Executive Office; FEIN

                
	
                  Schedule
      5.31

                	
                  Collateral
      Locations

                
	
                  Schedule
      5.36

                	
                  Brokers

                
	
                  Schedule
      7.04

                	
                  Permitted
      Investments

                
	 	 
	
                  Exhibit
      A

                	
                  Form
      of Guaranty and Collateral Agreement

                
	
                  Exhibit
      B

                	
                  [Reserved]

                
	
                  Exhibit
      C

                	
                  Form
      of Notice of Borrowing

                
	
                  Exhibit
      D

                	
                  Form
      of Opinion of Counsel to the Loan Parties

                
	
                  Exhibit
      E

                	
                  Form
      of Assignment and Acceptance

                
	
                  Exhibit
      F

                	
                  Form
      of Warrant Agreement

                
	
                  Exhibit
      G

                	
                  Form
      of Note

                

        

        

      

       

      
        
          
          

        

        
          iv

          
            

          

        

        
          
          

        

      

       

      CREDIT
AGREEMENT

       

      Credit
Agreement, dated as of August 6, 2007 and made effective as of the Effective
Date (as hereinafter defined), by and among Deep Down, Inc., a Nevada
corporation ("Deep
Down" or "Borrower"),
the financial institutions from time to time party hereto (each a "Lender"
and collectively, the "Lenders")
and Prospect Capital Corporation, a Maryland corporation ("Prospect"),
as agent for the Lenders (in such capacity, the "Agent").

       

      RECITALS

       

      A. The
Borrower has requested that the Lenders provide certain loans to the
Borrower.

       

      B. The
Lenders have agreed to make such loans subject to the terms and conditions of
this Agreement.

       

      C. In
consideration of the mutual covenants and agreements herein contained and of the
loans,
extensions of credit and commitments hereinafter referred to, the parties hereto
agree as follows:

       

      ARTICLE
I

      DEFINITIONS;
CERTAIN TERMS

       

      Section 1.01 Definitions.
As used in this Agreement, the following terms shall have the respective
meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:

       

      "Account
Receivable" means, with respect to any Person, any and all rights of such
Person to payment for goods sold and/or services rendered, including accounts,
general intangibles and any and all such rights evidenced by chattel paper,
instruments or documents, whether due or to become due and whether or not earned
by performance, and whether now or hereafter acquired or arising in the future,
and any proceeds arising therefrom or relating thereto.

       

      "Affiliate"
means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person. For purposes of this definition, "control" of
a Person means the power, directly or indirectly, either to (i) vote 10% or more
of the Capital Stock having ordinary voting power for the election of directors
of such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise. Notwithstanding
anything herein to the contrary, in no event shall the Agent or any Lender be
considered an "Affiliate" of any Loan Party.

       

      "Agent"
has the meaning specified therefor in the preamble.

       

      "Agent
Advances" has the meaning specified therefor in Section
1 1.08(a).

       

      "Agent
Observers" has the meaning specified therefor in Section
6.17(a).

       

      "Agent's
Account" means an account at a bank designated by the Agent from time to
time as the account into which the Loan Parties shall make all payments to the
Agent for the benefit of the Agent and the Lenders under this Agreement and the
other Loan Documents.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

       

       

      "Agreement" means
this Credit Agreement, including all amendments, modifications and supplements
and any exhibits or schedules to any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference becomes
operative.

       

      "Amegy Factoring
Agreements"] means the Deep Down Factoring Agreement and the ElectroWave
Factoring Agreement..

       

      "Approved Sale of
Assets" means a Disposition (excluding any Disposition made pursuant to
Sections 7.02(b)(i) and (ii)) of no more than five percent (5%) of the
Borrower's tangible and intangible assets at the fair market saleable value of
such assets, during any consecutive twelve-month period, approved in advance by
the Agent in its sole discretion.

       

      "Assignment and
Acceptance" means an assignment and acceptance entered into by an
assigning Lender and an assignee, and accepted by the Agent, in accordance with
Section 12.07
hereof and substantially in the form of Exhibit E hereto or
such other form acceptable to the Agent.

       

      "Authorized Officer"
means with respect to any Person, the chief executive officer, chief financial
officer or president of such Person.

       

      "Bankruptcy Code"
means Chapter 11 of Title 11 of the United States Code.

       

      "Board of Directors"
means, with respect to any Person, the board of directors (or comparable
managers) of such Person or any committee thereof duly authorized to act on
behalf of such board of directors (or comparable managers).

       

      "Borrower" has the
meaning specified therefor in the preamble hereto.

       

      "Building Lease"
means that certain lease agreement dated September 1, 2006 by and between JUMA,
L.L.C., as landlord and the Borrower, as tenant.

       

      "Business Day" means
any day other than a Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required to close.

       

      "Capital
Expenditures" means, with respect to any Person for any period, the sum
of (a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that in accordance with GAAP are or should be included in
"property, plant and equipment" or in a similar fixed asset account on its
balance sheet, whether such expenditures are paid in cash or financed and
including all Capitalized Lease Obligations paid or payable during such period,
and (b) to the extent not covered by clause (a) above, the aggregate of all
expenditures by such Person and its Subsidiaries during such period to acquire
by purchase or otherwise the business or fixed assets of, or the Capital Stock
of, any other Person.

       

      "Capital Stock" means
(a) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock and (b) with respect to any Person that is not
a corporation, any and all partnership, membership or other equity interests of
such Person.

       

      "Capitalized Lease"
means, with respect to any Person, any lease of real or personal property by
such Person as lessee which is (a) required under GAAP to be capitalized on the
balance sheet of such Person or (b) a transaction of a type commonly known as a
"synthetic lease" (i.e., a lease
transaction that

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

       

      is
treated as an operating lease for accounting purposes but with respect to which
payments of rent are intended to be treated as payments of principal and
interest on a loan for Federal income tax purposes).

       

      "Capitalized
Lease Obligations" means, with respect to any Person, obligations of such
Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof,
the amount of any such obligation shall be the capitalized amount thereof
determined in accordance with GAAP.

       

      "Cash
and Cash Equivalents" means all cash and any presently existing or
hereafter arising deposit account balances, certificates of deposit or other
financial instruments properly classified as cash equivalents under
GAAP.

       

      "Cash
Sweep Trigger" shall mean the occurrence of one
or more of the following events:

       

      (a) Debt/EBITDA.
Permit the ratio of outstanding Total Debt at any time, divided by
Consolidated EBITDA, as of the last day of each fiscal quarter, commencing on or
after March 31, 2008, to be greater than the ratio set forth below for the
applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                3/31/08
      to 12/31/08

              	
                3.0:1.00

              
	
                3/31/09
      and thereafter

              	
                2.5:1.0

              

      

      

       

      (b) Interest
Coverage. Permit Consolidated EBITDA divided by Consolidated Net
Interest
Expense on the Total Debt, as of the last day of each fiscal quarter, commencing
on or after March 31, 2008, for any trailing four quarter period, to be less
than the ratio set forth below for the applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                3/31/08
      to 12/31/08

              	
                2.5:1.00

              
	
                3/31/09
      and thereafter

              	
                3.0:1.00

              

      

      

       

      (c) Free
Cash Flow Coverage. Permit Free Cash Flow divided by Debt Service as of
the last
day of each fiscal quarter, commencing on or after March 31, 2008, for any
trailing four quarter period to be less than the ratio set forth below for the
applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                3/31/08
      to 12/31/08

              	
                1.2:1.00

              
	
                3/31/09
      and thereafter

              	
                1.5:1.00

              

      

      

       

      "Casualty
Event" means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Loan Parties valued in excess of
$250,000.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

       

      "Change of Control"
means each occurrence of any of the following:(1)

       

      (a) the
failure of the Permitted Holders to own, directly or indirectly, beneficial
ownership
of 45% or more of the aggregate outstanding voting power of the Capital Stock of
the Borrower;

       

      (b) the
acquisition, directly or indirectly, by any person or group (within the meaning
of
Section 13(d)(3) of the Exchange Act) other than the Permitted Holders of
beneficial ownership of 51% or more of the aggregate outstanding voting power of
the Capital Stock of the Borrower;

       

      (c) during
any period of two consecutive years, individuals who at the beginning of
such
period constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by a vote of at least
a majority of the directors of the Borrower then still in office who were either
directors at the beginning of such period, or whose election or nomination for
election was previously approved) cease for any reason to constitute a majority
of the Board of Directors of the Borrower, except where the failure to
constitute a majority is due to death or other incapacitation of a director or
dismissal of a director for willful misconduct; or

       

      (d) the
Borrower shall cease to have beneficial ownership (as defined in Rule 13d-3
under the
Exchange Act) of 100% of the aggregate voting power of the Capital Stock of each
other Loan Party, free and clear of all Liens (other than any Liens granted
hereunder and Permitted Liens).

       

      "Collateral" means
all of the property and assets and all interests therein and proceeds thereof
now owned or hereafter acquired by any Person upon which a Lien is granted or
purported to be granted by such Person as security for all or any part of the
Obligations.

       

      "Commitment" means,
with respect to each Lender, the commitment of such Lender to make a Loan to the
Borrower in the amount set forth opposite such Lender's name in Schedule 1.01(A)
hereto, as the same may be increased pursuant to Section 2.04(b) and
terminated or reduced from time to time in accordance with the terms of this
Agreement. The aggregate amount of the Commitments available on the Effective
Date (the "Initial
Commitments") is $6,000,000.

       

      "Consolidated EBITDA"
means, with respect to the Loan Parties for any period, the Consolidated Net
Income of the Loan Parties for such period, plus without
duplication, the sum of the following amounts of the Loan Parties for such
period and to the extent deducted in determining Consolidated Net Income of the
Borrower for such period: (a) Consolidated Net Interest Expense, (b) income tax
expense, (c) depreciation expense, and (d) amortization expense.

       

      "Consolidated Net
Income" means, with respect to the Loan Parties for any period, the net
income (loss) of the Loan Parties for such period, determined on a consolidated
basis and in accordance with GAAP, but excluding from the determination of
Consolidated Net Income (without duplication) (a) any extraordinary or non
recurring gains or losses or gains or losses from Dispositions and (b) effects
of discontinued operations.

       

      "Consolidated Net Interest
Expense" means, with respect to the Loan Parties for any period, gross
cash interest expense of the Loan Parties for such period determined on a
consolidated basis and in accordance with GAAP (including, without limitation,
interest expense paid to Affiliates of the Loan Parties), less (i) the sum of
(A) cash interest income for such period and (B) cash gains for such period
on

      _____________

      (1) This
will need to change pending diligence on capital structure of
borrower

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

       

      interest
rate hedging agreements (to the extent not included in interest income above and
to the extent not deducted in the calculation of gross interest expense), plus (ii) the sum of
(A) cash losses for such period on interest rate hedging agreements (to the
extent not included in gross interest expense) and (B) the upfront cash costs or
fees for such period associated with interest rate hedging agreements (to the
extent not included in gross interest expense), in each case, determined on a
consolidated basis and in accordance with GAAP.

       

      "Consolidated
Revenues" means, with respect to the Loan Parties for any period, the
gross revenues of the Loan Parties for such period, determined on a consolidated
basis and in accordance with GAAP.

       

      "Contingent
Obligation" means, with respect to any Person, any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends
or other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, (i) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of a primary obligor, (ii) the obligation to make take-or-pay or similar
payments, if required, regardless of nonperformance by any other party or
parties to an agreement, (iii) any obligation of such Person, whether or not
contingent, (A) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (B) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (C) to purchase
property, assets, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (D) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided,
however, that the term "Contingent Obligation" shall not include any
product warranties extended in the ordinary course of business. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation with respect to which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.

       

      "Debt. Service" shall
mean, for any period of determination, the sum of (i) Consolidated Interest
Expense and (ii) required payments of principal on Total Debt and any other
Indebtedness.

       

      "Debt Service Reserve
Account" means an account maintained hereunder by and under the exclusive
control of the Agent with respect to the Borrower, for the purposes described in
Section 3.01(b).
Any interest accruing on such account shall belong to the
Borrower.

       

      "Debt. Service Reserve
Amount" has the meaning specified therefor in Section
3.01(b).

       

      "Deep Down Factoring
Agreement" means that certain Purchase and Sale Agreement/Security
Agreement dated June 2, 2005 between Amegy Bank National Association and the
Borrower.

       

      "Default" means any
of the events specified in Section 10.01,
whether or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.

       

      "Disbursement Date"
has the meaning given such term in Section
2.03(f).

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

       

      "Dispose"
or "Disposition"
means the sale, transfer, license, lease or other disposition (including any
sale and leaseback transaction) of any property by any Person, in each case,
whether or not the consideration therefore consists of cash, securities or other
assets owned by the acquiring Person.

       

      "Dollar," "Dollars"
and the symbol "$" each means lawful money of the United States of
America.

       

      "ElectroWave
Factoring Agreement" means that certain Purchase and Sale/Security
Agreement dated as of March 22, 2007 between Amegy Bank National Association and
ElectroWave USA, Inc., a Nevada corporation.

       

      "Effective
Date" means the date, on or before August 6, 2007, on which all of the
conditions precedent set forth in Section
4.01 are satisfied or waived and Loans are made on such
date.

       

      "Employee
Plan" means an employee benefit plan (other than a Multiemployer Plan)
covered by Title IV of ERISA and maintained (or that was maintained at any time
during the six (6) calendar years preceding the date of any borrowing hereunder)
for employees of any Loan Party or any of its ERISA Affiliates.

       

      "Enviromnental
Actions" means any complaint, summons, citation, notice, directive,
order, claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter or other written communication from any Person or Governmental
Authority alleging violations of Environmental Laws or liability for Releases of
Hazardous Materials.

       

      "Environmental
Laws" means the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. § 9601, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. § 1801, et. seq.), the Resource Conservation and
Recovery Act (42 U.S.C. § 6901, et sec .), the Federal Clean Water Act (33
U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. § 2601 et m.), the Occupational Safety and
Health Act (29 U.S.C. § 651 et seq.), as such laws may he amended or otherwise
modified from time to time, and any other present or future federal, state,
local or foreign statute, ordinance, rule, regulation, order, judgment, decree,
permit, license or other binding determination of any Governmental Authority
imposing liability or establishing standards of conduct for the prevention of
pollution, protection of the environment or the remediation of contamination,
and any other government restrictions relating to the Release of any Hazardous
Materials into the environment.

       

      "Environmental
Liabilities and Costs" means all liabilities, monetary obligations,
Remedial Actions, losses, damages, natural resource damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and consultants
and costs of investigations and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any alleged
violation of Environmental Laws, any environmental condition or a Release of
Hazardous Materials.

       

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

       

      "Equipment"
means the equipment, machinery, vehicles, rolling stock, tools and related items
of the Loan Parties used in the conduct of their business, including without
limitation the equipment described on Schedule
1.01(B).

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

       

      "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute of similar import, and regulations thereunder, in each case,
as in effect from time to time. References to sections of ERISA shall be
construed also to refer to any successor sections.

       

      "ERISA
Affiliate" means, with respect to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which such Person
is a member and which would be deemed to be a "controlled group" within the
meaning of Sections 414(b), (c), (m) and (o) of the Internal Revenue
Code.

       

      "Event
of Default" means any of the events set forth in Section
10.01. "Exchange
Act" means the Securities Exchange Act of 1934, as amended.

       

      "Federal
Funds Rate" means, for any period, a fluctuating interest rate per annum
equal to, for each day during such period, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
such day on such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it.

       

      "Federal
Reserve Board" means the Board of Governors of the Federal Reserve System
of the United States.

       

      "Fee
Letter" means the letter agreement and related term sheet between
Borrower and Agent dated as of July , 2007.

       

      "Final
Maturity Date" means the earlier of (i) August 6, 2011 or (ii) the date
on which any Loan shall become due and payable in accordance with the terms of
this Agreement and the other Loan Documents.

       

      "Financial
Statements" means (i) the audited balance sheet of the Loan Parties for
the Fiscal Year ended December 31, 2006, and the related consolidated statement
of operations, stockholders' deficit and cash flows for the Fiscal Year then
ended and (ii) the unaudited pro forma balance sheet of the Loan Parties as of
the Effective Date, after giving effect to the Transactions, in each case
presented on a consolidated basis.

       

      "Fiscal
Year" means the fiscal year of the Loan Parties ending on December 31 of
each year.

       

      "Free
Cash Flow" means, for the Loan Parties, for any period, (i) Consolidated
Net Income of the Loan Parties for such period, plus
(ii) all non-cash items of such Loan Party deducted in determining Consolidated
Net Income for such period, less (iii) the sum of (A) all non-cash items of such
Loan Party added to the calculation of Consolidated Net Income for such period,
(B) cash tax payments made by the Loan Parties, (C) changes in working capital
(as determined in accordance with GAAP) from the immediately preceding period of
the same duration as such period, (D) budgeted General and Administrative Costs
and (E) Capital Expenditures permitted pursuant to this Agreement.

       

      "GAAP"
means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in
Section
1.03.

       

      "General
and Administrative Costs" means normal and customary expenses and costs
that are reasonable and classified as general and administrative costs,
including salaries and all other

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

       

       

      compensation
to the management of the Borrower, consulting fees, salary, rent, supplies,
travel and entertainment, insurance, accounting, legal, engineering and broker
related fees, required to manage the affairs of the Borrower.

       

      "Governmental
Authority" means any nation or government, any Federal, state, city,
town, municipality, county, local or other political subdivision thereof or
thereto and any department, commission, board, bureau, instrumentality, agency
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to
government.

       

      "Guarantor"
means ElectroWave USA, Inc., a Nevada corporation, Deep Down, Inc., a Delaware
corporation and each domestic Subsidiary of the Borrower, if any, or other
Person which guarantees, pursuant to Section
6.02 or otherwise, all or any part of the Obligations.

       

      "Guaranty
and Collateral Agreement" means a guaranty and collateral agreement in a
form acceptable to the Agent, made by any Guarantor in favor of the Agent for
the benefit of the Lenders pursuant to Section
6.02 or otherwise.

       

      "Hazardous
Material" means (a) any element, compound or chemical that is defined,
listed or otherwise classified as a contaminant, pollutant, toxic pollutant,
toxic or hazardous substance, extremely hazardous substance or chemical,
hazardous waste, special waste, or solid waste under Environmental Laws or that
is likely to cause immediately, or at some future time, harm to or have an
adverse effect on, the environment or risk to human health or safety; (b)
petroleum and its refined products; (c) polychlorinated biphenyls; (d) any
substance exhibiting a hazardous waste characteristic, including, without
limitation, corrosivity, ignitability, toxicity or reactivity as well as any
radioactive (including naturally occurring radioactive materials) or explosive
materials; and (e) any asbestos-containing materials.

       

      "Highest
Lawful Rate" means, with respect to the Agent or any Lender, the maximum
non- usurious interest rate, if any, that at any time or from time to time may
be contracted for, taken, reserved, charged or received on the Obligations under
laws applicable to the Agent or such Lender which are currently in effect or, to
the extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum non-usurious interest rate than
applicable laws now allow. The Highest Lawful Rate shall be calculated in a
manner that takes into account any and all fees, payments and other charges in
respect of the Loan Documents that constitute interest under applicable
law.

       

      "Indebtedness"
means, without duplication, with respect to any Person, without duplication, (a)
all indebtedness of such Person for borrowed money; (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables or other accounts payable incurred in the ordinary course of such
Person's business and not outstanding for more than 90 days after the date such
payable was created); (c) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments or upon which interest payments
are customarily made; (d) all reimbursement, payment or other obligations and
liabilities of such Person created or arising under any conditional sales or
other title retention agreement with respect to property used and/or acquired by
such Person, even though the rights and remedies of the lessor, seller and/or
lender thereunder may be limited to repossession or sale of such property; (e)
all Capitalized Lease Obligations of such Person; (1) all obligations and
liabilities, contingent or otherwise, of such Person, in respect of letters of
credit, acceptances and similar facilities; (g) all Contingent Obligations in
respect of Indebtedness; (h) liabilities incurred under Title IV of ERISA with
respect to any Employee Plan (other than a Multiemployer Plan); (i) withdrawal
liability incurred under ERISA by such Person or any of its ERISA Affiliates
with respect to any Multiemployer Plan; and (j) all obligations referred to in
clauses (a) through (i) of this definition of another Person secured by (or for
which the holder of such Indebtedness has an existing right,
contingent

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

       

      or
otherwise, to be secured by) a Lien upon property owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness. The Indebtedness of any Person shall include the Indebtedness of
any partnership of or joint venture in which such Person is a general partner or
a joint venturer.

       

      "Indemnified Matters"
has the meaning specified therefor in Section 12.14(a).

       

      "Indemnitees" has the
meaning specified therefor in Section
12.14(a).

       

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

       

      "Internal Revenue
Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute thereto) and the regulations thereunder.

       

      "Inventory" means,
with respect to any Person, all goods and merchandise of such Person, including,
without limitation, all raw materials, work-in-process, packaging, supplies,
materials and finished goods of every nature used or usable in connection with
the shipping, storing, advertising or sale of such goods and merchandise,
whether now owned or hereafter acquired, and all such other property the sale or
other disposition of which would give rise to an Account Receivable or
cash.

       

      "Lease" means any
lease of real property to which any Loan Party is a party as lessor or lessee.

       

      "Lender" has the
meaning specified therefor in the preamble hereto.

       

      "LIBOR" shall mean
for the applicable month the twelve-month London Interbank Offered Rate as
published in the Wall Street Journal on the first Business Day of each such
month and such rate shall be applicable throughout the given month until the
first Business Day of the next succeeding month.

       

      "Lien" means any mortgage, deed of
trust, pledge, lien (statutory or otherwise), security interest, charge or other
encumbrance or security or preferential arrangement of any nature, including,
without limitation, any conditional sale or title retention arrangement, any
Capitalized Lease and any assignment, deposit arrangement or financing lease
intended as, or having the effect of, security.

       

      "Loan" means any loan
made by a Lender to the Borrower on the Effective Date pursuant to Article II
hereof.

       

      "Loan Document" means
this Agreement, any Guaranty and Collateral Agreement, any UCC Filing and any
other agreement, instrument, and other document executed and delivered pursuant
hereto or thereto or otherwise evidencing or securing any Loan or any other
Obligation.

       

      "Loan Party" means
the Borrower and any direct or indirect Subsidiary of the Borrower.

       

      "Managers" means
Ronald Smith and Robert Chamberlain.

       

      "Material Adverse
Effect" means a material adverse effect on any of (a) the operations,
business, prospects, assets, properties or condition (financial or otherwise) of
the Borrower or of the Loan Parties taken as a whole, (b) the ability of any
Loan Party to perform any of its obligations under any Loan Document to which it
is a party, (c) the legality, validity or enforceability of this Agreement or
any other

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      Loan
Document, (d) the rights and remedies of the Agent or any Lender under any Loan
Document, or (e) the validity, perfection or priority of a Lien in favor of the
Agent for the benefit of the Lenders on any of the Collateral.

       

      "Material
Contract" means, with respect to any Person, (a) each contract or
agreement to which such Person or any of its Subsidiaries is a party involving
aggregate consideration payable to or by such Person or such Subsidiary of
$100,000 or more (other than purchase orders in the ordinary course of the
business of such Person or such Subsidiary and other than contracts that by
their terms may be terminated by such Person or Subsidiary in the ordinary
course of its business upon less than 60 days' notice without penalty or
premium), and (b) all other contracts or agreements material to the business,
operations, condition (financial or otherwise), performance, prospects or
properties of such Person or such Subsidiary.

       

      "Monthly
Date" means the last Business Day of each calendar month. 

       

      "Moody's"
means Moody's Investors Service, Inc. and any successor thereto.

       

      "Multiemployer
Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA), to which any Loan Party, any of its Subsidiaries or any of its ERISA
Affiliates has contributed to, or has been obligated to contribute, at any time
during the preceding six (6) years.

       

      "Net
Cash Proceeds" means, (a) with respect to any Disposition by any Person
or any of its Subsidiaries, the amount of cash received (directly or indirectly)
from time to time (whether as initial consideration or through the payment or
disposition of deferred consideration) by or on behalf of such Person or such
Subsidiary, in connection therewith after deducting therefrom only (i) the
amount of any Indebtedness secured by any Lien permitted by Section
7.01 on any asset (other than Indebtedness assumed by the purchaser of
such asset) which is required to be, and is, repaid in connection with such
Disposition (other than Indebtedness under this Agreement), (ii) reasonable
expenses (including commissions and discounts) related thereto incurred by such
Person or such Subsidiary in connection therewith (provided that such costs
shall not exceed five percent (5%) of the total sales price received by the Loan
Party of the assets being disposed of), (iii) transfer taxes paid to any taxing
authorities by such Person or such Subsidiary in connection therewith, and (iv)
net income taxes to be paid in connection with such Disposition (after taking
into account any tax credits or deductions and any tax sharing arrangements) and
(b) with respect to the issuance or incurrence of any Indebtedness by any Person
or any of its Subsidiaries, or the sale or issuance by any Person or any of its
Subsidiaries of any shares of its Capital
Stock, the aggregate
amount of cash received (directly or indirectly) from time to time
(whether as initial consideration or through the payment or disposition of
deferred consideration) by or on behalf of such Person or such Subsidiary in
connection therewith, after deducting therefrom only (i) reasonable expenses
related thereto incurred by such Person or such Subsidiary in connection
therewith, (ii) transfer taxes paid by such Person or such Subsidiary in
connection therewith and (iii) net income taxes to be paid in connection
therewith (after taking into account any tax credits or deductions and any tax
sharing arrangements); in each case of clause (a) and (b) to the extent, but
only to the extent, that the amounts so deducted are (x) actually paid to a
Person that, except in the case of reasonable out-of-pocket expenses, is not an
Affiliate of such Person or any of its Subsidiaries and (y) properly
attributable to such transaction or to the asset that is the subject
thereof.

       

      "Notice
of Borrowing" has the meaning specified therefor in Section
2.02(b).

       

      "Obligations"
means all present and future indebtedness, obligations, and liabilities of each
Loan Party to the Agent and the Lenders, or any of them, under or in connection
with the Loan Documents, whether or not the right of payment in respect of such
claim is reduced to judgment, liquidated,

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured,
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section
10.01. Without limiting the generality of the foregoing, the Obligations
of each Loan Party under the Loan Documents include (a) the obligation
(irrespective of whether a claim therefor is allowed in an Insolvency
Proceeding) to pay principal, interest, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by such Person under
the Loan Documents, and (b) the obligation of such Person to reimburse any
amount in respect of any of the foregoing that the Agent or any Lender (in its
sole discretion) may elect to pay or advance on behalf of such
Person.

       

      "Operating
Account" shall have the meaning assigned such term in Section
9.01(a). 

       

      "Operating
Account Bank" shall have the meaning assigned such term in Section
9.01(a).

       

      "Operating
Lease Obligations" means all obligations for the payment of rent for any
real or personal property under leases or agreements to lease, other than
Capitalized Lease Obligations.

       

      "Other
Boards" has the meaning specified therefor in Section
6.17(a).

       

      "Participant
Register" has the meaning specified therefor in Section
12.07(f).

       

      "PBGC"
means the Pension Benefit Guaranty Corporation or any successor
thereto.

       

      "Permitted
Holders" means, collectively, Ronald Smith, Robert Chamberlain and Mary
Budrunas.

       

      "Permitted
Indebtedness" means (a) any Indebtedness owing to the Agent and any
Lender under this Agreement and the other Loan Documents, (b) up to $4,250,000
in subordinated debentures resulting from the exchange of the Borrower's Series
E Exchangeable Preferred Stock, (c) up to $525,000 in connection with a capital
lease obligation for one (1) 2003 Shuttlelift ISL 100 crane, (d) a $150,000
promissory note payable to Ronald E. Smith and Mary Budrunas and (e)
Indebtedness incurred pursuant to the Amegy Factoring Agreement, but such
Indebtedness contained in this clause (e) shall only be Permitted Indebtedness
until the date that is 90 days after the Effective Date; provided
that each of (b) and (d) shall be subject to a subordination agreement on the
terms and conditions acceptable to the Agent.

       

      "Permitted
Investments" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case, maturing within six months from the date of acquisition thereof; (ii)
commercial paper, maturing not more than 270 days after the date of issue rated
P-1 by Moody's or A-1 by Standard & Poor's; (iii) certificates of deposit
maturing not more than 270 days after the date of issue, issued by commercial
banking institutions and money market or demand deposit accounts maintained at
commercial banking institutions, each of which is a member of the Federal
Reserve System and has a combined capital and surplus and undivided profits of
not less than $500,000,000; (iv) repurchase agreements having maturities of not
more than 90 days from the date of acquisition which are entered into with major
money center banks included in the commercial banking institutions described in
clause (iii) above and which are secured by readily marketable direct
obligations of the United States Government or any agency thereof, (v) money
market accounts maintained with mutual funds having assets in excess of
$2,500,000,000; and (vi) tax exempt securities rated A or better by Moody's or
A+ or better by Standard & Poor's.

       

      "Permitted
Liens"
means

       

      (a) Liens
securing the Obligations;

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (b) Liens for
taxes, assessments and governmental charges the payment of which is not
required under Section
6.03;

       

      (c) customary
Liens of landlords arising in the ordinary course of business pursuant
to
customary lease provisions, and Liens imposed by law, such as landlord's,
carriers', warehousemen's, mechanics', materialmen's and other similar Liens
arising in the ordinary course of business, in each case securing obligations
(other than Indebtedness for borrowed money) that are not overdue by more than
30 days or are being contested in good faith and by appropriate proceedings
promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;

       

      (d) deposits
and pledges of cash securing (i) obligations incurred in respect of workers'
compensation, unemployment insurance or other forms of governmental insurance or
benefits, (ii) the performance of bids, tenders, leases, contracts (other than
for the payment of money) and statutory obligations and (iii) obligations on
surety or appeal bonds, but in each case, only to the extent such deposits or
pledges are incurred or otherwise arise in the ordinary course of business and
secure obligations not past due; and

       

      (e) easements,
zoning restrictions and similar encumbrances on real property and minor
irregularities in the title thereto that do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or its use
by any Loan Party in the normal conduct of such Person's business.

       

      Provided
that, notwithstanding the foregoing, (i) Liens described in clauses (a) through
(d) shall remain "Permitted Liens" only for so long as no action to enforce such
Lien has been commenced and (2) no intention to subordinate the first priority
Lien granted in favor of the Administrative Agent and the Lenders is to be
hereby implied or expressed by the permitted existence of any Permitted
Lien

       

      "Person"
means an individual, corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture or other enterprise or entity or Governmental Authority.

       

      "Plan" means any Employee Plan or
Multiemployer Plan.

       

      "Post-Default
Rate" means a rate of interest per annum equal to the rate as provided
for in Section
2.04(a) then in effect plus
5.00%.

       

      "Pro Rata Share"
means:

       

      (a) with
respect to a Lender's obligation to make a Loan and receive payments of
interest,
fees, and principal with respect thereto, the percentage obtained by dividing
(i) such Lender's Commitment, by (ii) the Total Commitment, provided
that if the Total Commitment has been reduced to zero, the numerator shall be
the aggregate unpaid principal amount of such Lender's Loan and the denominator
shall be the aggregate unpaid principal amount of all of the Loans;
and

       

      (b) with
respect to all other matters (including, without limitation, the indemnification
obligations arising under Section
11.05), the percentage obtained by dividing (i) the unpaid principal
amount of such Lender's Loan, by (ii) the sum of the aggregate unpaid principal
amount of all of the Loans.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

       

      "Register"
has the meaning specified therefor in Section
12.07(d). 

       

      "Registered
Loans" has the meaning specified therefor in Section
12.07(d).

       

      "Regulation
T", "Regulation
U" and "Regulation
X" mean, respectively, Regulations T, U and X of the Federal Reserve
Board or any successor, as the same may be amended or supplemented from time to
time.

       

      "Release"
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, seeping, migrating, dumping or disposing of any
Hazardous Material (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Hazardous Material) into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through or in the ambient air, soil, surface or ground
water, or property.

       

      "Remedial
Action" means all actions required by Environmental Law taken to (i)
clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any
other way address Hazardous Materials in the indoor or outdoor environment; (ii)
prevent or minimize a Release or threatened Release so that Hazardous Materials
do not migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post- remedial operation and maintenance activities; or (iv)
perform any other actions authorized by 42 U.S.C. § 96W .

