Document:

Exhibit
4.3

 

HERITAGE
COMMERCE CORP

 

TO

 

 

Trustee

 

INDENTURE

 

Dated
as of                           

 

[SUBORDINATED]*
DEBT SECURITIES(1)

 

(1) 
This form of Indenture includes provisions for an Indenture relating to the
issuance of Senior Debt Securities and provisions for an Indenture relating to
the issuance of Subordinated Debt Securities. 
Material within brackets marked with an asterisk (*) will be included
only if the Indenture relates to the issuance of Subordinated Debt
Securities.  Material within brackets
marked with a dagger (†) will be included only if the Indenture relates to the
issuance of Senior Debt Securities.

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  PARTIES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  RECITALS OF THE COMPANY

  	
  1

  
	
   

  	
   

  
	
  ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 101.

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  “Act”

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  “Affiliate; control”

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  “Authenticating Agent”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Board of Directors”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Board Resolution”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Business Day”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Commission”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Company”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Company Request; Company Order”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Corporate Trust Office”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “corporation”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Covenant Defeasance”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Defaulted Interest”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Defeasance”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Depositary”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Event of Default”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Exchange Act”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Expiration Date”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Global Security”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Holder”

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  “Indenture”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “interest”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Interest Payment Date”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Investment Company Act”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Maturity”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Notice of Default”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Officers’ Certificate”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Opinion of Counsel”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Original Issue Discount Security”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Outstanding”

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  “Paying Agent”

  	
  4

  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
  “Person”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Place of Payment”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Predecessor Security”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Redemption Date”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Redemption Price”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Regular Record Date”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Securities”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Securities Act”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Security Register;
  Security Registrar”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  [“Senior Indebtedness”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Special Record Date”

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  “Stated Maturity”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  [“Subordination
  Provisions”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  “Subsidiary”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  “Trust Indenture Act”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  “Trustee”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  “U.S. Government
  Obligation”

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  “Vice President”

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 102.

  	
  Compliance Certificates
  and Opinions

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 103.

  	
  Form of Documents
  Delivered to Trustee

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 104.

  	
  Acts of Holders; Record
  Dates

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 105.

  	
  Notices, Etc., to Trustee
  and Company

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 106.

  	
  Notice to Holders; Waiver

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 107.

  	
  Conflict with Trust
  Indenture Act

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 108.

  	
  Effect of Headings and
  Table of Contents

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 109.

  	
  Successors and Assigns

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 110.

  	
  Separability Clause

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 111.

  	
  Benefits of Indenture

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 112.

  	
  Governing Law

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 113.

  	
  Legal Holidays

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  TWO - SECURITY FORMS

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 201.

  	
  Forms Generally

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 202.

  	
  Form of Face of
  Security

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 203.

  	
  Form of Reverse of
  Security

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 204.

  	
  Form of Legend for
  Global Securities

  	
  13

  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 205.

  	
  Form of Trustee’s Certificate of Authentication

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE THREE - THE SECURITIES

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 301.

  	
  Amount Unlimited; Issuable in Series

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 302.

  	
  Denominations

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 303.

  	
  Execution, Authentication, Delivery and Dating

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 304.

  	
  Temporary Securities

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 305.

  	
  Registration, Registration of Transfer and Exchange

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 306.

  	
  Mutilated, Destroyed, Lost and Stolen Securities

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 307.

  	
  Payment of Interest; Interest Rights Preserved

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 308.

  	
  Persons Deemed Owners

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 309.

  	
  Cancellation

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 310.

  	
  Computation of Interest

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 311.

  	
  CUSIP

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE FOUR - SATISFACTION AND DISCHARGE

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 401.

  	
  Satisfaction and Discharge of Indenture

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 402.

  	
  Application of Trust Money

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE FIVE - REMEDIES

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 501.

  	
  Events of Default

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 502.

  	
  Acceleration of Maturity; Rescission and Annulment

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 503.

  	
  Collection of Indebtedness and Suits for Enforcement by Trustee

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 504.

  	
  Trustee May File Proofs of Claim

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 505.

  	
  Trustee May Enforce Claims Without Possession of Securities

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 506.

  	
  Application of Money Collected

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 507.

  	
  Limitation on Suits

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 508.

  	
  Unconditional Right of Holders to Receive Principal, Premium and
  Interest

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 509.

  	
  Restoration of Rights and Remedies

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 510.

  	
  Rights and Remedies Cumulative

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 511.

  	
  Delay or Omission Not Waiver

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 512.

  	
  Control by Holders

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 513.

  	
  Waiver of Past Defaults

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 514.

  	
  Undertaking for Costs

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 515.

  	
  Waiver of Usury, Stay or Extension Laws

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE SIX - THE TRUSTEE

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 601.

  	
  Certain Duties and Responsibilities

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 602.

  	
  Notice of Defaults

  	
  27

  

 

iii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 603.

  	
  Certain Rights of Trustee

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 604.

  	
  Not Responsible for Recitals or Issuance of Securities

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 605.

  	
  May Hold Securities

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 606.

  	
  Money Held in Trust

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 607.

  	
  Compensation and Reimbursement

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 608.

  	
  Conflicting Interests

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 609.

  	
  Corporate Trustee Required; Eligibility

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 610.

  	
  Resignation and Removal; Appointment of Successor

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 611.

  	
  Acceptance of Appointment by Successor

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 612.

  	
  Merger, Conversion, Consolidation or Succession to Business

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 613.

  	
  Preferential Collection of Claims Against Company

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 614.

  	
  Appointment of Authenticating Agent

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE SEVEN - HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 701.

  	
  Company to Furnish Trustee Names and Addresses of Holders

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 702.

  	
  Preservation of Information; Communications to Holders

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 703.

  	
  Reports by Trustee

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 704.

  	
  Reports by Company

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 801.

  	
  Company May Consolidate, Etc., Only on Certain Terms

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 802.

  	
  Successor Substituted

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE NINE - SUPPLEMENTAL INDENTURES

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 901.

  	
  Supplemental Indentures Without Consent of Holders

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 902.

  	
  Supplemental Indentures With Consent of Holders

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 903.

  	
  Execution of Supplemental Indentures

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 904.

  	
  Effect of Supplemental Indentures

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 905.

  	
  Conformity with Trust Indenture Act

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 906.

  	
  Reference in Securities to Supplemental Indentures

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE TEN - COVENANTS

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 1001.

  	
  Payment of Principal, Premium and Interest

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 1002.

  	
  Maintenance of Office or Agency

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 1003.

  	
  Money for Securities Payments to Be Held in Trust

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 1004.

  	
  Statement by Officers as to Default

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 1005.

  	
  Existence

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 1006.

  	
  Maintenance of Properties

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 1007.

  	
  Payment of Taxes and Other Claims

  	
  38

  

 

iv

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1008.

  	
  Waiver of Certain Covenants

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE ELEVEN - REDEMPTION OF SECURITIES

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 1101.

  	
  Applicability of Article

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 1102.

  	
  Election to Redeem; Notice to Trustee

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 1103.

  	
  Selection by Trustee of Securities to Be Redeemed

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 1104.

  	
  Notice of Redemption

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 1105.

  	
  Deposit of Redemption Price

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 1106.

  	
  Securities Payable on Redemption Date

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 1107.

  	
  Securities Redeemed in Part

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE TWELVE - SINKING FUNDS

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 1201.

  	
  Applicability of Article

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 1202.

  	
  Satisfaction of Sinking Fund Payments with Securities

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 1203.

  	
  Redemption of Securities for Sinking Fund

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE THIRTEEN - DEFEASANCE AND COVENANT DEFEASANCE

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 1301.

  	
  Company’s Option to Effect Defeasance or Covenant Defeasance

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 1302.

  	
  Defeasance and Discharge

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 1303.

  	
  Covenant Defeasance

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 1304.

  	
  Conditions to Defeasance or Covenant Defeasance

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 1305.

  	
  Deposited Money and U.S. Government Obligations to Be Held in Trust;
  Miscellaneous Provisions

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 1306.

  	
  Reinstatement

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 1307.

  	
  [Effect on Subordination Provisions

  	
  44

  

 

NOTE:  This table of contents shall not, for any
purpose, be deemed to be a party of the Indenture.

 

v

 

HERITAGE
COMMERCE CORP

 

Certain
Sections of this Indenture relating to Sections 310 through 318,

inclusive, of the Trust Indenture Act of 1939:

 

	
  Trust Indenture Act Section

  	
   

  	
  Indenture Section

  	
   

  
	
  § 310(a)(1)

  	
   

  	
  609

  	
   

  
	
  (a)(2)

  	
   

  	
  609

  	
   

  
	
  (a)(3)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (a)(4)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (b)

  	
   

  	
  608

  	
   

  
	
   

  	
   

  	
  610

  	
   

  
	
  § 311(a)

  	
   

  	
  613

  	
   

  
	
  (b)

  	
   

  	
  613

  	
   

  
	
  § 312(a)

  	
   

  	
  701

  	
   

  
	
   

  	
   

  	
  702

  	
   

  
	
  (b)

  	
   

  	
  702

  	
   

  
	
  (c)

  	
   

  	
  702

  	
   

  
	
  § 313(a)

  	
   

  	
  703

  	
   

  
	
  (b)

  	
   

  	
  703

  	
   

  
	
  (c)

  	
   

  	
  703

  	
   

  
	
  (d)

  	
   

  	
  703

  	
   

  
	
  § 314(a)

  	
   

  	
  704

  	
   

  
	
  (a)(4)

  	
   

  	
  101

  	
   

  
	
   

  	
   

  	
  1004

  	
   

  
	
  (b)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (c)(1)

  	
   

  	
  102

  	
   

  
	
  (c)(2)

  	
   

  	
  102

  	
   

  
	
  (c)(3)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (d)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (e)

  	
   

  	
  102

  	
   

  
	
  § 315(a)

  	
   

  	
  601

  	
   

  
	
  (b)

  	
   

  	
  602

  	
   

  
	
  (c)

  	
   

  	
  601

  	
   

  
	
  (d)

  	
   

  	
  601

  	
   

  
	
  (e)

  	
   

  	
  514

  	
   

  
	
  § 316(a)

  	
   

  	
  101

  	
   

  
	
  (a)(1)(A)

  	
   

  	
  502

  	
   

  
	
   

  	
   

  	
  512

  	
   

  
	
  (a)(1)(B)

  	
   

  	
  513

  	
   

  
	
  (a)(2)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  (b)

  	
   

  	
  508

  	
   

  
	
  (c)

  	
   

  	
  104

  	
   

  
	
  § 317(a)(1)

  	
   

  	
  503

  	
   

  
	
  (a)(2)

  	
   

  	
  504

  	
   

  
	
  (b)

  	
   

  	
  1003

  	
   

  
	
  § 318(a)

  	
   

  	
  107

  	
   

  

 

Note:      This
reconciliation and tie shall not, for any purpose, be deemed to be a part of the
Indenture.