       

      "Reportable
Event" means an event described in Section 4043 of ERISA (other than an
event not subject to the provision for 30-day notice to the PBGC under the
regulations promulgated under such Section).

       

      "Required
Lenders" means Lenders whose Pro Rata Share of the Loans aggregate at
least 66-

      2/3%.

       

      "SEC" means the Securities and
Exchange Commission or any other similar or successor agency of the Federal
government administering the Securities Act.

       

      "Securities
Act" means the Securities Act of 1933, as amended, or any similar Federal
statute, and the rules and regulations of the SEC thereunder, all as the same
shall be in effect from time to time.

       

      "Solvent"
means, with respect to any Person on a particular date, that on such date (i)
the fair value of the property of such Person is not less than the total amount
of the liabilities of such Person, (ii) the present fair salable value of the
assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its existing debts as they become
absolute and matured, (iii) such Person is able to realize upon its assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.

       

      "Standard
& Poor's" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. and any successor thereto.

       

      
        
          
          

        

        
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      "Subsidiary"
means, with respect to any Person at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity (i) the accounts of which would be
consolidated with those of such Person in such Person's consolidated financial
statements if such financial statements were prepared in accordance with GAAP or
(ii) of which more than 50% of (A) the outstanding Capital Stock having (in the
absence of contingencies) ordinary voting power to elect a majority of the board
of directors or other managing body of such Person, (B) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (C) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such Person.

       

      "Term
Loan Amount" shall mean the principal amount of the Loans outstanding at
any time on a consolidated basis determined in accordance with
GAAP.

       

      "Termination
Event" means (i) a Reportable Event with respect to any Employee Plan,
(ii) any event that causes any Loan Party or any of its ERISA Affiliates to
incur liability under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal Revenue
Code, (iii) the filing of a notice of intent to terminate an Employee Plan or
the treatment of an Employee Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings by the PBGC to terminate an
Employee Plan, or (v) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Employee Plan.

       

      "Total
Commitment" means the sum of the amounts of the Lenders' Commitments,
which sum equals the Initial Commitments plus any additional Commitments as the
same may be increased pursuant to Section
2.04(b).

       

      "Total
Debt" means, at any date, all Debt of the Loan Parties on a consolidated
basis.

       

      "Transaction
Documents" means the Loan Documents and each other document, agreement,
contract, certificate and conveyance executed in connection with the
foregoing.

       

      "Transactions"
means the transactions contemplated by the Transaction Documents to occur on the
Effective Date, including the making of the Loans pursuant to this
Agreement.

       

      "UCC
Filing" means any filing pursuant to the Uniform Commercial Code to
perfect a Lien securing the Obligations.

       

      "Uniform
Commercial Code" has the meaning specified therefor in Section
1.03. 

       

      "WARN"
has the meaning specified therefor in Section
5.25.

       

      "Warrant
Agreement" means the Warrant Agreement dated as of the Effective Date and
executed by the Borrower and the Agent, in the form of Exhibit
F.

       

      "Yield
Maintenance Premium" means a premium equal to (i) 4.0% of amounts prepaid
if repayment occurs anytime from the
Effective Date through the first anniversary of the Effective Date, (ii) 3.0% of
amounts prepaid if repayment occurs anytime from the day after the first
anniversary of the Effective Date through the second anniversary of the
Effective Date, (iii) 2.0% of amounts prepaid if repayment occurs anytime from
the day after the second anniversary of the Effective Date through
the

       

      
        
          
          

        

        
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      third
anniversary of the Effective Date, (iv) 1.0% of amounts prepaid if repayment
occurs anytime from the day after the third anniversary of the Effective Date
through the Final Maturity Date; provided
that, notwithstanding the foregoing, the Yield Maintenance Premium shall be
equal to 0.0% if the outstanding Loans and all Obligations hereunder are prepaid
in full with the proceeds of a new credit facility provided by the
Agent.

       

      Section
1.02 Terms
Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof' and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any right or interest in or to assets and properties of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
References in this Agreement to "determination" by the Agent include estimates
by the Agent (in the case of quantitative determinations) and beliefs by the
Agent (in the case of qualitative determinations).\

       

      Section
1.03 Accounting
and Other Terms. Unless otherwise expressly provided herein, each
accounting term used herein shall have the meaning given it under GAAP applied
on a basis consistent with those used in preparing the Financial Statements. All
terms used in this Agreement which are defined in Article 8 or Article 9 of the
Uniform Commercial Code as in effect from time to time in the State of New York
(the "Uniform
Commercial Code") and which are not otherwise defined herein shall have
the same meanings herein as set forth therein, provided that terms used herein
which are defined in the Uniform Commercial Code as in effect in the State of
New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the Agent
may otherwise determine.

       

      Section 1.04 Time
References. Unless otherwise indicated herein, all references to time of
day refer to Eastern Standard Time or Eastern daylight saving time, as in effect
in New York City on such day. For purposes of the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding"; provided, however, that with respect to a computation of fees or
interest payable to the Agent or any Lender, such period shall in any event
consist of at least one full day.

       

      ARTICLE
II

      THE
LOANS

       

      Section
2.01 Commitments.

       

      (a) Subject to the
terms and conditions and relying upon the representations and warranties
herein set forth, each Lender severally agrees (i) to make a Loan to the
Borrower on the Effective Date in an amount not to exceed the
Commitment of such Lender and (ii) to permit the

       

      
        
          
          

        

        
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      Borrower
to issue PIK Notes to such lender based on its Pro Rata Share of the Total
Commitments (but in any case not to exceed the P1K Note Cap).

       

      (b) Notwithstanding
the foregoing, the aggregate principal amount of the Loans made on
the Effective Date will equal the Initial Commitment. Any principal amount of a
Loan which is repaid or prepaid may not be reborrowed.

       

      Section 2.02 Making the
Loans.

       

      (a) The
Borrower shall give the Agent prior telephonic notice of its intention to
receive
the Loans to be made hereunder confirmed in writing not later than 12:00 noon
(New York City time) at least one Business Day prior to the anticipated
Effective Date (the "Notice
of Borrowing"). The Notice of Borrowing shall specify (1) the aggregate
principal amount of the Loans which shall be $6,000,000 and (ii) the proposed
borrowing date. The Agent and the Lenders may act without liability upon the
basis of written, telecopied or telephonic notice believed by the Agent in good faith to be
from the Borrower (or from any Authorized Officer thereof designated in writing
purportedly from the Borrower to the Agent). The Borrower hereby waives the
right to dispute the Agent's record of the terms of any such telephonic Notice
of Borrowing. The Agent and each Lender shall be entitled to rely conclusively
on any Authorized Officer's authority to request the Loans on behalf of the
Borrower until the Agent receives written notice to the contrary. The Agent and
the Lenders shall have no duty to verify the authenticity of the signature
appearing on any written Notice of Borrowing.

       

      (b) The
Notice of Borrowing pursuant to this Section
2.02 shall be irrevocable and the
Borrower shall be bound to make a borrowing in accordance
therewith.

       

      (c) All
Loans under this Agreement shall be made by the Lenders simultaneously
and proportionately to their Pro Rata Shares of the Total Commitment, it being
understood that no Lender shall be responsible for any default by any other
Lender in that other Lender's obligations to make a Loan requested hereunder,
nor shall the Commitment of any Lender be increased or decreased as a result of
the default by any other Lender in that other Lender's obligation to make a Loan
requested hereunder, and each Lender shall be obligated to make the Loan
required to be made by it by the terms of this Agreement regardless of the
failure by any other Lender.

       

      Section
2.03 Repayment of
Loans; Evidence of Debt.

       

      (a) The
outstanding principal of the Loan will be repaid (i) by Borrower making
quarterly
installments of $75,000 commencing on September 30, 2008 and on the last
Business Day of each quarter thereafter, and (ii) by Borrower making a final
payment of the amount of the Loans outstanding on the Final Maturity Date, in
each case as set forth on Schedule
2.03 to the Agent for the account of each Lender. The Borrower hereby
authorizes the Agent to, and the Agent may, from time to time, debit the Debt
Service Reserve Account with the amount of any payment due
hereunder.

       

      (b) Each
Lender shall maintain in accordance with its usual practice an account
or
accounts evidencing the Indebtedness of the Borrower to such Lender resulting
from each Loan made by such Lender, including the amounts of principal and
interest payable and paid to such Lender from time to time
hereunder.

       

      (c) The Agent shall
maintain the Register in accordance with Section
12.07(d) hereto,
in which it
shall record (i) the amount of each Loan made hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender

       

      
        
          
          

        

        
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      hereunder
and (iii) the amount of any sum received by the Agent hereunder for the account
of the Lenders and each Lender's share thereof.

       

      (d) The
entries made in the accounts maintained pursuant to paragraph (b) or in
the
Register pursuant to paragraph (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided
that the failure of any Lender to maintain such accounts or the Agent to
maintain the Register or any error therein shall not in any manner affect the
obligation of the Borrower to repay the Loans in accordance with the terms of
this Agreement.

       

      (e) The Loans
made by each Lender shall be evidenced by a promissory note in the form
of Exhibit
G attached hereto, dated, in the case of (i) any Lender party hereto as
of the date of this Agreement, the date of this Agreement or (ii) any Lender
that becomes a party hereto pursuant to an Assignment and Acceptance, as of the
effective date of the Assignment and Acceptance, payable to the order of such
Lender in a principal amount equal to its Commitment as in effect on such date,
and otherwise duly completed. The date, amount and interest rate of each Loan
made by each Lender, and all payments made on account of the principal thereof,
shall be recorded by such Lender on its books for its promissory note, and,
prior to any transfer, may be endorsed by such Lender on a schedule attached to
such promissory note or any continuation thereof or on any separate record
maintained by such Lender. Failure to make any such notation or to attach a
schedule shall not affect any Lender's or the Borrower's rights or obligations
in respect of such Loans or affect the validity of such transfer by any Lender
of its promissory note. In the event that any Lender's Loan increases or
decreases for any reason, upon such Lender's request, the Borrower shall deliver
or cause to be delivered on the effective date of such increase or decrease, a
new promissory note payable to the order of such Lender in a principal amount
equal to its Loan after giving effect to such increase or decrease, and
otherwise duly completed.

       

      (f) Cash
Sweep Trigger. On each Monthly Date after a Cash Sweep Trigger has
occurred
(each such date being a "Disbursement
Date") at the election of Agent, the Borrower shall repay principal
(through Agent charging the Operating Account) in an amount equal to 50% of Free
Cash Flow, provided, however, that in no case shall such prepayment reduce the
cash and cash equivalents (per GAAP) of Borrower on hand as of the date of such
payment to less than $300,000.00.

       

      Section
2.04 Interest.

       

      (a) Loans.
Each Loan shall bear interest on the principal amount thereof from time to
time outstanding, from the date of such Loan until such principal amount becomes
due, at a rate per annum equal to the lesser of: (i) the Highest Lawful Rate or
(ii) 12.5%. Interest on each Loan calculated pursuant to this Section
2.04(a) shall be payable monthly, in arrears, on each Monthly Date
commencing on August 31, 2007.

       

      (b) PIK
Interest. In addition to the interest set forth in paragraph (a),
Borrower shall pay
interest in an amount equal to three percent (3%) per annum of the principal
amount of the Loans from time to time outstanding (the "PIK
Amount"), which PfK Amount shall be paid monthly, in arrears, on each
Monthly Date, either (at the Borrower's
option) (i) in cash or (ii) in kind through the issuance to each Lender of an
additional promissory note (a "PIK
Note") in an amount equal to such Lender's Pro Rata Share of the PIK
Amount, and the PIK Amount shall be added to the outstanding principal balance
of the Loans, and amounts so added shall thereafter, for all purposes, be deemed
to be part of the principal amount of the Loans; provided that the PIK Amount
represented by all such PIK Notes may not exceed $500,000 (the "PIK
Note Cap") at any time outstanding, and option (b)(ii) contained in this
Section
2.04 shall not be available at such time as the PIK Amount represented by
PIK Notes
shall equal the PIK Note Cap.

       

      
        
          
          

        

        
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      (c) Default
Interest. To the extent permitted by law, (i) upon the occurrence and
during
the continuance of an Event of Default or (ii) during the time that any reports
required to be delivered pursuant to Section
6.01(a), (b) and are overdue, in each case whether or not declared, the
principal of, and all accrued and unpaid interest on, all Loans, fees,
indemnities or any other Obligations of the Loan Parties under this Agreement
and the other Loan Documents, shall bear interest, from the date such Event of
Default occurred until the date such Event of Default is cured or waived in
writing in accordance herewith, at a rate per annum equal at all times to the
lesser of (i) the Highest Lawful Rate or (ii) the Post-Default Rate. Interest at
the Post-Default Rate shall be payable on demand.

       

      (d) Interest Payment from Debt
Service Reserve Account. The Borrower hereby
authorizes
the Agent to, and the Agent may, from time to time, charge the Debt Service
Reserve Account, and make a payment to the Agent, for the benefit of the Lenders
with the amount of any interest or principal payment due hereunder. Such payment
shall be considered received by each such Lender on the date of any such charge
to the Debt Service Reserve Account.

       

      (e) General.
All interest shall be computed on the basis of a year of 360 days for
the
actual number of days, including the first day but excluding the last day,
elapsed.

       

      Section 2.05 Reduction of Commitment;
Prepayment of Loans.

       

      (a) Reduction
of Commitments. The Total Commitment shall terminate at 11:59
p.m. (New
York City time) on the Effective Date.

       

      (b) Optional
Prepayment.

       

      (i) At
any time after the date that is 6 months after the Effective Date, the
Borrower
shall have the right at its option on any date to prepay the Loans in whole or
in part in increments of not less than $1,000,000; provided
that if the outstanding principal balance of the Loans is less than $1,000,000,
the Loans must be prepaid in whole. Any prepayment made hereunder is subject to
the following criteria:

       

      (A) the
Borrower must simultaneously pay to each Lender the Yield Maintenance
Premium, all accrued and unpaid interest and all unpaid fees, costs and expenses
due hereunder; provided,
that no Yield Maintenance Premium shall be due in connection with any
refinancing of this Agreement by Prospect Capital Corporation or any Affiliate
thereof;

       

      (B) the
Borrower shall provide notice to the Agent by 1:00 p.m. at least
fifteen (15) Business Days prior to the date on which such prepayment of the
Loans shall occur setting forth the total principal amount of such prepayment
and the date on which such prepayment will be made. All optional prepayment
notices shall be irrevocable;

       

      (C) the
principal amount of the Loans for which a prepayment notice is given,
together with any accrued but unpaid interest on such principal amount, any
Yield Maintenance Premium and all unpaid fees, costs and expense, shall be due
and payable on the date specified in such prepayment notice as the date on which
the proposed prepayment is to be made; and

       

      (c) Mandatory
Prepayment. Notwithstanding the provisions of Section
2.05(b) above:

       

      
        
          
          

        

        
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      (i) Immediately
upon any Disposition by any Loan Party pursuant to Section 7.02(b)(iii), the
Borrower shall make a prepayment of the Loans together with the accrued interest
on such portion of the Loans so prepaid in an amount equal to 100% of the Net
Cash Proceeds received by such Person in connection with such Disposition,
unless otherwise agreed to in writing by the Lenders. Nothing contained in this
subsection (i) shall permit any Loan Party or any of its Subsidiaries to make a
Disposition of any property other than in accordance with Section
7.02(b).

       

      (ii) No later
than ten (10) days following the date of receipt by any Loan Party of
Net Cash Proceeds from any Casualty Event, the Borrower shall, at the Lender's
request, prepay the Loans in an amount equal to 100% of the Net Cash Proceeds
from such Casualty Event.

       

      (iii)
Each mandatory prepayment shall be accompanied by a written statement from an
Authorized Officer of the Borrower detailing the reason for such prepayment as
reasonably requested by the Agent and shall require the Borrower simultaneously
paying to the Lender the Yield Maintenance Premium (other than in connection
with a prepayment made pursuant to clause (ii) above), all accrued and unpaid
interest and all unpaid fees, costs and expenses due hereunder,

       

      (d) Application of Optional and
Mandatory Prepayments. All optional or mandatory
prepayments made pursuant to Sections 2.05(a) and
(b) shall be
applied in the following order of priority: (i) expenses, (ii) fees, including
the Yield Maintenance Premium, (iii) accrued and unpaid interest (including the
MK Amount) and (iv) outstanding principal on the Loans in the inverse order of
maturity.

       

      Section 2.06 Structuring Fee. On
the Effective Date, the Borrower shall pay to the Agent at Closing for the
account of the Lenders, a non-refundable upfront fee in accordance with the Fee
Letter.

       

      Section
2.07 Taxes.

       

      (a) Any and
all payments by any Loan Party hereunder shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of the Agent or any Lender (or any
transferee or assignee thereof, including a participation holder (any such
entity, a "Transferee")) by the
jurisdiction in which such Person is organized or has its principal lending
office (all such nonexcluded taxes, levies, imposts, deductions, charges
withholdings and liabilities, collectively or individually, "Taxes"). If any Loan
Party shall be required to deduct any Taxes from or in respect of any sum
payable hereunder to the Agent or any Lender (or any Transferee), (i) the sum
payable shall be increased by the amount (an "additional amount")
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.07) the
Agent or such Lender (or such Transferee) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) such Loan
Party shall make such deductions and (iii) such Loan Party shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.

       

      (b) In addition, each
Loan Party agrees to pay to the relevant Governmental Authority
in accordance with applicable law any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement ("Other Taxes"). To the
extent available, each Loan Party shall deliver to the Agent and each Lender
official receipts in respect of any Taxes or Other Taxes payable hereunder
promptly after payment of such Taxes or Other Taxes.

       

      
        
          
          

        

        
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      (c) The Loan
Parties hereby jointly and severally indemnify and agree to hold the Agent
and each Lender harmless from and against Taxes and Other Taxes (including,
without limitation, Taxes and Other Taxes imposed on any amounts payable under
this Section
2.07) paid by such Person, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Such indemnification shall be paid within thirty
(30) days from the date on which any such Person makes written demand therefor
specifying in reasonable detail the nature and amount of such Taxes or Other
Taxes.

       

      (d) No Lender
shall be organized under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.

       

      (e) Any
Lender (or Transferee) claiming any indemnity payment or additional
payment
amounts payable pursuant to this Section 2.07 shall
use reasonable efforts (consistent with legal and regulatory restrictions) to
file any certificate or document reasonably requested in writing by the Borrower
or to change the jurisdiction of its applicable lending office if the making of
such a filing or change would avoid the need for or reduce the amount of any
such indemnity payment or additional amount which may thereafter accrue, would
not require such Lender (or Transferee) to disclose any information such Lender
(or Transferee) deems confidential and would not, in the sole determination of
such Lender (or Transferee), be otherwise disadvantageous to such Lender (or
Transferee).

       

      (f) The
obligations of the Loan Parties under this Section 2.07 shall
survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.

       

      ARTICLE
III

      FEES,
PAYMENTS AND OTHER COMPENSATION

       

      Section
3.01 Payments;
Computations, Statements and Debt Service Reserve Account.

       

      (a) The
Borrower will make each payment under this Agreement not later than 12:00
noon (New York City time) on the day when due, in lawful money of the United
States of America and in immediately available funds, to the Agent's Account.
All payments received by the Agent after 12:00 noon (New York City time) on any
Business Day will be deemed paid on the next succeeding Business Day. All
payments shall be made by the Borrower without set-off, counterclaim, deduction
or other defense to the Agent and the Lenders. After receipt, the Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal ratably to the Lenders in accordance with their Pro Rata Shares and
like funds relating to the payment of any other amount payable to any Lender to
such Lender, in each case to be applied in accordance with the terms of this
Agreement. The Borrower hereby authorizes the Agent to, and the Agent may, from
time to time, charge the Debt Service Reserve Account of the Borrower with any
principal or interest on the Loans due and payable by the Borrower. The Borrower
agrees that the Agent shall have the right to make such charges whether or not
any Default or Event of Default shall have occurred and be continuing. Whenever
any payment to be made under any such Loan Document shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be. All
computations of fees shall be made by the Agent on the basis of a year of 360
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such fees are payable. Each
determination by the Agent of an interest rate, the Debt Service Reserve Amount,
or fees hereunder shall be conclusive and binding for all purposes in the
absence of manifest error.

       

      
        
          
          

        

        
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      (b)
Except as provided in this Section
3.01(b), the Borrower shall at all times maintain
cash in the Debt Service Reserve Account in an amount equal to the immediately
succeeding six months interest expense, not including the PIK Amount, under this
Agreement, such amount to be determined by the Agent (the "Debt
Service Reserve Amount"). On the Effective Date the Agent shall notify
the Borrower of the Debt Service Reserve Amount and the Borrower shall pay to
the Agent such amount to be deposited into the Debt Service Reserve Account. If
the Agent notifies the Borrower that there is a deficiency in the Debt Service
Reserve Account, the Borrower shall within two (2) Business Days of receipt of
such notice pay the amount required by the Agent to be deposited into the Debt
Service Reserve Account. All amounts in the Debt Service Reserve Account will be
returned to the Borrower upon repayment of the full principal amount of the
Loan.

       

      Section
3.02 Sharing
of Payments, Etc. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of any Obligation in excess of its ratable share of
payments on account of similar obligations obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
such similar obligations held by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (a) the amount of such
Lender's required repayment to (b) the total amount so recovered from the
purchasing Lender of any interest or other amount paid by the purchasing Lender
in respect of the total amount so recovered). The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this Section
3.02 may, to the fullest extent permitted by law, exercise all of its
rights (including the Lender's right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

       

      Section
3.03 Apportionment
of Payments. Subject to any written agreement among the Agent and/or the
Lenders:

       

      (a) all
payments of principal and interest in respect of outstanding Loans, all
payments
of fees and all other payments in respect of any other Obligations, shall be
allocated by the Agent among such of the Lenders as are entitled thereto, in
proportion to their respective Pro Rata Shares or otherwise as provided herein
or, in respect of payments not made on account of the Loans, as designated by
the Person making payment when the payment is made.

       

      (b) After the
occurrence and during the continuance of an Event of Default, the Agent
may, and upon the direction of the Required Lenders shall, apply all payments in
respect of any Obligations and all proceeds of the Collateral, subject to the
provisions of this Agreement, (i) first,
ratably to pay the Obligations in respect of any fees, expense reimbursements,
indemnities and other amounts then due to the Agent until paid in full; (ii)
second,
ratably to pay the Obligations in respect of any fees and indemnities then due
to the Lenders until paid in full; (iii) third,
ratably to pay interest due in respect of the Loans until paid in full; (iv)
fourth,
ratably to pay principal of the Loans until paid in full, and (v) fifth, to the
ratable payment of all other Obligations then due and payable.

       

      (c) For
purposes of Section
3.03(a), "paid in full" with respect to interest shall include
interest accrued after the commencement of any Insolvency Proceeding
irrespective of whether a claim for such interest is allowable in such
Insolvency Proceeding.

       

      (d) In
the event of a direct conflict between the priority provisions of this Section
3.03 and other provisions contained in
any other Loan Document, it is the intention of the parties hereto

       

      
        
          
          

        

        
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      that both
such priority provisions in such documents shall be read together and construed,
to the fullest extent possible, to be in concert with each other. In the event
of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of this Section
3.03 shall control and govern.

       

      ARTICLE
IV

      CONDITIONS
TO LOANS

       

      Section
4.01 Conditions
Precedent to Effectiveness. This Agreement shall become effective
as of the
Business Day when each of the following conditions precedent shall have been
satisfied in a manner satisfactory to the Agent or waived in
writing:

       

      (a) Payment
of Fees, Etc. The Borrower shall have paid on or before the date of
this
Agreement all fees, costs, expenses and taxes then payable pursuant to Section
2.06 and Section  12.04.

       

       

      (b) Representations and
Warranties; No Event of Default. The following
statements
shall be true and correct: (i) the representations and warranties contained in
ARTICLE
V and in each other Loan Document, certificate or other writing delivered
to the Agent or any Lender pursuant hereto or thereto on or prior to the
Effective Date are true and correct on and as of the Effective Date as though
made on and as of such date except to the extent applicable to another specific
date, and (ii) after giving effect to the Transactions, no Default or Event of
Default shall have occurred and be continuing on the Effective Date or would
result from this Agreement or the other Loan Documents becoming effective in
accordance with its or their respective terms.

       

      (c) Legality.
The making of the Loans shall not contravene any law, rule or regulation
applicable to the Agent or any Lender.

       

      (d) Delivery
of Documents. The Agent shall have received on or before the Effective
Date the following, each in form and substance satisfactory to the Agent and,
unless indicated otherwise, dated the Effective Date:

       

      (i) the
Guaranty and Collateral Agreement, duly executed by the Loan Parties;

       

      (ii) the
Warrant Agreement, duly executed by the Borrower;

       

      (iii) the
promissory note as provided for in Section
2.03(e);

       

      (iv) UCC lien
searches, listing all effective financing statements which name as debtor any
Loan Party and which are filed in the offices where any Loan Party is organized,
together with copies
of such financing statements, none of which, except as otherwise agreed
in writing by the Agent and except for Liens to be terminated on the Effective
Date, shall cover any of the Collateral and the results of searches for any tax
Lien and judgment Lien filed against such Person or its property, which results,
except as otherwise agreed to in writing by the Agent, shall not show any such
Liens;

       

      (v)
a copy of the resolutions of each Loan Party, certified as of the
Effective Date by
an Authorized Officer thereof, authorizing (A) the borrowings hereunder and the
transactions contemplated by the Loan Documents to which such Loan Party is or
will be a party and the other Transactions, and (B) the execution, delivery and
performance by such Loan Party of each Loan Document and each other Transaction
Document to which such Loan Party is or will be a party and the

       

      
        
          
          

        

        
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      execution
and delivery of the other documents to be delivered by such Person in connection
herewith and therewith;

       

      (vi) a
certificate of an Authorized Officer of each Loan Party, certifying the names
and true signatures of the representatives of such Loan Party authorized to sign
each Loan Document to which such Loan Party is or will be a party and the other
documents to be executed and delivered by such Loan Party in connection herewith
and therewith, and authorized to provide the Notice of Borrowing and all other
notices under this Agreement and the other Loan Documents, together with
evidence of the incumbency of such authorized officers;

       

      (vii) a
certificate of the appropriate official(s) of the state of organization and each
state of foreign qualification of each Loan Party certifying as of a recent date
as to the subsistence in good standing of, and the payment of taxes by, such
Loan Party in such states;

       

      (viii) establishment
of the Operating Account and Debt Service Reserve Account at financial
institutions acceptable to the Agent and the execution and delivery of deposit
account control agreements to govern (A) the Debt Service Reserve Account and
(B) the Operating Account, each in form and substance satisfactory to the
Agent;

       

      (ix) a copy of
the articles of incorporation, charter and by-laws, limited liability company
agreement, operating agreement, agreement of limited partnership or other
organizational document of each Loan Party, together with all amendments
thereto, certified as of the Effective Date by an Authorized Officer of such
Loan Party;

       

      (x) an
opinion of The Welscher Law Firm, counsel to the Loan Parties, in the
form of
Exhibit D attached hereto;

       

      (xi) a
certificate of an Authorized Officer of the Borrower, certifying as to the
matters set forth in subsection
(h) of this Section
4.01;

       

      (xii) a copy of
the Financial Statements and the financial projections described in Section
5.07 hereof, together with a certificate executed by an Authorized
Officer of the Borrower, certifying as to the matters set forth in Section
5.07;

       

      (xiii) each
certificate of an Authorized Officer of the Borrower required pursuant to Section
4.01(j);

       

      (xiv) a
certificate of an Authorized Officer of the Borrower, certifying that the
Borrower and each Loan Party, after giving effect to the Transactions, is
Solvent;

       

      (xv) evidence
of the insurance coverage required by Section
5.19, including, without limitation, insurance assigned to the Borrower
pursuant to the terms of the Guaranty and Collateral Agreement and such other
insurance coverage with respect to the business and operations of the Loan
Parties as the Agent may reasonably request, in each case, where requested by
the Agent, with such endorsements as to the named insureds or loss payees
thereunder as the Agent may request and providing that such policy may be
terminated or canceled (by the insurer or the insured thereunder) only upon 30
days' prior written notice to the Agent and each such named insured or loss
payee, together with evidence of the payment of all premiums due in respect
thereof for such period as the Agent may request;

       

      
        
          
          

        

        
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      (xvi) a
landlord waiver, in form and substance satisfactory to the Agent, executed by
each landlord with respect to each of the Leases set forth on Schedule 6.01(o);
provided that in the event the Borrower, despite its commercially reasonable
efforts to do so, is unable to deliver to the Agent on the Effective Date one or
more of the landlord waivers required to be delivered under this Section 4.01(d)(xvi),
the Borrower shall deliver such landlord waiver or waivers to the Agent within
twenty-one (21) days after the Effective Date.

       

      (xvii) a
certificate evidencing the "key man" life insurance with respect to Ronald E.
Smith in the amount of at least $3,000,000, pursuant to policies reasonably
satisfactory to the Agent and with Agent as the beneficiary;

       

      (xviii) copies of
the Material Contracts as in effect on the Effective Date, certified as true and
correct copies thereof by an Authorized Officer of each Borrower, together with
a certificate of an Authorized Officer of each Borrower stating that such
agreements have been duly assigned to the Borrower, as applicable, remain in
full force and effect and that none of the Loan Parties has breached or
defaulted in any of its obligations under such agreements;

       

      (xix) the
employment agreements entered into by the Borrower with each of the Managers,
the terms of which are satisfactory to the Agent, and such agreements shall be
certified as being true and correct copies thereof and as being in full force
and effect by an Authorized Officer of each Borrower.

       

      (xx) such
other agreements, instruments, approvals, opinions and other documents, each
satisfactory to the Agent in form and substance, as the Agent may reasonably
request.

       

      (e) Material Adverse
Effect. The Agent shall have determined, in its sole judgment,
that, no event or development shall have occurred since December 31, 2006 which
could have a Material Adverse Effect.

       

      (f) Approvals. All
consents, authorizations and approvals of, and filings and registrations
with, and all other actions in respect of, any Governmental Authority or other
Person required in connection with the making of the Loans, the consummation of
the Transactions or the conduct of the Loan Parties' business shall have been
obtained and shall be in full force and effect.

       

      (g) Proceedings; Receipt of
Documents. All proceedings in connection with the making of
the initial Loans and the other transactions contemplated by this Agreement and
the other Loan Documents, and all documents incidental hereto and thereto, shall
be satisfactory to the Agent and its counsel, in their sole discretion, and the
Agent and such counsel shall have received all such information and such
counterpart originals or certified or other copies of such documents as the
Agent or such counsel may reasonably request.

       

      (h) Management Reference
Checks. The Agent shall have received satisfactory reference
checks for key management of Borrower, including Robert Chamberlain and Ronald
E. Smith.

       

      (i) Due Diligence. The
Agent shall have completed its business, legal and collateral due diligence with
respect to the Borrower and each other Loan Party, the results of which shall be
acceptable to the Agent, in its sole and absolute discretion.

       

      
        
          
          

        

        
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      (j) Liabilities.
All liabilities of the Loan Parties shall be current. The Borrower shall
deliver to the Agent a certificate of an Authorized Officer of the Borrower
certifying as to the matters set forth above.

       

      (k) Investment
Committee. Each Lender shall have received approval of their investment
committee for making the Loans under this Agreement in their sole and absolute
discretion.

       

      (l)
Notices.
The Agent shall have received a Notice of Borrowing pursuant to Section 2.02
hereof.

       

      (m) Delivery
of Documents. The Agent shall have received such other agreements,
instruments, approvals, opinions and other documents, each in form and substance
satisfactory to the Agent, as the Agent may reasonably request.

       

      ARTICLE
V

      REPRESENTATIONS
AND WARRANTIES

       

      Each Loan
Party hereby represents and warrants to the Agent and the Lenders as
follows:

       

      Section
5.01Organization,
Good Standing, Etc. Each Loan Party (i) is a corporation, limited
liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization, (ii)
has all requisite power and authority to conduct its business as now conducted
and as presently contemplated and to make the borrowings hereunder (in the case
of the Borrower), and to execute and deliver each Loan Document and each other
Transaction Document to which it is a party, and to consummate the Transactions,
and (iii) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or in good standing could not
reasonably be expected to have a Material Adverse Effect

       

      Section
5.02 Authorization,
Etc. The execution, delivery and performance by each Loan Party of each
Loan Document and each other Transaction Document to which it is or will be a
party and the performance of the Transactions, (a) have been duly authorized by
all necessary action, (b) do not and will not contravene its charter or by-laws,
its limited liability company or operating agreement or its certificate of
partnership or partnership agreement, as applicable, (c) do not and will not
contravene any applicable law or any contractual restriction binding on or
otherwise affecting it or any of its properties except where such contravention
would not have a Material Adverse Effect, (d) do not and will not result in or
require the creation of any Lien (other than pursuant to any Loan Document) upon
or with respect to any of its properties, and (e) do not and will not result in
any default, noncompliance, suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to its
operations or any of its properties.

       

      Section
5.03 Governmental
Approvals. No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority is required in connection with the
due execution, delivery and performance by any Loan Party of any Loan Document
or any other Transaction Document to which it is or will be a party or the
performance of the Transactions other than filings and recordations to perfect
Liens.

       

      Section
5.04 Enforceability
of Loan Documents. This Agreement is, each other Loan Document to which
any Loan Party is or will be a party when delivered hereunder will be, and each
other Transaction Document is, a legal, valid and binding obligation of such
Person, enforceable against such

       

      
        
          
          

        

        
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      Person in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar law and general
principles of equity.

       

      Section 5.05 Capitalization;
Subsidiaries.

       

      (a) On the
Effective Date, after giving effect to the Transactions, the authorized
Capital
Stock of the Borrower is set forth on Schedule
5.05. All of the issued and outstanding shares of Capital Stock of the
Borrower has been validly issued and are fully paid and nonassessable, and the
holders thereof are not entitled to any preemptive, first refusal or other
similar rights. Except as described on Schedule
5.05, as of the Effective Date, there are no outstanding debt or equity
securities of the Borrower and no outstanding obligations of the Borrower
convertible into or exchangeable for, or warrants, options or other rights for
the purchase or acquisition from the Borrower, or other obligations of the
Borrower to issue, directly or indirectly, any shares of Capital Stock of the
Borrower.

       

      (b) On the
Effective Date the Borrower has no Subsidiaries other than those set
forth on Schedule
5.05.

       

      Section 5.06 Litigation;
Commercial Tort Claims. Except as set forth on Schedule
5.06, there is no pending or, to the best knowledge of any Loan Party,
threatened action, Claim, suit or proceeding affecting any Loan Party before any
court or other Governmental Authority or any arbitrator that (A) if adversely
determined, could have a Material Adverse Effect or (B) relates to this
Agreement, any other Loan Document or other Transaction Document or any of the
Transactions and (ii) as of the Effective Date, none of the Loan Parties holds
any commercial tort claims in respect of which a claim has been filed in a court
of law or a written notice by an attorney has been given to a potential
defendant.

       

      Section 5.07 Financial Condition.

       

      (a) The
Financial Statements, copies of which have been delivered to the Agent
and each
Lender, fairly present the financial condition of the Loan Parties for the
fiscal periods ended on such respective dates, on a consolidated basis, all in
accordance with GAAP, and since December 31, 2006, no event or development has
occurred that has had or could have a Material Adverse Effect.

       

      (b) The
Borrower has heretofore furnished to the Agent the
unaudited pro forma balance
sheet of the Borrower as of the Effective Date, on a consolidated basis, after
giving effect to Loans under this Agreement and other Transactions contemplated
by the Transaction Documents. Such balance sheet has been prepared on a
reasonable basis and in good faith by the Borrower and has been based on
preliminary estimates, available information and certain assumptions believed by
the Borrower to be reasonable.

       

      Section
5.08 Compliance
with Law, Etc. No Loan Party is in violation of its organizational
documents,
or in violation of any law, rule or regulation or any judgment or order of any
Governmental Authority
applicable to it or any of its property or assets, or any Transaction Document
or other Material Contract
binding on or otherwise affecting it or any of its properties, and no Default or
Event of Default has
occurred and is continuing.

       

      Section 5.09 ERISA.
Except as set forth on Schedule
5.09, (i) each Employee Plan is in substantial compliance with ERISA and
the Internal Revenue Code, (ii) no Termination Event has occurred nor is
reasonably expected to occur with respect to any Employee Plan, (iii) the most
recent annual report (Form 5500 Series) with respect to each Employee Plan,
including any required Schedule B (Actuarial Information) thereto, copies of
which have been filed with the U.S. Department of Labor and delivered to the
Agent, is complete and correct and fairly presents the funding status of such
Employee

       

      
        
          
          

        

        
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      Plan, and
since the date of such report there has been no material adverse change in such
funding status, (iv) copies of each agreement entered into with the PBGC, the
U.S. Department of Labor or the Internal Revenue Service with respect to any
Employee Plan have been delivered to the Agent, (v) no Employee Plan had an
accumulated or waived funding deficiency or permitted decrease which would
create a deficiency in its funding
standard account or has applied for an extension of any amortization period
within the meaning of Section 412 of the Internal Revenue Code at any time
during the previous 60 months, and (vi) no Lien imposed under the Internal
Revenue Code or ERISA exists or is likely to arise on account of any Employee
Plan within the meaning of Section 412 of the Internal Revenue Code. Except as
set forth on Schedule
5.09, no Loan Party or any of its ERISA Affiliates has incurred any
withdrawal liability under ERISA with respect to any Multiemployer Plan, or is
aware of any facts indicating that it or any of its ERISA Affiliates may in the
future incur any such withdrawal liability. No Loan Party or any of its ERISA
Affiliates nor any fiduciary of any Employee Plan has (i) engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Internal Revenue Code, (ii) failed to pay any required installment or other
payment required under Section 412 of the Internal Revenue Code on or before the
due date for such required installment or payment, (iii) engaged in a
transaction within the meaning of Section 4069 of ERISA or (iv) incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. There are no pending or, to the best knowledge of any Loan Party,
threatened claims, actions, proceedings or lawsuits (other than claims for
benefits in the normal course) asserted or instituted against (i) any Employee
Plan or its assets, (ii) any fiduciary with respect to any Employee Plan, or
(iii) any Loan Party or any of its ERISA Affiliates with respect to any Employee
Plan. Except as required by Section 4980B of the Internal Revenue Code, no Loan
Party or any of its ERISA Affiliates maintains an employee welfare benefit plan
(as defined in Section 3(1) of ERISA) which provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employee of any Loan Party or any of its ERISA Affiliates or coverage after a
participant's termination of employment.

       

      Section
5.10 Taxes,
Etc. All Federal, state and local tax returns and other reports required
by applicable law to be filed by any Loan Party have been timely filed, or
extensions have been obtained, and all taxes, assessments and other governmental
charges imposed upon any Loan Party or any property of any Loan Party and which
have become due and payable on or prior to the date hereof have been paid,
except to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof on the Financial Statements in accordance with modified GAAP.
The charges, accruals and reserves on the books of the Borrower in respect of
Taxes and other governmental charges are, in the reasonable opinion of the
Borrower, adequate. No Lien for Taxes has been filed and, to the knowledge of
the Borrower, no claim is being asserted with respect to any such Tax or other
such governmental charge.

       

      Section 5.11 Regulations
T, U and X. No Loan Party is or will be engaged in the business of
extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation T, U or X), and no proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin
stock.

       

      Section
5.12 Nature
of Business. No Loan Party is engaged in any business other than
providing services to the offshore segment of the energy industry.

       

      Section
5.13 Adverse
Agreements, Etc. No Loan Party is a party to any agreement or instrument,
or subject to any charter, limited liability company agreement, partnership
agreement or other corporate, partnership or limited liability company
restriction or any judgment, order, regulation, ruling or other requirement of a
court or other Governmental Authority, which has, or in the future
could

       

      
        
          
          

        

        
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      reasonably
be expected to have, a Material Adverse Effect. The Borrower is not a party to
any material agreement or arrangement, or subject to any order, judgment, writ
or decree, that either restricts or purports to restrict its ability to grant
Liens to the Agent and the Lenders on or in respect of its properties to secure
the Obligations and the Loan Documents.

       

      Section
5.14 Permits,
Etc. Each Loan Party has, and is in compliance with, all permits,
licenses, authorizations, approvals, entitlements and accreditation required for
such Person lawfully to own, lease, manage or operate, or to acquire, each
business currently owned, leased, managed or operated, or to be acquired, by
such Person, except where the failure to have or be in compliance with any such
permit, license, authorization, approval, entitlement or accreditation could not
reasonably be expected to have a Material Adverse Effect. No condition exists or
event has occurred which, in itself or with the giving of notice or lapse of
time or both, would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such permit, license, authorization, approval, entitlement
or accreditation, and there is no claim that any thereof is not in full force
and effect, except where such suspension, revocation, impairment, forfeiture or
non-renewal or such failure to be in full force and effect could not reasonably
be expected to have a Material Adverse Effect.

       

      Section
5.15 Properties.

       

      (a) Each Loan
Party has good and marketable title to, valid leasehold interests in, or
valid licenses to use, all property and assets material to its business, free
and clear of all Liens, except Permitted Liens. All such properties and assets
are in good working order and condition, ordinary wear and tear
excepted.

       

      (b) Schedule
5.15 sets forth a complete and accurate list, as of the Effective
Date, of
the location, by state and street address, of all real property owned or leased
by each Loan Party. As of the Effective Date, each Loan Party has valid
leasehold interests in the Leases described on Schedule
5.15 to which it is a party. Schedule
5.15 sets forth with respect to each such Lease, the commencement date,
termination date, renewal options (if any) and annual base rents. Each such
Lease is valid and enforceable in accordance with its terms in all material
respects and is in full force and effect. No consent or approval of any landlord
or other third party in connection with any such Lease is necessary for any Loan
Party to enter into and execute the Loan Documents or the other Transaction
Documents to which it is a party or to perform the Transactions, except as set
forth on Schedule
5.15. To the best knowledge of any Loan Party, no other party to any such
Lease is in default of its material obligations thereunder, and no Loan Party
(or any other party to any such Lease) has at any time delivered or received any
notice of default which remains uncured under any such Lease and, as of the
Effective Date, no event has occurred which, with the giving of notice or the
passage of time or both, would constitute a default under any such
Lease.

       

      Section
5.16 Full
Disclosure. Each Loan Party has disclosed to the Agent all material
agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
None of the reports, financial statements, certificates or other information
furnished by or on behalf of any Loan Party to the Agent in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which it was made,
not misleading; provided
that, with respect to projected financial information, each Loan Party
represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time. There is no contingent
liability

       

      
        
          
          

        

        
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      or fact
that could reasonably be expected to be material which has not been set forth in
a footnote included in the Financial Statements or a Schedule
hereto.

       

      Section 5.17 Operating Lease
Obligations. On the Effective Date and after giving effect to the
Transactions,
none of the Loan Parties has any Operating Lease Obligations other than the
Operating Lease Obligations set forth on Schedule
5.17.

       

      Section 5.18 Environmental
Matters. Except as set forth on Schedule 5.18, (a)
the operations of each
Loan Party are in full compliance with all Environmental Laws, except any
non-compliance which could not reasonably be expected to have a Material Adverse
Effect; (b) there has been no Release at any of the properties owned or operated
by any Loan Party or a predecessor in interest, or at any disposal or treatment
facility which received Hazardous Materials generated by any Loan Party or any
predecessor in interest which could reasonably be expected to have a Material
Adverse Effect; (c) no Environmental Action has been asserted against any Loan
Party or any predecessor in interest nor does any Loan Party have knowledge or
written notice of any threatened Environmental Action against any Loan Party or
any predecessor in interest which could reasonably be expected to have a
Material Adverse Effect; (d) to the knowledge of each Loan Party, no
Environmental Actions have been asserted against any facilities that have
received Hazardous Materials generated by any Loan Party or any predecessor in
interest which could reasonably be expected to have a Material Adverse Effect;
(e) no property now or formerly owned or operated by a Loan Party was used as a
treatment or disposal site for any Hazardous Material before or during the time
period of such Loan Party's operations or ownership except as could not
reasonably be expected to have a Material Adverse Effect; (f) no Loan Party has
failed to report to the proper Governmental Authority any Release which is
required to be so reported by any Environmental Laws which could reasonably be
expected to have a Material Adverse Effect; (g) each Loan Party holds all
licenses, permits and approvals required under any Environmental Laws in
connection with the operation of the business carried on by it, except for such
licenses, permits and approvals as to which a Loan Party's failure to maintain
or comply with could not reasonably be expected to have a Material Adverse
Effect; and (h) no Loan Party has received any written notification pursuant to
any Environmental Laws that (i) any work, repairs, construction or Capital
Expenditures are required to be made in respect as a condition of continued
compliance with any Environmental Laws, or any license, permit or approval
issued pursuant thereto or (ii) any license, permit or approval referred to
above is about to be reviewed, made subject to limitations or conditions,
revoked, withdrawn or terminated, in each case, except as could not reasonably
be expected to have a Material Adverse Effect.

       

      Section
5.19 Insurance.
Each Loan Party keeps its property adequately insured and maintains (a)
insurance to such extent and against such risks, including fire, as is customary
with companies in the same or similar businesses, (b) workmen's compensation
insurance in the amount required by applicable law, (c) public liability
insurance, which shall include product liability insurance, in the amount
customary with companies in the same or similar business against claims for
personal injury or death on properties owned, occupied or controlled by it, and
(d) such other insurance as may be required by law or as may be reasonably
required by the Agent (including, without limitation, against larceny,
embezzlement or other criminal misappropriation). Schedule 5.19 sets
forth a list of all insurance maintained by each Loan Party on the Effective
Date.

       

      Section 5.20 Use of Proceeds. The
proceeds of the Loans shall be used for the purposes set forth in Schedule
5.20.

       

      Section 5.21 Solvency. Before and
after giving effect to the Transactions as contemplated by this
Agreement, the other Transaction Documents, each Loan Party is, and the Loan
Parties on a consolidated basis are, Solvent.

       

      
        
          
          

        

        
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      Section 5.22 Location
of Bank Accounts. Schedule 5.22 sets forth a complete and accurate list
as of the Effective Date of all deposit, checking and other bank accounts, all
securities and other accounts maintained with any broker dealer and all other
similar accounts maintained by each Loan Party, together with a description
thereof (i.e.,
the bank or broker dealer at which such deposit or other account is maintained
and the account number and the purpose thereof).

       

      Section
5.23 Material
Contracts. Set forth on Schedule
5.23 is a complete and accurate list as of the
Effective Date of all Material Contracts of each Loan Party, showing the parties
and subject matter thereof and amendments and modifications thereto. Each such
Material Contract (a) is in full force and effect and is binding upon and
enforceable against each Loan Party that is a party thereto and, to the best
knowledge of such Loan Party, all other parties thereto in accordance with its
terms, (b) has not been otherwise amended or modified, and (c) is not in default
due to the action of any Loan Party or, to the best knowledge of any Loan Party,
any other party thereto.

       

      Section
5.24 Investment
Company Act. None of the Loan Parties is an "investment company" or an
"affiliated person" or "promoter" of, or "principal underwriter" of or for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended.

       

      Section
5.25 Employee
and Labor Matters. There is (a) no unfair labor practice complaint
pending or, to the best knowledge of any Loan Party, threatened against any Loan
Party before any Governmental Authority and no grievance or arbitration
proceeding pending or, to the best knowledge of any Loan Party, threatened
against any Loan Party which arises out of or under any collective bargaining
agreement which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect, (b) no strike, labor dispute, slowdown,
stoppage or similar action or grievance pending or, to the best knowledge of any
Loan Party, threatened against any Loan Party or (c) to the best knowledge of
any Loan Party, no union representation question existing with respect to the
employees of any Loan Party and no union organizing activity taking place with
respect to any of the employees of any Loan Party. Neither any Loan Party nor
any of its ERISA Affiliates has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act ("WARN") or similar state law,
which remains unpaid or unsatisfied. The hours worked and payments made to
employees of any Loan Party have not been in violation of the Fair Labor
Standards Act or any other applicable legal requirements, except to the extent
such violations could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. All material payments due from
any Loan Party on account of wages and employee health and welfare insurance and
other benefits have been paid or accrued as a liability on the books of such
Loan Party, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.

       

      Section
5.26 Customers
and Suppliers. There exists no actual or, to the best knowledge of any
Loan
Party, threatened termination, cancellation or limitation of, or modification to
or change in, the business relationship between (a) any Loan Party, on the one
hand, and any customer or any group thereof of any Loan Party, on the other
hand, whose agreements with any Loan Party are individually or in the aggregate
material to the business or operations of such Loan Party, or (b) any Loan
Party, on the one hand, and any material supplier of any Loan Party, on the
other hand; and there exists no present state of facts or circumstances that
could give rise to or result in any such termination, cancellation, limitation,
modification or change, except for any such termination, cancellation,
limitation, modification or change which could not reasonably be expected to
have a Material Adverse Effect. Nothing in the preceding sentence, however,
shall be construed to create an exception to the provisions of this Section
5.26.

       

      Section 5.27 No
Bankruptcy Filing. No Loan Party is contemplating either an Insolvency
Proceeding or the liquidation of all or a major portion of such Loan Party's
assets or property, and no Loan Party has any knowledge of any Person
contemplating an Insolvency Proceeding against it.

       

      
        
          
          

        

        
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      Section
5.28 Casualty
Events. Since December 31, 2006, neither the business nor any properties
of the Borrower have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of property or
cancellation of contracts, permits or concessions by any domestic or foreign
Governmental Authority, riot, activities or armed forces or acts of God or of
any public enemy.

       

      Section
5.29 Organizational
Information. Schedule 5.29 sets forth a complete and accurate list
as of the
date hereof of (a) the exact legal name of each Loan Party, (b) the jurisdiction
of organization of each Loan Party, (c) the organizational identification number
of each Loan Party (or indicates that such Loan Party has no organizational
identification number), (d) each place of business of each Loan Party, (e) the
chief executive office of each Loan Party, (f) the federal employer
identification number of each Loan Party and (g) the exact name used in each
Federal tax return of each Loan Party.

       

      Section
5.30 Equipment.
Other than the Equipment listed on Schedule
1.01(B), the Borrower has no titled Equipment.

       

      Section
5.31 Locations
of Collateral. Schedule 5.31 hereto contains a true, correct and
complete
list, as of the Effective Date, of the legal names and addresses of each
warehouse at which Collateral of each Loan Party is stored. None of the receipts
received by any Loan Party from any warehouse states that the goods covered
thereby are to be delivered to bearer or to the order of a named Person or to a
named Person and such named Person's assigns.

       

      Section
5.32 Security
Interests. The Guaranty and Collateral Agreement creates in favor of the
Agent, for the benefit of the Lenders, a legal, valid and enforceable security
interest in the Collateral secured thereby. Upon (a) the filing of the UCC-1
financing statements by the Lenders, (b) with respect to the perfection of any
security interest created in motor vehicles for which the title to such motor
vehicles is governed by a certificate of title or ownership, the submission of
an appropriate application requesting that the Lien of the Agent be noted on the
certificate of title or ownership, completed and authenticated by the applicable
Loan Party, together with the certificate of title, with respect to each such
motor vehicle, to the appropriate state agency, (c) with respect to any action
that may be necessary to obtain control in Collateral under Sections 9-104,
9-105, 9-106, and 9-107 of the Uniform Commercial Code, the taking of such
action and (d) the Agent taking possession of all documents, chattel paper,
instruments and cash constituting Collateral, such security interests in and
Liens on the Collateral granted thereby shall be perfected, first priority
security interests, and no further recordings or filings are or will be required
in connection with the creation, perfection or enforcement of such security
interests and Liens in such Collateral, other than (i) the filing of
continuation statements in accordance with applicable law and (ii) the
recordation of appropriate evidence of the security interest in the appropriate
foreign registry with respect to all foreign intellectual property.

       

      Section
5.33 Schedules.
All of the information which is required to be scheduled to this Agreement
is set forth on the Schedules attached hereto, is correct and accurate and does
not omit to state any information material thereto.

       

      Section
5.34 Representations
and Warranties in Documents; No Default. All representations and
warranties set forth in this Agreement and the other Loan Documents are true and
correct in all respects at the time as of which such representations were made
and on the Effective Date. No Event of Default has occurred and is continuing
and no condition exists which constitutes a Default or an Event of
Default.

       

      
        
          
          

        

        
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      Section
5.35 Reliance.
In connection with the negotiation of and the entering into this Agreement
and the other Loan Documents, the Borrower acknowledges and represents that none
of the Lenders or the Agent or any representative of any of the foregoing is
acting as a fiduciary or financial or investment advisor for it; it is not
relying upon any representations (whether written or oral) of such Persons; it
has consulted with its own legal, regulatory, tax, business investment, fmancial
and accounting advisors to the extent it has deemed necessary, and it has made
its own investment, hedging, and trading decisions based upon its own judgment
and upon any advice from such advisors as it has deemed necessary and not upon
any view expressed by any Lender or the Agent or any representative of any of
the foregoing; it has not been given by any Lender or the Agent or any
representative of any of the foregoing (directly or indirectly through any other
Person) any advice, counsel, assurance, guarantee, or representation whatsoever
as to the expected or projected success, profitability, return, performance,
result, effect, consequence, or benefit (either legal, regulatory, tax,
financial, accounting, or otherwise) of this Agreement or the Transactions; and
it is entering into this Agreement and the other Loan Documents with a full
understanding of all of the risks hereof and thereof (economic and otherwise),
and it is capable of assuming and willing to assume (financially and otherwise)
those risks.

       

      Section 5.36 Brokers. No Person is
entitled to any brokerage fee or fmders fee or similar fee or commission in
connection with arranging the Loans contemplated by this Agreement other than
any such arrangement listed in Schedule
5.36.

       

      Section
5.37 Use of
Loans. The proceeds of the Loans shall be used for the purposes set forth
in Section 5.20
or otherwise agreed to by the Lenders. The Loan Parties are not engaged
principally, or as one of its or their important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation T, U or X of
the Federal Reserve Board). No part of the proceeds of any Loans will be used
for any purpose which violates the provisions of Regulations T, U or X of the
Board.

       

      ARTICLE
VI

      AFFIRMATIVE
COVENANTS

       

      So long
as any principal of or interest on any Loan or any other Obligation (whether or
not due) shall remain unpaid, each Loan Party will, unless the Required Lenders
shall otherwise consent in writing:

       

      Section
6.01 Reporting
Requirements. Furnish to the Agent and each Lender:

       

      (a) as soon
as available and in any event within 45 days after the end of each fiscal
quarter of the Loan Parties commencing with the fiscal quarter of the Loan
Parties ending on September 30, 2007, balance sheets, statements of operations
and retained earnings and statements of cash flows of the Loan Parties as at the
end of such quarter, in each case presented on a consolidated basis (and, if so
requested by the Agent, on a consolidating basis), and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the end of
such quarter, setting forth in each case in comparative form the figures for the
corresponding date or period of the immediately preceding Fiscal Year and other
comparable periods, all in reasonable detail and certified by an Authorized
Officer of each Borrower as fairly presenting, in all material respects, the
financial position of the Loan Parties as of the end of such quarter and the
results of operations and cash flows of the Loan Parties for such quarter, in
accordance with GAAP applied in a manner consistent with that of the most recent
audited financial statements of the Loan Parties furnished to the Agent and the
Lenders, subject to normal year-end adjustments;

       

      (b) as soon
as available, and in any event within 90 days after the end of each Fiscal
Year of the Loan Parties, balance sheets, statements of operations and retained
earnings and

       

      
        
          
          

        

        
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      statements
of cash flows of the Loan Parties as at the end of such Fiscal Year, in each
case presented on a consolidated basis (and, if so requested by the Agent, on a
consolidating basis, provided that consolidating statements need not be
accompanied by the auditor's opinion referred to below), setting forth in each
case in comparative form the corresponding figures for the immediately preceding
Fiscal Year and other comparable periods, all in reasonable detail and prepared
in accordance with GAAP, and accompanied by a report and an unqualified opinion,
prepared in accordance with generally accepted auditing standards, of
independent certified public accountants of recognized standing selected by the
Loan Parties and reasonably satisfactory to the Agent (which opinion shall be
without (i) a "going concern" or like qualification or exception, (ii) any
qualification or exception as to the scope of such audit, or (C) any
qualification which relates to the treatment or classification of any item and
which, as a condition to the removal of such qualification, would require an
adjustment to such item, the effect of which would be to cause any noncompliance
with the provisions of ARTICLE
VIII), together with a written statement of such accountants (A) to the
effect that, in making the examination necessary for their certification of such
financial statements, they have not obtained any knowledge of the existence of
any Event of Default arising as a result of any noncompliance with the
provisions of ARTICLE
VIII and (B) if such accountants shall have obtained any knowledge of the
existence of any such Event of Default, describing the nature
thereof;

       

      (c) as soon
as available, and in any event within 30 days after the end of each calendar
month of the Loan Parties commencing with August 31, 2007, internally prepared
balance sheets, statements of operations and retained earnings and statements of
cash flows as at the end of such calendar month, and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the end of
such calendar month, in each case presented on a consolidated basis (and, if so
requested by the Agent, on a consolidating basis), setting forth in comparative
form the figures for the corresponding date or period set forth in the financial
projections referred to in clause (vii) below, all in reasonable detail and
certified by an Authorized Officer of each Borrower as fairly presenting, in all
material respects, the financial position of the Loan Parties as at the end of
such calendar month and the results of operations, retained earnings and cash
flows of the Loan Parties for such calendar month, in accordance with GAAP
applied in a manner consistent with that of the most recent audited financial
statements furnished to the Agent and the Lenders, subject to normal year-end
adjustments;

       

      (d) simultaneously
with the delivery of the financial statements of the Loan Parties
required by clauses (a), (b) and (c) of this Section
6.01, a certificate of an Authorized Officer of each Borrower (A) stating
that such Authorized Officer has reviewed the provisions of this Agreement and
the other Loan Documents and has made or caused to be made under his or her
supervision a review of the condition and operations of the Loan Parties during
the period covered by such financial statements with a view to determining
whether the Loan Parties were in compliance with all of the provisions of this
Agreement and such Loan Documents at the times such compliance is required
hereby and thereby, and that such review has not disclosed, and such Authorized
Officer has no knowledge of, the existence during such period of an Event of
Default or Default or, if an Event of Default or Default existed, describing the
nature and period of existence thereof and the action which the Loan Parties
propose to take or have taken with respect thereto and (B) attaching a schedule
showing the calculations specified in ARTICLE
VIII;

       

      (e)
within thirty (30) days of the end of each calendar month, all bank statements
related
to the Debt Service Reserve Account and the Operating Account;

       

      (f)
Promptly, but in any event within 30 days prior to the end of each fiscal year,
the
Borrower shall deliver to the Agent a detailed annual budget and Capital
Expenditure program for next three years on a monthly basis, including
consolidating and consolidated balance sheets, income and cash flow statements
with respect to such period. The budget for the fiscal year ending December
31,

       

      
        
          
          

        

        
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      2007
shall be prepared and delivered within 30 days of the Effective Date and will be
revised quarterly with monthly reports to be submitted to the Agent. The annual
budget for 2008 will be prepared by and delivered to the Agent by October 31,
2007. All expenses in excess of $50,000 as provided for in the annual budget
must be approved by the Agent. The Agent shall have 30 days from the date of
receipt to approve or reject any proposed budget submitted by Borrower. In the
event that the Agent rejects any proposed budget presented by the Borrower, the
Borrower will review the Agent's reasons for rejecting such budget and revise
its proposed budget consistent with the Agent's reasonable comments and resubmit
a revised budget to Agent within five (5) Business Days of the Agent's rejection
of the proposed budget and Agent shall notify the Borrower if it approves the
revised budget. The Borrower will continue to cooperate with Agent as set forth
above until such time that a budget has been approved.

       

      (g) promptly
after submission to any Governmental Authority, all documents and
information furnished to such Governmental Authority in connection with any
investigation of any Loan Party other than routine inquiries by such
Governmental Authority;

       

      (h) as soon
as possible, and in any event within five (5) Business Days after the
occurrence
of an Event of Default or Default or the occurrence of any event or development
that could reasonably be expected to have a Material Adverse Effect, the written
statement of an Authorized Officer of the applicable Borrower(s) setting forth
the details of such Event of Default or Default or other event or development
having a Material Adverse Effect and the action which the affected Loan Party
proposes to take with respect thereto;

       

      (i) (A) as
soon as possible and in any event within ten (10) Business Days after
any Loan
Party or any ERISA Affiliate thereof knows or has reason to know that (1) any
Reportable Event with respect to any Employee Plan has occurred, (2) any other
Termination Event with respect to any Employee Plan has occurred, or (3) an
accumulated funding deficiency has been incurred or an application has been made
to the Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including installment payments) or an extension of any
amortization period under Section 412 of the Internal Revenue Code with respect
to an Employee Plan, a statement of an Authorized Officer of the applicable
Borrower(s) setting forth the details of such occurrence and the action, if any,
which such Loan Party or such ERISA Affiliate proposes to take with respect
thereto, (B) promptly and in any event within three (3) Business Days after
receipt thereof by any Loan Party or any ERISA Affiliate thereof from the PBGC,
copies of each notice received by any Loan Party or any ERISA Affiliate thereof
of the PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within ten (10) Business Days
after the filing thereof with the Internal Revenue Service if requested by the
Agent, copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Employee Plan and Multiemployer Plan,
(D) promptly and in any event within ten (10) Business Days after any Loan Party
or any ERISA Affiliate thereof knows or has reason to know that a required
installment within the meaning of Section 412 of the Internal Revenue Code has
not been made when due with respect to an Employee Plan, (E) promptly and in any
event within five (5) Business Days after receipt thereof by any Loan Party or
any ERISA Affiliate thereof from a sponsor of a Multiemployer Plan or from the
PBGC, a copy of each notice received by any Loan Party or any ERISA Affiliate
thereof concerning the imposition or amount of withdrawal liability under
Section 4202 of ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA, and (F) promptly and in any
event within ten (10) Business Days after any Loan Party or any ERISA Affiliate
thereof sends notice of a plant closing or mass layoff (as defined in WARN) to
employees, copies of each such notice sent by such Loan Party or such ERISA
Affiliate thereof;

       

      (j) promptly
after the commencement thereof but in any event not later than three (3)
Business Days after service of process with respect thereto on, or the obtaining
of knowledge thereof by, any Loan Party, notice of each action, suit or
proceeding before any court or other

       

      
        
          
          

        

        
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      Governmental
Authority or other regulatory body or any arbitrator which, if adversely
determined, could have a Material Adverse Effect;

       

      (k) as
soon as possible and in any event within five (5) Business Days after
execution,
receipt or delivery thereof, copies of any material notices that any Loan Party
executes or receives in connection with any Material Contract;

       

      (l) if
applicable, promptly after the sending or filing thereof, copies of all
statements,
reports and other information any Loan Party sends to any holders of its
Indebtedness or its securities or files with the SEC or any national (domestic
or foreign) securities exchange;

       

      (m) promptly
upon receipt thereof, copies of all financial reports (including, without
limitation, management letters), if any, submitted to any Loan Party by its
auditors in connection with any annual or interim audit of the books
thereof;

       

      (n) promptly
upon request, such other information concerning the condition or operations,
financial or otherwise, of any Loan Party as the Agent may from time to time may
reasonably request.

       

      Section
6.02 Additional
Guaranties and Collateral Security. Cause each domestic Subsidiary of any
Loan Party not in existence on the Effective Date or upon formation or
acquisition to execute and deliver to the Agent promptly and in any event within
three (3) Business Days after the formation, acquisition or change in status
thereof (i) a Guaranty and Collateral Agreement guaranteeing the Obligations and
granting a security interest to Agent on all of its assets or their properties
with (A) copies of all certificates evidencing all of the Capital Stock of any
Person owned by such Subsidiary, (B) copies of all undated stock powers executed
in blank, and (C) such opinion of counsel and such approving certificate of such
Subsidiary as the Agent may reasonably request in respect of complying with any
legend on any such certificate or any other matter relating to such shares, (ii)
together with such other agreements, instruments and documents as the Agent may
reasonably require whether comparable to the documents required under Section
6.14 or otherwise and (iii) such other agreements, instruments,
approvals, legal opinions or other documents reasonably requested by the Agent
in order to create, perfect, establish the first priority of or otherwise
protect any Lien purported to be covered by any such Guaranty and Collateral
Agreement or otherwise to effect the intent that such Subsidiary shall become
bound by all of the terms, covenants and agreements contained in the Loan
Documents and that all property and assets of such Subsidiary shall become
Collateral for the Obligations.