 

vi

 

PARTIES:

 

INDENTURE, dated as of
                              ,
between Heritage Commerce Corp, a corporation duly organized and existing under
the laws of the State of California (herein called the “Company”), and
                                        ,
a
                              
duly organized and existing under the laws of                                         ,
as Trustee (herein called the “Trustee”).

 

RECITALS
OF THE COMPANY

 

The Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance from time to time of its unsecured debentures, notes or other
evidences of indebtedness (herein called the “Securities”), to be issued in one
or more series as in this Indenture provided.

 

All things necessary to
make this Indenture a valid agreement of the Company, in accordance with its
terms, have been done.

 

NOW, THEREFORE, THIS
INDENTURE WITNESSETH:

 

For and in consideration
of the premises and the purchase of the Securities by the Holders thereof, it
is mutually agreed, for the equal and proportionate benefit of all Holders of
the Securities or of series thereof, as follows:

 

ARTICLE ONE

 

DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION

 

Section 101. 
Definitions.

 

For all purposes of this
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:

 

(1)           the terms defined in
this Article have the meanings assigned to them in this Article and
include the plural as well as the singular;

 

(2)           all other terms used
herein which are defined in the Trust Indenture Act, either directly or by
reference therein, have the meanings assigned to them therein;

 

(3)           all accounting terms
not otherwise defined herein have the meanings assigned to them in accordance
with generally accepted accounting principles, and, except as otherwise herein
expressly provided, the term “generally accepted accounting principles” with
respect to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted at the date of such
computation;

 

(4)           unless the context
otherwise requires, any reference to an “Article” or a “Section” refers to an Article or
a Section, as the case may be, of this Indenture; and

 

(5)           the words “herein”, “hereof”
and “hereunder” and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other subdivision.

 

“Act”, when used with
respect to any Holder, has the meaning specified in Section 104.

 

“Affiliate; control” of
any specified Person means any other Person directly or indirectly controlling
or controlled by or under direct or indirect common control with such specified
Person. For the purposes of this definition, “control” when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “controlling” and “controlled”
have meanings correlative to the foregoing.

 

1

 

“Authenticating Agent”
means any Person authorized by the Trustee pursuant to Section 614 to act
on behalf of the Trustee to authenticate Securities of one or more series.

 

“Board of Directors”
means either the board of directors of the Company or any duly authorized
committee of that board.

 

“Board Resolution” means
a copy of a resolution certified by the Secretary or an Assistant Secretary of
the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.

 

“Business Day”, when used
with respect to any Place of Payment, means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in that
Place of Payment are authorized or obligated by law or executive order to
close.

 

“Commission” means the
Securities and Exchange Commission, from time to time constituted, created
under the Exchange Act, or, if at any time after the execution of this
instrument such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.

 

“Company” means the
Person named as the “Company” in the first paragraph of this instrument until a
successor Person shall have become such pursuant to the applicable provisions
of this Indenture, and thereafter “Company” shall mean such successor Person.

 

“Company Request; Company
Order” or “Company Order” means a written request or order signed in the name
of the Company by its Chairman of the Board, its Vice Chairman of the Board,
its President or a Vice President, and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

 

“Corporate Trust Office”
means the principal office of the Trustee in
                              
at which at any particular time its corporate trust business shall be
administered.

 

“corporation” means a
corporation, association, company, joint-stock company or business trust.

 

“Covenant Defeasance” has
the meaning specified in Section 1303.

 

“Defaulted Interest” has
the meaning specified in Section 307.

 

“Defeasance” has the
meaning specified in Section 1302.

 

“Depositary” means, with
respect to Securities of any series issuable in whole or in part in the form of
one or more Global Securities, a clearing agency registered under the Exchange
Act that is designated to act as Depositary for such Securities as contemplated
by Section 301.

 

“Event of Default” has
the meaning specified in Section 501.

 

“Exchange Act” means the
Securities Exchange Act of 1934 and any statute successor thereto, in each case
as amended from time to time.

 

“Expiration Date” has the
meaning specified in Section 104.

 

“Global Security” means a
Security that evidences all or part of the Securities of any series and bears
the legend set forth in Section 204 (or such legend as may be specified as
contemplated by Section 301 for such Securities).

 

“Holder” means a Person
in whose name a Security is registered in the Security Register.

 

2

 

“Indenture” means this
instrument as originally executed and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof, including, for all purposes
of this instrument and any such supplemental indenture, the provisions of the
Trust Indenture Act that are deemed to be a part of and govern this instrument and
any such supplemental indenture, respectively. The term “Indenture” shall also
include the terms of particular series of Securities established as
contemplated by Section 301.

 

“interest”, when used
with respect to an Original Issue Discount Security which by its terms bears
interest only after Maturity, means interest payable after Maturity.

 

“Interest Payment Date”,
when used with respect to any Security, means the Stated Maturity of an
installment of interest on such Security.

 

“Investment Company Act”
means the Investment Company Act of 1940 and any statute successor thereto, in
each case as amended from time to time.

 

“Maturity”, when used
with respect to any Security, means the date on which the principal of such
Security or an instalment of principal becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.

 

“Notice of Default” means
a written notice of the kind specified in Section 501(4) or 501(5).

 

“Officers’ Certificate”
means a certificate signed by the Chairman of the Board, a Vice Chairman of the
Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered
to the Trustee. One of the officers signing an Officers’ Certificate given
pursuant to Section 1004 shall be the principal executive, financial or
accounting officer of the Company.

 

“Opinion of Counsel”
means a written opinion of counsel, who may be counsel for the Company
(including an employee or officer of the Company), and who shall be acceptable
to the Trustee.

 

“Original Issue Discount
Security” means any Security which provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502.

 

“Outstanding”, when used
with respect to Securities, means, as of the date of determination, all
Securities theretofore authenticated and delivered under this Indenture, except:

 

(1)           Securities
theretofore cancelled by the Trustee or delivered to the Trustee for
cancellation;

 

(2)           Securities for whose
payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;

 

(3)           Securities as to
which Defeasance has been effected pursuant to Section 1302; and

 

(4)           Securities which
have been paid pursuant to Section 306 or in exchange for or in lieu of
which other Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such Securities are
held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company;

 

provided,
however, that in
determining whether the Holders of the requisite principal amount of the
Outstanding Securities have given, made or taken any request, demand,
authorization, direction, notice, consent, waiver or other action hereunder as
of any date, (A) the principal amount of an Original Issue Discount
Security which shall be

 

3

 

deemed to be Outstanding
shall be the amount of the principal thereof which would be due and payable as
of such date upon acceleration of the Maturity thereof to such date pursuant to
Section 502, (B) if, as of such date, the principal amount payable at
the Stated Maturity of a Security is not determinable, the principal amount of
such Security which shall be deemed to be Outstanding shall be the amount as
specified or determined as contemplated by Section 301, (C) the
principal amount of a Security denominated in one or more foreign currencies or
currency units which shall be deemed to be Outstanding shall be the U.S. dollar
equivalent, determined as of such date in the manner provided as contemplated
by Section 301, of the principal amount of such Security (or, in the case
of a Security described in Clause (A) or (B) above, of the amount
determined as provided in such Clause), and (D) Securities owned by the
Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, waiver or other action, only Securities which the Trustee knows to be
so owned shall be so disregarded. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee’s right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor.

 

“Paying Agent” means any
Person authorized by the Company to pay the principal of or any premium or
interest on any Securities on behalf of the Company.

 

“Person” means any
individual, corporation, partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Place of Payment”, when
used with respect to the Securities of any series, means the place or places
where the principal of and any premium and interest on the Securities of that
series are payable as specified as contemplated by Section 301.

 

“Predecessor Security” of
any particular Security means every previous Security evidencing all or a
portion of the same debt as that evidenced by such particular Security; and,
for the purposes of this definition, any Security authenticated and delivered
under Section 306 in exchange for or in lieu of a mutilated, destroyed,
lost or stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.

 

“Redemption Date”, when
used with respect to any Security to be redeemed, means the date fixed for such
redemption by or pursuant to this Indenture.

 

“Redemption Price”, when
used with respect to any Security to be redeemed, means the price at which it
is to be redeemed pursuant to this Indenture.

 

“Regular Record Date” for
the interest payable on any Interest Payment Date on the Securities of any
series means the date specified for that purpose as contemplated by Section 301.

 

“Securities” has the
meaning stated in the first recital of this Indenture and more particularly
means any Securities authenticated and delivered under this Indenture.

 

“Securities Act” means
the Securities Act of 1933 and any statute successor thereto, in each case as
amended from time to time.

 

“Security Register;
Security Registrar” and “Security Registrar” have the respective meanings
specified in Section 305.

 

[“Senior
Indebtedness”, when used with respect to the Securities of any series, shall
have the meaning established pursuant to Section 301(20) with respect to
the Securities of such series.]*

 

“Special Record Date” for
the payment of any Defaulted Interest means a date fixed by the Trustee
pursuant to Section 307.

 

4

 

“Stated Maturity”, when
used with respect to any Security or any instalment of principal thereof or
interest thereon, means the date specified in such Security as the fixed date
on which the principal of such Security or such instalment of principal or
interest is due and payable.

 

[“Subordination
Provisions”, when used with respect to the Securities of any series, shall have
the meaning established pursuant to Section 301(20) with respect to
Securities of such series.]*

 

“Subsidiary” means a
corporation more than 50% of the outstanding voting stock of which is owned,
directly or indirectly, by the Company or by one or more other Subsidiaries, or
by the Company and one or more other Subsidiaries. For the purposes of this
definition, “voting stock” means stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.

 

“Trust Indenture Act”
means the Trust Indenture Act of 1939 as in force at the date as of which this
instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust
Indenture Act” means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.

 

“Trustee” means the
Person named as the “Trustee” in the first paragraph of this instrument until a
successor Trustee shall have become such pursuant to the applicable provisions
of this Indenture, and thereafter “Trustee” shall mean or include each Person
who is then a Trustee hereunder, and if at any time there is more than one such
Person, “Trustee” as used with respect to the Securities of any series shall
mean the Trustee with respect to Securities of that series.

 

“U.S. Government
Obligation” has the meaning specified in Section 1304.

 

“Vice President”, when
used with respect to the Company or the Trustee, means any vice president,
whether or not designated by a number or a word or words added before or after
the title “vice president”.

 

Section 102. 
Compliance Certificates and Opinions.

 

Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee such certificates and
opinions as may be required under the Trust Indenture Act. Each such
certificate or opinion shall be given in the form of an Officers’ Certificate,
if to be given by an officer of the Company, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust Indenture
Act and any other requirements set forth in this Indenture.

 

Every certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Indenture (except for certificates provided for in Section 1004)
shall include,

 

(1)           a statement that
each individual signing such certificate or opinion has read such covenant or
condition and the definitions herein relating thereto;

 

(2)           a brief statement as
to the nature and scope of the examination or investigation upon which the
statements or opinions contained in such certificate or opinion are based;

 

(3)           a statement that, in
the opinion of each such individual, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been complied with; and

 

(4)           a statement as to
whether, in the opinion of each such individual, such condition or covenant has
been complied with.

 

5

 

Section 103. 
Form of Documents Delivered to Trustee.

 

In any case where several
matters are required to be certified by, or covered by an opinion of, any
specified Person, it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.

 

Any certificate or
opinion of an officer of the Company may be based, insofar as it relates to
legal matters, upon a certificate or opinion of, or representations by,
counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or opinion of counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.

 

Where any Person is
required to make, give or execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.

 

Section 104. 
Acts of Holders; Record Dates.

 

Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the “Act” of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.

 

The fact and date of the
execution by any Person of any such instrument or writing may be proved by the
affidavit of a witness of such execution or by a certificate of a notary public
or other officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.

 

The ownership of
Securities shall be proved by the Security Register.

 

Any request, demand,
authorization, direction, notice, consent, waiver or other Act of the Holder of
any Security shall bind every future Holder of the same Security and the Holder
of every Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.

 

The Company may set any
day as a record date for the purpose of determining the Holders of Outstanding
Securities of any series entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders of Securities
of such series, provided that the Company may not
set a record date for, and the provisions of this paragraph shall not apply
with respect to, the giving or making of any notice, declaration, request or
direction referred to in the next paragraph. If any record date is set pursuant
to this paragraph, the Holders of Outstanding Securities of the relevant 

 

6

 

series on such record date, and no other
Holders, shall be entitled to take the relevant action, whether or not such
Holders remain Holders after such record date; provided
that no such action shall be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount of
Outstanding Securities of such series on such record date. Nothing in this
paragraph shall be construed to prevent the Company from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically
and with no action by any Person be cancelled and of no effect), and nothing in
this paragraph shall be construed to render ineffective any action taken by
Holders of the requisite principal amount of Outstanding Securities of the
relevant series on the date such action is taken. Promptly after any record
date is set pursuant to this paragraph, the Company, at its own expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Securities of the relevant series in the manner set forth in Section 106.

 

The Trustee may set any
day as a record date for the purpose of determining the Holders of Outstanding
Securities of any series entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in Section 502,
(iii) any request to institute proceedings referred to in Section 507(2) or
(iv) any direction referred to in Section 512, in each case with
respect to Securities of such series. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities of such series on such record
date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date; provided that
no such action shall be effective hereunder unless taken on or prior to the
applicable Expiration Date by Holders of the requisite principal amount of
Outstanding Securities of such series on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically
and with no action by any Person be cancelled and of no effect), and nothing in
this paragraph shall be construed to render ineffective any action taken by
Holders of the requisite principal amount of Outstanding Securities of the
relevant series on the date such action is taken. Promptly after any record
date is set pursuant to this paragraph, the Trustee, at the Company’s expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Securities of the relevant series in the manner set forth in Section 106.

 

With respect to any
record date set pursuant to this Section, the party hereto which sets such
record dates may designate any day as the “Expiration Date” and from time to
time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto
in writing, and to each Holder of Securities of the relevant series in the
manner set forth in Section 106, on or prior to the existing Expiration
Date. If an Expiration Date is not designated with respect to any record date
set pursuant to this Section, the party hereto which set such record date shall
be deemed to have initially designated the 180th day after such record date as
the Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing,
no Expiration Date shall be later than the 180th day after the applicable
record date.

 

Without limiting the
foregoing, a Holder entitled hereunder to take any action hereunder with regard
to any particular Security may do so with regard to all or any part of the
principal amount of such Security or by one or more duly appointed agents each
of which may do so pursuant to such appointment with regard to all or any part
of such principal amount.

 

Section 105. 
Notices, Etc., to Trustee and Company.

 

Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,

 

(1)           the Trustee by any
Holder or by the Company shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee at its Corporate
Trust Office, Attention: [Corporate Trust Administration], or

 

(2)           the Company by the
Trustee or by any Holder shall be sufficient for every purpose hereunder
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company 

 

7

 

addressed to it at the address of its
principal office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the Company.

 

Section 106. 
Notice to Holders; Waiver.

 

Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

 

In case by reason of the
suspension of regular mail service or by reason of any other cause it shall be
impracticable to give such notice by mail, then such notification as shall be
made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.

 

Section 107. 
Conflict with Trust Indenture Act.

 

If any provision hereof
limits, qualifies or conflicts with a provision of the Trust Indenture Act
which is required under such Act to be a part of and govern this Indenture, the
latter provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.

 

Section 108. 
Effect of Headings and Table of Contents.

 

The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.

 

Section 109. 
Successors and Assigns.

 

All covenants and
agreements in this Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.

 

Section 110. 
Separability Clause.

 

In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

 

Section 111. 
Benefits of Indenture.

 

Nothing in this Indenture
or in the Securities, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder [, the holders of Senior
Indebtedness]* and the Holders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.

 

Section 112. 
Governing Law.

 

This Indenture and the
Securities shall be governed by and construed in accordance with the law of the
State of California.

 

8

 

Section 113. 
Legal Holidays.

 

In any case where any
Interest Payment Date, Redemption Date or Stated Maturity of any Security shall
not be a Business Day at any Place of Payment, then (notwithstanding any other
provision of this Indenture or of the Securities (other than a provision of any
Security which specifically states that such provision shall apply in lieu of
this Section)) payment of interest or principal (and premium, if any) need not
be made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity.

 

ARTICLE TWO

 

SECURITY FORMS

 

Section 201. 
Forms Generally.

 

The Securities of each
series shall be in substantially the form set forth in this Article, or in such
other form as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution thereof. If the form
of Securities of any series is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified
by the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by Section 303
for the authentication and delivery of such Securities.

 

The Trustee’s
certificates of authentication shall be in substantially the form set forth in
this Article.

 

The definitive Securities
shall be printed, lithographed or engraved on steel engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.

 

Section 202. 
Form of Face of Security.

 

[Insert any legend required by the Internal Revenue
Code and the regulations thereunder.]

 

Heritage
Commerce Corp

 

[Insert title of the Securities]

 

	
  No.                

  	
   

  	
  $                    

  

 

Heritage Commerce Corp, a
corporation duly organized and existing under the laws of California (herein
called the “Company”, which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to
                                        ,
or registered assigns, the principal sum of
                                                  
Dollars on
                                        
[if the Security is to bear interest prior to
Maturity, insert — , and to pay interest thereon from
                              
or from the most recent Interest Payment Date to which interest has been paid
or duly provided for, semi-annually on
                              
and
                            
in each year, commencing
                              ,
at the rate of           %
per annum, until the principal hereof is paid or made available for payment [if applicable, insert — , provided that any principal and
premium, and any such instalment of interest, which is overdue shall bear
interest at the rate of
          % per annum (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business 

 

9

 

on the Regular Record Date for such interest,
which shall be the
                              
or                               
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture].

 

[If the
Security is not to bear interest prior to Maturity, insert — The principal of this Security shall
not bear interest except in the case of a default in payment of principal upon
acceleration, upon redemption or at Stated Maturity and in such case the
overdue principal and any overdue premium shall bear interest at the rate of
          % per annum (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment. Interest on any overdue principal or premium shall be payable on
demand.]

 

Payment of the principal
of (and premium, if any) and [if applicable, insert —
any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in
                                        ,[if applicable, insert—] in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert — ; provided, however, that at the option
of the Company payment of interest may be made by check mailed to the address
of the Person entitled thereto as such address shall appear in the Security
Register or, at the option of the Holder hereof, to such other place in the
United States of America as the Holder hereof shall designate to the Trustee in
writing or, at the option of the Holder hereof, by wire transfer in immediately
available funds if such Holder owns Securities of the same series as this
Security issued pursuant to the Indenture which pay interest on the same
Interest Payment Date and which are in an aggregate principal amount of
$1,000,000 or more, provided that the Holder shall bear any and all expenses of
any such wire transfer] and provided further that proper written wiring
instructions shall have been received by the Trustee on or prior to the Regular
Record Date.  [If
applicable, insert any foreign currency-related provisions.]

 

Reference is hereby made
to the further provisions of this Security set forth on the reverse hereof,
which further provisions shall for all purposes have the same effect as if set
forth at this place.

 

Unless the certificate of
authentication hereon has been executed by the Trustee referred to on the
reverse hereof by manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.

 

IN WITNESS WHEREOF, the
Company has caused this instrument to be duly executed.

 

	
  Dated: 

  	
   

  	
   

  	
  HERITAGE COMMERCE CORP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

10

 

Section 203. 
Form of Reverse of Security.

 

This Security is one of a duly authorized issue of securities of the
Company (herein called the “Securities”), issued and to be issued in one or
more series under an Indenture, dated as of
                              
(herein called the “Indenture”, which term shall have the meaning assigned to
it in such instrument), between the Company and
                              ,
as Trustee (herein called the “Trustee”, which term includes any successor
trustee under the Indenture), and reference is hereby made to the Indenture for
a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee[, the holders of Senior
Indebtedness]* and the Holders of the Securities and of the terms upon which
the Securities are, and are to be, authenticated and delivered. This Security
is one of the series designated on the face hereof [if
applicable, insert —, limited in aggregate principal amount to
$                              ].

 

[If
applicable, insert — The Securities of this series are subject to
redemption upon not less than 30 days’ nor more than 60 days’ notice by mail,
at any time [if applicable, insert — on or after
                              ,
20    ], as a whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as percentages of the
principal amount): If redeemed [if applicable, insert
— on or before
                              ,
          %, and if redeemed]
during the 12-month period beginning
                              
of the years indicated,

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

and thereafter at a Redemption Price equal to
          % of the principal
amount, together in the case of any such redemption with accrued interest to
the Redemption Date, but interest instalments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.]