      Section
6.03 Compliance
with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in
all material respects with all laws, rules, regulations, orders (including,
without limitation, all Environmental Laws), judgments and awards (including any
settlement of any claim that, if breached, could give rise to any of the
foregoing), such compliance to include, without limitation, (a) paying before
the same become delinquent all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any of its
properties and (b) paying all lawful claims which if unpaid might become a Lien
or charge upon any of its properties, except to the extent contested in good
faith by proper proceedings which stay the imposition of any penalty, fine or
Lien resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof in accordance with
GAAP.

       

      Section
6.04 Preservation
of Existence, Etc. Except as otherwise expressly permitted under Section
7.02, maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and become or
remain, and cause each of its Subsidiaries to become or

       

      
        
          
          

        

        
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      remain,
duly qualified and in good standing in each jurisdiction in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary.

       

      Section
6.05 Keeping
of Records and Books of Account. Keep, and cause each of its Subsidiaries
to keep, adequate records and books of account, with complete entries made to
permit the preparation of financial statements in accordance with
GAAP.

       

      Section
6.06 Inspection
Rights. Permit, and cause each of its Subsidiaries to permit, the agents
and representatives of the Lenders at any time and from time to time during
normal business hours to examine and make copies of and abstracts from its
records and books of account, to visit and inspect its properties, to verify
materials, leases, notes, accounts receivable, deposit accounts and its other
assets, to conduct audits, physical counts, valuations, appraisals, or
examinations and to discuss its affairs, finances and accounts with any of its
directors, officers, managerial employees, independent accountants or any of its
other representatives. In furtherance of the foregoing, each Loan Party hereby
authorizes its independent accountants, and the independent accountants of each
of its Subsidiaries, to discuss the affairs, finances and accounts of such
Person (independently or together with representatives of such Person) with the
agents and representatives of the Lenders in accordance with this Section
6.05.

       

      Section
6.07 Maintenance
of Properties, Etc. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, all of its properties which are necessary
or material to the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply, and cause each of its
Subsidiaries to comply, at all times in all material respects with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.

       

      Section
6.08 Maintenance
of Insurance. Maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
(including, without limitation, comprehensive general liability, hazard,
business interruption insurance and the key man insurance provided for in Section
4.01(d)(xvii) with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any Governmental Authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated and in any event
in amount, adequacy and scope reasonably satisfactory to the Agent. All policies
covering the Collateral are to be made payable to the Agent for the benefit of
the Lenders, as its interests may appear, in case of loss, under a standard
non-contributory "lender" or "secured party" clause and are to contain such
other provisions as the Agent may require to fully protect the Lenders' interest
in the Collateral and to any payments to be made under such policies. All
certificates of insurance are to be delivered to the Agent and the policies are
to be premium prepaid or paid in installments in accordance with the prior
practice of the Loan Parties, with the loss payable and additional insured
endorsement in favor of the Agent and such other Persons as the Agent may
designate from time to time, and shall provide for not less than 30 days' prior
written notice to the Agent of the exercise of any right of cancellation. If any
Loan Party fails to maintain such insurance, the Agent may arrange for such
insurance, but at the Loan Parties' expense and without any responsibility on
the Agent's part for obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of claims. Upon the
occurrence and during the continuance of an Event of Default, the Agent shall
have the sole right, in the name of the Lenders, any Loan Party and its
Subsidiaries, to file claims under any insurance policies, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to
execute any and all endorsements, receipts, releases, assignments, reassignments
or other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.

       

      
        
          
          

        

        
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      Section
6.09 Obtaining
of Permits, Etc. Obtain, maintain and preserve, and cause each of its
Subsidiaries to obtain, maintain and preserve, and take all necessary action to
timely renew, all material permits, licenses, authorizations, approvals,
entitlements and accreditations which are necessary or useful in the proper
conduct of its business.

       

      Section
6.10 Environmental.
(a) Keep any property either owned or operated by it or any of its Subsidiaries
free of any Environmental Liens; (b) comply, and cause each of its Subsidiaries
to comply, in all material respects with all Environmental Laws and provide to
the Agent any documentation of such compliance which the Agent may reasonably
request; (c) provide the Agent written notice within five (5) Business Days of
obtaining knowledge of any Release in excess of any reportable quantity from its
operations or onto property owned or operated by it or any of its Subsidiaries
and take any Remedial Actions required under Environmental Laws to abate said
Release consistent with the use of the property and (d) provide the Agent with
written notice within ten (10) Business Days of the receipt of any of the
following: (i) written notice that an Environmental Lien has been filed against
any property of any Loan Party; (ii) commencement of any Environmental Action or
written notice that an Environmental Action will be filed against any Loan
Party; and (iii) written notice of a violation, citation or other administrative
order which could have a Material Adverse Effect.

       

      Section
6.11 Further
Assurances. Take such action and execute, acknowledge and deliver, and
cause
each of its Subsidiaries to take such action and execute, acknowledge and
deliver, at its sole cost and expense, such agreements, instruments or other
documents as the Agent may reasonably require from time to time in order (a) to
carry out more effectively the purposes of this Agreement and the other Loan
Documents, (b) to subject to valid and perfected first priority Liens any of the
Collateral or any other property of any Loan Party and its Subsidiaries, (c) to
establish and maintain the validity and effectiveness of any of the Loan
Documents and the validity, perfection and priority of the Liens intended to be
created thereby and (d) to better assure, convey, grant, assign, transfer and
confirm unto the Agent and each Lender the rights now or hereafter intended to
be granted to it under this Agreement or any other Loan Document. In furtherance
of the foregoing, if not promptly executed by the Borrower at the request of the
Administrative Agent and to the maximum extent permitted by applicable law, each
Loan Party (i) authorizes the Agent to execute any such agreements, instruments
or other documents in such Loan Party's name and to file such agreements,
instruments or other documents in any appropriate filing office, (ii) authorizes
the Agent to file any financing statement required hereunder or under any other
Loan Document, and any continuation statement or amendment with respect thereto,
in any appropriate filing office without the signature of such Loan Party and
(iii) ratifies the filing of any financing statement, and any continuation
statement or amendment with respect thereto, filed without the signature of such
Loan Party prior to the date hereof.

       

      Section
6.12 Change
in Collateral; Collateral Records. (a) Give the Agent not less than ten
(10)
days' prior written notice of any change in the location of any Equipment valued
in excess of $2,000,000, other than to locations set forth on Schedule
5.31 or as approved in advance by the Administrative Agent; and (b)
execute and deliver, and cause each of its Subsidiaries to execute and deliver,
to the Agent for the benefit of the Lenders from time to time, solely for the
Agent's convenience in maintaining a record of Collateral, such written
statements and schedules as the Agent may reasonably require, designating,
identifying or describing the Collateral.

       

      Section
6.13 Landlord
Waivers; Collateral Access Agreements. (i) At any time any Collateral
with a book value in excess of $250,000 (when aggregated with all other
Collateral at the same location) is located on any real property leased to a
Loan Party (whether such real property is now existing or acquired after the
Effective Date), obtain written subordinations or waivers, in form and substance
satisfactory to the Agent, of all present and future Liens to which the owner or
lessor of such premises may be entitled to assert against the Collateral; and
(ii) obtain written access agreements, in form and

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

       

      substance
satisfactory to the Agent, providing access to any collateral with a book value
in excess of $250,000 located on any premises not owned by a Loan Party in order
to remove such Collateral from such premises during an Event of
Default.

       

      Section
6.14 Subordination. Cause
all Indebtedness and other obligations now or hereafter owed by
it to any of its Affiliates, to be subordinated in right of payment and security
to the Indebtedness and other Obligations owing to the Agent and the Lenders in
accordance with a subordination agreement in form and substance satisfactory to
the Agent; provided that this provision shall not be construed to permit any
Indebtedness not otherwise permitted by the terms of this
Agreement.

       

      Section
6.15 Fiscal
Year. Cause the Fiscal Year of the Loan Parties to end on December 31 of
each calendar year unless the Agent consents to a change in such Fiscal Year
(and appropriate related changes to this Agreement).

       

      Section
6.16 Key Man Life
Insurance. Obtain within 30 days after the Closing Date and maintain
thereafter, with a responsible insurance company, "key man" life insurance with
respect to Ronald E. Smith in the amount of at least $3,000,000 pursuant to
policies reasonably satisfactory to the Agent and with Agent as the
beneficiary.

       

      Section
6.17 Agent
Observers.

       

      (a) The Agent
shall be entitled to have two observers (the "Agent Observers") attend
any regular meeting of the Board of Directors of the Borrower. The Agent
Observers shall not be entitled to vote on matters presented to or discussed by
the Board of Directors of the Borrower at any such meeting. The Agent Observers
shall be timely notified of the time and place of any such meeting and will be
given written notice of all proposed actions to be taken by the Board of
Directors of the Borrower at any such meeting as if the Agent Observers were a
member of the Board of Directors of the Borrower. Such notice shall describe in
reasonable detail the nature and substance of the matters to be discussed and/or
voted upon at any such meeting (or the proposed actions to be taken by written
consent without a meeting). The Agent Observers shall have the right to receive
all information provided to the members of the Board of Directors of the
Borrower in anticipation of or at any such meeting, in addition to copies of the
records of the proceedings or minutes of any such meeting, when provided to the
members of the Board of Directors of the Borrower. The Borrower shall reimburse
the Agent Observers for all reasonable and documented out-of-pocket costs and
expenses incurred in connection with its participation in any such meeting. The
Agent Observers shall also have the right to receive all information provided to
each member of the Board of Directors of each Subsidiary (if any) of the
Borrower (the "Other
Boards"), in anticipation of or at all meetings thereof (whether regular
or special and whether telephonic or otherwise), in addition to copies of the
records of the proceedings or minutes of such meetings, when provided to the
members of such Other Boards. The Borrower will also furnish or will cause to be
furnished to Agent and its counsel a copy of each written consent without a
meeting adopted by the Board of Directors of the Borrower or any of the Other
Boards not later than ten (10) days after it has been signed by the last signatory
thereto.

       

      (b) Meetings. The Board
of Directors of the Borrower shall hold a regularly scheduled
meeting at least monthly during the period of twelve months following the
Effective Date and at least quarterly thereafter. The Borrower shall cause an
amendment to its organizational documents to effect this schedule if
necessary.

       

      (c) Independent Director.
The Borrower shall appoint at least one independent director
acceptable to the Agent to its Board of Directors.

       

      
        
          
          

        

        
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      Section
6.18 Management.

       

      (a) The
Borrower shall maintain the employment agreements with each of the Managers.
Such employment agreement shall include non-compete agreements with a term at
least three (3) months in excess of the Maturity Date. The Loan Parties shall
cause each Manager to be focused primarily on his or her duties as a Manager of
the relevant Loan Party.

       

      (b) The
Borrower shall withhold twenty percent (20%) of all amounts due as salary
or other
compensation to the Managers related to their employment during the continuance
of any Event of Default set forth in Section 10.01(a)
until such time as such Event of Default is no longer continuing.

       

      Section
6.19 Budget.
Comply with its budgeting process set forth in Section 6.01(f) and
the annual budgets as approved by the Agent.

       

      Section
6.20 Material
Contracts. Maintain, and will cause each other Loan Party to maintain, in
full force and effect all Material Contracts and other agreements material to
the conduct of the Borrower's and each Loan Party's business, and the Borrower
will, and will cause each Loan Party to, timely perform all of its obligations
thereunder. The Borrower will, and will cause each Loan Party to, properly and
timely pay all rents and other payments due and payable under any Material
Contract and other such agreements, or under the Permitted Liens, or otherwise
attendant to its ownership or operation of its business.

       

      Section
6.21Right of First
Refusal. If at any time during the term of this Agreement, Borrower
desires to issue additional debt or Capital Stock, Borrower shall present to
Agent 30 days prior to the proposed debt or Capital Stock offering, including
any other information which Agent may reasonably request so as to enable Agent
to evaluate and determine whether Agent and Lenders shall offer to purchase such
debt or stock. Any such offer to finance a proposed project by Agent or Lenders
shall be accepted by the Borrower so long as the terms of such offer (a) are
reasonable compared generally to the terms of other debt or Capital Stock
offerings for similar companies and (b) are not less favorable to the Borrower
than financing proposals it has received from other third-parties relating to
the proposed debt or Capital Stock.

       

      Section
6.22 Amegy Factoring
Agreements. The Borrower shall have provided documentation satisfactory
to the Administrative Agent evidencing the termination of the Amegy Factoring
Agreements, the payment in full of all amounts owing thereunder and the release
of all security interests granted in connection therewith no later than ninety
(90) days after the Effective Date.

       

      Section
6.23 Properties. After the
Effective Date, the Borrower shall use its best efforts to prevent
any property from becoming a fixture with respect to real property or to become
an accession with respect to other personal property with respect to which real
or personal property the Agent does not have a valid and perfected first
priority Lien (for the benefit of the Lenders) (subject to Permitted
Liens).

       

      ARTICLE
VII

      NEGATIVE
COVENANTS

       

      So long
as any principal of or interest on any Loan or any other Obligation (whether or
not due) shall remain unpaid, the Loan Parties shall not, unless the Required
Lenders shall otherwise consent in writing:

       

      
        
          
          

        

        
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      Section
7.01 Liens,
Etc. Create, incur, assume or suffer to exist, or permit any of its
Subsidiaries
to create, incur, assume or suffer to exist, any Lien upon or with respect to
any of its properties, including but not limited to Equipment, whether now owned
or hereafter acquired; file or suffer to exist under the Uniform Commercial Code
or any similar law or statute of any jurisdiction, a financing statement (or the
equivalent thereof) that names it or any of its Subsidiaries as debtor; sign or
suffer to exist any security agreement authorizing any secured party thereunder
to file such financing statement (or the equivalent thereof); sell any of its
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including sales of accounts
receivable) with recourse to it or any of its Subsidiaries or assign or
otherwise transfer, or permit any of its Subsidiaries to assign or otherwise
transfer, any account or other right to receive income; other than, as to all of
the above, Permitted Liens.

       

      Section
7.02 Fundamental
Changes; Dispositions. Wind-up, liquidate or dissolve, or merge,
consolidate or amalgamate with any Person, or Dispose of, whether in one
transaction or a series of related transactions, all or substantially all of its
business, property or assets, whether now owned or hereafter acquired (or agree
to do any of the foregoing), or purchase or otherwise acquire, whether in one
transaction or a series of related transactions, all or substantially all of the
assets of any Person (or any division thereof) (or agree to do any of the
foregoing), or permit any of its Subsidiaries to do any of the foregoing; provided, however,
that:

       

      (a) any
wholly-owned Subsidiary of the Borrower may be merged into any Loan Party, or
may consolidate with another Loan Party, so long as in each case (i) no other
provision of this Agreement would be violated thereby, (ii) the Borrower gives
the Agent at least 30 days' prior written notice of such merger, consolidation
or dissolution and transfer, (iii) no Default or Event of Default shall have
occurred and be continuing either before or after giving effect to such
transaction, (iv) the Lenders' rights in any Collateral, including, without
limitation, the existence, perfection and priority of any Lien thereon, are not
adversely affected by such merger, consolidation or dissolution and transfer and
(v) the surviving Subsidiary, if any, if not already a party to a Guaranty and
Collateral Agreement becomes a party to a Guaranty and Collateral Agreement and
the Capital Stock of such Subsidiary if not already subject to a Guaranty and
Collateral Agreement become the subject of a Guaranty and Collateral Agreement,
in each case, which is in full force and effect on the date of and immediately
after giving effect to such merger or consolidation; and

       

      (b) the Loan
Parties may (i) sell Inventory in the ordinary course of business, (ii)
Dispose of obsolete or worn-out equipment in the ordinary course of business in
an aggregate amount not to exceed $75,000 in any twelve-month period, and (iii)
conduct an Approved Sale of Assets.

       

      Section
7.03 Change in Nature
of Business. Make, or permit any of its Subsidiaries to make, any change
in the nature of its business as described in Section
5.12.

       

      Section
7.04 Loans, Advances,
Investments, Etc. Make or commit or agree to make any loan, advance
guarantee of obligations, other extension of credit or capital contributions to,
or hold or invest in or commit or agree to hold or invest in, or purchase or
otherwise acquire or commit or agree to purchase or otherwise acquire any shares
of the Capital Stock, bonds, notes, debentures or other securities of, or make
or commit or agree to make any other investment in, any other Person, purchase
or own any futures contract or otherwise become liable for the purchase or sale
of currency or other commodities at a future date in the nature of a futures
contract, or provide goods and services to any Person except for such goods and
services provided in the ordinary course of business and in accordance with
Section 7.13,
or permit any of its Subsidiaries to do any of the foregoing, except for: (a)
investments existing on the date hereof, as set forth on Schedule 7.04 hereto,
but not any increase in the amount thereof as set forth in such Schedule or any
other modification of the terms thereof, (b) Permitted Investments, (c) advances
to

       

      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

       

       

      employees
of up to $5,000 in the aggregate per employee, (d) investments made by the
Borrower in or to the Guarantors, (e) investments made by any Subsidiary in or
to the Borrower or any Guarantor, and (f) investments made by the Borrower or
any Subsidiary in or to any foreign Subsidiary in an aggregate amount at any one
time outstanding not to exceed $50,000.

       

      Section
7.05 Lease
Obligations. Create, incur or suffer to exist, or permit any of its
Subsidiaries
to create, incur or suffer to exist, any obligations as lessee (i) for the
payment of rent for any real or personal property in connection with any sale
and leaseback transaction, or (ii) for the payment of rent for any real or
personal property under leases or agreements to lease other than Operating Lease
Obligations which would not cause the aggregate amount of all Operating Lease
Obligations owing by all Loan Parties and their Subsidiaries in
any Fiscal Year to exceed $275,000.

       

      Section 7.06 Restricted
Payments. (a) Declare or make, or agree to pay, or make, directly or
indirectly, any dividend or other distribution, direct or indirect, on account
of any Capital Stock of any Loan Party, (b) make any repurchase, redemption,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Capital Stock of the Borrower,
now or hereafter outstanding, except for the redemption of preferred stock owned
by John C. Siedhoff, the former Chief Financial Officer of the Borrower, not to
exceed $20,000 per month and a total redemption amount of $600,000, so long as
no Event of Default has occurred and no Cash Flow Trigger is in effect, (c) make
any payment to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights for the purchase or acquisition of shares of any class
of Capital Stock of the Borrower, now or hereafter outstanding without prior
approval of the Agent in its sole discretion, (d) return any Capital Stock to
any shareholders or other equity holders of any Loan Party, or make any other
distribution of property, assets, shares of Capital Stock, warrants, rights,
options, obligations or securities thereto as such or (e) pay any management
fees or any other fees or expenses (including the reimbursement thereof by any
Loan Party) pursuant to any management, consulting or other services agreement
to any of the shareholders or other equityholders of any Loan Party or other
Affiliates (other than pursuant to the employee stock option plan of the
Borrower as of the Effective Date); except that any other Subsidiaries or
Affiliates of the Borrower may pay dividends to the Borrower. Notwithstanding
anything herein to the contrary, this Section 7.06 shall not preclude the
Borrower from establishing any employee stock option plan.

       

      Section
7.07 Federal
Reserve Regulations; Use of Proceeds. Permit any Loan or the proceeds of
any Loan under this Agreement to be used (i) for any purpose other than as set
forth in
Schedule 5.20
or (ii) for any purpose that would cause such Loan to be a margin loan
under the provisions of Regulation T, U or X of the Federal Reserve
Board.

       

      Section
7.08 Transactions
with Affiliates. Enter into, renew, extend or be a party to, or permit
any of its Subsidiaries to enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease, transfer or exchange of property or assets of any
kind or the rendering of services of any kind) with any Affiliate, except (i)
pursuant to the Transactions, (ii)
in the ordinary course of business in a manner and to an extent
consistent with past practice, for fair consideration and on terms no less
favorable to it or its Subsidiaries than would be obtainable in a comparable
arm's length transaction with a Person that is not an Affiliate thereof provided
that the aggregate annual payments under such agreements within clause (ii) does
not exceed $20,000 in any twelve month period, (iii) the Building Lease and (iv)
transactions with a Subsidiary of the Borrower.

       

      Section
7.09 Limitations
on Dividends and Other Payment Restrictions Affecting Subsidiaries.
Create or otherwise cause, incur, assume, suffer or permit to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary of the Borrower (a) to pay dividends or to make any
other distribution on any shares of Capital Stock of such Subsidiary owned
by

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

       

       

      such
Borrower, (b) to pay or prepay or to subordinate any Indebtedness owed to any
Subsidiary of such Borrower, (c) to make loans or advances to any Loan Party or
(d) to transfer any of its property or assets to any Loan Party, or permit any
of their Subsidiaries to do any of the foregoing; provided, however,
that nothing in any of clauses (a) through (d) of this Section 7.09 shall
prohibit or restrict compliance with:

       

      (i) this
Agreement and the other Loan Documents;

       

      (ii) any
applicable law, rule or regulation (including, without limitation, applicable
currency control laws and applicable state corporate statutes restricting the
payment of dividends in certain circumstances);

       

      (iii) in the
case of clause (d) any agreement setting forth customary restrictions on the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract of similar property or assets; or

       

      (iv) in the
case of clause (d) any agreement, instrument or other document evidencing a
Permitted Lien from restricting on customary terms the transfer of any property
or assets subject thereto.

       

      Section
7.10 Capital
Stock. Issue any debt.

       

      Section 7.11 Modifications of
Indebtedness, Organizational Documents and Certain Other Agreements; Etc. (a)
Amend, modify or otherwise change (or permit the amendment, modification or
other change in any manner of) any of the provisions of any of its or its
Subsidiaries' other Permitted Indebtedness or of any instrument or agreement
(including, without limitation, any purchase agreement, indenture, loan
agreement or security agreement) relating to any such Indebtedness such
amendment, modification or change would shorten the final maturity or average
life to maturity of, or require any payment to be made earlier than the date
originally scheduled on, such Indebtedness, would increase the interest rate
applicable to such Indebtedness, would change the subordination provision, if
any, of such Indebtedness, or would otherwise be adverse to the Lenders or the
issuer of such Indebtedness in any respect, (b) make any voluntary or optional
payment, prepayment, redemption, defeasance, sinking fund payment or other
acquisition for value of any of its or its Subsidiaries' Indebtedness
(including, without limitation, by way of depositing money or securities with
the trustee therefor before the date required for the purpose of paying any
portion of such Indebtedness when due), or refund, refinance, replace or
exchange any other Indebtedness for any such Indebtedness (except to the extent
such Indebtedness is otherwise expressly permitted by the definition of "Permitted
Indebtedness"), or make any payment, prepayment, redemption, defeasance,
sinking fund payment or repurchase of any outstanding Indebtedness as a result
of any asset sale, change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect to any of the
foregoing, (c) except as permitted by Section 7.02, amend,
modify or otherwise change its name, jurisdiction of organization,
organizational identification number or FEIN except upon 60 days' prior written
notice to the Agent, (d) except on the Effective Date pursuant to the
Transactions, amend, modify or otherwise change its certificate of incorporation
or bylaws (or other similar organizational documents), including, without
limitation, by the filing or modification of any certificate of designation, or
any agreement or arrangement entered into by it, with respect to any of its
Capital Stock (including any shareholders' agreement), or enter into any new
agreement with respect to any of its Capital Stock, except any such amendments,
modifications or changes or any such new agreements or arrangements pursuant to
this clause (d)
that either individually or in the aggregate, could not have a Material Adverse
Effect, (e) file any tax report or return of any Loan Party in any name other
than its complete and correct legal name or (f) enter into any agreement which
results in a Contingent Obligation or a Material Adverse Effect to any Loan
Party.

       

      
        
          
          

        

        
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      Section 7.12 Investment
Company Act of 1940. Engage in any business, enter into any transaction,
use any securities or take any other action or permit any of its Subsidiaries to
do any of the foregoing, that would cause it or any of its Subsidiaries to
become subject to the registration requirements of the Investment Company Act of
1940, as amended, by virtue of being an "investment company" or a company
"controlled" by an "investment company" not entitled to an exemption within the
meaning of such Act.

       

      Section 7.13 Compromise
of Accounts Receivable. Compromise or adjust any Account Receivable (or
extend the time of payment thereof) or grant any discounts, allowances or
credits or permit any of its Subsidiaries to do so other than, provided no
Default or Event of Default has occurred and is continuing, in the ordinary
course of its business other than in connection with the Amegy Factoring
Agreements (but only for so long as such agreements remain Permitted
Indebtedness hereunder) and only to the extent necessary to terminate such
agreement as required pursuant to Section
6.22; provided, however,
in no event shall any such discount, allowance or credit exceed $35,000 in the
aggregate and no such extension of the time for payment extend beyond 90 days
from the original due date thereof.

       

      Section
7.14 ERISA.
(i) Engage, or permit any ERISA Affiliate to engage, in any transaction
described in Section 4069 of ERISA; (ii) engage, or permit any ERISA Affiliate
to engage, in any prohibited transaction described in Section 406 of ERISA or
4975 of the Internal Revenue Code for which a statutory or class exemption is
not available or a private exemption has not previously been obtained from the
U.S. Department of Labor; (iii) adopt, or permit any ERISA Affiliate to adopt,
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees after termination of employment other than
as required by Section 601 of ERISA or applicable law; (iv) fail to make any
contribution or
payment to any Multiemployer Plan which it or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to
pay any required installment or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment.

       

      Section
7.15 Environmental.
Permit the use, handling, generation, storage, treatment or Release
of Hazardous Materials at any property owned or leased by any Loan Party, except
in compliance with Environmental Laws and so long as such use, handling,
generation, storage, treatment, or Release of Hazardous Materials could not
reasonably be expected to result in a Material Adverse Effect.

       

      Section 7.16 Certain Agreements; Permits;
Authorizations. Subject to Section 7.11, agree to
any
material amendment or other material change to or material waiver of any of
its  rights under any Material Contract, permit or
authorization.

       

      Section
7.17 Corporate
Status. Lose the Borrower's
status as a corporation.

       

      Section 7.18 General
and Administrative Costs. Without the prior consent of the Lenders the
Borrower and its Subsidiaries shall not incur General and Administrative Costs
on a monthly basis in excess of
$360,000 in the aggregate, provided that each line item remains subject to
approval of the Agent.

       

      Section 7.19 Indebtedness.
Except for Permitted Indebtedness, permit any Loan Party to, incur, create,
assume or suffer to exist any Indebtedness.

       

      
        
          
          

        

        
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      ARTICLE
VIII

      FINANCIAL
COVENANTS.

       

      Section
8.01 Debt/EBITDA. The
Borrower will not, at any time on or after December 31, 2007,
permit the ratio of outstanding Total Debt to Consolidated EBITDA, as of the
last day of each fiscal quarter, to be greater than the ratio set forth below
for the applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                12/31/07
      until 6/30/08

              	
                3.5:1.00

              
	
                09/30/08
      to 6/30/09

              	
                3.00:1.00

              
	
                09/30/09
      and thereafter

              	
                2.50:1.00

              

      

      

       

      Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Consolidated EBITDA will be
annualized by multiplying Consolidated EBITDA for the applicable period by
4.

       

      Section
8.02 Interest
Coverage. The Borrower will not, at any time on or after December 31,
2007, permit the ratio of Consolidated EBITDA to Consolidated Net Interest
Expense on the Total Debt, as of the last day of each fiscal quarter for any
trailing four quarter period, to be less than the ratio set forth below for the
applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                12/31/07
      until 6/30/08

              	
                2.00:1.00

              
	
                09/30/08
      to 6/30/09

              	
                2.25:1.00

              
	
                09/30/09
      and thereafter

              	
                2.50:1.00

              

      

      

       

      Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Consolidated EBITDA and
Consolidated Net Interest Expense for the relevant period shall be deemed to
equal Consolidated EBITDA or Consolidated Net Interest Expense for such fiscal
quarter (and, in the case of the latter two such determinations, each previous
fiscal quarter commencing after the Closing Date).

       

      Section
8.03 Free Cash Flow
Coverage. The Borrower will not, at any time on or after December 31,
2007, permit the ratio of Free Cash Flow to Debt Service, as of the last day of
each fiscal quarter for any trailing four quarter period, to be less than the
ratio set forth below for the applicable period:

       

      
        	
                Each
      fiscal quarter ending:

              	
                Ratio

              
	
                12/31/07
      until 6/30/08

              	
                1.00:1.00

              
	 
      	 
      

      

       

      
        
          
          

        

        
          44

          
            

          

        

        
          
          

        

      

       

      
         

        
          	
                  09/30/08
      to 6/30/09

                	
                  1.20:1:00

                
	
                  09/30/09
      and thereafter

                	
                  1.50:1.00

                
	 
      

        

      

       

      Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Free Cash Flow and Debt Service
for the relevant period shall be deemed to equal Free Cash Flow or Debt Service
for such fiscal quarter (and, in the case of the latter two such determinations,
each previous fiscal quarter commencing after the Closing Date).

       

      Section 8.04 EBITDA.
The Borrower will not, at any time on or after December 31, 2007, permit its
EBITDA to be less than the amounts set forth below for the applicable
period:

       

      
        	
                Each
      year ending:

              	
                Amount:

              
	
                12/31/07

              	
                $2,000,000

              
	
                12/31/08

              	
                $2,700,000

              
	
                12/31/09

              	
                $3,300,000

              
	
                12/31/10

              	
                $3,500,000

              

      

      

       

      ARTICLE
IX

      OPERATING
ACCOUNT

       

      Section 9.01 Operating
Account.

       

      (a) The
Borrower shall establish by the Effective Date and maintain at the Borrower's
expense an account (the "Operating
Account") with a bank ("Operating
Account Bank") reasonably acceptable to the Lenders pursuant to which all
cash receipts to be received by the Borrower shall be deposited, and the
Borrower shall direct (and hereby agrees to direct) each payor of any cash
receipts now and in the future to make payment to such Operating Account. The
Operating Account Bank, the Borrower and the Agent shall enter into an account
control agreement, pursuant to which the Agent shall have control of the
Operating Account following and during the continuance of any Cash Sweep Trigger
or Event of Default. Following the occurrence of any Cash Sweep Trigger or Event
of Default, the Agent shall send notice to the Borrower that the Agent is
sending or has sent a notice to the Operating Account Bank that the Agent is
exercising its right to take control of the Operating Account. With respect to
the Operating Account, the Agent shall receive copies of the Borrower's bank
account statements, statement of expenses for the preceding month and such other
supporting information as shall from time to time be
requested by the Agent.

       

      (b) Upon the
Credit Agreement Termination Date, the Agent shall notify the Operating
Account Bank to terminate the account control agreement.