 

[If
applicable, insert — The Securities of this series are subject to
redemption upon not less than 30 days’ nor more than 60 days’ notice by mail, (1) on
                              
in any year commencing with the year           
and ending with the year
           through operation
of the sinking fund for this series at the Redemption Prices for redemption
through operation of the sinking fund (expressed as percentages of the
principal amount) set forth in the table below, and (2) at any time [if applicable, insert — on or after
                              ],
as a whole or in part, at the election of the Company, at the Redemption Prices
for redemption otherwise than through operation of the sinking fund (expressed
as percentages of the principal amount) set forth in the table below: If
redeemed during the 12-month period beginning
                              
of the years indicated,

 

	
  Year

  	
   

  	
  Redemption Price

  For Redemption

  Though Operation

  of the

  Sinking Fund

  	
   

  	
  Redemption Price For

  Redemption Otherwise

  Than Though Operation

  of the Sinking Fund

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

and thereafter at a
Redemption Price equal to
          % of the principal
amount, together in the case of any such redemption (whether through operation
of the sinking fund or otherwise) with accrued interest to the Redemption Date,
but interest instalments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]

 

[If
applicable, insert — Notwithstanding the foregoing, the Company may
not, prior to
                              ,
redeem any Securities of this series as contemplated by [if
applicable, insert — Clause (2) of] the preceding paragraph as
a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an interest cost to the
Company (calculated in accordance with generally accepted financial practice)
of less than           % per
annum.]

 

11

 

[If applicable, insert — The sinking
fund for this series provides for the redemption on
                              
in each year beginning with the year
           and ending with
the year            of [if applicable, insert — not less than
$                              
(“mandatory sinking fund”) and not more than] $                              
aggregate principal amount of Securities of this series. Securities of this
series acquired or redeemed by the Company otherwise than through [if applicable, insert — mandatory] sinking fund payments
may be credited against subsequent [if applicable, insert
— mandatory] sinking fund payments otherwise required to be made [if applicable, insert — , in the inverse order in which
they become due].]

 

[If the Security is
subject to redemption of any kind, insert — In the event of
redemption of this Security in part only, a new Security or Securities of this
series and of like tenor for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.]

 

[Insert paragraph
regarding subordination of the Security.]*

 

[If applicable, insert — The
Indenture contains provisions for defeasance at any time of [the entire
indebtedness of this Security] [or] [certain restrictive covenants and Events
of Default with respect to this Security] [, in each case] upon compliance with
certain conditions set forth in the Indenture.]

 

[If the Security is not an
Original Issue Discount Security, insert — If an Event of Default
with respect to Securities of this series shall occur and be continuing, the
principal of the Securities of this series may be declared due and payable in
the manner and with the effect provided in the Indenture.]

 

[If the Security is an
Original Issue Discount Security, insert — If an Event of Default
with respect to Securities of this series shall occur and be continuing, an
amount of principal of the Securities of this series may be declared due and
payable in the manner and with the effect provided in the Indenture. Such
amount shall be equal to — insert formula for
determining the amount. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal, premium and interest (in each case to the extent that the payment of
such interest shall be legally enforceable), all of the Company’s obligations
in respect of the payment of the principal of and premium and interest, if any,
on the Securities of this series shall terminate.]

 

The Indenture permits, with
certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding of each
series to be affected. The Indenture also contains provisions permitting the
Holders of specified percentages in principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
such series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and
of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.

 

As provided in and subject
to the provisions of the Indenture, the Holder of this Security shall not have
the right to institute any proceeding with respect to the Indenture or for the
appointment of a receiver or trustee or for any other remedy thereunder, unless
such Holder shall have previously given the Trustee written notice of a
continuing Event of Default with respect to the Securities of this series, the
Holders of not less than 25% in principal amount of the Securities of this
series at the time Outstanding shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default as Trustee and
offered the Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities of
this series at the time Outstanding a direction inconsistent with such request,
and shall have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof or any premium or interest hereon on or
after the respective due dates expressed herein.

 

12

 

No reference herein to the
Indenture and no provision of this Security or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and any premium and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.

 

As provided in the Indenture
and subject to certain limitations therein set forth, the transfer of this
Security is registrable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency of the Company in
any place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

 

The Securities of this
series are issuable only in registered form without coupons in denominations of
$                              
and any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of this series
and of like tenor of a different authorized denomination, as requested by the
Holder surrendering the same.

 

No service charge shall be
made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

 

Prior to due presentment of
this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not
this Security be overdue, and neither the Company, the Trustee nor any such
agent shall be affected by notice to the contrary.

 

All terms used in this
Security which are defined in the Indenture shall have the meanings assigned to
them in the Indenture.

 

Section 204. 
Form of Legend for Global Securities.

 

Unless
otherwise specified as contemplated by Section 301 for the Securities
evidenced thereby, every Global Security authenticated and delivered hereunder
shall bear a legend in substantially the following form:

 

THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND
IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT
BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO
TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN
THE NAME OF ANY PERSON OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE THEREOF, OR BY A NOMINEE OF A DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE THEREOF OR BY THE DEPOSITARY OR ANY NOMINEE
THEREOF TO A SUCCESSOR OF THE DEPOSITARY, OR A NOMINEE OF THE SUCCESSOR
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

 

13

 

Section 205. Form of Trustee’s
Certificate of Authentication.

 

The Trustee’s certificates of authentication shall be in substantially
the following form:

 

This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  As Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  

 

ARTICLE THREE

 

THE SECURITIES

 

Section 301. Amount Unlimited; Issuable in
Series.

 

The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.

 

The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers’ Certificate,
or established in one or more indentures supplemental hereto, prior to the
issuance of Securities of any series,

 

(1)                                  the title of the Securities of the series
(which shall distinguish the Securities of the series from Securities of any
other series);

 

(2)                                  any limit upon the aggregate principal
amount of the Securities of the series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Section 304, 305, 306, 906 or 1107
and except for any Securities which, pursuant to Section 303, are deemed
never to have been authenticated and delivered hereunder);

 

(3)                                  the Person to whom any interest on a
Security of the series shall be payable, if other than the Person in whose name
that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest;

 

(4)                                  the date or dates on which the principal
of any Securities of the series is payable;

 

(5)                                  the rate or rates at which any Securities
of the series shall bear interest, if any, the date or dates from which any
such interest shall accrue, the Interest Payment Dates on which any such
interest shall be payable and the Regular Record Date for any such interest
payable on any Interest Payment Date;

 

(6)                                  the place or places where the principal
of and any premium and interest on any Securities of the series shall be
payable;

 

(7)                                  the period or periods within which, the
price or prices at which and the terms and conditions upon which any Securities
of the series may be redeemed, in whole or in part, at the option of the
Company and, if other than by a Board Resolution, the manner in which any
election by the Company to redeem the Securities shall be evidenced;

 

14

 

(8)                                  the obligation, if any, of the Company to
redeem or purchase any Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of the Holder thereof and the period or
periods within which, the price or prices at which and the terms and conditions
upon which any Securities of the series shall be redeemed or purchased, in
whole or in part, pursuant to such obligation;

 

(9)                                  if other than denominations of $1,000 and
any integral multiple thereof, the denominations in which any Securities of the
series shall be issuable;

 

(10)                            if the amount of principal of or any
premium or interest on any Securities of the series may be determined with
reference to an index or pursuant to a formula, the manner in which such
amounts shall be determined;

 

(11)                            if other than the currency of the United
States of America, the currency, currencies or currency units in which the
principal of or any premium or interest on any Securities of the series shall
be payable and the manner of determining the equivalent thereof in the currency
of the United States of America for any purpose, including for purposes of the
definition of “Outstanding” in Section 101;

 

(12)                            if the principal of or any premium or
interest on any Securities of the series is to be payable, at the election of
the Company or the Holder thereof, in one or more currencies or currency units
other than that or those in which such Securities are stated to be payable, the
currency, currencies or currency units in which the principal of or any premium
or interest on such Securities as to which such election is made shall be
payable, the periods within which and the terms and conditions upon which such
election is to be made and the amount so payable (or the manner in which such
amount shall be determined);

 

(13)                            if other than the entire principal amount
thereof, the portion of the principal amount of any Securities of the series
which shall be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502;

 

(14)                            if the principal amount payable at the
Stated Maturity of any Securities of the series will not be determinable as of
any one or more dates prior to the Stated Maturity, the amount which shall be
deemed to be the principal amount of such Securities as of any such date for
any purpose thereunder or hereunder, including the principal amount thereof
which shall be due and payable upon any Maturity other than the Stated Maturity
or which shall be deemed to be Outstanding as of any date prior to the Stated
Maturity (or, in any such case, the manner in which such amount deemed to be
the principal amount shall be determined);

 

(15)                            if applicable, that the Securities of the
series, in whole or any specified part, shall be defeasible pursuant to Section 1302
or Section 1303 or both such Sections and, if other than by a Board Resolution,
the manner in which any election by the Company to defease such Securities
shall be evidenced;

 

(16)                            if applicable, that any Securities of the
series shall be issuable in whole or in part in the form of one or more Global
Securities and, in such case, the respective Depositaries for such Global
Securities, the form of any legend or legends which shall be borne by any such
Global Security in addition to or in lieu of that set forth in Section 204
and any circumstances in addition to or in lieu of those set forth in Clause (2) of
the last paragraph of Section 305 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global Security or a nominee
thereof;

 

(17)                            any addition to or change in the Events
of Default which applies to any Securities of the series and any change in the
right of the Trustee or the requisite Holders of such Securities to declare the
principal amount thereof due and payable pursuant to Section 502;

 

(18)                            any addition to or change in the
covenants set forth in Article Ten which applies to Securities of the
series; and

 

15

 

(19)                            any other terms of the series (which
terms shall not be inconsistent with the provisions of this Indenture, except
as permitted by Section 901(5))[; and

 

(20)                            the terms pursuant to which the
Securities of such series will be made subordinate in right of payment to
Senior Indebtedness and the definition of such Senior Indebtedness with respect
to such series; and, such Board Resolution, Officers’ Certificate or
supplemental indenture, as the case may be, establishing the terms of such
series shall expressly state which articles, sections or other provisions
thereof constitute the “Subordination Provisions” with respect to the
Securities of such series]*.

 

All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or
pursuant to the Board Resolution referred to above and (subject to Section 303)
set forth, or determined in the manner provided, in the Officers’ Certificate
referred to above or in any such indenture supplemental hereto.