       

      
        
          
          

        

        
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      ARTICLE
X

      EVENTS
OF DEFAULT

       

      Section
10.01 Events
of Default. One or more of the following events shall occur (each, an
"Event
of Default"):

       

      (a) the
Borrower shall fail to pay any principal of or interest on any Loan or any
fee,
indemnity or other amount payable under this Agreement or any other Loan
Document when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise);

       

      (b) any
representation or warranty made in writing by or on behalf of any Loan
Party or
by any officer of the foregoing under or in connection with any Loan Document or
under or in connection with any report, certificate, or other document delivered
to the Agent or any Lender pursuant to any Loan Document shall have been
incorrect in any material respect when made, and such misrepresentation, if
capable of being remedied, shall remain unremedied for a period of fifteen (15)
Business Days after the event or occurrence causing such
misrepresentation;

       

      (c) any Loan
Party shall fail to perform or comply with any covenant or agreement
contained in Section
6.01(h), Section 6.04, Section 6.08, Section 6.12, Section 6.18 or ARTICLE
VIII, or any Loan Party shall fail to perform or comply with any covenant
or agreement contained in any Guaranty and Collateral Agreement to which it is a
party and such failure is not remedied by the date set forth therein, if
any;

       

      (d) any Loan
Party shall fail to perform or comply with any other term, covenant or
agreement contained in any Loan Document to be performed or observed by it and,
except as set forth in subsections (a), (b) and (c) of this Section
10.01, and such failure, if capable of being remedied, shall remain
unremedied for a period of fifteen (15) Business Days after the event or
occurrence causing such failure;

       

      (e) any
Loan Party shall fail to pay any principal of or interest or premium on
any of
its Indebtedness (excluding Indebtedness evidenced by this Agreement), to the
extent that the aggregate principal amount of all such Indebtedness exceeds
$20,000, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any other default under any agreement or
instrument relating to any such Indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or any such Indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), redeemed,
purchased or defeased or an offer to prepay, redeem, purchase or defease such
Indebtedness shall be required to be made, in each case, prior to the stated
maturity thereof;

       

      (f) any
Loan Party (i) shall institute any proceeding or voluntary case seeking to
adjudicate
it as bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for any
such Person or for any substantial part of its property, (ii) shall be generally
not paying its debts as such debts become due or shall admit in writing its
inability to pay its debts generally, (iii) shall make a general assignment for
the

       

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

       

      benefit
of creditors, or (iv) shall take any action to authorize or effect any of the
actions set forth above in this subsection
(f);

       

      (g) any
proceeding shall be instituted against any Loan Party seeking to adjudicate
it as bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any such Person or for any
substantial part of its property, and either such proceeding shall remain
undismissed or unstayed for a period of 30 days or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for relief
against any such Person or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its property) shall
occur;

       

      (h) any Loan
Document shall at any time for any reason (other than pursuant to the
express terms thereof) cease to be valid and binding on or enforceable against
any Loan Party intended to be a party thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by any Loan Party or any Governmental Authority having jurisdiction
over any of them, seeking to establish the invalidity or unenforceability
thereof, or any Loan Party shall deny in writing that it has any liability or
obligation purported to be created under any Loan Document;

       

      (i) any
Guaranty and Collateral Agreement or any other security document, after
delivery
thereof pursuant hereto, shall for any reason fail or cease to create a valid
and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien in favor of the Agent for the benefit of the
Lenders on any Collateral purported to be covered thereby, or the validity or
enforceability thereof shall be contested by any party thereto;

       

      (j) any bank
at which any deposit account, blocked account, or operating account
of any Loan Party is maintained shall fail to comply with any of the material
terms of any deposit account, blocked account, operating account or similar
agreement to which such bank is a party or any securities intermediary,
commodity intermediary or other financial institution at any time in custody,
control or possession of any investment property of any Loan Party shall fail to
comply with any of the terms of any investment property control agreement to
which such Person is a party;

       

      (k) one
or more judgments, orders or awards (or any settlement of any claim that, if
breached, could result in a judgment, order or award) for the payment of money
exceeding $50,000 in the aggregate shall be rendered against any Loan Party and
remain unsatisfied and either (i) enforcement proceedings shall have been
commenced by any creditor upon any such judgment, order, award or settlement, or
(ii) there shall be a period of 10 consecutive days after entry thereof during
which a stay of enforcement of any such judgment, order, award or settlement by
reason of a pending appeal or otherwise, shall not be in effect; provided, however,
that any such judgment, order, award or settlement shall not give rise to an
Event of Default under this subsection (k) if and
for so long as (A) the amount of such judgment, order, award or settlement is
covered by a valid and binding policy of insurance between the defendant and the
insurer covering full payment thereof and (B) such insurer has been notified,
and has not disputed the claim made for payment, of the amount of such judgment,
order, award or settlement;

       

      (1) any
Loan Party is enjoined, restrained or in any way prevented by the order
of any
court or any Governmental Authority from conducting all or any material part of
its business for more than thirty (30) days;

       

      (m) any
material damage to, or loss, theft or destruction of, any Collateral,
whether or not
insured, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public

       

      
        
           

        

        
          47

          
            

          

        

        
           

        

      

       

      enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
facility of any Loan Party, if any such event or circumstance could reasonably
be expected to have a Material Adverse Effect;

       

      (n) any
cessation of a substantial part of the business of any Loan Party for a
period
which materially and adversely affects the ability of the Loan Parties, taken as
a whole, to continue its business on a profitable basis;

       

      (o) the loss,
termination or default by any Loan Party under any Material Contract
to which a Loan Party is subject if such loss, termination or default could
reasonably be expected to have a Material Adverse Effect;

       

      (p) the loss,
suspension or revocation of, or failure to renew, any consent, authorization,
license or permit now held or hereafter acquired by any Loan Party, if such
loss, suspension, revocation or failure to renew could reasonably be expected to
have a Material Adverse Effect;

       

      (q) the
indictment of any Loan Party under any criminal statute, or commencement
or threatened commencement of criminal or civil proceedings against any Loan
Party, pursuant to which statute or proceedings the penalties or remedies sought
or available include forfeiture to any Governmental Authority of any material
portion of the property of the Loan Parties taken as a whole;

       

      (r) any Loan
Party or any of its ERISA Affiliates shall have made a complete or partial
withdrawal from a Multiemployer Plan, and, as a result of such complete or
partial withdrawal, any Loan Party or any of its ERISA Affiliates incurs a
withdrawal liability in an annual amount exceeding $50,000 or a Multiemployer
Plan enters reorganization status under Section 4241 of ERISA, and, as a result
thereof, any Loan Party's or any of its ERISA Affiliates' annual contribution
requirements with respect to such Multiemployer Plan increases in an annual
amount exceeding $50,000;

       

      (s) any
Termination Event with respect to any Employee Plan shall have occurred,
and, thirty (30) days after notice thereof shall have been given to any Loan
Party by the Agent, (i) such Termination Event (if correctable) shall not have
been corrected, and (ii) the then current value of such Employee Plan's vested
benefits exceeds the then current value of assets allocable to such benefits in
such Employee Plan by more than $50,000 (or, in the case of a Termination Event
involving liability under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal
Revenue Code, the liability is in excess of such amount);

       

      (t) any Loan
Party shall be liable for any Environmental Liabilities and Costs the
payment of which could reasonably be expected to have a Material Adverse
Effect;

       

      (u) a Change
of Control shall have occurred; or

       

      (v) any of
the Managers shall cease to hold the position that such person currently
holds with the Borrower or their duties with respect thereto have been reduced
or diminished.

       

      (w) an event
or development occurs which could reasonably be expected to have a
Material Adverse Effect.

       

      Section
10.02 Remedies.

       

      
        
           

        

        
          48

          
            

          

        

        
           

        

      

       

       

       

      (a) In the
case of an Event of Default, the Agent may, and shall at the request of
the
Required Lenders, by notice to the Borrower, (i) declare all or any portion of
the Loans then outstanding to be due and payable, whereupon all or such portion
of the aggregate principal of all Loans, all accrued and unpaid interest
thereon, all fees and all other amounts payable under this Agreement and the
other Loan Documents shall become due and payable immediately, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Loan Party and (ii) exercise any and all of its
other rights and remedies under applicable law, hereunder and under the other
Loan Documents; provided,
however, that upon the occurrence of any Event of Default described in
subsection (f) or (g) of Section
10.01, without any notice to any Loan Party or any other Person or any
act by the Agent or any Lender, all Loans then outstanding, together with all
accrued and unpaid interest thereon, all fees and all other amounts due under
this Agreement and the other Loan Documents shall become due and payable
automatically and immediately, without presentment, demand, protest or notice of
any kind, all of which are expressly waived by each Loan Party.

       

      (b) In the
case of any Event of Default, and at any time thereafter during the continuance
of such Event of Default, the Borrower shall pay the Agent for the account of
the Lenders a managerial assistance fee of $10,000 per month for every month
that such Event of Default continues (such fee shall be applied pro rata for
each day that such Event of Default continues that does not constitute a full
month), each payment (or pro rata portion thereof) shall be payable on the last
day of each month.

       

      ARTICLE
XI

      AGENT

       

      Section 11.01 Appointment.
Each Lender (and each subsequent maker of any Loan by its making
thereof) hereby irrevocably appoints and authorizes the Agent to perform the
duties of the Agent as set
forth in this Agreement including: (a) to receive on behalf of each Lender any
payment of principal of or
interest on the Loans outstanding hereunder and all other amounts accrued
hereunder for the account of the
Lenders and paid to the Agent, and to distribute promptly to each Lender its Pro
Rata Share of all payments
so received; (b) to distribute to each Lender copies of all material notices and
agreements received
by the Agent and not required to be delivered to each Lender pursuant to the
terms of this Agreement,
provided that the Agent shall not have any liability to the Lenders for the
Agent's inadvertent failure
to distribute any such notices or agreements to the Lenders; (c) to maintain, in
accordance with its customary
business practices, ledgers and records reflecting the status of the
Obligations, the Loans, and related
matters and to maintain, in accordance with its customary business practices,
ledgers and records reflecting
the status of the Collateral and related matters; (d) to execute or file any and
all financing or similar
statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim,
notices and other written agreements with respect to this Agreement or any other
Loan Document; (e) to
make the Loans and Agent Advances, for the Agent or on behalf of the applicable
Lenders as provided
in this Agreement or any other Loan Document; (f) to perform, exercise, and
enforce any and all other
rights and remedies of the Lenders with respect to the Loan Parties, the
Obligations, or otherwise related
to any of same to the extent reasonably incidental to the exercise by the Agent
of the rights and remedies
specifically authorized to be exercised by the Agent by the terms of this
Agreement or any other Loan
Document; (g) to incur and pay such fees necessary or appropriate for the
performance and fulfillment
of its functions and powers pursuant to this Agreement or any other Loan
Document; and (h)
subject to Section
11.03 of this Agreement, to take such action as the Agent deems
appropriate on its behalf to
administer the Loans and the Loan Documents and to exercise such other powers
delegated to the Agent
by the terms hereof or the other Loan Documents (including, without limitation,
the authority to enter
into the Subordination Agreement on behalf of the Lenders, the power to give or
to refuse to give notices,
waivers, consents, approvals and instructions and the power to make or to refuse
to make determinations
and calculations) together with such powers as are reasonably incidental thereto
to carry

       

      
        
           

        

        
          49

          
            

          

        

        
           

        

      

       

       

      out the
purposes hereof and thereof. As to any matters not expressly provided for by
this Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Loans), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions of the Required Lenders shall be binding upon all Lenders and all
makers of Loans.

       

      Section 11.02 Nature
of Duties. The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement or in the other Loan Documents. The
duties of the Agent shall be mechanical and administrative in nature. The Agent
shall not have by reason of this Agreement or any other Loan Document a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any other Loan Document, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or any other Loan Document except as expressly set forth herein or therein. Each
Lender shall make its own independent investigation of the financial condition
and affairs of the Loan Parties in connection with the making and the
continuance of the Loans hereunder and shall make its own appraisal of the
creditworthiness of the Loan Parties and the value of the Collateral, and the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the initial Loan hereunder or
at any time or times thereafter, provided that, upon the reasonable request of a
Lender, the Agent shall provide to such Lender any documents or reports
delivered to the Agent by the Loan Parties pursuant to the terms of this
Agreement or any other Loan Document. If the Agent seeks the consent or approval
of the Required Lenders to the taking or refraining from taking any action
hereunder, the Agent shall send notice thereof to each Lender. The Agent shall
promptly notify each Lender any time that the Required Lenders have instructed
the Agent to act or refrain from acting pursuant hereto.

       

      Section
11.03 Rights,
Exculpation, Etc. The Agent and its directors, officers, agents or
employees
shall not be liable for any action taken or omitted to be taken by them under or
in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct
as determined by a final judgment of a court of competent jurisdiction. Without
limiting the generality
of the foregoing, the Agent (a) may treat the payee of any Loan as the owner
thereof until the Agent
receives written notice of the assignment or transfer thereof, pursuant to Section
12.07 hereof, signed by
such payee and in form satisfactory to the Agent; (b) may consult with legal
counsel (including, without
limitation, counsel to the Agent or counsel to the Loan Parties), independent
public accountants, and other
experts selected by any of them and shall not be liable for any action taken or
omitted to be taken in
good faith by any of them in accordance with the advice of such counsel or
experts; (c) make no warranty
or representation to any Lender and shall not be responsible to any Lender for
any statements, certificates,
warranties or representations made in or in connection with this Agreement or
the other Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of
the terms, covenants or conditions of this Agreement or the other Loan Documents
on the part of any
Person, the existence or possible existence of any Default or Event of Default,
or to inspect the Collateral
or other property (including, without limitation, the books and records) of any
Person; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency
or value of this Agreement or the other Loan Documents or any other instrument or
document furnished
pursuant hereto or thereto; and (0 shall not be deemed to have made any
representation or warranty
regarding the existence, value or collectibility of the Collateral, the
existence, priority or perfection
of the Agent's Lien thereon, or any certificate prepared by any Loan Party in
connection therewith,
nor shall the Agent be responsible or liable to the Lenders for any failure to
monitor or maintain
any portion of the Collateral. The Agent shall not be liable for any
apportionment or distribution of
payments made in good faith pursuant to Section
3.03, and if any such apportionment or distribution is subsequently
determined to have been made in error the sole recourse of any Lender to whom
payment

       

      
        
           

        

        
          50

          
            

          

        

        
           

        

      

       

       

      was due
but not made, shall be to recover from other Lenders any payment in excess of
the amount which they are determined to be entitled. The Agent may at any time
request instructions from the Lenders with respect to any actions or approvals
which by the terms of this Agreement or of any of the other Loan Documents the
Agent is permitted or required to take or to grant, and if such instructions are
promptly requested, the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval under any of the Loan Documents
until it shall have received such instructions from the Required Lenders.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting under this Agreement or any of the other Loan Documents in accordance
with the instructions of the Required Lenders.

       

      Section
11.04 Reliance.
The Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Loan Documents and its duties hereunder or thereunder, upon
advice of counsel selected by it.

       

      Section
11.05 Indemnification.
To the extent that the Agent is not reimbursed and indemnified by any Loan
Party, the Lenders will reimburse and indemnify the Agent from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any of the
other Loan Documents or any action taken or omitted by the Agent under this
Agreement or any of the other Loan Documents, in proportion to each Lender's Pro
Rata Share, including, without limitation, advances and disbursements made
pursuant to Section
11.08; provided, however, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements for which there has
been a final judicial determination that such liability resulted from the
Agent's gross negligence or willful misconduct. The obligations of the Lenders
under this Section
11.05 shall survive the payment in full of the Loans and the termination
of this Agreement.

       

      Section
11.06 Agent
Individually. With respect to its Pro Rata Share of the Total Commitment
hereunder and the Loans made by it, the Agent shall have and may exercise the
same rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender or maker
of a Loan. The terms "Lenders" or "Required Lenders" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity as a Lender or one of the Required Lenders. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of banking, trust or other business with the Borrower as if it were not
acting as the Agent pursuant hereto without any duty to account to the other
Lenders.

       

      Section 11.07 Successor
Agent

       

      (a) The Agent
may resign from the performance of all its functions and duties hereunder
and under the other Loan Documents at any time by giving at least thirty (30)
Business Days' prior written notice to each Borrower and each Lender. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clauses (b) and (c) below or as otherwise provided
below.

       

      (b) Upon any
such notice of resignation, the Required Lenders shall appoint a successor
Agent. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent,

       

      
        
           

        

        
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      such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the Agent, and the Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After the Agent's resignation hereunder as the Agent, the
provisions of this ARTICLE
X1 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under this Agreement and the other Loan
Documents.

       

      (c) If a
successor Agent shall not have been so appointed within said thirty (30)
Business
Day period, the Agent shall then appoint a successor Agent who shall serve as
the Agent until such time, if any, as the Required Lenders appoint a successor
Agent as provided above.

       

      Section 11.08 Collateral
Matters.

       

      (a) The Agent
may from time to time make such disbursements and advances ("Agent
Advances") which the Agent, in its sole discretion, deems necessary or
desirable to preserve, protect, prepare for sale or lease or dispose of the
Collateral or any portion thereof, to enhance the likelihood or maximize the
amount of repayment by the Borrower of the Loans and other Obligations or to pay
any other amount chargeable to the Borrower pursuant to the terms of this
Agreement, including, without limitation, costs, fees and expenses as described
in Section
12.04. The Agent Advances shall be repayable on demand and be secured by
the Collateral. The Agent Advances shall constitute Obligations hereunder which
may be charged to the Debt Service Reserve Account in accordance with Section
3.01. The Agent shall notify each Lender and each Borrower in writing of
each such Agent Advance, which notice shall include a description of the purpose
of such Agent Advance. Without limitation to its obligations pursuant to Section
11.05, each Lender agrees that it shall make available to the Agent, upon
the Agent's demand, in Dollars in immediately available funds, the amount equal
to such Lender's Pro Rata Share of each such Agent Advance. If such funds are
not made available to the Agent by such Lender, the Agent shall be entitled to
recover such funds on demand from such Lender, together with interest thereon
for each day from the date such payment was due until the date such amount is
paid to the Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Reference Rate.

       

      (b) The
Lenders hereby irrevocably authorize the Agent, at its option and in its
discretion,
to release any Lien granted to or held by the Agent upon any Collateral upon
payment and satisfaction of all Loans and all other Obligations which have
matured and which the Agent has been notified in writing are then due and
payable; or constituting property being sold or disposed of in compliance with
the terms of this Agreement and the other Loan Documents; or constituting
property in which the Loan Parties owned no interest at the time the Lien was
granted or at any time thereafter; or if approved, authorized or ratified in
writing by the Lenders. Upon request by the Agent at any time, the Lenders will
confirm in writing the Agent's authority to release particular types or items of
Collateral pursuant to this Section
11.08(b).

       

      (c) Upon
receipt by the Agent of confirmation from the Lenders of its authority
to
release any particular item or types of Collateral, and upon prior written
request by any Loan Party, the Agent shall (and is hereby irrevocably authorized
by the Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to the Agent for the benefit of the Lenders upon
such Collateral; provided,
however, that (a) the Agent shall not be required to execute any such
document on terms which, in the Agent's opinion, would expose the Agent to
liability or create any obligations or entail any consequence other than the
release of such Liens without recourse or warranty, and (b) such release shall
not in any manner discharge, affect or impair the Obligations or any Lien upon
(or obligations of any Loan Party in respect of) all interests in the Collateral
retained by any Loan Party.

       

      (d) The Agent
shall have no obligation whatsoever to any Lender to assure that the
Collateral exists or is owned by the Loan Parties or is cared for, protected or
insured or has been

       

      
        
           

        

        
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      encumbered
or that the Lien granted to the Agent pursuant to this Agreement or any other
Loan Document has been properly or sufficiently or lawfully created, perfected,
protected or enforced or is entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent in this Section
11.08(d) or in any other Loan Document, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, the Agent may act in any manner it may deem appropriate, in its sole
discretion, given the Agent's own interest in the Collateral as one of the
Lenders and that the Agent shall have no duty or liability whatsoever to any
other Lender, except as otherwise provided herein.

       

      Section
11.09 Agency
for Perfection. The Agent and each Lender hereby appoints the Agent and
each other Lender as agent and bailee for the purpose of perfecting the security
interests in and liens upon the Collateral in assets which, in accordance with
Article 9 of the Uniform Commercial Code, can be perfected only by possession or
control (or where the security interest of a secured party with possession or
control has priority over the security interest of another secured party) and
the Agent and each Lender hereby acknowledges that it holds possession of or
otherwise controls any such Collateral for the benefit of the Agent and the
Lenders as secured party. Should any Lender obtain possession or control of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions. F.ach Loan Party by its execution and
delivery of this Agreement hereby consents to the foregoing.

       

      ARTICLE
XII

      MISCELLANEOUS

       

      Section
12.01 Notices,
Etc.. All notices and other communications provided for hereunder shall
be in writing and shall be mailed, telecopied or delivered to the parties at the
following addresses:

       

      If to
any Loan Party, to it at the following address:

       

      Deep
Down, Inc.

      15473
East Freeway

      Channelview,
Texas USA 77530 

      Attn:
Ronald Smith

      Telephone:
(281) 862-2201 

      Telecopier:
(281) 862-2522

       

      With a
copy to:

       

      CRAIG
WELSCHER

      THE
WELSCHER LAW FIRM 

      1111
North Loop West, Suite 702 

      Houston,
Texas 77008

      Telephone:
(713) 862-0800

      Facsimile:
(713) 862-4003

       

      If to the
Agent, to it at the following address:

       

      
        
           

        

        
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      Prospect
Capital Corporation 

      10 East
40th Street, 44th Floor 

      New York,
New York 10016 

      Attention:
Catherine Kelly

      Telephone:
(212) 448-0702 x9481 

      Telecopier:
(212) 448-9652

       

      With a
copy to:

       

      Jeffrey
S. Munoz

      Vinson
& Elkins LLP

      1001
Fannin Street, Suite 2500 

      Houston,
TX 77002

      Telephone:
(713) 758-2222 

      Telecopier:
(713) 615-5191

       

      or, as to
each party, at such other address as shall be designated by such party in a
written notice to the other parties complying as to delivery with the terms of
this Section
12.01. All such notices and other communications shall be effective, (a)
if mailed, when received or three days after deposited in the mails, whichever
occurs first, (b) if telecopied, when transmitted and confirmation received, or
(c) if delivered, upon delivery, except that the Notice of Borrowing to be
delivered to the Agent pursuant to ARTICLE II shall not
be effective until received by the Agent.

       

      Section 12.02 Amendments, Etc. No
amendment or waiver of any provision of this Agreement, and no consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Required Lenders or by the Agent
with the consent of the Required Lenders, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given, provided, however, that no amendment, waiver or consent shall (a)
increase the Commitment of any Lender, reduce the principal of, or interest on
the Loans payable to any Lender, reduce the amount of any fee payable for the
account of any Lender, or postpone or extend any date fixed for any payment of
principal of, or interest or fees on the Loans payable to any Lender, in each
case without the written consent of any Lender affected thereby, (b) increase
the Total Commitment without the written consent of each Lender, (c) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans that is required for the Lenders or any of them to take any action
hereunder, (d) amend the definition of "Required Lenders" or "Pro Rata Share",
(e) release all or a substantial portion of the Collateral (except as otherwise
provided in this Agreement and the other Loan Documents), subordinate any Lien
granted in favor of the Agent for the benefit of the Lenders, or release the
Borrower or any Guarantor (except as otherwise provided in this Agreement and
the other Loan Documents) or (f) amend, modify or waive Section 3.03 or this
Section 12.02
of this Agreement, in each case, without the written consent of each Lender.
Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in
writing and signed by the Agent, affect the rights or duties of the Agent (but
not in its capacity as a Lender) under this Agreement or the other Loan
Documents.

       

      Section 12.03 No Waiver; Remedies,
Etc. No failure on the part of the Agent or any Lender to exercise, and
no delay in exercising, any right hereunder or under any other Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right. The rights and remedies of the Agent and the
Lenders provided herein and in the other Loan Documents are cumulative and are
in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of the Agent and the Lenders under any Loan Document against any
party thereto are not conditional or contingent on any

       

      
        
           

        

        
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      attempt
by the Agent and the Lenders to exercise any of their rights under any other
Loan Document against such party or against any other Person.

       

      Section
12.04 Expenses;
Taxes; Attorneys' Fees. The Borrower will pay on demand, all reasonable
costs and expenses incurred by or on behalf of the Agent and each Lender,
regardless of whether
the transactions contemplated hereby are consummated, including, without
limitation, reasonable fees,
costs, client charges and expenses of counsel for the Agent and each Lender,
accounting, due diligence,
periodic field audits, physical counts, valuations, investigations, searches and
filings, monitoring
of assets, appraisals of Collateral, title searches and reviewing environmental
assessments, miscellaneous
disbursements, examination, travel, lodging and meals, arising from or relating
to: (a) the negotiation,
preparation, execution, delivery, performance and administration of this
Agreement and the other
Loan Documents (including, without limitation, the preparation of any additional
Loan Documents pursuant
to Section
6.02 or the review of any of the agreements, instruments and documents
referred to in Section
6.05), (b) any requested amendments, waivers or consents to this
Agreement or the other Loan Documents
whether or not such documents become effective or are given, (c) the
preservation and protection
of any of the Lenders' rights under this Agreement or the other Loan Documents,
(d) the defense
of any claim or action asserted or brought against any Agent or any Lender by
any Person that arises
from or relates to this Agreement, any other Loan Document, the Agent's or the
Lenders' claims against
any Loan Party, or any and all matters in connection therewith, (e) the
commencement or defense of, or
intervention in, any court proceeding arising from or related to this Agreement
or any other Loan Document,
(f) the filing of any petition, complaint, answer, motion or other pleading by
any Agent or any Lender,
or the taking of any action in respect of the Collateral or other security,
in connection
with this Agreement
or any other Loan Document, (g) the protection, collection, lease, sale, taking
possession of or liquidation
of, any Collateral or other security in connection with this Agreement or any
other Loan Document,
(h) any attempt to enforce any Lien or security interest in any Collateral or
other security in connection
with this Agreement or any other Loan Document, (i) any attempt to collect from
any Loan Party,
(j) all liabilities and costs arising from or in connection with the past,
present or future operations of any
Loan Party involving any damage to real or personal property or natural
resources or harm or injury
alleged to have resulted from any Release of Hazardous Materials on, upon or
into such property, (k) any
Environmental Liabilities and Costs incurred in connection with a violation of
Environmental Laws by
any Loan Party or a Release from the Properties or operations of any Loan Party,
(1) any
Environmental
Liabilities and Costs incurred in connection with any Environmental Lien, except
in the case of
this subclause (1) and subclauses (j) and (k) above where such liabilities and
costs are caused (I) by the
gross negligence or willful misconduct of the Agent or any Lender, as determined
by a final judgment
of a court of competent jurisdiction or (II) solely by the
actions of the Agent or any Lender after foreclosure
or acceptance of a deed in lieu of foreclosure, or (m) the receipt by the Agent
or any Lender of any
advice from professionals with respect to any of the foregoing. Without
limitation of the foregoing or any
other provision of any Loan Document: (x) the Borrower agrees to pay all stamp,
document, transfer,
recording or filing taxes or fees and similar impositions now or hereafter
determined by the Agent or
any Lender to be payable in connection with this Agreement or any other Loan
Document, and the
Borrower agrees to save the Agent and each Lender harmless from and against any
and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such
taxes, fees or impositions, (y) the Borrower agrees to pay all broker fees that
may become due in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, and (z) if the
Borrower fails to perform any covenant or agreement contained herein or in any
other Loan Document,
the Agent may itself perform or cause performance of such covenant or agreement,
and the expenses
of the Agent incurred in connection therewith shall be reimbursed on demand by
the Borrower.

       

      Section
12.05 Right
of Set-off. Upon the occurrence and during the continuance of any Event
of Default, the Agent or any Lender may, and is hereby authorized to, at any
time and from time to time, without notice to any Loan Party (any such notice
being expressly waived by the Loan Parties) and to the

       

      
        
           

        

        
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      fullest
extent permitted by law, set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
Indebtedness at any time owing by the Agent or such Lender to or for the credit
or the account of any Loan Party against any and all obligations of the Loan
Parties either now or hereafter existing under any Loan Document, irrespective
of whether or not the Agent or such Lender shall have made any demand hereunder
or thereunder and although such obligations may be contingent or unmatured. Each
Agent and each Lender agrees to notify such Loan Party promptly after any such
set-off and application made by the Agent or such Lender provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Agent and the Lenders under this Section
12.05 are in addition to the other rights and remedies (including other
rights of set-off) which the Agent and the Lenders may have under this Agreement
or any other Loan Documents of law or otherwise.

       

      Section
12.06 Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

       

      Section 12.07 Assignments and
Participations.

       

      (a) This
Agreement and the other Loan Documents shall be binding upon and inure to
the benefit of each Loan Party and the Agent and each Lender and their
respective successors and assigns; provided, however, that none of the Loan
Parties may assign or transfer any of its rights hereunder without the prior
written consent of the Lender and any such assignment without the Lenders' prior
written consent shall be null and void.

       

      (b) Each
Lender may, with the written consent of the Agent (which consent shall
not be
unreasonably withheld or delayed), assign to one or more other lenders or other
entities all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment and the Loan
made by it); provided,
however, that (i) such assignment is in an amount which, when aggregated
with all other assignments to Affiliates of such assignee or funds or accounts
managed by such assignee or an Affiliate of such assignee, is at least
$1,000,000 or a multiple of $100,000 in excess thereof (or the remainder of such
Lender's Commitment) (except such minimum amount shall not apply to an
assignment by a Lender to an Affiliate of such Lender or a fund or account
managed by such Lender or an Affiliate of such Lender), (ii) the parties to each
such assignment shall execute and deliver to the Agent, for its acceptance, an
Assignment and Acceptance, together with any promissory note subject to such
assignment and such parties shall deliver to the Agent a processing and
recordation fee of $3,500 (except the payment of such fee shall not be required
in connection with an assignment by a Lender to an Affiliate of such Lender or a
fund or account managed by such Lender or an Affiliate of such Lender) and (iii)
no written consent of the Agent shall be required in connection with any
assignment by a Lender to an Affiliate of such Lender or a fund or account
managed by such Lender or an Affiliate of such
Lender. The Borrower and the Agent may continue to deal solely and
directly with

      an
assigning Lender in connection with the interest so assigned until such Lender
and its assignee shall have executed and delivered to the Borrower and the
Agent, and the Agent shall have accepted, an Assignment and Acceptance. Upon
such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three Business Days after the delivery thereof to the Agent (or such
shorter period as shall be agreed to by the Agent and the parties to such
assignment), (A) the assignee thereunder shall become a "Lender" hereunder and,
in addition to the rights and obligations hereunder held by it immediately prior
to such effective date, have the rights and obligations hereunder that have been
assigned to it pursuant to such Assignment and Acceptance and (B) the assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and

       

      
        
           

        

        
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      be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto). Notwithstanding anything contained in this Section 12.07(b) to
the contrary, a Lender may assign any or all of its rights hereunder to an
Affiliate of such Lender or a fund or account managed by such Lender or an
Affiliate of such Lender without delivering an Assignment and Acceptance to the
Agent or to the Borrower; provided, however,
that (x) the Borrower and the Agent may continue to deal solely with the
assigning Lender until such Assignment and Acceptance has been delivered to the
Agent for recording and (y) the failure of such assigning Lender to deliver the
Assignment and Acceptance to the Agent shall not affect the legality, validity
or binding effect of such assignment.

       

      (c) By
executing and delivering an Assignment and Acceptance, the assigning
Lender
and the assignee thereunder confirm to and agree with each other and the other
parties hereto as follows: (A) other than as provided in such Assignment and
Acceptance, the assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other Loan Document furnished pursuant hereto; (B) the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto; (C) such
assignee confirms that it has received a copy of this Agreement and the other
Loan Documents, together with such other documents and information it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (D) such assignee will, independently and without
reliance upon the assigning Lender, the Agent or any Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents; (E) such assignee appoints and
authorizes the Agent to take such action as agents on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental hereto and thereto; and (F) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender, including, if applicable, its obligations under
Section
2.07.

       

      (d) The Agent
shall, on behalf of the Borrower, maintain, or cause to be maintained
at the principal office of the Agent, a copy of each Assignment and Acceptance
delivered to and accepted by it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans (the "Registered Loans")
owing to each Lender from time to time. The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower and
any Lender at any reasonable time and from time to time upon reasonable prior
notice. In the case of any assignment not reflected in the Register, the
assigning Lender shall maintain a comparable register.

       

      (e) Upon its
receipt of an Assignment and Acceptance executed by an assigning Lender
and an assignee, together with any promissory notes subject to such assignment,
the Agent shall, if the Agent consents to such assignment (provided, however,
that no consent of the Agent is needed if the assignment is to an Affiliate of a
Lender or a fund or account managed by such Lender) and if such Assignment and
Acceptance has been completed (i) accept such Assignment and Acceptance and (ii)
record the information contained therein in the Register.

       

      
        
           

        

        
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      (f) A
Registered Loan (and the registered note, if any, evidencing the same) may
be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register (and each registered note shall expressly so provide). Any
assignment or sale of all or part of such Registered Loan (and the registered
note, if any, evidencing the same) may be effected only by registration of such
assignment or sale on the Register, together with the surrender of the
registered note, if any, evidencing the same duly endorsed by (or accompanied by
a written instrument of assignment or sale duly executed by) the holder of such
registered note, whereupon, at the request of the designated assignee(s) or
transferee(s), one or more new registered notes in the same aggregate principal
amount shall be issued to the designated assignee(s) or transferee(s). Prior to
the registration of assignment or sale of any Registered Loan (and the
registered note, if any, evidencing the same), the Agent shall treat the Person
in whose name such Registered Loan (and the registered note, if any, evidencing
the same) is registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding notice to the
contrary.

       

      (g) In the
event that any Lender sells participations in a Registered Loan, such
Lender
shall maintain a register on which it enters the name of all participants in the
Registered Loans held by it (the "Participant
Register"). A Registered Loan (and the registered note, if any,
evidencing the same) may be participated in whole or in part only by
registration of such participation on the Participant Register (and each
registered note shall expressly so provide). Any participation of such
Registered Loan (and the registered note, if any, evidencing the same) may be
effected only by the registration of such participation on the Participant
Register.