 

If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company
and delivered to the Trustee at or prior to the delivery of the Officers’
Certificate setting forth the terms of the series.

 

[The
Securities of each series shall be subordinated in right of payment to Senior
Indebtedness as provided in the Subordination Provisions for such series. [The
Securities shall [not be superior in right of payment to, and shall] rank pari
passu with[,] — insert description of existing debt of the
Company that is intended to rank on a parity with the Securities.]]*

 

Section 302. Denominations.

 

The
Securities of each series shall be issuable only in registered form without
coupons and only in such denominations as shall be specified as contemplated by
Section 301. In the absence of any such specified denomination with
respect to the Securities of any series, the Securities of such series shall be
issuable in denominations of $1,000 and any integral multiple thereof.

 

Section 303. Execution, Authentication,
Delivery and Dating.

 

The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, its President or one of its Vice Presidents, under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.

 

Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

 

At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by
the Company to the Trustee for authentication, together with a Company Order
for the authentication and delivery of such Securities, and the Trustee in
accordance with the Company Order shall authenticate and deliver such
Securities. If the form or terms of the Securities of the series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 601) shall
be fully protected in relying upon, an Opinion of Counsel stating,

 

(1)                                  if the form of such Securities has been
established by or pursuant to Board Resolution as permitted by Section 201,
that such form has been established in conformity with the provisions of this
Indenture;

 

16

 

(2)                                  if the terms of such Securities have been
established by or pursuant to Board Resolution as permitted by Section 301,
that such terms have been established in conformity with the provisions of this
Indenture; and

 

(3)                                  that such Securities, when authenticated
and delivered by the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will constitute
valid and legally binding obligations of the Company enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors’ rights and to general equity principles.

 

If such form or terms
have been so established, the Trustee shall not be required to authenticate
such Securities if the issue of such Securities pursuant to this Indenture will
affect the Trustee’s own rights, duties or immunities under the Securities and
this Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.

 

Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers’ Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of
Counsel otherwise required pursuant to such preceding paragraph at or prior to
the authentication of each Security of such series if such documents are
delivered at or prior to the authentication upon original issuance of the first
Security of such series to be issued.

 

Each Security shall be dated the date of its authentication.

 

No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder. Notwithstanding
the foregoing, if any Security shall have been authenticated and delivered
hereunder but never issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in Section 309,
for all purposes of this Indenture such Security shall be deemed never to have
been authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.

 

Section 304. Temporary Securities.

 

Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.

 

If temporary Securities of any series are issued, the Company will
cause definitive Securities of that series to be prepared without unreasonable
delay. After the preparation of definitive Securities of such series, the
temporary Securities of such series shall be exchangeable for definitive
Securities of such series upon surrender of the temporary Securities of such
series at the office or agency of the Company in a Place of Payment for that
series, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities of any series, the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor one or more
definitive Securities of the same series, of any authorized denominations and
of like tenor and aggregate principal amount. Until so exchanged, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of such series and tenor.

 

Section 305. Registration, Registration of
Transfer and Exchange.

 

The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the “Security Register”) in which, subject to such
reasonable regulations as it

 

17

 

may prescribe, the Company
shall provide for the registration of Securities and of transfers of
Securities. The Trustee is hereby appointed “Security Registrar” for the
purpose of registering Securities and transfers of Securities as herein
provided.

 

Upon surrender for registration of transfer of any Security of a series
at the office or agency of the Company in a Place of Payment for that series,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount.

 

At the option of the Holder, Securities of any series may be exchanged
for other Securities of the same series, of any authorized denominations and of
like tenor and aggregate principal amount, upon surrender of the Securities to
be exchanged at such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange
is entitled to receive.

 

All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

 

Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.

 

No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.

 

If the Securities of any series (or of any series and specified tenor)
are to be redeemed in part, the Company shall not be required (A) to
issue, register the transfer of or exchange any Securities of that series (or
of that series and specified tenor, as the case may be) during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of any such Securities selected for redemption under Section 1103
and ending at the close of business on the day of such mailing, or (B) to
register the transfer of or exchange any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being redeemed
in part.

 

The provisions of Clauses (1), (2), (3) and (4) below shall
apply only to Global Securities:

 

(1)                                  Each Global Security authenticated under
this Indenture shall be registered in the name of the Depositary designated for
such Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.

 

(2)                                  Notwithstanding any other provision in
this Indenture, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in part
may be registered, in the name of any Person other than a transfer of this
Security as a whole by the Depositary to a nominee thereof, or by a nominee of
the Depositary to the Depositary or another nominee thereof or by the
Depositary or any nominee thereof to a successor of the Depositary or a nominee
of the successor Depositary, unless (A) such Depositary (i) has
notified the Company that it is unwilling or unable to continue as Depositary
for such Global Security or (ii) has ceased to be a clearing agency
registered under the Exchange Act, (B) there shall have occurred and be
continuing an Event of Default with respect to such Global Security or (C) there
shall exist such circumstances, if any, in addition to or in lieu of the
foregoing as have been specified for this purpose as contemplated by Section 301.

 

18

 

(3)           Subject to Clause (2) above,
any exchange of a Global Security for other Securities may be made in whole or
in part, and all Securities issued in exchange for a Global Security or any
portion thereof shall be registered in such names as the Depositary for such
Global Security shall direct.

 

(4)           Every Security
authenticated and delivered upon registration of transfer of, or in exchange
for or in lieu of, a Global Security or any portion thereof, whether pursuant
to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.

 

Section 306. 
Mutilated, Destroyed, Lost and Stolen Securities.

 

If any mutilated Security
is surrendered to the Trustee, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same series
and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

 

If there shall be
delivered to the Company and the Trustee (i) evidence to their
satisfaction of the destruction, loss or theft of any Security and (ii) such
security or indemnity as may be required by them to save each of them and any
agent of either of them harmless, then, in the absence of notice to the Company
or the Trustee that such Security has been acquired by a bona fide purchaser,
the Company shall execute and the Trustee shall authenticate and deliver, in
lieu of any such destroyed, lost or stolen Security, a new Security of the same
series and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

 

In case any such
mutilated, destroyed, lost or stolen Security has become or is about to become
due and payable, the Company in its discretion may, instead of issuing a new
Security, pay such Security.

 

Upon the issuance of any
new Security under this Section, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.

 

Every new Security of any
series issued pursuant to this Section in lieu of any destroyed, lost or
stolen Security shall constitute an original additional contractual obligation
of the Company, whether or not the destroyed, lost or stolen Security shall be
at any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities of
that series duly issued hereunder.

 

The provisions of this Section are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities.

 

Section 307. 
Payment of Interest; Interest Rights Preserved.

 

Except as otherwise
provided as contemplated by Section 301 with respect to any series of
Securities, interest on any Security which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.

 

Any interest on any
Security of any series which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called “Defaulted Interest”)
shall forthwith cease to be payable to the Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or (2) below:

 

(1)           The Company may
elect to make payment of any Defaulted Interest to the Persons in whose names
the Securities of such series (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security of such series and the date of the
proposed payment, and at the same time the Company shall deposit with 

 

19

 

the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to each Holder of Securities of such series in the manner
set forth in Section 106, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following Clause (2).

 

(2)           The Company may make
payment of any Defaulted Interest on the Securities of any series in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.

 

Subject to the foregoing
provisions of this Section, each Security delivered under this Indenture upon
registration of transfer of or in exchange for or in lieu of any other Security
shall carry the rights to interest accrued and unpaid, and to accrue, which
were carried by such other Security.

 

Section 308. 
Persons Deemed Owners.

 

Prior to due presentment
of a Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and any premium and (subject to Section 307)
any interest on such Security and for all other purposes whatsoever, whether or
not such Security be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the
contrary.

 

Section 309. 
Cancellation.

 

All Securities
surrendered for payment, redemption, registration of transfer or exchange or
for credit against any sinking fund payment shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and may deliver
to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder which the
Company has not issued and sold, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order.

 

Section 310. 
Computation of Interest.

 

Except as otherwise
specified as contemplated by Section 301 for Securities of any series,
interest on the Securities of each series shall be computed on the basis of a
360-day year of twelve 30-day months.

 

Section 311. 
CUSIP

 

The Company in issuing
the Securities may use CUSIP numbers (if then generally in use) and, if so, the
Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders,
provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption and that
reliance may be placed only on the other 

 

20

 

identification numbers printed on the
Securities. Any such redemption shall not be affected by any defect in or
omission of such numbers.

 

ARTICLE FOUR

 

SATISFACTION AND
DISCHARGE

 

Section 401. 
Satisfaction and Discharge of Indenture.

 

This Indenture shall upon
Company Request cease to be of further effect (except as to any surviving
rights of registration of transfer or exchange of Securities herein expressly
provided for), and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when

 

(1)           either

 

(A)          all Securities
theretofore authenticated and delivered (other than (i) Securities which
have been destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306 and (ii) Securities for whose payment money
has theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or

 

(B)           all such Securities
not theretofore delivered to the Trustee for cancellation

 

(i)            have become due and
payable, or

 

(ii)           will become due and
payable at their Stated Maturity within one year, or

 

(iii)          are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above,
has deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose (x) money in an amount, or (y) U.S. Government
Obligations which though the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than one
day before the due date of any payment, money in an amount, or (z) a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants or a nationally recognized investment banking
firm acceptable to the Company expressed in a written certification thereof
delivered to the Trustee, to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such deposit (in
the case of Securities which have been due and payable) or to the Stated
Maturity or earlier Redemption Date, as the case may be;

 

(2)           the Company has paid
or caused to be paid all other sums payable hereunder by the Company; and

 

(3)           the Company has
delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel,
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.

 

Notwithstanding the
satisfaction and discharge of this Indenture, the obligations of the Company to
the Trustee under Section 607, the obligations of the Trustee to any
Authenticating Agent under Section 614 and, if money shall have been
deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.

 

Section 402. 
Application of Trust Money.

 

Subject to the provisions
of the last paragraph of Section 1003, all money and U.S. Government
Obligations deposited with the Trustee pursuant to Section 401 or 1302 and
all money received by Trustee in respect of U.S. Government Obligations
deposited with the Trustee pursuant to Sections 401 or 1302, shall be held
in trust 

 

21

 

and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and any premium and interest for whose payment such money has
been deposited with the Trustee as contemplated by Sections 401 and 1302.

 

ARTICLE
FIVE

 

REMEDIES

 

Section 501. 
Events of Default.