       

      (h) Any
foreign Person who purchases or is assigned or participates in any portion
of such Registered Loan shall comply with the provisions of Section
2.07(d).

       

      (i) Each
Lender may sell participations to one or more banks or other entities in
or to all
or a portion of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, all or a portion of its
Commitment and the Loan made by it); provided, that (i) such Lender's
obligations under this Agreement (including without limitation, its Commitment
hereunder) and the other Loan Documents shall remain unchanged; (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents; and (iii) a participant shall not be entitled to require such Lender
to take or omit to take any action hereunder except (A) action directly
effecting an extension of the maturity dates or decrease in the principal amount
of the Loans, (B) action directly effecting an extension of the due dates or a
decrease in the rate of interest payable on the Loans or the fees payable under
this Agreement, or (C)
actions directly effecting a release of all or a substantial portion of
the Collateral or any Loan Party (except as set forth in Section
11.08 of this Agreement or any other Loan Document). The Loan Parties
agree that each participant shall be entitled to the benefits of Section
2.07 of this Agreement with respect to its participation in any portion
of the Commitments and the Loans as if it was a Lender.

       

      Section
12.08 Counterparts.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement by telecopier
shall be equally as effective as delivery of an original executed counterpart of
this Agreement. Any party delivering an executed counterpart of this Agreement
by telecopier also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis
rnutandis.

       

      
        
           

        

        
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      Section
12.09 GOVERNING
LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY
PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN
DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE
OF NEW YORK.

       

      Section 12.10 CONSENT TO JURISDICTION;
SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY ONLY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW
YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY
IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH LOAN PARTY HEREBY
IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS
AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
AND ITS REPRESENTATIVES AT THEIR RESPECTIVE ADDRESSES FOR NOTICES AS SET FORTH
IN SECTION
12.01 AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH
SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE AGENT AND THE LENDERS TO SERVICE OF PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION. EACH LOAN PARTY HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT ANY LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH LOAN PARTY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.

       

      Section
12.11 WAIVER
OF JURY TRIAL, ETC. EACH LOAN PARTY, THE AGENT AND EACH LENDER HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER
ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT
DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR
ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH LOAN PARTY CERTIFIES THAT NO
OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT OR ANY LENDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY LENDER WOULD NOT, IN
THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. EACH LOAN PARTY HEREBY ACKNOWLEDGES

       

      
        
           

        

        
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      THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.

       

      Section
12.12 No Party Deemed
Drafter. Each of the parties hereto agrees that no party hereto shall be
deemed to be the drafter of this Agreement.

       

      Section
12.13 Reinstatement;
Certain Payments. If any claim is ever made upon the Agent or any Lender
for repayment or recovery of any amount or amounts received by the Agent or such
Lender in payment or on account of any of the Obligations, the Agent or such
Lender shall give prompt notice of such claim to each other Lender and the
Borrower, and if the Agent or such Lender repays all or part of such amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over the Agent, or such Lender or any of its property, or
(ii) any good faith settlement or compromise of any such claim effected by the
Agent or such Lender with any such claimant, then and in such event each Loan
Party agrees that (A) any such judgment, decree, order, settlement or compromise
shall be binding upon it notwithstanding the cancellation of any Indebtedness
hereunder or under the other Loan Documents or the termination of this Agreement
or the other Loan Documents, and (B) it shall be and remain
liable to the Agent or such Lender hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by the Agent or such Lender.

       

      Section
12.14 Indemnification.

       

      (a) General Indemnity. In
addition to each Loan Party's other Obligations under this
Agreement, each Loan Party agrees to, jointly and severally, defend, protect,
indemnify and hold harmless the Agent and each Lender and all of their
respective officers, directors, employees, attorneys, consultants and agents
(collectively called the "Indemnitees") from
and against any and all losses, damages, liabilities, obligations, penalties,
fees, reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior
to or from and after the Effective Date, whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with any of the following: (1) the negotiation, preparation, execution or
performance or enforcement of this Agreement, any other Loan Document or of any
other document executed in connection with the transactions contemplated by this
Agreement, (ii) the Agent's or any Lender's furnishing of funds to the Borrower
or the other Loan Documents, including, without limitation, the management of
any such Loans, (iii) any matter relating to the Transactions or by any
Transaction Document, or (iv) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnitee is a party
thereto (collectively, the "Indemnified Matters");
provided, however, that the Loan Parties shall not have any obligation to
any Indemnitee under this subsection (a) for any Indemnified Matter caused by
the gross negligence or willful misconduct of such Indemnitee, as determined by
a final judgment of a court of competent jurisdiction.

       

      (b) Environmental
Indemnity. Without limiting Section 12.14(a)
hereof, each Loan
Party agrees to, jointly and severally, defend, indemnify, and hold harmless the
Indemnitees against any and all Environmental Liabilities and Costs and all
other claims, demands, penalties, fines, liability (including strict liability),
losses, damages, costs and expenses (including without limitation, reasonable
legal fees and expenses, consultant fees and laboratory fees), arising out of
(i) any Releases or threatened Releases from the current or former properties or
operations of any Loan Party or any Subsidiary of any Loan Party, or any
predecessor in interest; (ii) any violations of Environmental Laws by any Loan
Party; (iii) any Environmental Action relating to any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest; (iv) any personal
injury (including wrongful death) or property damage (real or personal) arising
out of exposure to Hazardous Materials used, handled, generated, transported or
disposed by any Loan Party or any Subsidiary of any Loan Party, or any
predecessor in interest; and (v) any breach of any warranty or representation
regarding environmental matters made by the Loan

       

      
        
           

        

        
          60

          
            

          

        

        
           

        

      

       

       

      Parties
in Section
6.10 or the breach of any covenant made by the Loan Parties in Section
6.10. Notwithstanding the foregoing, the Loan Parties shall not have any
obligation to any Indemnitee under this subsection (b) regarding any potential
environmental matter covered hereunder which is caused (I) by the gross
negligence or willful misconduct of such Indemnitee, as determined by a final
judgment of a court of competent jurisdiction or (II) solely by the actions of
the Agent or any Lender after foreclosure or acceptance of a deed in lieu of
foreclosure.

       

      (c) The
indemnification for all of the foregoing losses, damages, fees, costs and
expenses
of the Indemnitees are chargeable against the Debt Service Reserve Account. To
the extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section
12.14 may be unenforceable because it is violative of any law or public
policy, each Loan Party shall, jointly and severally, contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
The indemnities set forth in this Section
12.14 shall survive the repayment of the Obligations and discharge of any
Liens granted under the Loan Documents.

       

      Section
12.15 Records.
The unpaid principal of and interest on the Loans, the interest rate or rates
applicable to such unpaid principal and interest, the duration of such
applicability and the Commitments shall at all times be ascertained from the
records of the Agent, which shall be conclusive and binding absent manifest
error.

       

      Section
12.16 Binding
Effect. This Agreement shall become effective when it shall have been
executed by each Loan Party, the Agent and each Lender and when the conditions
precedent set forth in Section
4.01 hereof have been satisfied or waived in writing by the Agent, and
thereafter shall be binding upon and inure to the benefit of each Loan Party,
the Agent and each Lender, and their respective successors and assigns, except
that the Loan Parties shall not have the right to assign their rights hereunder
or any interest herein without the prior written consent of each Lender, and any
assignment by any Lender shall be governed by Section
12.07 hereof.

       

      Section
12.17 Interest.
It is the intention of the parties hereto that the Agent and each Lender shall
conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby or by any other Loan Document would be usurious
as to the Agent or any Lender under laws applicable to it (including the laws of
the United States of America and the State of New York or any other jurisdiction
whose laws may be mandatorily applicable to the Agent or such Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in this Agreement or any other Loan
Document or any agreement entered into in connection with or as security for the
Obligations, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under law applicable to the Agent or any Lender that
is contracted for, taken, reserved, charged or received by the Agent or such
Lender under this Agreement or any other Loan Document or agreements or
otherwise in connection with the Obligations shall under no circumstances exceed
the maximum amount allowed by such applicable law, any excess shall be canceled
automatically and if theretofore paid shall be credited by the Agent or such
Lender on the principal amount of the Obligations (or, to the extent that the
principal amount of the Obligations shall have been or would thereby be paid in
full, refunded by the Agent or such Lender, as applicable, to the Borrower); and
(ii) in the event that the maturity of the Obligations is accelerated by reason
of any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Agent or any Lender may never include more
than the maximum amount allowed by such applicable law, and excess interest, if
any, provided for in this Agreement or otherwise shall be canceled automatically
by the Agent or such Lender, as applicable, as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited by the Agent or such
Lender, as applicable, on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall

       

      
        
           

        

        
          61

          
            

          

        

        
           

        

      

       

       

      have been
or would thereby be paid in full, refunded by the
Agent or such Lender to the Borrower). All sums paid or agreed to be paid to the
Agent or any Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to the Agent or such Lender, be
amortized, prorated, allocated and spread throughout the full term of the Loans
until payment in full so that the rate or amount of interest on account of any
Loans hereunder does not exceed the maximum amount allowed by such applicable
law. If at any time and from time to time (x) the amount of interest payable to
the Agent or any Lender on any date shall be computed at the Highest Lawful Rate
applicable to the Agent or such Lender pursuant to this Section
12.17 and (y) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Agent or such Lender would be
less than the amount of interest payable to the Agent or such Lender computed at
the Highest Lawful Rate applicable to the Agent or such Lender, then the amount
of interest payable to the Agent or such Lender in respect of such subsequent
interest computation period shall continue to be computed at the Highest Lawful
Rate applicable to such Agent or the Lender until the total amount of interest
payable to the Agent or such Lender shall equal the total amount of interest
which would have been payable to the Agent or such Lender if the total amount of
interest had been computed without giving effect to this Section
12.17.

       

      For
purposes of this Section
12.17, the term "applicable law" shall mean that law in effect from time
to time and applicable to the loan transaction between the Borrower, on the one
hand, and the Agent and the Lenders, on the other, that lawfully permits the
charging and collection of the highest permissible, lawful non-usurious rate of
interest on such loan transaction and this Agreement, including laws of the
State of New York and, to the extent controlling, laws of the United States of
America.

       

      The right
to accelerate the maturity of the Obligations does not include the right to
accelerate any interest that has not accrued as of the date of
acceleration.

       

      Section
12.18 Confidentiality.
The Agent and each Lender agrees (on behalf of itself and each of its
affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound practices of comparable commercial finance
companies, any non-public information supplied to it by the Loan Parties
pursuant to this Agreement or the other Loan Documents which is identified in
writing by the Loan Parties as being confidential at the time the same is
delivered to such Person (and which at the time is not, and does not thereafter
become, publicly available or available to such Person from another source not
known to be subject to a confidentiality obligation to such Person not to
disclose such information), provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for the Agent or any Lender,
(iii) to examiners, auditors or accountants, (iv) in connection with any
litigation to which the Agent or any Lender is a party (provided that the Agent
shall attempt to provide reasonable notice before such release) or (v) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) first agrees,
in writing, to be bound by confidentiality provisions similar in substance to
this Section
12.18.
Notwithstanding the foregoing, each
Agent and each Lender may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the financing
contemplated by this Agreement, and all materials of any kind (including
opinions or other tax analyses) that are provided to any Agent or any Lender
relating to such tax treatment and tax structure. The Agent and each Lender
agrees that, upon receipt of a request or identification of the requirement for
disclosure pursuant to clause (iv) hereof, it will make reasonable efforts to
keep the Loan Parties informed of such request or identification; provided that
each Loan Party acknowledges that the Agent and each Lender may make disclosure
as required or requested by any Governmental Authority or representative thereof
and that the Agent and each Lender may be subject to review by Securitization
Parties or other regulatory agencies and may be required to provide to, or
otherwise make available for review by, the representatives of such parties or
agencies any such non-public information.

       

      
        
           

        

        
          62

          
            

          

        

        
           

        

      

       

       

      Section
12.19 Integration.
This Agreement, together with the other Loan Documents, reflects the entire
understanding of the parties with respect to the transactions contemplated
hereby and shall not be contradicted or qualified by any other agreement, oral
or written, before the date hereof.

       

      Section
12.20 Waiver.
Each Borrower shall remain obligated hereunder, and such Borrower's obligations
hereunder shall not be released, discharged or otherwise affected,
notwithstanding that, without any reservation of rights against any other party
and without notice to, demand upon or further assent by the Borrower (which
notice, demand and assent requirements are hereby expressly waived by such
Borrower), (a) any demand for payment of any of the Indebtedness made by any
Lender may be rescinded by such Lender or otherwise and any of the Indebtedness
continued; (b) the Indebtedness, the liability of any other Person upon or for
any part thereof or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by, or any indulgence or forbearance in respect thereof
granted by, any Lender; (c) any collateral security, guarantee or right of
offset at any time held by any Lender for the payment of the Indebtedness may be
sold, exchanged, waived, surrendered or released; (d) any additional guarantors,
makers or endorsers of the either Borrower's Indebtedness may from time to time
be obligated on the Indebtedness or any additional security or collateral for
the payment and performance of the Indebtedness may from time to time secure the
Indebtedness; or (e) any other event shall occur which constitutes a defense or
release of sureties generally, including but not limited to any event which
constitutes, or might be construed to constitute, an equitable or legal
discharge of either Borrower for the Indebtedness, in bankruptcy or in any other
instance.

       

      Section
12.21 Joint
and Several Nature of Obligation. Notwithstanding anything in the Loan
Documents to the contrary, each Borrower agrees that it (a) is a primary obligor
hereunder and (b) is jointly and severally liable for the prompt and complete
payment and performance when due of all obligations, liabilities, covenants and
undertakings of the Borrower hereunder (including, without limitation, all Loans
and other Indebtedness now in existence or hereafter incurred (whether for
interest, premium, fees, taxes, break funding costs, expenses, indemnities or
other amounts)).

       

      [REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
          63

          
            

          

        

        
           

        

      

       

      
        
          	 
      	
                  BORROWER:

                
	 
      	 
      
	 
      	
                  DEEP
      DOWN, INC.

                
	 
      	 
      
	 
      	
                  By:
      /s/ Ronald E. Smith

                
	 
      	
                  Name:
      Ron E. Smith

                
	 
      	
                  Title:
      President

                
	 
      	 
      
	 
      	 
      
	 
      	
                  AGENT
      AND LENDER:

                
	 
      	 
      
	 
      	
                  PROSPECT
      CAPITAL CORPORATION

                
	 
      	 
      
	 
      	
                  By:
      /s/ M. Grier Eliasek

                
	 
      	
                  Name:
      M. Grier Eliasek

                
	 
      	
                  Title:
      President

                

        

      

       

       

      
        
           

        

        
          Signature
Page to Credit Agreement

          
            

          

        

        
           

        

      

      
        

        SCHEDULE
1.01(A)

        

        Commitments

        

        
          	
                  Lender

                	 	
                  Commitment

                
	 
      	 	 
      
	
                  Prospect
      Capital Corporation

                	 	
                  $6,500,000(1)

                
	 
      	 	 
      
	
                  Total:

                	 	
                  $6,500,000

                

        

        
_________________

      

      
        (1) $6,500,000 shall be available to the Borrower on
the Effective Date with the remaining $500,000 available to the Borrower as set
forth in Section
2.04.

      

       

      
        
           

        

        
          Schedule
1.01(A)

          
            

          

        

        
           

        

      

      SCHEDULE
1.01 (B)

      EQUIPMENT

       

      SEE ATTACHED LISTS FOR DEEP DOWN INC.
AND ELECTROWAVE USA, INC.

      fdeep_ex1003.htm

    EXHIBIT 10.3

    
    

    
      GUARANTEE
AND COLLATERAL AGREEMENT

       

      made
by

       

      each of
the Grantors (as defined herein)

       

      in favor
of

       

      Prospect
Capital Corporation,

       

      as
Administrative Agent

       

      Dated as
of August 6, 2007

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        TABLE
OF CONTENTS

        

        
          	
                  ARTICLE
      I Definitions

                	
                  1

                
	
                  Section
      1.01

                	
                  Definitions

                	
                  1

                
	
                  Section
      1.02

                	
                  Other
      Definitional Provisions; References

                	
                  3

                
	 	 	 
	
                  ARTICLE
      II Guarantee

                	 
      	
                  3

                
	
                  Section
      2.01

                	
                  Guarantee

                	
                  3

                
	
                  Section
      2.02

                	
                  Payments

                	
                  4

                
	 	 
	
                  ARTICLE
      III Grant of Security Interest

                	
                  4

                
	
                  Section
      3.01

                	
                  Grant
      of Security Interest

                	
                  4

                
	
                  Section
      102

                	
                  Transfer
      of Pledged Securities

                	
                  6

                
	
                  Section
      3.03

                	
                  Grantors
      Remains Liable under Accounts, Chattel Paper and Payment

                	 
      
	
                  Intangibles

                	 
      	
                  6

                
	 	 
	
                  ARTICLE
      IV Acknowledgments, Waivers and Consents

                	
                  6

                
	
                  Section
      4.01

                	
                  Acknowledgments,
      Waivers and Consents

                	
                  6

                
	
                  Section
      4.02

                	
                  No
      Subrogation, Contribution or Reimbursement

                	
                  9

                
	 	 
	
                  ARTICLE
      V Representations and Warranties

                	
                  9

                
	
                  Section
      5.01

                	
                  Representations
      in Credit Agreement

                	
                  9

                
	
                  Section
      5.02

                	
                  Benefit
      to the Guarantor

                	
                  9

                
	
                  Section
      5.03

                	
                  Solvency

                	
                  10

                
	
                  Section
      5.04

                	
                  Title;
      No Other Liens

                	
                  10

                
	
                  Section
      5.05

                	
                  Perfected
      First Priority Liens

                	
                  10

                
	
                  Section
      5.06

                	
                  Legal
      Name, Organizational Status, Chief Executive Office

                	
                  10

                
	
                  Section
      5.07

                	
                  Prior
      Names, Addresses, Locations of Tangible Assets

                	
                  10

                
	
                  Section
      5.08

                	
                  Pledged
      Securities

                	
                  10

                
	
                  Section
      5.09

                	
                  Goods

                	
                  11

                
	
                  Section
      5.10

                	
                  Instruments
      and Chattel Paper

                	
                  11

                
	
                  Section
      5.11

                	
                  Truth
      of Information; Accounts

                	
                  11

                
	
                  Section
      5.12

                	
                  Governmental
      Obligors

                	
                  11

                
	
                  Section
      5.13

                	
                  Patents
      and Trademarks

                	
                  11

                
	
                  Section
      5.14

                	
                  Vehicles

                	
                  12

                
	 	 	 
	
                  ARTICLE
      VI Covenants

                	
                  12

                
	
                  Section
      6.01

                	
                  Covenants
      in Credit Agreement

                	
                  12

                
	
                  Section
      6.02

                	
                  Maintenance
      of Perfected Security Interest; Further Documentation

                	
                  12

                
	
                  Section
      6.03

                	
                  Maintenance
      of Records

                	
                  13

                
	
                  Section
      6.04

                	
                  Right
      of Inspection

                	
                  13

                
	
                  Section
      6.05

                	
                  Further
      Identification of Collateral

                	
                  13

                
	
                  Section
      6.06

                	
                  Changes
      in Locations, Name, etc.

                	
                  14

                
	
                  Section
      6.07

                	
                  Compliance
      with Contractual Obligations

                	
                  14

                
	
                  Section
      6.08

                	
                  Limitations
      on Dispositions of Collateral

                	
                  14

                
	
                  Section
      6.09

                	
                  Pledged
      Securities

                	
                  14

                

        

        

        

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

        

        
          	
                  Section
      6.10

                	
                  Limitations
      on Modifications, Waivers, Extensions of Agreements Giving Rise to
      Accounts

                	
                  15

                
	
                  Section
      6.11

                	
                  Instruments
      and Tangible Chattel Paper

                	
                  16

                
	
                  Section
      6.12

                	
                  Maintenance
      of Equipment

                	
                  16

                
	
                  Section
      6.13

                	
                  Patents
      and Trademarks

                	
                  16

                
	
                  Section
      6.14

                	
                  Commercial
      Tort Claims

                	
                  17

                
	
                  Section
      6.15

                	
                  Vehicles

                	
                  18

                
	 	 
	
                  ARTICLE
      VII Remedial Provisions

                	
                  18

                
	
                  Section
      7.01

                	
                  Pledged
      Securities

                	
                  18

                
	
                  Section
      7.02

                	
                  Collections
      on Accounts, Etc

                	
                  19

                
	
                  Section
      7.03

                	
                  Proceeds

                	
                  19

                
	
                  Section
      7.04

                	
                  New
      York UCC and Other Remedies

                	
                  20

                
	
                  Section
      7.05

                	
                  Private
      Sales of Pledged Securities

                	
                  21

                
	
                  Section
      7.06

                	
                  Waiver;
      Deficiency

                	
                  22

                
	
                  Section
      7.07

                	
                  Non-Judicial
      Enforcement

                	
                  22

                
	 	 
	
                  ARTICLE
      VIII The Administrative Agent

                	
                  22

                
	
                  Section
      8.01

                	
                  Administrative
      Agent's Appointment as Attorney-in-Fact, Etc

                	
                  22

                
	
                  Section
      8.02

                	
                  Duty
      of Administrative Agent

                	
                  24

                
	
                  Section
      8.03

                	
                  Execution
      of Financing Statements

                	
                  24

                
	
                  Section
      8.04

                	
                  Authority
      of Administrative Agent

                	
                  25

                
	 	 
	
                  ARTICLE
      IX Subordination of Indebtedness

                	
                  25

                
	
                  Section
      9.01

                	
                  Subordination
      of All Guarantor Claims

                	
                  25

                
	
                  Section
      9.02

                	
                  Claims
      in Bankruptcy

                	
                  25

                
	
                  Section
      9.03

                	
                  Payments
      Held in Trust

                	
                  25

                
	
                  Section
      9.04

                	
                  Liens
      Subordinate

                	
                  26

                
	
                  Section
      9.05

                	
                  Notation
      of Records

                	
                  26

                
	 	 
	
                  ARTICLE
      X Miscellaneous

                	
                  26

                
	
                  Section
      10.01

                	
                  Waiver

                	
                  26

                
	
                  Section
      10.02

                	
                  Notices

                	
                  26

                
	
                  Section
      10.03

                	
                  Payment
      of Expenses, Indemnities, Etc

                	
                  27

                
	Section
      10.04	Amendments
      in Writing	 
	
                  Section
      10.05

                	
                  Successors
      and Assigns

                	
                  27

                
	
                  Section
      10.06

                	
                  Invalidity

                	
                  28

                
	
                  Section
      10.07

                	
                  Counterparts

                	
                  28

                
	
                  Section
      10.08

                	
                  Survival

                	
                  28

                
	
                  Section
      10.09

                	
                  Captions

                	
                  28

                
	
                  Section
      10.10 

                	No
      Oral Agreements	
                  28

                
	
                  Section
      10.11

                	
                  Governing
      Law; Submission to Jurisdiction

                	
                  28

                
	
                  Section
      10.12 

                	Acknowledgments	
                  29

                
	
                  Section
      10.13

                	
                  Additional
      Grantors

                	
                  30

                
	
                  Section
      10.14

                	
                  Set-Off

                	
                  30

                
	
                  Section
      10.15

                	
                  Releases

                	
                  30

                
	
                  Section
      10.16

                	
                  Reinstatement

                	
                  31

                

        

        

        

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

        
          	
                  Section
      10.17

                	
                  Acceptance

                	
                  31

                
	
                  Section
      10.18

                	
                  Conflict

                	
                  31

                

        

        

        
          	
                  SCHEDULES:

                	 
      	 
      

        

        

        
          	
                  1.

                	
                  Notice
      Addresses of Guarantors

                	 
      
	
                  2.

                	
                  Description
      of Pledged Securities

                	 
      
	
                  3.

                	
                  Filings
      and Other Actions Required to Perfect Security Interests

                	 
      
	
                  4.

                	
                  Legal
      Name, Location of Jurisdiction of Organization, Organizational Identification
      Number, Taxpayor Identification Number and Chief Executive
      Office

                	 
      
	
                  5.

                	
                  Prior
      Names, Prior Chief Executive Office, Location of Tangible
      Assets

                	 
      
	
                  6.

                	
                  Patents
      and Patent Licenses

                	 
      
	
                  7.

                	
                  Trademarks
      and Trademark Licenses

                	 
      
	
                  8.

                	
                  Vehicles

                	 
      
	
                  ANNEX:

                	 
      	 
      
	
                  1.

                	
                  Form
      of Assumption Agreement

                	 
      

        

        

      

       

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

       

      This
GUARANTEE AND COLLATERAL AGREEMENT, dated as of August 6, 2007, is made by Deep
Down, Inc., a Nevada corporation (the "Borrower"),
and each of the other signatories hereto other than the Administrative Agent
(the Borrower and each of the other signatories hereto other than the
Administrative Agent, together with any other Person that becomes a party hereto
from time to time after the date hereof, the "Grantors"),
in favor of Prospect Capital Corporation, a Maryland corporation, as
administrative agent (in such capacity, together with its successors in such
capacity, the "Administrative
Agent"), for the banks and other financial institutions (the "Lenders")
from time to time parties to the Credit Agreement, dated as of August 6, 2007
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the Lenders, the Administrative Agent,
and the other agents party thereto.

       

      NOW,
THEREFORE, pursuant to the terms of the Credit Agreement, each Grantor hereby
agrees with the Administrative Agent, for the ratable benefit of the Lenders, as
follows:

       

      ARTICLE
I 

      Definitions

       

      Section
1.01 Definitions.

       

      (a) As used
in this Agreement, each term defined
above shall have the meaning
indicated above. Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement, and the following terms as well as all uncapitalized terms which are
defined in the New York UCC on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents,
Electronic Chattel Paper, Equipment, Fixtures, General Intangibles, Goods,
Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Payment
Intangibles, Proceeds, Supporting Obligations, and Tangible Chattel
Paper.

       

      (b) The
following terms shall have the following meanings:

       

      "Account
Debtor" shall mean a Person (other than any Grantor) obligated on an
Account, Chattel Paper, or General Intangible.

       

      "Administrative
Agent" shall have the meaning assigned such term in the introductory
paragraph.

       

      "Agreement"
shall mean this Guarantee and Collateral Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.

       

      "Borrower"
shall have the meaning assigned such term in the introductory paragraph. "Collateral"
shall have the meaning assigned such term in Section 3.01.

       

      "Credit
Agreement" shall have the meaning assigned such term in the introductory
paragraph.

       

      "Grantors"
shall have the meaning assigned such term in the introductory
paragraph.

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

       

      "Guarantor Claims"
shall have the meaning set forth in Section 9.01.

       

      "Guarantors" shall
mean, collectively, each Grantor other than the Borrower. 

       

      "Issuers" shall mean,
collectively, each issuer of a Pledged Security.

       

      "Lenders" shall have
the meaning assigned such term in the introductory paragraph.

       

      "New York UCC" shall
mean the Uniform Commercial Code, as it may be amended, from time to time in
effect in the State of New York.

       

      "Note" shall mean the promissory note
of the Borrower described in Section 2.03(e) of the Credit Agreement and being
substantially in the form of Exhibit G to the Credit Agreement, together with
all amendments, modifications, replacements, extensions and rearrangements
thereof

       

      "Obligations" shall
mean, collectively, all Indebtedness, liabilities and obligations of the
Borrower and each Guarantor to the Administrative Agent and the Lenders, of
whatsoever nature and howsoever evidenced, due or to become due, now existing or
hereafter arising, whether direct or indirect, absolute or contingent, which may
arise under, out of, or in connection with the Credit Agreement, the other Loan
Documents, and all other agreements, guarantees, notes and other documents
entered into by any party in connection therewith, and any amendment,
restatement or modification of any of the foregoing, including, but not limited
to, the full and punctual payment when due of any unpaid principal of the Loans,
interest (including, without limitation, interest accruing at any post-default
rate and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding), fees, reimbursement obligations, guaranty obligations, penalties,
indemnities, legal and other fees, charges and expenses, and amounts advanced by
and expenses incurred in order to preserve any collateral or security interest,
whether due after acceleration or otherwise.

       

      "Patents" shall mean:
(i) all letters patent of the United States and all reissues and extensions
thereof, including, without limitation, any thereof referred to in Schedule 6
hereto, and (ii) all applications for letters patent of the United States and
all divisions, continuations and continuations-in-part thereof or any other
country, including, without limitation, any thereof referred to in Schedule 6
hereto.

       

      "Patent License"
shall mean all agreements, whether written or oral, providing for the grant by
any Grantor of any right to manufacture, use or sell any invention covered by a
Patent, including, without limitation, any thereof referred to in Schedule 6
hereto.

       

      "Pledged Securities"
shall mean: (i) the equity interests described or referred to in Schedule 2; and
(ii) (a) the certificates or instruments, if any, representing such equity
interests, (b) all dividends (cash, stock or otherwise), cash, instruments,
rights to subscribe, purchase or sell and all other rights and property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such equity interests, (c) all replacements,
additions to and substitutions for any of the property referred to in this
definition, including, without limitation, claims against third parties, (d) the
proceeds, interest, profits and

       

      
        
          
          

        

        
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      other
income of or on any of the property referred to in this definition and (e) all
books and records relating to any of the property referred to in this
definition.

       

      "Properties" shall
mean the facility located at 15473 East Freeway, Channelview, Texas 77530.

       

      "Secured Parties"
shall mean, collectively, the Administrative Agent and the Lenders.

       

      "Securities Act"
shall mean the Securities Act of 1933, as amended.

       

      "Trademarks" shall
mean: (i) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and the goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any thereof
referred to in Schedule 7 hereto, and (ii) all renewals thereof.

       

      "Trademark License"
shall mean any agreement, written or oral, providing for the grant by any
Grantor of any right to use any Trademark, including, without limitation, any
thereof referred to in Schedule 7 hereto.

       

      "Vehicles" shall mean
all cars, trucks, trailers, construction and earth moving equipment and other
vehicles covered by a certificate of title law of any state and, in any event,
shall include, without limitation, the vehicles listed on Schedule 8 hereto and
all tires and other appurtenances to any of the foregoing.

       

      Section
1.02 Other
Definitional Provisions; References. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms. The gender of all words shall include the masculine, feminine, and
neuter, as appropriate. The words "herein," "hereof," "hereunder" and other
words of similar import when used in this Agreement refer to this Agreement as a
whole, and not to any particular article, section or subsection. Any reference
herein to a Section shall be deemed to refer to the applicable Section of this
Agreement unless otherwise stated herein. Any reference herein to an exhibit,
schedule or annex shall be deemed to refer to the applicable exhibit, schedule
or annex attached hereto unless otherwise stated herein. Where the context
requires, terms relating to the Collateral or any part thereof, when used in
relation to a Grantor, shall refer to such Grantor's Collateral or the relevant
part thereof.

       

      ARTICLE
II

      Guarantee

       

      Section
2.01 Guarantee.

       

      (a) Each
of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably,
guarantees to the Administrative Agent, for the ratable benefit of the Secured
Parties and each of their respective successors, endorsees, transferees and
assigns, the prompt and

       

      
        
          
          

        

        
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      complete
payment and performance by the Borrower and the Guarantors when due (whether at
the stated maturity, by acceleration or otherwise) of the Obligations. This is a
guarantee of payment and not collection and the liability of each Guarantor is
primary and not secondary.

       

      (b) Anything
herein or in any other Loan Document to the contrary notwithstanding,
the maximum liability of each Guarantor hereunder and under the other Loan
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws relating to the insolvency of
debtors.

       

      (c) Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing
the guarantee contained in this Article II or affecting the rights and remedies
of the Administrative Agent or any Secured Party hereunder.

       

      (d) Each
Guarantor agrees that if the maturity of any of the Obligations is accelerated
by bankruptcy or otherwise, such maturity shall also be deemed accelerated for
the purpose of this guarantee without demand or notice to such Guarantor. The
guarantee contained in this Article II shall remain in full force and effect
until all the Obligations shall have been satisfied by payment in full and the
Credit Agreement and the aggregate Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement,
no Obligations may be outstanding.

       

      (e) No payment made by
the Borrower, any of the Guarantors, any other guarantor
or any other Person or received or collected by the Administrative Agent or any
other Secured Party from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment (other than any payment made by such
Guarantor in respect of the Obligations or any payment received or collected
from such Guarantor in respect of the Obligations), remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full and the Credit Agreement and the aggregate
Commitments are terminated.

       

      Section
2.02 Payments.
Each Guarantor hereby agrees and guarantees that payments hereunder will be paid
to the Administrative Agent without set-off or counterclaim in Dollars at the
principal office of the Administrative Agent.

       

      ARTICLE
III

      Grant
of Security Interest

       

      Section
3.01 Grant of Security
Interest. Each Grantor hereby pledges, assigns and transfers to the Administrative Agent,
and grants to the Administrative Agent, for the
ratable benefit of the Secured Parties, a security interest in all of the
following property now owned or at any time hereafter acquired by such Grantor
or in which such Grantor now has or at any time in the future may acquire any
right, title or interest and whether now existing or hereafter coming into
existence (collectively, the "Collateral"), as
collateral security for the prompt and complete

       

      
        
          
          

        

        
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      payment
and performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations:

       

      (1) all
Accounts;

       

      (2) all
Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel Paper);

       

      (3) all
Commercial Tort Claims;

       

      (4) all
Deposit Accounts other than payroll, withholding tax and other fiduciary
Deposit Accounts;

       

      (5) all
Documents;

       

      (6) all
General Intangibles;

       

      (7) all Goods
(including, without limitation, all Inventory and all Equipment, but
excluding all Fixtures);

       

      (8) all
Instruments;

       

      (9) all
Investment Property;

       

      (10) all
Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a
writing);

       

      (11) all
Patents;

       

      (12) all
Patent Licenses;

       

      (13) all
Pledged Securities;

       

      (14) all
Supporting Obligations;

       

      (15) all
Trademarks;

       

      (16) all
Vehicles;

       

      (17) all books
and records pertaining to the Collateral; and

       

      (18) to the
extent not otherwise included, all Proceeds and products of any and all of the
foregoing and all collateral security, guarantees and other Supporting
Obligations given with respect to any of the foregoing.

       

      
        
          
          

        

        
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      Section
3.02 Transfer
of Pledged Securities. All certificates and instruments representing
or evidencing the Pledged Securities shall be delivered to and held pursuant
hereto by the Administrative Agent or a Person designated by the Administrative
Agent and, in the case of an instrument or certificate in registered form, shall
be duly indorsed to the Administrative Agent or in blank by an effective
indorsement (whether on the certificate or instrument or on a separate writing),
and accompanied by any required transfer tax stamps to effect the pledge of the
Pledged Securities to the Administrative Agent. Notwithstanding the preceding
sentence, all Pledged Securities must be delivered or transferred in such
manner, and each Grantor shall take all such further action as may be requested
by the Administrative Agent, as to permit the Administrative Agent to be a
"protected purchaser" to the extent of its security interest as provided in
Section 8.303 of the New York UCC (if the Administrative Agent otherwise
qualifies as a protected purchaser).

       

      Section
3.03 Grantors
Remains Liable under Accounts, Chattel Paper and Payment Intangibles.
Anything herein to the contrary notwithstanding, each Grantor shall remain
liable under each of the Accounts, Documents, Chattel Paper and General
Intangibles to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account, Document, Chattel Paper or General
Intangible. Neither the Administrative Agent nor any other Secured Party shall
have any obligation or liability under any Account, Document, Chattel Paper or
General Intangible (or any agreement giving rise thereto) by reason of or
arising out of this Agreement or the receipt by the Administrative Agent or any
such other Secured Party of any payment relating to such Account, Document,
Chattel Paper or General Intangible, pursuant hereto, nor shall the
Administrative Agent or any other Secured Party be obligated in any manner to
perform any of the obligations of any Grantor under or pursuant to any Account,
Document, Chattel Paper or General Intangible (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account, Document, Chattel Paper or General
Intangible (or any agreement giving rise thereto), to present or file any claim,
to take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.

      ARTICLE
IV

      Acknowledgments,
Waivers and Consents

       

      Section 4.01 Acknowledgments, Waivers and
Consents.

       

      (a) Each
Grantor acknowledges and agrees that the obligations undertaken by it under
this Agreement involve the guarantee and the provision of collateral security
for the obligations of Persons other than such Grantor and that such Grantor's
guarantee and provision of collateral security for the Obligations are absolute,
irrevocable and unconditional under any and all circumstances. In full
recognition and furtherance of the foregoing, each Grantor understands and
agrees, to the fullest extent permitted under applicable law and except as may
otherwise be expressly and specifically provided in the Loan Documents, that
each Grantor shall remain obligated hereunder (including, without limitation,
with respect to the guarantee made such Grantor hereby and the collateral
security provided by such Grantor herein) and the enforceability and
effectiveness of this Agreement and the liability of such Grantor, and
the

       

      
        
          
          

        

        
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      rights,
remedies, powers and privileges of the Administrative Agent and the other
Secured Parties under this Agreement and the other Loan Documents shall not be
affected, limited, reduced, discharged or terminated in any way:

       

      (i) notwithstanding
that, without any reservation of rights against any Grantor
and without notice to or further assent by any Grantor, (A) any demand for
payment of any of the Obligations made by the Administrative Agent or any other
Secured Party may be rescinded by the Administrative Agent or such other Secured
Party and any of the Obligations continued; (B) the Obligations, the liability
of any other Person upon or for any part thereof or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by, or any indulgence or
forbearance in respect thereof granted by, the Administrative Agent or any other
Secured Party; (C) the Credit Agreement, the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, the Required Lenders or all Lenders, as the case
may be) may deem advisable from time to time; (D) the Borrower, any Grantor or
any other Person may from time to time accept or enter into new or additional
agreements, security documents, guarantees or other instruments in addition to,
in exchange for or relative to, any Loan Document, all or any part of the
Obligations or any Collateral now or in the future serving as security for the
Obligations; (E) any collateral security, guarantee or right of offset at any
time held by the Administrative Agent or any other Secured Party for the payment
of the Obligations may be sold, exchanged, waived, surrendered or released; and
(F) any other event shall occur which constitutes a defense or release of
sureties generally; and

       

      (ii) without
regard to, and each Grantor hereby expressly waives to the fullest
extent permitted by law any defense now or in the future arising by reason of,
(A) the illegality, invalidity or unenforceability of the Credit Agreement, any
other Loan Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any other Secured Party,
(B) any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by any Grantor
or any other Person against the Administrative Agent or any other Secured Party,
(C) the insolvency, bankruptcy arrangement, reorganization, adjustment,
composition, liquidation, disability, dissolution or lack of power of any
Grantor or any other Person at any time liable for the payment of all or part of
the Obligations or the failure of the Administrative Agent or any other Secured
Party to file or enforce a claim in bankruptcy or other proceeding with respect
to any Person; or any sale, lease or transfer of any or all of the assets of any
Grantor, or any changes in the shareholders of any Grantor, (D) the fact that
any Collateral or Lien contemplated or intended to be given, created or granted
as security for the repayment of the Obligations shall not be properly perfected
or created, or shall prove to be unenforceable or subordinate to any other Lien,
it being recognized and agreed by each of the Grantors that it is not entering
into this Agreement in reliance on, or in contemplation of the benefits of, the
validity, enforceability, collectability or value of any of the Collateral for
the Obligations, (E) any failure of the Administrative Agent or any other
Secured Party to marshal assets in favor of any Grantor or any other Person, to
exhaust any collateral for all or any part of the Obligations, to pursue or
exhaust any right, remedy, power or privilege it may have against any Grantor or
any other Person or to

       

      
        
          
          

        

        
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      take any
action whatsoever to mitigate or reduce any Grantor's liability under this
Agreement or any other Loan Document, (F) any law which provides that the
obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety's or guarantor's obligation in proportion to the principal obligation,
(G) the possibility that the Obligations may at any time and from time to time
exceed the aggregate liability of such Grantor under this Agreement, or (H) any other circumstance or act
whatsoever which constitutes, or might be construed to constitute, an equitable
or legal discharge or defense of the Borrower for the Obligations, or of such
Grantor under the guarantee contained in Article II or with respect to the
collateral security provided by such Grantor herein, or which might be available
to a surety or guarantor, in bankruptcy or in any other instance.

       

      (b) Each
Grantor hereby waives to the extent permitted by law: (i) except as expressly
provided otherwise in any Loan Document, all notices to such Grantor, or to any
other Person, including but not limited to, notices of the acceptance of this
Agreement, the guarantee contained in Article II or the provision of
collateral security provided herein, or the creation, renewal, extension,
modification, accrual of any Obligations, or notice of or proof of reliance by
the Administrative Agent or any other Secured Party upon the guarantee contained
in Article II or upon the collateral security provided herein, or of default in
the payment or performance of any of the Obligations owed to the Administrative
Agent or any other Secured Party and enforcement of any right or remedy with
respect thereto; or notice of any other matters relating thereto; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in Article II and the collateral security provided
herein and no notice of creation of the Obligations or any extension of credit
already or hereafter contracted by or extended to the Borrower need be given to
any Grantor; and all dealings between the Borrower and any of the Grantors, on
the one hand, and the Administrative Agent and the other Secured Parties, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in Article II and on the collateral
security provided herein; (ii) diligence and demand of payment, presentment,
protest, dishonor and notice of dishonor; (iii) any statute of limitations
affecting any Grantor's liability hereunder or the enforcement thereof; (iv) all
rights of revocation with respect to the Obligations, the guarantee contained in
Article II and the
provision of collateral security herein; and (v) all principles or provisions of
law which conflict with the terms of this Agreement and which can, as a matter
of law, be waived.

       

      (c) When
making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Grantor, the Administrative Agent or any other Secured
Party may, but shall be under no obligation to, join or make a similar demand on
or otherwise pursue or exhaust such rights and remedies as it may have against
the Borrower, any other Grantor or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any other Secured Party
to make any such demand, to pursue such other rights or remedies or to collect
any payments from the Borrower, any other Grantor or any other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower, any Grantor or any other Person
or any such collateral security, guarantee or right of offset, shall not relieve
any Grantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any other Secured Party against
any Grantor. For the purposes hereof

       

      
        
          
          

        

        
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      "demand"
shall include the commencement and continuance of any legal proceedings. Neither
the Administrative Agent nor any other Secured Party shall have any obligation
to protect, secure, perfect or insure any Lien at any time held by it as
security for the Obligations or for the guarantee contained in Article II
or any property subject thereto.

       

      Section
4.02 No
Subrogation, Contribution or Reimbursement. Notwithstanding any payment
made by any Grantor hereunder or any set-off or application of funds of any
Grantor by the Administrative Agent or any other Secured Party, until the
Obligations are paid in full and the Commitments are terminated, no Grantor
shall be entitled to be subrogated to any of the rights of the Administrative
Agent or any other Secured Party against the Borrower or any other Grantor or
any collateral security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party for the payment of the
Obligations, nor shall any Grantor seek or be entitled to seek any indemnity,
exoneration, participation, contribution or reimbursement from the Borrower or
any other Grantor in respect of payments made by such Grantor hereunder, and
each Grantor hereby expressly waives, releases, and agrees not to exercise any
all such rights of subrogation, reimbursement, indemnity and contribution. Each
Grantor further agrees that to the extent that such waiver and release set forth
herein is found by a court of competent jurisdiction to be void or voidable for
any reason, any rights of subrogation, reimbursement, indemnity and contribution
such Grantor may have against the Borrower, any other Grantor or against any
collateral or security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party shall be junior and subordinate
to any rights the Administrative Agent and the other Secured Parties may have
against the Borrower and such Grantor and to all right, title and interest the
Administrative Agent and the other Secured Parties may have in any collateral or
security or guarantee or right of offset. The Administrative Agent, for the
benefit of the Secured Parties, may use, sell or dispose of any item of
Collateral or security as it sees fit without regard to any subrogation rights
any Grantor may have, and upon any disposition or sale, any rights of
subrogation any Grantor may have shall terminate.

      ARTICLE
V

      Representations
and Warranties

       

      Each
Grantor hereby represents and warrants to the Administrative Agent and each
other Secured Party that:

       

      Section
5.01 Representations
in Credit Agreement. In the case of each Guarantor, the
representations and warranties set forth in Article V of the Credit Agreement as
they relate to such Guarantor (in its capacity as a Subsidiary of the Borrower)
or to the Loan Documents to which such Guarantor is a party are true and correct
in all material respects, provided that each reference in each such
representation and warranty to the Borrower's knowledge shall, for the purposes
of this Section 5.01, be deemed to be a reference to such Guarantor's
knowledge.

       

      Section
5.02 Benefit
to the Guarantor. The Borrower is a member of an affiliated group of
companies that includes each Guarantor, and the Borrower and the Guarantors are
engaged in related businesses. Each Guarantor is a Subsidiary of the Borrower
and its guaranty and surety obligations pursuant to this Agreement reasonably
may be expected to benefit, directly or indirectly, it; and it has determined
that this Agreement is necessary and convenient to the conduct, promotion and
attainment of the business of such Guarantor and the Borrower.

       

      
        
          
          

        

        
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      Section
5.03 Solvency.
Such Grantor (i) is not insolvent as of the date hereof and will not be rendered
insolvent as a result of this Agreement (after giving effect to Section
2.01(a)), (ii) is not engaged in a business or a transaction, or about to engage
in a business or a transaction, for which any Property or assets remaining with
it constitute unreasonably small capital, and (iii) does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as such
debts mature.

       

      Section
5.04 Title; No Other Liens.
Except for the security interest granted to the Administrative Agent for the
ratable benefit of the Secured Parties pursuant to this Agreement and Permitted
Liens, such Grantor is the legal and beneficial owner of its respective items of
the Collateral free and clear of any and all Liens. No financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except such as have been filed in favor of
the Administrative Agent, for the ratable benefit of the Secured Parties,
pursuant to this Agreement, the Security Instruments or as are filed to secure
Liens permitted by Section 7.01 of the Credit Agreement.

       

      Section
5.05 Perfected First
Priority Liens. The security interests granted pursuant to this Agreement
(a) upon completion of the filings and other actions set forth on Schedule 3
(which, in the case of all filings and other documents referred to on said
Schedule with respect to Collateral owned by any Guarantor on the date hereof
have been delivered to the Administrative Agent in completed and duly executed
form) will constitute valid perfected security interests in all of the
Collateral in favor of the Administrative Agent, for the ratable benefit of the
Secured Parties (to the extent such Collateral is owned by any Guarantor on the
date hereof), as collateral security for such Grantor's obligations, enforceable
in accordance with the terms hereof against all creditors of such Grantor and
any Persons purporting to purchase any Collateral from such Grantor and (b) are
prior to all other Liens on the Collateral in existence on the date hereof
except for Liens described in clauses (a) through (e) of the definition of
Permitted Liens in Section 1.01 of the Credit Agreement (provided that Liens
described in clauses (a) through (e) of the definition of Permitted Liens in
Section 1.01 of the Credit Agreement shall remain "Permitted Liens" only for so
long as no action to enforce such Lien has been commenced and no intention to
subordinate the first priority Lien granted in favor of the Beneficiary is to be
hereby implied or expressed by the permitted existence of any Permitted Liens)
but no intent to subordinate the first priority of the Liens created hereby is
intended or inferred to the extent no such priority otherwise
exists.

       

      Section
5.06 Legal Name,
Organizational Status, Chief Executive Office. On the date hereof, the
correct legal name of such Grantor, such Grantor's jurisdiction of organization,
organizational number, taxpayer identification number and the location of such
Grantor's chief executive office or sole place of business are specified on
Schedule 4.

       

      Section
5.07 Prior Names,
Addresses, Locations of Tangible Assets. Schedule 5 correctly sets forth
(a) all names and trade names that such Grantor has used in the last five (5)
years and (b) the chief executive office of such Grantor over the last five (5)
years (if different from that which is set forth in Section 5.06
above).

       

      Section
5.08 Pledged
Securities. The shares (or such other interests) of Pledged Securities
pledged by such Grantor hereunder constitute all the issued and outstanding
shares (or

       

      
        
          
          

        

        
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      such
other interests) of all classes of the capital stock or other equity interests
of each Issuer owned by such Grantor. All the shares (or such other interests)
of the Pledged Securities have been duly and validly issued and are fully paid
and nonassessable; and such Grantor is the record and beneficial owner of, and
has good title to, the Pledged Securities pledged by it hereunder, free of any
and all Liens, except the security interest created by this
Agreement.

       

      Section
5.09 Goods. No
portion of the Collateral constituting Goods is in the possession of a bailee
that has issued a negotiable or non-negotiable document covering such
Collateral.

       

      Section
5.10 Instruments and
Chattel Paper. Such Grantor has delivered to the Administrative Agent all
Collateral constituting Instruments and Chattel Paper. No Collateral
constituting Chattel Paper or Instruments contains any statement therein to the
effect that such Collateral has been assigned to an identified party other than
the Administrative Agent, and the grant of a security interest in such
Collateral in favor of the Administrative Agent hereunder does not violate the
rights of any other Person as a secured party.

       

      Section
5.11 Truth of
Information; Accounts. All information with respect to the Collateral set
forth in any schedule, certificate or other writing at any time heretofore or
hereafter furnished by such Grantor to the Administrative Agent or any other
Secured Party, and all other written information heretofore or hereafter
furnished by such Grantor to the Administrative Agent or any other Secured Party
is and will be true and correct in all material respects as of the date
furnished. The amount represented by such Grantor to the Administrative Agent
and the Lenders from time to time as owing by each Account Debtor or by all
Account Debtors in respect of the Accounts, Chattel Paper and Payment
Intangibles will at such time be the correct amount actually owing by such
Account Debtor or Account Debtors thereunder. The place where each Grantor keeps
its records concerning the Accounts, Chattel Paper and Payment Intangibles is
15473 East Freeway, Channelview, Texas USA 77530.

       

      Section
5.12 Governmental
Obligors. None of the Account Debtors on such Grantor's Accounts, Chattel
Paper or Payment Intangibles is a Governmental Authority.

       

      Section
5.13 Patents and
Trademarks. Schedule 6 hereto includes all Patents and Patent Licenses
owned by such Grantor in its own name as of the date hereof. Schedule 7 hereto
includes all Trademarks and Trademark Licenses owned by such Grantor in its own
name as of the date hereof To the best of each such Grantor's knowledge, each
Patent and Trademark is valid, subsisting, unexpired, enforceable and has not
been abandoned. Except as set forth in either such Schedule, none of such
Patents and Trademarks is the subject of any licensing or franchise agreement.
No holding, decision or judgment has been rendered by any Governmental Authority
which would limit, cancel or question the validity of any Patent or Trademark.
No action or proceeding is pending (i) seeking to limit, cancel or question the
validity of any Patent or Trademark, or (ii) which, if adversely determined,
would have a material adverse effect on the value of any Patent or
Trademark.

       

      
        
          
          

        

        
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      Section
5.14 Vehicles.
All Vehicles owned by such Grantor are listed on Schedule 8.

       

      ARTICLE
VI

      Covenants

       

      Each
Grantor covenants and agrees with the Administrative Agent and the other Secured
Parties that, from and after the date of this Agreement until the Obligations
shall have been paid in full and the aggregate Commitments shall have
terminated:

       

      Section
6.01 Covenants in
Credit Agreement. In the case of each Guarantor, such Guarantor shall
take, or shall refrain from taking, as the case may be, each action that is
necessary to be taken or not taken, as the case may be, so that no Default or
Event of Default is caused by the failure to take such action or to refrain from
taking such action by such Guarantor or any of its Subsidiaries.

       

      Section
6.02 Maintenance of
Perfected Security Interest; Further Documentation.

       

      (a) Such
Grantor shall maintain the security interest created by this Agreement
as a perfected security interest having at least the priority described in
Section 5.05 and shall defend such security interest against the claims and
demands of all Persons whomsoever except for Permitted Liens.

       

      (b) At any
time and from time to time, upon the request of the Administrative Agent or
any other Secured Party, and at the sole expense of such Grantor, such Grantor
will promptly and duly give, execute, deliver, indorse, file or record any and
all financing statements, continuation statements, amendments, notices
(including, without limitation, notifications to financial institutions and any
other Person), contracts, agreements, assignments, certificates, stock powers or
other instruments, obtain any and all governmental approvals and consents and
take or cause to be taken any and all steps or acts that may be necessary or
advisable or as the Administrative Agent may reasonably request to create,
perfect, establish the priority of, or to preserve the validity, perfection or
priority of, the Liens granted by this Agreement or to enable the Administrative
Agent or any other Secured Party to enforce its rights, remedies, powers and
privileges under this Agreement with respect to such Liens or to otherwise
obtain or preserve the full benefits of this Agreement and the rights, powers
and privileges herein granted.

       

      (c)
Without limiting the obligations of the Grantors under Section 6.02(b): (i)
upon the
request of the Administrative Agent or any other Secured Party, such Grantor
shall take or cause to be taken all actions (other than any actions required to
be taken by the Administrative
Agent or any
Lender) requested by the Administrative Agent to cause the Administrative Agent
to (A)
have "control" (within the meaning of Sections 9-104, 9-105, 9-106, and
9-107 of the UCC) over any Collateral constituting Deposit Accounts, Electronic
Chattel Paper, Investment Property (including the Pledged Securities), or
Letter-of-Credit Rights, including, without limitation, executing and delivering
any agreements, in form and substance satisfactory to the Administrative Agent,
with securities intermediaries, issuers or other Persons in order to establish
"control", and each Grantor shall promptly notify the Administrative Agent and
the other Secured Parties of such Grantor's acquisition of any such Collateral,
and (B) be a "protected purchaser" (as defined in Section 8.303 of the New York
UCC); (ii) with respect to

       

      
        
          
          

        

        
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      Collateral
other than certificated securities and goods covered by a document in the
possession of a Person other than such Grantor or the Administrative Agent, such
Grantor shall obtain written acknowledgment that such Person holds possession
for the Administrative Agent's benefit; and (iii) with respect to any Collateral
constituting Goods that are in the possession of a bailee, such Grantor shall
provide prompt notice to the Administrative Agent and the other Secured Parties
of any such Collateral then in the possession of such bailee, and such Grantor
shall take or cause to be taken all actions (other than any actions required to
be taken by the Administrative Agent or any other Secured Party) necessary or
requested by the Administrative Agent to cause the Administrative Agent to have
a perfected security interest in such Collateral under applicable
law.

       

      (d)This
Section 6.02 and the obligations imposed on each Grantor by this Section
6.02 shall be interpreted as broadly as possible in favor of the Administrative
Agent and the other Secured Parties in order to effectuate the purpose and
intent of this Agreement.

       

      Section
6.03 Maintenance of
Records. Such Grantor will keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its business and activities. For the Administrative Agent's and
the other Secured Parties' further security, the Administrative Agent, for the
ratable benefit of the Secured Parties, shall have a security interest in all of
such Grantor's books and records pertaining to the Collateral, and such Grantor
shall turn over any such books and records to the Administrative Agent or to its
representatives during normal business hours at the request of the
Administrative Agent and shall provide such clerical and other assistance as may
be reasonably requested with regard thereto.

       

      Section
6.04 Right of
Inspection. Such Grantor shall permit any representatives designated by
the Administrative Agent or any Secured Party, upon reasonable prior notice, to
visit and inspect its Properties, to make test verifications of the Accounts,
Chattel Paper and Payment Intangibles (as such terms are defined in the Uniform
Commercial Code), to examine and make extracts from its books and records, to
inspect the Collateral (including, without limitation, the Inventory and
Equipment), undertake appraisals of such Properties and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested. At any time and from
time to time, upon the Administrative Agent's reasonable request and upon
reasonable prior notice and at the expense of the Grantor, such Grantor shall
furnish to the Administrative Agent reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts, Chattel Paper and
Payment Intangibles, and all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Accounts,
Chattel Paper and Payment Intangibles, including, without limitation, all
original orders, invoices and shipping receipts.

       

      Section
6.05 Further
Identification of Collateral. Such Grantor will furnish to the
Administrative Agent and the Lenders from time to time, at such Grantor's sole
cost and expense, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as the
Administrative Agent may reasonably request, all in reasonable
detail.

       

      
        
           

        

        
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      Section
6.06 Changes in
Locations, Name, etc. Such Grantor recognizes that financing statements
pertaining to the Collateral have been or may be filed where such Grantor
maintains any Collateral or is organized. Without limitation of any other
covenant herein, such Grantor will not cause or permit (i) any change to be made
in its name, identity or corporate structure or (ii) any change to (A) the
identity of any warehouseman, common carrier, other third-party transporter,
bailee or any agent or processor in possession or control of any Collateral or
(iii) such Grantor's jurisdiction of organization or (iv) the location of any
Collateral, unless such Grantor shall have first (1) notified the Administrative
Agent of such change at least thirty (30) days prior to the effective date of
such change, and (2) taken all action reasonably requested by the Administrative
Agent or any other Secured Party for the purpose of maintaining the perfection
and priority of the Administrative Agent's security interests under this
Agreement. In any notice furnished pursuant to this Section 6.06, such Grantor
will expressly state in a conspicuous manner that the notice is required by this
Agreement and contains facts that may require additional filings of financing
statements or other notices for the purposes of continuing perfection of the
Administrative Agent's security interest in the Collateral.

       

      Section
6.07 Compliance with
Contractual Obligations. Such Grantor will perform and comply in all
material respects with all its contractual obligations relating to the
Collateral (including, without limitation, with respect to the goods or
services, the sale or lease or rendition of which gave rise or will give rise to
each Account).

       

      Section
6.08 Limitations on
Dispositions of Collateral. The Administrative Agent and the other
Secured Parties do not authorize, and such Grantor agrees not to sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or
contract to do so except to the extent expressly permitted by the Credit
Agreement.

       

      Section
6.09 Pledged
Securities.

       

      (a) If such
Grantor shall become entitled to receive or shall receive any stock certificate
or other instrument (including, without limitation, any certificate or
instrument representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate or
instrument issued in connection with any reorganization), option or rights in
respect of the capital stock or other equity interests of any Issuer, whether in
addition to, in substitution of, as a conversion of, or in exchange for, any
shares (or such other interests) of the Pledged Securities, or otherwise in
respect thereof, such Grantor shall accept the same as the agent of the
Administrative Agent and the other Secured Parties, hold the same in trust for
the Administrative Agent and the other Secured Parties and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power or other equivalent instrument of transfer acceptable to the
Administrative Agent covering such certificate or instrument duly executed in
blank by such Grantor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to the
terms hereof, as additional collateral security for the
Obligations.

       

      (b) Without
the prior written consent of the Administrative Agent, such Grantor
will not (i) unless otherwise permitted hereby, vote to enable, or take any
other action to permit, any Issuer to issue any stock or other equity interests
of any nature or to issue any other

       

      
        
           

        

        
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      securities
or interests convertible into or granting the right to purchase or exchange for
any stock or other equity interests of any nature of any Issuer, (ii) sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, the Pledged Securities or Proceeds thereof (except pursuant to a
transaction expressly permitted by the Credit Agreement), (iii) create, incur or
permit to exist any Lien except for Permitted Liens or option in favor of, or
any claim of any Person with respect to, any of the Pledged Securities or
Proceeds thereof, or any interest therein, except for the security interests
created by this Agreement or (iv) enter into any agreement or undertaking
restricting the right or ability of such Grantor or the Administrative Agent to
sell, assign or transfer any of the Pledged Securities or Proceeds
thereof.

       

      (c) In the
case of each Grantor which is an Issuer, such Issuer agrees that (i) it
will be
bound by the terms of this Agreement relating to the Pledged Securities issued
by it and will comply with such terms insofar as such terms are applicable to
it, (ii) it will notify the Administrative Agent promptly in writing of the
occurrence of any of the events described in Section 6.09(a) with respect to the
Pledged Securities issued by it and (iii) the terms of Section 7.01(c) and
Section 7.05 shall apply to it, mutatis mutandis, with
respect to all actions that may be required of it pursuant to Section 7.01(c) or
Section 7.05 with respect to the Pledged Securities issued by it.

       

      (d) Such
Grantor shall furnish to the Administrative Agent such stock powers and other
equivalent instruments of transfer as may be required by the Administrative
Agent to assure the transferability of and the perfection of the security
interest in the Pledged Securities when and as often as may be reasonably
requested by the Administrative Agent.

       

      (e) The
Pledged Securities will at all times constitute not less than 100% of
the
capital stock or other equity interests of the Issuer thereof owned by any
Grantor. Each Grantor will not permit any Issuer of any of the Pledged
Securities to issue any new shares (or other interests) of any class of capital
stock or other equity interests of such Issuer without the prior written consent
of the Administrative Agent.

       

      Section
6.10 Limitations on
Modifications, Waivers, Extensions of Agreements Giving Rise to Accounts.
Such Grantor will not (i) amend, modify, terminate or waive any provision of any
Chattel Paper, Instrument or any agreement giving rise to an Account or Payment
Intangible in any manner which could reasonably be expected to materially
adversely affect the value of such Chattel Paper, Instrument, Payment Intangible
or Account as Collateral, or (ii) fail to exercise promptly and diligently each
and every material right which it may have under any Chattel Paper, Instrument
and each agreement giving rise to an Account or Payment Intangible (other than
any right of termination). Such Grantor shall deliver to the Administrative
Agent a copy of each material demand, notice or document received by it relating
in any way to any Chattel Paper, Instrument or any agreement giving rise to an
Account or Payment Intangible.

       

      
        
           

        

        
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      Section
6.11 Instruments and
Tangible Chattel Paper. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any Instrument or Tangible
Chattel Paper, such Instrument or Tangible Chattel Paper shall be immediately
delivered to the Administrative Agent, duly endorsed in a manner satisfactory to
the Administrative Agent, to be held as Collateral pursuant to this
Agreement.

       

      Section
6.12 Maintenance of
Equipment. Such Grantor will maintain each item of Equipment in good
operating condition, ordinary wear and tear and immaterial impairments of value
and damage by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose.

       

      Section
6.13 Patents and
Trademarks.

       

      (a) Such
Grantor (either itself or through licensees) will, except with respect
to any
Trademark that such Grantor shall reasonably determine is of negligible economic
value to it, (i) continue to use each Trademark on each and every trademark
class of goods applicable to its current line as reflected in its current
catalogs, brochures and price lists in order to maintain such Trademark in full
force free from any claim of abandonment for non-use, (ii) maintain as in the
past the quality of products and services offered under such Trademark, (iii)
employ such Trademark with the appropriate notice of registration, (iv) not
adopt or use any mark which is confusingly similar or a colorable imitation of
such Trademark unless the Administrative Agent, for the ratable benefit of the
Secured Parties, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
Trademark may become invalidated.

       

      (b) Such
Grantor will not, except with respect to any Patent that such Grantor
shall
reasonably determine is of negligible economic value to it, do any act, or omit
to do any act, whereby any Patent may become abandoned or
dedicated.

       

      (c) Such
Grantor will notify the Administrative Agent and the other Secured Parties
immediately if it knows, or has reason to know, that any application or
registration relating to any Patent or Trademark may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding such Grantor's ownership of any Patent or
Trademark or its right to register the same or to keep and maintain the
same.

       

      (d) Whenever
a Grantor, either by itself or through any agent, employee, licensee
or designee, shall file an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof, such
Grantor shall report such filing to the Administrative Agent and the other
Secured Parties within five (5) Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Administrative Agent,
such Grantor shall execute and deliver any and all agreements, instruments,
documents, and papers as the Administrative Agent may request to evidence the
Administrative Agent's and the other Secured Parties' security interest in any
Patent or Trademark and the goodwill and General Intangibles of such Grantor
relating thereto or represented thereby, and such Grantor hereby

       

      
        
           

        

        
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      constitutes
the Administrative Agent its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest is irrevocable
until the Obligations are paid in full and the Commitments are
terminated.

       

      (e) Such
Grantor will take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, or any similar office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application (and to obtain the
relevant registration) and to maintain each registration of the Patents and
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.

       

      (f) In the
event that any Patent or Trademark included in the Collateral is infringed,
misappropriated or diluted by a third party, such Grantor shall promptly notify
the Administrative Agent after it learns thereof and shall, unless such Grantor
shall reasonably determine that such Patent or Trademark is of negligible
economic value to such Grantor which determination such Grantor shall promptly
report to the Administrative Agent and the other Secured Parties, promptly sue
for infringement, misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as such Grantor shall
reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.