 

“Event of Default”,
wherever used herein with respect to Securities of any series, means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be [occasioned by the Subordination Provisions of a Security of such
series or be]* voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

 

(1)           default in the
payment of any interest upon any Security of that series when it becomes due
and payable, and continuance of such default for a period of 30 days; or

 

(2)           default in the
payment of the principal of or any premium on any Security of that series at
its Maturity; or

 

(3)           default in the
deposit of any sinking fund payment, when and as due by the terms of a Security
of that series; or

 

(4)           default in the
performance, or breach, of any covenant or warranty of the Company in this
Indenture (other than a covenant or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with or which
has expressly been included in this Indenture solely for the benefit of series
of Securities other than that series), and continuance of such default or
breach for a period of 90 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Outstanding
Securities of that series a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a “Notice of
Default” hereunder; or

 

(5)           a court having
jurisdiction in the premises shall enter a decree or order for relief in
respect of the Company in an involuntary case under any applicable
bankruptcy,  insolvency or other similar
law now or hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of the Company or of
any substantial part of its property, or orders the winding up or liquidation
of its affairs and such decree, appointment or order shall remain unstayed and
in effect for a period of 90 consecutive days; or

 

(6)           the Company shall
commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Company or of
any substantial part of its property, or shall make any general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due; or

 

(7)           any other Event of
Default provided with respect to Securities of that series.

 

Section 502. 
Acceleration of Maturity; Rescission and Annulment.

 

If an Event of Default
(other than an Event of Default specified in Section 501(5) or
501(6)) with respect to Securities of any series at the time Outstanding occurs
and is continuing, then in every such case the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities of that series
may declare the 

 

22

 

principal amount of all the Securities of
that series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon
any such declaration such principal amount (or specified amount) shall become
immediately due and payable.

 

If an Event of Default
described (other than an Event of Default specified in Section 501(5) or
501(6)) occurs and is continuing, which Event of Default is with respect to
less than all series of Securities then Outstanding, then in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Securities of each such affected series then Outstanding (each such series voting
as a separate class) may declare the principal amount of all Securities of such
series (or, if the Securities of such series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon
such declaration such principal amount (or specified amount) shall become
immediately due and payable.

 

If an Event of Default
specified in Section 501(5) or 501(6) with respect to Securities
of any series at the time Outstanding occurs, the principal amount of all the
Securities of that series (or, if any Securities of that series are Original
Issue Discount Securities, such portion of the principal amount of such
Securities as may be specified by the terms thereof) shall automatically, and
without any declaration or other action on the part of the Trustee or any
Holder, become immediately due and payable.

 

At any time after such a
declaration of acceleration with respect to Securities of any series has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in principal amount of the Outstanding Securities of that
series, by written notice to the Company and the Trustee, may rescind and annul
such declaration and its consequences if

 

(1)           the Company has paid
or deposited with the Trustee a sum sufficient to pay

 

(A)          all overdue interest
on all Securities of that series,

 

(B)           the principal of
(and premium, if any, on) any Securities of that series which have become due
otherwise than by such declaration of acceleration and any interest thereon at
the rate or rates prescribed therefor in such Securities,

 

(C)           to the extent that
payment of such interest is lawful, interest upon overdue interest at the rate
or rates prescribed therefor in such Securities, and

 

(D)          all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel;

 

and

 

(2)           all Events of
Default with respect to Securities of that series, other than the non-payment
of the principal of Securities of that series which have become due solely by
such declaration of acceleration, have been cured or waived as provided in Section 513.

 

No such rescission shall
affect any subsequent default or impair any right consequent thereon.

 

Section 503. 
Collection of Indebtedness and Suits for Enforcement by Trustee.

 

The Company covenants
that if

 

(1)           default is made in
the payment of any interest on any Security when such interest becomes due and
payable and such default continues for a period of 30 days, or

 

23

 

(2)           default is made in
the payment of the principal of (or premium, if any, on) any Security at the
Maturity thereof,

 

the Company will, upon
demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal and any premium and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and
premium and on any overdue interest, at the rate or rates prescribed therefor
in such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.

 

If an Event of Default
with respect to Securities of any series occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders of Securities of such series by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.

 

Section 504. 
Trustee May File Proofs of Claim.

 

In case of any judicial
proceeding relative to the Company (or any other obligor upon the Securities),
its property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee
shall be authorized to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.

 

No provision of this
Indenture shall be deemed to authorize the Trustee to authorize or consent to
or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder thereof or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors’ or
other similar committee.

 

Section 505. 
Trustee May Enforce Claims Without Possession of Securities.

 

All rights of action and
claims under this Indenture or the Securities may be prosecuted and enforced by
the Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.

 

Section 506. 
Application of Money Collected.

 

Any money collected by
the Trustee pursuant to this Article shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or any premium or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:

 

FIRST:  To the payment of all amounts due the Trustee
under Section 607;

 

SECOND:  [Subject to the Subordination Provisions with
respect to such Securities, to]* [To]† the payment of the amounts then due and
unpaid for principal of and any premium and interest on the Securities in 

 

24

 

respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for principal
and any premium and interest, respectively; and

 

THIRD:  To the payment of the remainder, if any, to
the Company or to such party as a court of competent jurisdiction shall direct.

 

Section 507. 
Limitation on Suits.

 

No Holder of any Security
of any series shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless

 

(1)           such Holder has
previously given written notice to the Trustee of a continuing Event of Default
with respect to the Securities of that series;

 

(2)           the Holders of not
less than 25% in principal amount of the Outstanding Securities of that series
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;

 

(3)           such Holder or
Holders have offered to the Trustee reasonable indemnity against the costs,
expenses and liabilities to be incurred in compliance with such request;

 

(4)           the Trustee for 60
days after its receipt of such notice, request and offer of indemnity has
failed to institute any such proceeding; and

 

(5)           no direction
inconsistent with such written request has been given to the Trustee during
such 60-day period by the Holders of a majority in principal amount of the
Outstanding Securities of that series;

 

it being understood and
intended that no one or more of such Holders shall have any right in any manner
whatever by virtue of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other of such Holders, or to
obtain or to seek to obtain priority or preference over any other of such Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all of such Holders.

 

Section 508. 
Unconditional Right of Holders to Receive Principal, Premium and
Interest.

 

Notwithstanding any other
provision in this Indenture, the Holder of any Security shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
any premium and (subject to Section 307) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Holder.

 

Section 509. 
Restoration of Rights and Remedies.

 

If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.

 

25

 

Section 510. 
Rights and Remedies Cumulative.

 

Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 306, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

 

Section 511. 
Delay or Omission Not Waiver.

 

No delay or omission of
the Trustee or of any Holder of any Securities to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.

 

Section 512. 
Control by Holders.

 

The Holders of a majority
in principal amount of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Securities of such series, provided that

 

(1)           such direction shall
not be in conflict with any rule of law or with this Indenture, and

 

(2)           the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction.

 

Section 513. 
Waiver of Past Defaults.

 

The Holders of not less
than a majority in principal amount of the Outstanding Securities of any series
may on behalf of the Holders of all the Securities of such series waive any
past default hereunder with respect to such series and its consequences, except
a default

 

(1)           in the payment of
the principal of or any premium or interest on any Security of such series, or

 

(2)           in respect of a
covenant or provision hereof which under Article Nine cannot be modified
or amended without the consent of the Holder of each Outstanding Security of
such series affected.

 

Upon any such waiver,
such default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.

 

Section 514. 
Undertaking for Costs.

 

In any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, a court
may require any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party litigant, in
the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust
Indenture Act shall be deemed to authorize any court to require such an
undertaking or to make such an assessment in any suit instituted by the
Company.

 

26

 

Section 515. 
Waiver of Usury, Stay or Extension Laws.

 

The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any usury, stay or extension law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

 

ARTICLE SIX

 

THE TRUSTEE

 

Section 601. 
Certain Duties and Responsibilities.

 

The duties and
responsibilities of the Trustee shall be as provided by the Trust Indenture
Act. Notwithstanding the foregoing, no provision of this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it. Whether or not
therein expressly so provided, every provision of this Indenture relating to
the conduct or affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Section.

 

Section 602. 
Notice of Defaults.

 

If a default occurs
hereunder with respect to Securities of any series, the Trustee shall give the
Holders of Securities of such series notice of such default as and to the
extent provided by the Trust Indenture Act; provided, however, that
in the case of any default of the character specified in Section 501(4) with
respect to Securities of such series, no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term “default” means any event which is, or after notice or lapse
of time or both would become, an Event of Default with respect to Securities of
such series.

 

Section 603. 
Certain Rights of Trustee.

 

Subject to the provisions
of Section 601:

 

(1)           the Trustee may rely
and shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;

 

(2)           any request or
direction of the Company mentioned herein shall be sufficiently evidenced by a
Company Request or Company Order, and any resolution of the Board of Directors
shall be sufficiently evidenced by a Board Resolution;

 

(3)           whenever in the
administration of this Indenture the Trustee shall deem it desirable that a
matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an Officers’
Certificate;

 

(4)           the Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;

 

27

 

(5)           the Trustee shall be
under no obligation to exercise any of the rights or powers vested in it by
this Indenture at the request or direction of any of the Holders pursuant to
this Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;

 

(6)           the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and

 

(7)           the Trustee may
execute any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys and the Trustee shall not
be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder.

 

Section 604. 
Not Responsible for Recitals or Issuance of Securities.

 

The recitals contained
herein and in the Securities, except the Trustee’s certificates of authentication,
shall be taken as the statements of the Company, and neither the Trustee nor
any Authenticating Agent assumes any responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. Neither the Trustee nor any Authenticating
Agent shall be accountable for the use or application by the Company of
Securities or the proceeds thereof.

 

Section 605. 
May Hold Securities.

 

The Trustee, any
Authenticating Agent, any Paying Agent, any Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other agent.

 

Section 606. 
Money Held in Trust.

 

Money held by the Trustee
in trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.

 

Section 607. 
Compensation and Reimbursement.

 

The Company agrees

 

(1)           to pay to the
Trustee from time to time reasonable compensation for all services rendered by
it hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);

 

(2)           except as otherwise
expressly provided herein, to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and

 

(3)           to indemnify the
Trustee for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.

 

28

 

Section 608. 
Conflicting Interests.

 

If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture. To the extent permitted by such Act, the
Trustee shall not be deemed to have a conflicting interest by virtue of being a
trustee under this Indenture with respect to Securities of more than one series
[or a trustee under — list here any prior
indentures between the Company and the Trustee that have not been satisfied and
discharged and that may be excluded by the proviso to Section 310(b)(1) of
the Trust Indenture Act].

 

Section 609. 
Corporate Trustee Required; Eligibility.

 

There shall at all times
be one (and only one) Trustee hereunder with respect to the Securities of each
series, which may be Trustee hereunder for Securities of one or more other
series. Each Trustee shall be a Corporation, organized and existing under the
laws of the United States or any State thereof or the District of Columbia,
that is eligible pursuant to the Trust Indenture Act to act as such, has a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by Federal or State authority. 
If any such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or
examining authority, then for the purposes of this Section and to the
extent permitted by the Trust Indenture Act, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee with respect to the Securities of any series shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.

 

Section 610. 
Resignation and Removal; Appointment of Successor.

 

No resignation or removal
of the Trustee and no appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Trustee
in accordance with the applicable requirements of Section 611.

 

The Trustee may resign at
any time with respect to the Securities of one or more series by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 611 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.

 

The Trustee may be
removed at any time with respect to the Securities of any series by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series, delivered to the Trustee and to the Company.

 

If at any time:

 

(1)           the Trustee shall
fail to comply with Section 608 after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security for at
least six months, or

 

(2)           the Trustee shall
cease to be eligible under Section 609 and shall fail to resign after
written request therefor by the Company or by any such Holder, or

 

(3)           the Trustee shall
become incapable of acting or shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then,
in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 514,
any Holder who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the Trustee with respect
to all Securities and the appointment of a successor Trustee or Trustees.

 

29

 

If the Trustee shall
resign, be removed or become incapable of acting, or if a vacancy shall occur
in the office of Trustee for any cause, with respect to the Securities of one
or more series, the Company, by a Board Resolution, shall promptly appoint a successor
Trustee or Trustees with respect to the Securities of that or those series (it
being understood that any such successor Trustee may be appointed with respect
to the Securities of one or more or all of such series and that at any time
there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section 611.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 611, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner required by Section 611,
any Holder who has been a bona fide Holder of a Security of such series for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series.

 

The Company shall give
notice of each resignation and each removal of the Trustee with respect to the
Securities of any series and each appointment of a successor

 

Trustee with respect to
the Securities of any series to all Holders of Securities of such series in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee with respect to the Securities of such series and the address
of its Corporate Trust Office.

 

Section 611. 
Acceptance of Appointment by Successor.

 

In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee so appointed shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.

 

In case of the
appointment hereunder of a successor Trustee with respect to the Securities of
one or more (but not all) series, the Company, the retiring Trustee and each
successor Trustee with respect to the Securities of one or more series shall
execute and deliver an indenture supplemental hereto wherein each successor
Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and
to vest in, each successor Trustee all the rights, powers, trusts and duties of
the retiring Trustee with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates, (2) if the
retiring Trustee is not retiring with respect to all Securities, shall contain
such provisions as shall be deemed necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee, and (3) shall
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees co-trustees of the same
trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such
supplemental indenture the resignation or removal of the retiring Trustee shall
become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of that or those series to which the appointment of such
successor Trustee relates; but, on request of the Company or any successor
Trustee, such retiring Trustee shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates.

 

30

 

Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts referred to in the first or second preceding
paragraph, as the case may be.

 

No successor Trustee
shall accept its appointment unless at the time of such acceptance such
successor Trustee shall be qualified and eligible under this Article.

 

Section 612. 
Merger, Conversion, Consolidation or Succession to Business.

 

Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.

 

Section 613. 
Preferential Collection of Claims Against Company.

 

If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).

 

Section 614. 
Appointment of Authenticating Agent.

 

The Trustee may appoint
an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section 306,
and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee’s certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.

 

Any corporation into
which an Authenticating Agent may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which such Authenticating Agent shall be a party, or any
corporation succeeding to the corporate agency or corporate trust business of
an Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.

 

An Authenticating Agent may
resign at any time by giving written notice thereof to the Trustee and to the
Company. The Trustee may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent and to the
Company. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time such Authenticating Agent shall cease to be
eligible in accordance with the 

 

31

 

provisions
of this Section, the Trustee may appoint a successor Authenticating Agent which
shall be acceptable to the Company and shall give notice of such appointment in
the manner provided in Section 106 to all Holders of Securities of the
series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.

 

The Trustee agrees to pay
to each Authenticating Agent from time to time reasonable compensation for its
services under this Section, and the Trustee shall be entitled to be reimbursed
for such payments, subject to the provisions of Section 607.

 

If an appointment with
respect to one or more series is made pursuant to this Section, the Securities
of such series may have endorsed thereon, in addition to the Trustee’s
certificate of authentication, an alternative certificate of authentication in
the following form:

 

This is one of the
Securities of the series designated therein referred to in the within-mentioned
Indenture.

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  As Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  As Authenticating Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Authorized Officer

  

 

ARTICLE SEVEN

 

HOLDERS’ LISTS AND
REPORTS BY TRUSTEE AND COMPANY

 

Section 701. 
Company to Furnish Trustee Names and Addresses of Holders.

 

The Company will furnish
or cause to be furnished to the Trustee

 

(1)           semi-annually, not
later than
                              
and                               
in each year, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders of Securities of each series as of the
preceding
                              
or                               ,
as the case may be, and

 

(2)           at such other times
as the Trustee may request in writing, within 30 days after the receipt by the
Company of any such request, a list of similar form and content as of a date
not more than 15 days prior to the time such list is furnished;

 

excluding from any such list names and addresses
received by the Trustee in its capacity as Security Registrar.

 

Section 702. 
Preservation of Information; Communications to Holders.

 

The Trustee shall
preserve, in as current a form as is reasonably practicable, the names and
addresses of Holders contained in the most recent list furnished to the Trustee
as provided in Section 701 and the names and addresses of Holders received
by the Trustee in its capacity as Security Registrar. The Trustee may destroy
any list furnished to it as provided in Section 701 upon receipt of a new
list so furnished.

 

32

 

The rights of Holders to
communicate with other Holders with respect to their rights under this
Indenture or under the Securities, and the corresponding rights and privileges
of the Trustee, shall be as provided by the Trust Indenture Act.

 

Every Holder of Securities,
by receiving and holding the same, agrees with the Company and the Trustee that
neither the Company nor the Trustee nor any agent of either of them shall be
held accountable by reason of any disclosure of information as to names and
addresses of Holders made pursuant to the Trust Indenture Act.

 

Section 703. 
Reports by Trustee.

 

The Trustee shall
transmit to Holders such reports concerning the Trustee and its actions under
this Indenture as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant thereto.

 

[Reports so
required to be transmitted at stated intervals of not more than 12 months shall
be transmitted no later than
                              
in each calendar year, commencing in
                              ]

 

A copy of each such
report shall, at the time of such transmission to Holders, be filed by the
Trustee with each stock exchange upon which any Securities are listed, with the
Commission and with the Company. The Company will notify the Trustee when any
Securities are listed on any stock exchange.

 

Section 704. 
Reports by Company.

 

The Company shall file
with the Trustee and the Commission, and transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that
any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act shall
be filed with the Trustee within 15 days after the same is so required to be
filed with the Commission.

 

ARTICLE
EIGHT

 

CONSOLIDATION, MERGER,
CONVEYANCE, TRANSFER OR LEASE

 

Section 801. 
Company May Consolidate, Etc., Only on Certain Terms.

 

Nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of the Company with or into any other Person (whether or not affiliated with
the Company, as the case may be), or successive consolidations or mergers in
which the Company or its successor or successors, as the case may be, shall be
a party or parties, or shall prevent any sale, conveyance, transfer, lease or
other disposition of the property of the Company, or its successor or
successors as the case may be, as an entirety, or substantially as an entirety,
to any other Person (whether or not affiliated with the Company, or its
successor or successors, as the case may be) authorized to acquire and operate
the same; provided that

 

(1)           the Company is the
surviving Person, or the Person formed by or surviving any such consolidation
or merger (if other than the Company) or to which such sale, conveyance,
transfer, lease or other disposition of property is made is a Person organized
and existing under the laws of the United States or any State thereof or the
District of Columbia, and such Person expressly assumes all of the obligations
of the Company under the Securities and this Indenture and

 

(2)           after giving effect
to, any such consolidation, merger, sale, conveyance, transfer, lease or other
disposition, no Default or Event of Default shall have occurred and be
continuing.

 

33

 

Section 802. 
Successor Substituted.

 

In case of any such
consolidation, merger, sale, conveyance, transfer, lease or other disposition,
and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and reasonably satisfactory in
form to the Trustee, of the obligation of due and punctual payment of the
principal of and premium, if any, and interest, if any, on all of the
Securities and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed or observed by the
Company, such successor Person shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein as the Company,
and the Company thereupon shall be relieved of any further liability or
obligation hereunder or upon the Securities. Such successor Person thereupon
may cause to be signed, and may issue either in its own name or in the name of
the Company, any or all of the Securities issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee; and,
upon the order of such successor Person instead of the Company and subject to
all the terms, conditions and limitations in this Indenture prescribed, the
Trustee or the Authenticating Agent shall authenticate and deliver any
Securities which previously shall have been signed and delivered by any officer
of the Company to the Trustee or the Authenticating Agent for authentication,
and any Securities which such successor Person thereafter shall cause to be
signed and delivered to the Trustee or the Authenticating Agent for that
purpose. All the Securities so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.

 

ARTICLE
NINE

 

SUPPLEMENTAL INDENTURES

 

Section 901. 
Supplemental Indentures Without Consent of Holders.