       

      Section
6.14 Commercial Tort
Claims. If such Grantor shall at any time hold or acquire a Commercial
Tort Claim that satisfies the requirements of the following sentence, such
Grantor shall, within thirty (30) days after such Commercial Tort Claim
satisfies such requirements, notify the Administrative Agent in a writing signed
by such Grantor containing a brief description thereof, and granting to the
Administrative Agent in such writing (for the benefit of the Secured Parties) a
security interest therein and in the Proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
the Administrative Agent and the other Secured Parties. The provisions of the
preceding sentence shall apply only to a Commercial Tort Claim that satisfies
the following requirements: (i) the monetary value claimed by or payable to the
relevant Grantor in connection with such Commercial Tort Claim shall exceed
$10,000,000, and either (ii) (A) such Grantor shall have filed a law suit or
counterclaim or otherwise commenced legal proceedings (including, without
limitation, arbitration proceedings) against the Person against whom such
Commercial Tort Claim is made, or (B)
such Grantor and the Person against whom such Commercial Tort Claim is
asserted shall have entered into a settlement agreement with respect to such
Commercial Tort Claim. In addition, to the extent that the existence of any
Commercial Tort Claim held or acquired by any Grantor is disclosed by such
Grantor in any public filing with the Securities Exchange Commission or any
successor thereto or analogous Governmental Authority, or to the extent that the
existence of any such Commercial Tort Claim is disclosed in any press release
issued by any Grantor, then, upon the request of the Administrative Agent, the
relevant Grantor shall, within thirty (30) days after such request is made,
transmit to the Administrative Agent a writing signed by such Grantor containing
a brief description of such Commercial Tort Claim and granting to the
Administrative Agent in such writing (for the benefit of the Secured Parties) a
security interest therein and in the Proceeds thereof, all upon the terms of
this Agreement, with such

       

      
        
           

        

        
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      writing
to be in form and substance satisfactory to the Administrative Agent and the
other Secured Parties.

       

      Section
6.15 Vehicles.
Such Grantor will maintain each Vehicle in good operating condition, ordinary
wear and tear and immaterial impairments of value and damage by the elements
excepted, and will provide all maintenance, service and repairs necessary for
such purpose. No Vehicle shall be removed from the state which has issued the
certificate of title or ownership therefor for a period in excess of sixty (60)
days.

       

      ARTICLE
VII

      Remedial
Provisions

       

      Section 7.01 Pledged
Securities.

       

      (a) Unless an
Event of Default shall have occurred and be continuing and the Administrative
Agent shall have given notice to the relevant Grantor of the Administrative
Agent's intent to exercise its corresponding rights pursuant to Section 7.01(b),
each Grantor shall be permitted to receive all cash dividends paid in respect of
the Pledged Securities paid in the normal course of business of the relevant
Issuer, to the extent permitted in the Credit Agreement, and to exercise all
voting and corporate rights with respect to the Pledged Securities.

       

      (b) If an
Event of Default shall occur and be continuing, then at any time in the
Administrative Agent's discretion without notice, (i) the Administrative Agent
shall have the right to receive any and all cash dividends, payments or other
Proceeds paid in respect of the Pledged Securities and make application thereof
to the Obligations in accordance with Section 3.03(b) of the Credit Agreement,
and (ii) any or all of the Pledged Securities shall be registered in the name of
the Administrative Agent or its nominee, and the Administrative Agent or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Pledged Securities at any meeting of shareholders (or other
equivalent body) of the relevant Issuer or Issuers or otherwise and (y) any and
all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Pledged Securities as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the organizational structure of any Issuer, or upon the exercise by any Grantor
or the Administrative Agent of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.

       

      (c) Each
Grantor hereby authorizes and instructs each Issuer of any Pledged Securities
pledged by such Grantor hereunder (and each Issuer party hereto hereby agrees)
to (i) comply with any instniction received by it from the Administrative Agent
in writing that (x)

       

      
        
           

        

        
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      states
that an Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Administrative Agent.

       

      (d) After
the occurrence and during the continuation of an Event of Default, if
the
Issuer of any Pledged Securities is the subject of bankruptcy, insolvency,
receivership, custodianship or other proceedings under the supervision of any
Governmental Authority, then all rights of the Grantor in respect thereof to
exercise the voting and other consensual rights which such Grantor would
otherwise be entitled to exercise with respect to the Pledged Securities issued
by such Issuer shall cease, and all such rights shall thereupon become vested in
the Administrative Agent who shall thereupon have the sole right to exercise
such voting and other consensual rights, but the Administrative Agent shall have
no duty to exercise any such voting or other consensual rights and shall not be
responsible for any failure to do so or delay in so doing.

       

      Section
7.02 Collections on
Accounts, Etc. The Administrative Agent hereby authorizes
each Grantor to collect upon the Accounts, Instruments, Chattel Paper and
Payment Intangibles subject to the Administrative Agent's direction and control,
and the Administrative Agent may curtail or terminate said authority at any time
after the occurrence and during the continuance of an Event of Default. Upon the
request of the Administrative Agent at any time after the occurrence and during
the continuance of an Event of Default, each Grantor shall notify the Account
Debtors that the applicable Accounts, Chattel Paper and Payment Intangibles have
been assigned to the Administrative Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the
Administrative Agent. The Administrative Agent may in its own name or in the
name of others communicate with the Account Debtors to verify with them to its
satisfaction the existence, amount and terms of any Accounts, Chattel Paper or
Payment Intangibles.

       

      Section
7.03 Proceeds.
If required by the Administrative Agent at any time after the occurrence and
during the continuance of an Event of Default, any payments of Accounts,
Instruments, Chattel Paper and Payment Intangibles, when collected or received
by each Grantor, and any other cash or non-cash Proceeds received by each
Grantor upon the sale or other disposition of any Collateral, shall be forthwith
(and, in any event, within two (2) Business Days) deposited by such Grantor in
the exact form received, duly indorsed by such Grantor to the Administrative
Agent if required, in a special collateral account maintained by the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
ratable benefit of the Secured Parties only, as hereinafter provided, and, until
so turned over, shall be held by such Grantor in trust for the Administrative
Agent for the ratable benefit of the Secured Parties, segregated from other
funds of any such Grantor. Each deposit of any such Proceeds shall be
accompanied by a report identifying in reasonable detail the nature and source
of the payments included in the deposit. All Proceeds (including, without
limitation, Proceeds constituting collections of Accounts, Chattel Paper,
Instruments) while held by the Administrative Agent (or by any Grantor in trust
for the Administrative Agent for the ratable benefit of the Secured Parties)
shall continue to be collateral security for all of the Obligations and shall
not constitute payment thereof until applied as hereinafter provided. At such
intervals as may be agreed upon

       

      
        
           

        

        
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      by each
Grantor and the Administrative Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent shall apply all or any part of the funds on deposit in
said special collateral account on account of the Obligations in such order as
the Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Administrative Agent to each Grantor or to whomsoever may be lawfully entitled
to receive the same.

       

      Section 7.04 New York UCC and Other
Remedies.

       

      (a) If an
Event of Default shall occur and be
continuing, the Administrative Agent, on
behalf of the Secured Parties, may exercise in its discretion, in addition to
all other rights, remedies, powers and privileges granted to them in this
Agreement, the other Loan Documents, and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights, remedies,
powers and privileges of a secured party under the New York UCC (whether the New
York UCC is in effect in the jurisdiction where such rights, remedies, powers or
privileges are asserted) or any other applicable law or otherwise available at
law or equity. Without limiting the generality of the foregoing, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any other
Secured Party or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Administrative Agent
or any other Secured Party shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in any Grantor, which right or equity is hereby waived
and released. If an Event of Default shall occur and be continuing, each Grantor
further agrees, at the Administrative Agent's request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor's premises
or elsewhere. Any such sale or transfer by the Administrative Agent either to
itself or to any other Person shall be absolutely free from any claim of right
by Grantor, including any equity or right of redemption, stay or appraisal which
Grantor has or may have under any rule of law, regulation or statute now
existing or hereafter adopted. Upon any such sale or transfer, the
Administrative Agent shall have the right to deliver, assign and transfer to the
purchaser or transferee thereof the Collateral so sold or transferred. The
Administrative Agent shall apply the net proceeds of any action taken by it
pursuant to this Section 7.04, after deducting all reasonable costs and expenses
of every kind incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Administrative Agent and the other Secured Parties hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in accordance with Section
3.03(b) of the Credit Agreement, and only after such application and after the
payment

       

      
        
           

        

        
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      by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9.615 of the New York UCC, need the
Administrative Agent account for the surplus, if any, to any Grantor. To the
extent permitted by applicable law, each Grantor waives all claims, damages and
demands it may acquire against the Administrative Agent or any other Secured
Party arising out of the exercise by them of any rights hereunder. If any notice
of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least ten (10)
days before such sale or other disposition.

       

      (b) In
the event that the Administrative Agent elects not to sell the Collateral,
the
Administrative Agent retains its rights to dispose of or utilize the Collateral
or any part or parts thereof in any manner authorized or permitted by law or in
equity, and to apply the proceeds of the same towards payment of the
Obligations. Each and every method of disposition of the Collateral described in
this Agreement shall constitute disposition in a commercially reasonable manner.
The Administrative Agent may appoint any Person as agent to perform any act or
acts necessary or incident to any sale or transfer of the
Collateral.

       

      Section
7.05 Private
Sales of Pledged Securities. Each Grantor recognizes that the
Administrative Agent may be unable to effect a public sale of any or all the
Pledged Securities, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Each Grantor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Administrative Agent shall be under no obligation to
delay a sale of any of the Pledged Securities for the period of time necessary
to permit the Issuer thereof to register such securities for public sale under
the Securities Act, or under applicable state securities laws, even if such
Issuer would agree to do so. Each Grantor agrees to use its best efforts to do
or cause to be done all such other acts as may reasonably be necessary to make
such sale or sales of all or any portion of the Pledged Securities pursuant to
this Section 7.05 valid and binding and in compliance with any and all other
applicable Governmental Requirements. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 7.05 will cause irreparable
injury to the Administrative Agent and the other Secured Parties, that the
Administrative Agent and the other Secured Parties have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 7.05 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such
covenants.

       

      
        
           

        

        
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      Section
7.06 Waiver;
Deficiency. Each Grantor waives and agrees not to assert any rights or
privileges which it may acquire under the New York UCC or any other applicable
law. Each Grantor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any other Secured Party to collect such
deficiency.

       

      Section
7.07 Non-Judicial
Enforcement. The Administrative Agent may enforce its rights hereunder
without prior judicial process or judicial hearing, and to the extent permitted
by law, each Grantor expressly waives any and all legal rights which might
otherwise require the Administrative Agent to enforce its rights by judicial
process.

       

      ARTICLE
VIII

      The
Administrative Agent

       

      Section 8.01 Administrative Agent's
Appointment as Attorney-in-Fact, Etc.

       

      (a) Each
Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all reasonably appropriate action and to execute any and all documents
and instruments which may be reasonably necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:

       

      (i) unless
being disputed in good faith, pay or discharge taxes and Liens
levied or placed on or threatened against the Collateral, effect any repairs or
any insurance called for by the terms of this Agreement and pay all or any part
of the premiums therefor and the costs thereof;

       

      (ii) execute,
in connection with any sale provided for in Section 7.04 or
Section 7.05, any endorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and

       

      (iii) (A) direct any party
liable for any payment under any of the Collateral
to make payment of any and all moneys due or to become due thereunder directly
to the Administrative Agent or as the Administrative Agent shall direct; (B)
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible, Chattle Paper or Payment Intangible or
with respect to any other Collateral, and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Administrative Agent for the purpose of collecting any all
such moneys due under any Account, Instrument or General Intangible or with
respect to any other Collateral whenever payable; (C) ask or demand for,
collect, and receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral;

       

      
        
           

        

        
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      (D) sign
and indorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (E) receive,
change the address for delivery, open and dispose of mail addressed to any
Grantor, and to execute, assign and indorse negotiable and other instruments for
the payment of money, documents of title or other evidences of payment, shipment
or storage for any form of Collateral on behalf of and in the name of any
Grantor; (F) commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the Collateral or
any portion thereof and to enforce any other right in respect of any Collateral;
(G) defend any suit, action or proceeding brought against such Grantor with
respect to any Collateral; (H) settle, compromise or adjust any such suit,
action or proceeding and, in connection therewith, give such discharges or
releases as the Administrative Agent may deem appropriate; (I) assign any Patent
or Trademark (along with the goodwill of the business to which any such
Trademark pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Administrative Agent shall in its sole
discretion determine; and (J) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent's option and such
Grantor's expense, at any time, or from time to time, all acts and things which
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Administrative Agent's and the other Secured Parties'
security interests therein and to effect the intent of this Agreement, all as
fully and effectively as such Grantor might do.

       

      Anything
in this Section 8.01(a) to the contrary notwithstanding, the Administrative
Agent agrees that it will not exercise any rights under the power of attorney
provided for in this Section 8.01(a) unless an Event of Default shall have
occurred and be continuing.

       

      (b) If any
Grantor fails to perform or comply with any of its agreements contained
herein within the applicable grace periods, the Administrative Agent, at its
option, but without any obligation so to do, may perform or comply, or otherwise
cause performance or compliance, with such agreement.

       

      (c) The
expenses of the Administrative Agent incurred in connection with actions
undertaken as provided in this Section 8.01, together with interest thereon at
the post- default rate from the date of payment by the Administrative Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.

       

      (d) Each
Grantor hereby ratifies all that said attorneys shall lawfully do or
cause to
be done by virtue and in compliance hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.

       

      
        
           

        

        
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      Section
8.02 Duty of
Administrative Agent. The Administrative Agent's sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9.207 of the New York UCC or otherwise, shall be to
deal with it in the same manner as the Administrative Agent deals with similar
property for its own account and shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which comparable
secured parties accord comparable collateral. Neither the Administrative Agent,
any other Secured Party nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Grantor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Administrative Agent and the other Secured Parties hereunder are solely to
protect the Administrative Agent's and the other Secured Parties' interests in
the Collateral and shall not impose any duty upon the Administrative Agent or
any other Secured Party to exercise any such powers. The Administrative Agent
and the other Secured Parties shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct. To the fullest extent permitted by
applicable law, the Administrative Agent shall be under no duty whatsoever to
make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps necessary to preserve any rights against
any Grantor or other Person or ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not it has or is deemed to have knowledge of such
matters. Each Grantor, to the extent permitted by applicable law, waives any
right of marshaling in respect of any and all Collateral, and waives any right
to require the Administrative Agent or any other Secured Party to proceed
against any Grantor or other Person, exhaust any Collateral or enforce any other
remedy which the Administrative Agent or any other Secured Party now has or may
hereafter have against each Grantor, any Grantor or other Person.

       

      Section
8.03 Execution of
Financing Statements. Pursuant to the New York UCC and any other
applicable law, each Grantor authorizes the Administrative Agent, its counsel or
its representative, at any time and from time to time, to file or record
financing statements, continuation statements, amendments thereto and other
filing or recording documents or instruments with respect to the Collateral
without the signature of such Grantor in such form and in such offices as the
Administrative Agent reasonably determines appropriate to perfect the security
interests of the Administrative Agent under this Agreement. Additionally, each
Grantor authorizes the Administrative Agent, its counsel or its representative,
at any time and from time to time, to file or record such financing statements
that describe the collateral covered thereby as "all assets of the Grantor",
"all personal property of the Grantor" or words of similar effect. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.

       

      
        
           

        

        
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      Section
8.04 Authority of
Administrative Agent. Each Grantor acknowledges that the rights and
responsibilities of the Administrative Agent under this Agreement with respect
to any action taken by the Administrative Agent or the exercise or non-exercise
by the Administrative Agent of any option, voting right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Administrative Agent and the other Secured
Parties, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Grantors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.

       

      ARTICLE
IX

      Subordination
of Indebtedness

       

      Section
9.01 Subordination of
All Guarantor Claims. As used herein, the term "Guarantor Claims"
shall mean all debts and obligations of the Borrower or any other Grantor to any
Grantor, whether such debts and obligations now exist or are hereafter incurred
or arise, or whether the obligation of the debtor thereon be direct, contingent,
primary, secondary, several, joint and several, or otherwise, and irrespective
of whether such debts or obligations be evidenced by note, contract, open
account, or otherwise, and irrespective of the Person or Persons in whose favor
such debts or obligations may, at their inception, have been, or may hereafter
be created, or the manner in which they have been or may hereafter be acquired
by. After and during the continuation of an Event of Default, no Grantor shall
receive or collect, directly or indirectly, from any obligor in respect thereof
any amount upon the Guarantor Claims until the Obligations shall have been paid
in full and the Commitments terminated.

       

      Section
9.02 Claims in
Bankruptcy. In the event of receivership, bankruptcy, reorganization,
arrangement, debtor's relief or other insolvency proceedings involving any
Grantor, the Administrative Agent on behalf of the Secured Parties shall have
the right to prove their claim in any proceeding, so as to establish their
rights hereunder and receive directly from the receiver, trustee or other court
custodian, dividends and payments which would otherwise be payable upon
Guarantor Claims. Each Grantor hereby assigns such dividends and payments to the
Administrative Agent for the benefit of the Secured Parties for application
against the Obligations as provided under Section 3.03(h) of the Credit
Agreement. Should any Agent or Secured Party receive, for application upon the
Obligations, any such dividend or payment which is otherwise payable to any
Grantor, and which, as between such Grantor, shall constitute a credit upon the
Guarantor Claims, then upon payment in full of the Obligations, the intended
recipient shall become subrogated to the rights of the Administrative Agent and
the other Secured Parties to the extent that such payments to the Administrative
Agent and the other Secured Parties on the Guarantor Claims have contributed
toward the liquidation of the Obligations, and such subrogation shall be with
respect to that proportion of the Obligations which would have been unpaid if
the Administrative Agent and the other Secured Parties had not received
dividends or payments upon the Guarantor Claims.

       

      Section
9.03 Payments Held in
Trust. In the event that notwithstanding Section 9.01 and Section 9.02,
any Grantor should receive any funds, payments, claims or distributions
which

       

      
        
           

        

        
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      is prohibited by
such Sections, then it agrees: (a) to hold in trust for the Administrative Agent
and the other Secured Parties an amount equal to the amount of all funds,
payments, claims or distributions so received, and (b) that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to the Administrative Agent, for the
benefit of the Secured Parties; and each Grantor covenants promptly to pay the
same to the Administrative Agent. The Administrative Agent, on behalf of itself
and the Secured Parties, hereby acknowledges and agrees that the trust created
by this Section 9.03 is not a fiduciary trust, and thus a breach under this
Section 9.03 is a breach under this Agreement and the other Loan Documents, but
it is not a breach of any fiduciary duty.

       

      Section
9.04 Liens
Subordinate. Each Grantor agrees that, until the Obligations are paid in
full and the aggregate Commitments terminated, any Liens securing payment of the
Guarantor Claims shall be and remain inferior and subordinate to any Liens
securing payment of the Obligations, regardless of whether such encumbrances in
favor of such Grantor, the Administrative Agent or any other Secured Party
presently exist or are hereafter created or attach. Without the prior written
consent of the Administrative Agent, no Grantor, during the period in which any
of the Obligations are outstanding or the aggregate Commitments are in effect,
shall (a) exercise or enforce any creditor's right it may have against any
debtor in respect of the Guarantor Claims, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any Lien held by it.

       

      Section
9.05 Notation of
Records. Upon the request of the Administrative Agent, all promissory
notes and all accounts receivable ledgers or other evidence of the Guarantor
Claims accepted by or held by any Grantor shall contain a specific written
notice thereon that the indebtedness evidenced thereby is subordinated under the
terms of this Agreement.

       

      ARTICLE
X 

      Miscellaneous

       

      Section
10.01 Waiver.
No failure on the part of the Administrative Agent or any other Secured Party to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, remedy, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges provided herein are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law. The exercise by the Administrative Agent of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies,
including, without limitation, any rights of set-off.

       

      Section
10.02 Notices.
All notices and other communications provided for herein shall be given in the
manner and subject to the terms of Section 12.01 of the Credit
Agreement; provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule 1.

       

      
        
           

        

        
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      Section
10.03 Payment of
Expenses, Indemnities, Etc.

       

      (a) Each
Grantor agrees to pay or promptly reimburse the Administrative Agent and
each other Secured Party for all advances, charges, costs and expenses
(including, without limitation, all costs and expenses of holding, preparing for
sale and selling, collecting or otherwise realizing upon the Collateral and all
attorneys' fees, legal expenses and court costs) incurred by any Secured Party
in connection with the exercise of its respective rights and remedies hereunder,
including, without limitation, any advances, charges, costs and expenses that
may be incurred in any effort to enforce any of the provisions of this Agreement
or any obligation of any Grantor in respect of the Collateral or in connection
with (i) the preservation of the Lien of, or the rights of the Administrative
Agent or any other Secured Party under this Agreement, (ii) any actual or
attempted sale, lease, disposition, exchange, collection, compromise, settlement
or other realization in respect of, or care of, the Collateral, including all
such costs and expenses incurred in any bankruptcy, reorganization, workout or
other similar proceeding, or (iii) collecting against such Grantor under the
guarantee contained in Article II or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such Grantor
is a party.

       

      (b) Each
Grantor agrees to pay, and to save the Administrative Agent and the other
Secured Parties harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including, without limitation, court costs and
attorneys' fees, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement) incurred
because of, incident to, or with respect to, the Collateral (including, without
limitation, any exercise of rights or remedies in connection therewith) or the
execution, delivery, enforcement, performance and administration of this
Agreement, to the extent the Borrower would be required to do so pursuant to
Section 12.03 of the Credit Agreement. All amounts for which any Grantor is
liable pursuant to this Section 10.03 shall be due and payable by such Grantor
to the Secured Parties upon demand.

       

      Section
10.04 Amendments in
Writing. None of the terms or provisions of this Agreement may be waived,
amended, supplemented or otherwise modified except in accordance with Sections
12.02 and 12.03 of the Credit Agreement.

       

      Section
10.05 Successors and
Assigns. This Agreement shall be binding upon the successors and assigns
of each Grantor and shall inure to the benefit of the Administrative Agent and
the other Secured Parties and their successors and assigns; provided that except
as set forth in the Credit Agreement, no Grantor may assign, transfer or
delegate any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and the Lenders.

       

      
        
           

        

        
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      Section
10.06 Invalidity. In the
event that any one or more of the provisions contained in this Agreement or in
any of the Loan Documents to which a Grantor is a party shall, for any reason,
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or such other Loan Document.

       

      Section
10.07 Counterparts. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such counterpart.

       

      Section
10.08 Survival.
The obligations of the parties under Section 10.03 shall survive the repayment
of the Loans and the termination of the Credit Agreement and aggregate
Commitments. To the extent that any payments on the Obligations or proceeds of
any Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent's and the other Secured Parties' Liens, security
interests, rights, powers and remedies under this Agreement and each Security
Instrument shall continue in full force and effect. In such event, each Security
Instrument shall be automatically reinstated and each Grantor shall take such
action as may be reasonably requested by the Administrative Agent and the other
Secured Parties to effect such reinstatement.

       

      Section
10.09 Captions.
Captions and section headings appearing herein are included solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement.

       

      Section
10.10 No Oral
Agreements. The Loan Documents embody the entire agreement and
understanding between the parties and supersede all other agreements and
understandings between such parties relating to the subject matter hereof and
thereof. The Loan Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.

       

      Section
10.11 Governing Law;
Submission to Jurisdiction.

       

      (a) This
Agreement shall be governed by, and construed in accordance with, the laws
of the
state of New York.

       

      (b) Any legal
action or proceeding with respect to this Agreement or any Loan Document
shall be brought in the courts of the State of New York or of the United States
of America located in the Borough of Manhattan, New York, and, by execution and
delivery of this Agreement, each party hereby accepts for itself and (to the
extent permitted by law) in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each party hereby
irrevocably waives any objection, including, without limitation, any objection
to the laying of venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or proceeding in
such respective jurisdictions. This

       

      
        
           

        

        
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      submission
to jurisdiction is non-exclusive and does not preclude a party from obtaining
jurisdiction over another party in any court otherwise having
jurisdiction.

       

      (c) Each
party hereby irrevocably consents to the service of process of any of the
aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such Person at the address
specified on its signature page of this Agreement or the Credit Agreement, as
applicable, such service to become effective thirty (30) days after such
mailing. Nothing herein shall affect the right of the Administrative Agent or
any Lender or any holder of a Note or Grantor to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against such Grantor in any other jurisdiction.

       

      (d) Each
party hereby (i) irrevocably and unconditionally waives, to the fullest extent
permitted
by law, trial by jury in any legal action or proceeding relating to this
Agreement or any other Loan Document and for any counterclaim therein; (ii)
irrevocably waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any such litigation any special, exemplary,
punitive or consequential damages, or damages other than, or in addition to,
actual damages; (iii) certifies that no party hereto nor any representative or
agent of counsel for any party hereto has represented, expressly or otherwise,
or implied that such party would not, in the event of litigation, seek to
enforce the foregoing waivers; and (iv) acknowledges that it has been induced to
enter into this Agreement, the Loan Documents and the transactions contemplated
hereby and thereby by, among other things, the mutual waivers and certifications
contained in this Section 10.11.

       

      Section
10.12 Acknowledgments. Each
Grantor hereby acknowledges that:

       

      (a) it has
been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents to which it is a party;

       

      (b) neither
the Administrative Agent nor any other Secured Party has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Grantors, on the one hand, and the Administrative Agent and the other
Secured Parties, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor;

       

      (c) no joint
venture is created hereby or by the other Loan Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Secured
Parties or among the Grantors and the Lenders;

       

      (d) Each of
the parties hereto specifically agrees that it has a duty to read this
Agreement
and the Security Instruments and agrees that it is charged with notice and
knowledge of the terms of this Agreement and the Security Instruments; that it
has in fact read this Agreement and is fully informed and has full notice and
knowledge of the terms, conditions and effects of this Agreement; that it has
been represented by independent legal counsel of its choice throughout the
negotiations preceding its execution of this Agreement and the Security
Instruments; and has received the advice of its attorney in entering into this
Agreement and the Security Instruments; and that it recognizes that certain of
the terms of this Agreement and the Security Instruments result in one party
assuming the liability inherent in some aspects of the

       

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

       

       

      transaction
and relieving the other party of its responsibility for such liability. Each
party hereto agrees and covenants that it will not contest the validity or
enforceability of any exculpatory provision of this Agreement and the Security
Instruments on the basis that the party had no notice or knowledge of such
provision or that the provision is not "conspicuous"; and

       

      (e) Each
Grantor warrants and agrees that each of the waivers and consents set forth
in this Agreement are made voluntarily and unconditionally after consultation
with outside legal counsel and with full knowledge of their significance and
consequences, with the understanding that events giving rise to any defense or
right waived may diminish, destroy or otherwise adversely affect rights which
such Grantor otherwise may have against the Borrower, any other Grantor, the
Secured Parties or any other Person or against any collateral. If,
notwithstanding the intent of the parties that the terms of this Agreement shall
control in any and all circumstances, any such waivers or consents are
determined to be unenforceable under applicable law, such waivers and consents
shall be effective to the maximum extent permitted by law.

       

      Section
10.13 Additional
Grantors. Each Subsidiary of the Borrower that is required to become a
party to this Agreement pursuant to Section 6.02 of the Credit Agreement and is
not a signatory hereto shall become a Grantor for all purposes of this Agreement
upon execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex I hereto.

       

      Section
10.14 Set-Off.
Each Grantor agrees that, in addition to (and without limitation of) any right
of set-off, bankers' lien or counterclaim a Secured Party may otherwise have,
each Secured Party shall have the right and he entitled (after consultation with
the Administrative Agent), at its option, to offset (i) balances held by it or
by any of its Affiliates for account of any Grantor or any Subsidiary at any of
its offices, in Dollars or in any other currency, and (ii) amounts due and
payable to such Lender (or any Affiliate of such Lender) against any principal
of or interest on any of such Secured Party's Loans, or any other amount due and
payable to such Secured Party hereunder, which is not paid when due (regardless
of whether such balances are then due to such Person), in which case it shall
promptly notify the Borrower and the Administrative Agent thereof, provided that
such Secured Party's failure to give such notice shall not affect the validity
thereof.

       

      Section
10.15 Releases.

       

      (a) Release Upon Payment in
Full. The grant of a security interest hereunder and all
of rights, powers and remedies in connection herewith shall remain in full force
and effect until the Administrative Agent has (i) retransferred and delivered
all Collateral in its possession to the Grantors, and (ii) executed a written
release or termination statement and reassigned to the Grantors without recourse
or warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations, the termination of the Credit Agreement and
the aggregate Commitments and the compliance by the Grantors with all covenants
and agreements hereof, the Administrative Agent, at the written request and
expense of the Borrower, will promptly release, reassign and transfer the
Collateral to the Grantors and declare this Agreement to be of no further force
or effect.

       

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

       

      (b)  Further Assurances.
If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall promptly execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral and the capital stock of such Grantor. At the request
and sole expense of the Borrower, a Grantor shall be released from its
obligations hereunder in the event that all the capital stock of such Grantor
shall be sold, transferred or otherwise disposed of in a transaction permitted
by the Credit Agreement; provided that the Borrower shall have delivered to the
Administrative Agent, at least ten (10) Business Days prior to the date of the
proposed release, a written request for release identifying the relevant Grantor
and the terms of the sale or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a
certification by the Borrower stating that such transaction is in compliance
with the Credit Agreement and the other Loan Documents.

       

      (c)  Retention in
Satisfaction. Except as may be expressly applicable pursuant to
Section 9.620 of the New York UCC, no action taken or omission to act by the
Administrative Agent or the other Secured Parties hereunder, including, without
limitation, any exercise of voting or consensual rights or any other action
taken or inaction, shall be deemed to constitute a retention of the Collateral
in satisfaction of the Obligations or otherwise to be in full satisfaction of
the Obligations, and the Obligations shall remain in full force and effect,
until the Administrative Agent and the other Secured Parties shall have applied
payments (including, without limitation, collections from Collateral) towards
the Obligations in the full amount then outstanding or until such subsequent
time as is provided in Section 10.15(a).

       

      Section
10.16 Reinstatement. The
obligations of each Grantor under this Agreement (including, without limitation,
with respect to the guarantee contained in Article II and the provision of
collateral herein) shall continue to be effective, or be reinstated, as the case
may be, if at any time payment, or any part thereof, of any of the Obligations
is rescinded or must otherwise be restored or returned by the Administrative
Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any Grantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any Grantorr or any substantial
part of its property, or otherwise, all as though such payments had not been
made.

       

      Section
10.17 Acceptance. Each
Grantor hereby expressly waives notice of acceptance of this Agreement,
acceptance on the part of the Administrative Agent and the other Secured Parties
being conclusively presumed by their request for this Agreement and delivery of
the same to the Administrative Agent.

       

      Section
10.18 Conflict.
To the extent that there is any representation, warranty or covenant contained
herein which is also set forth in the Credit Agreement and the terms of such
representations, warranties or covenants are in direct conflict with each other,
then the representation, warranty or covenant set forth in the Credit Agreement
shall control.

       

      
        
           

        

        
          31

          
            

          

        

        
           

        

      

       

       

      
        

        
          	
                  BORROWER
      AND GUARANTOR:

                	
                  DEEP
      DOWN, INC. (NEVADA)

                
	 
      	 
      
	 
      	
                  By:
      /s/ Ronald E. Smith

                
	 
      	
                  Name:
      Ronald E. Smith

                
	 
      	
                  Title:
      CEO

                
	 
      	 
      
	 
      	 
      
	
                  GUARANTORS:

                	
                  DEEP
      DOWN INC. (DELAWARE)

                
	 
      	 
      
	 
      	
                  By:
      /s/ Ronald E. Smith

                
	 
      	
                  Name:
      Ronald E. Smith

                
	 
      	
                  Title:
      CEO

                
	 
      	 
      
	 
      	
                  ELECTROWAVE
      USE, INC.

                
	 
      	 
      
	 
      	
                  By:
      /s/ Ronald E. Smith

                
	 
      	
                  Name:
      Ronald E. Smith

                
	 
      	
                  Title:
      CEO

                
	 
      	 
      
	 
      	 
      
	 
      	
                  ADMINISTRATIVE
      AGENT:

                
	 
      	 
      
	 
      	
                  PROSPECT
      CAPITAL CORPORATION

                
	 
      	 
      
	 
      	
                  By:
      /s/ signature

                
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

        

        
32

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