 

The Company, when
authorized by a Board Resolution, and the Trustee may from time to time and at
any time enter into an indenture or indentures supplemental hereto, without the
consent of any Holders, in form satisfactory to the Trustee, for one or more of
the following purposes:

 

(1)           to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Securities; or

 

(2)           to add to the
covenants of the Company for the benefit of the Holders of all or any series of
Securities (and if such covenants are to be for the benefit of less than all
series of Securities, stating that such covenants are expressly being included
solely for the benefit of such series) or to surrender any right or power
herein conferred upon the Company; or

 

(3)           to add any additional
Events of Default for the benefit of the Holders of all or any series of
Securities (and if such additional Events of Default are to be for the benefit
of less than all series of Securities, stating that such additional Events of
Default are expressly being included solely for the benefit of such series); or

 

(4)           to add to or change
any of the provisions of this Indenture to such extent as shall be necessary to
permit or facilitate the issuance of Securities in bearer form, registrable or
not registrable as to principal, and with or without interest coupons, or to
permit or facilitate the issuance of Securities in uncertificated form; or

 

(5)           to add to, change or
eliminate any of the provisions of this Indenture in respect of one or more
series of Securities, provided that
any such addition, change or elimination (A) shall neither (i) apply
to any Security of any series created prior to the execution of such
supplemental indenture and entitled to the benefit of such provision nor (ii) modify
the rights of the Holder of any such Security with respect to such provision or
(B) shall become effective only when there is no such Security
Outstanding; or

 

(6)           to secure the
Securities; or

 

(7)           to establish the
form or terms of Securities of any series as permitted by Sections 201 and 301;
or

 

34

 

(8)           to evidence and
provide for the acceptance of appointment hereunder by a successor Trustee with
respect to the Securities of one or more series and to add to or change any of
the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 611; or

 

(9)           to cure any
ambiguity, to correct or supplement any provision herein which may be defective
or inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture,
provided that such action pursuant to this Clause (9) shall not adversely
affect the interests of the Holders of Securities of any series in any material
respect.

 

Section 902. 
Supplemental Indentures With Consent of Holders.

 

With the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series affected by such supplemental indenture, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of the Holders of Securities
of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,

 

(1)           change the Stated
Maturity of the principal of, or any instalment of principal of or interest on,
any Security, or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or reduce the
amount of the principal of an Original Issue Discount Security or any other
Security which would be due and payable upon a declaration of acceleration of
the Maturity thereof pursuant to Section 502, or change any Place of
Payment where, or the coin or currency in which, any Security or any premium or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or [modify the
provisions of this Indenture with respect to the subordination of the
Securities in a manner adverse to the Holders, or]*

 

(2)           reduce the
percentage in principal amount of the Outstanding Securities of any series, the
consent of whose Holders is required for any such supplemental indenture, or
the consent of whose Holders is required for any waiver (of compliance with
certain provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or

 

(3)           modify any of the
provisions of this Section, Section 513 or Section 1008, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder
of each Outstanding Security affected thereby; provided,
however, that this clause shall not be deemed to require the consent
of any Holder with respect to changes in the references to “the Trustee” and
concomitant changes in this Section and Section 1008, or the deletion
of this proviso, in accordance with the requirements of Sections 611 and
901(8).

 

A supplemental indenture
which changes or eliminates any covenant or other provision of this Indenture
which has expressly been included solely for the benefit of one or more
particular series of Securities, or which modifies the rights of the Holders of
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities of any other series.

 

It shall not be necessary
for any Act of Holders under this Section to approve the particular form
of any proposed supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.

 

Section 903. 
Execution of Supplemental Indentures.

 

In executing, or
accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the 

 

35

 

execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee’s own rights, duties or immunities under this Indenture or otherwise.

 

Section 904. 
Effect of Supplemental Indentures.

 

Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.

 

Section 905. 
Conformity with Trust Indenture Act.

 

Every supplemental
indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.

 

Section 906. 
Reference in Securities to Supplemental Indentures.

 

Securities of any series
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities of
any series so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series.

 

ARTICLE
TEN

 

COVENANTS

 

Section 1001. 
Payment of Principal, Premium and Interest.

 

The Company covenants and
agrees for the benefit of each series of Securities that it will duly and
punctually pay the principal of and any premium and interest on the Securities
of that series in accordance with the terms of the Securities and this
Indenture.

 

Section 1002. 
Maintenance of Office or Agency.

 

The Company will maintain
in each Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in
the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

 

The Company may also from
time to time designate one or more other offices or agencies where the
Securities of one or more series may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in each Place of Payment for Securities of any series for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.

 

36

 

Section 1003. 
Money for Securities Payments to Be Held in Trust.

 

If the Company shall at
any time act as its own Paying Agent with respect to any series of Securities,
it will, on or before each due date of the principal of or any premium or
interest on any of the Securities of that series, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal and any premium and interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.

 

Whenever the Company
shall have one or more Paying Agents for any series of Securities, it will,
prior to each due date of the principal of or any premium or interest on any
Securities of that series, deposit with a Paying Agent a sum sufficient to pay
such amount, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.

 

The Company will cause
each Paying Agent for any series of Securities other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (1) comply with the provisions of the Trust
Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.

 

The Company may at any
time, for the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by the Company or such Paying Agent; and, upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.

 

Any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of or any premium or interest on any Security of any
series and remaining unclaimed for two years after such principal, premium or
interest has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of San Francisco, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.

 

Section 1004. 
Statement by Officers as to Default.

 

The Company shall deliver
to the Trustee within 30 days after the occurrence thereof written notice of
any event which with the giving of notice and lapse of time or both would
become an Event of Default.

 

The Company will deliver
to the Trustee, within 120 days after the end of each fiscal year of the
Company ending after the date hereof, an Officers’ Certificate, stating whether
or not to the best knowledge of the signers thereof the Company is in default
in the performance and observance of any of the terms, provisions and
conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall be in
default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.

 

37

 

Section 1005. 
Existence.

 

Subject to Article Eight,
the Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.

 

Section 1006. 
Maintenance of Properties.

 

The Company will cause
all properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order (other than ordinary wear and tear) so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.

 

Section 1007. 
Payment of Taxes and Other Claims.

 

The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (2) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.

 

Section 1008. 
Waiver of Certain Covenants.

 

Except as otherwise
specified as contemplated by Section 301 for Securities of such series,
the Company may, with respect to the Securities of any series, omit in any
particular instance to comply with any term, provision or condition set forth
in any covenant provided pursuant to Section 301(18), 901(2) or 901(7) for
the benefit of the Holders of such series or in Article Eight if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Securities of such series shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.

 

ARTICLE ELEVEN

 

REDEMPTION OF SECURITIES

 

Section 1101. 
Applicability of Article.

 

Securities of any series
which are redeemable before their Stated Maturity shall be redeemable in
accordance with their terms and (except as otherwise specified as contemplated
by Section 301 for such Securities) in accordance with this Article.

 

Section 1102. 
Election to Redeem; Notice to Trustee.

 

The election of the
Company to redeem any Securities shall be evidenced by a Board Resolution or in
another manner specified as contemplated by Section 301 for such
Securities. In case of any redemption at the election of the Company of less
than all the Securities of any series (including any such redemption affecting
only a 

 

38

 

single Security), the Company shall, at least
60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date, of the principal amount of Securities of such series to be
redeemed and, if applicable, of the tenor of the Securities to be redeemed. In
the case of any redemption of Securities prior to the expiration of any
restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers’ Certificate evidencing compliance with such restriction.

 

Section 1103. 
Selection by Trustee of Securities to Be Redeemed.

 

If less than all the
Securities of any series are to be redeemed (unless all the Securities of such
series and of a specified tenor are to be redeemed or unless such redemption
affects only a single Security), the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities of such series not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of a portion of the
principal amount of any Security of such series, provided
that the unredeemed portion of the principal amount of any Security shall be in
an authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects
only a single Security), the particular Securities to be redeemed shall be
selected not more than 60 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities of such series and specified tenor not
previously called for redemption in accordance with the preceding sentence.

 

The Trustee shall
promptly notify the Company in writing of the Securities selected for
redemption as aforesaid and, in case of any Securities selected for partial
redemption as aforesaid, the principal amount thereof to be redeemed.

 

The provisions of the two
preceding paragraphs shall not apply with respect to any redemption affecting
only a single Security, whether such Security is to be redeemed in whole or in
part. In the case of any such redemption in part, the unredeemed portion of the
principal amount of the Security shall be in an authorized denomination (which
shall not be less than the minimum authorized denomination) for such Security.

 

For all purposes of this
Indenture, unless the context otherwise requires, all provisions relating to
the redemption of Securities shall relate, in the case of any Securities
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Securities which has been or is to be redeemed.

 

Section 1104. 
Notice of Redemption.

 

Notice of redemption
shall be given by first-class mail, postage prepaid, mailed not less than 30
nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed, at his address appearing in the Security Register.

 

All notices of redemption
shall state:

 

(1)           the Redemption Date,

 

(2)           the Redemption
Price,

 

(3)           if less than all the
Outstanding Securities of any series consisting of more than a single Security
are to be redeemed, the identification (and, in the case of partial redemption
of any such Securities, the principal amounts) of the particular Securities to
be redeemed and, if less than all the Outstanding Securities of any series
consisting of a single Security are to be redeemed, the principal amount of the
particular Security to be redeemed,

 

(4)           that on the
Redemption Date the Redemption Price will become due and payable upon each such
Security to be redeemed and, if applicable, that interest thereon will cease to
accrue on and after said date,

 

39

 

(5)           the place or places
where each such Security is to be surrendered for payment of the Redemption
Price, and

 

(6)           that the redemption
is for a sinking fund, if such is the case.

 

Notice of redemption of
Securities to be redeemed at the election of the Company shall be given by the
Company or, at the Company’s request, by the Trustee in the name and at the
expense of the Company and shall be irrevocable.

 

Section 1105. 
Deposit of Redemption Price.

 

Prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.

 

Section 1106. 
Securities Payable on Redemption Date.

 

Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in
the payment of the Redemption Price and accrued interest) such Securities shall
cease to bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as
contemplated by Section 301, instalments of interest whose Stated Maturity
is on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.

 

If any Security called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal and any premium shall, until paid, bear interest from the Redemption
Date at the rate prescribed therefor in the Security.

 

Section 1107. 
Securities Redeemed in Part.

 

Any Security which is to
be redeemed only in part shall be surrendered at a Place of Payment therefor
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new Security
or Securities of the same series and of like tenor, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal
to and in exchange for the unredeemed portion of the principal of the Security
so surrendered.

 

ARTICLE
TWELVE

 

SINKING FUNDS

 

Section 1201. 
Applicability of Article.

 

The provisions of this Article shall
be applicable to any sinking fund for the retirement of Securities of any
series except as otherwise specified as contemplated by Section 301 for
such Securities.

 

The minimum amount of any
sinking fund payment provided for by the terms of any Securities is herein
referred to as a “mandatory sinking fund payment”, and any payment in excess of
such minimum amount provided for by the terms of such Securities is herein
referred to as an “optional sinking fund payment”. If provided for by the terms
of any Securities, the cash amount of any sinking fund payment may be subject
to reduction as provided in 

 

40

 

Section 1202. Each sinking fund payment
shall be applied to the redemption of Securities as provided for by the terms
of such Securities.

 

Section 1202. 
Satisfaction of Sinking Fund Payments with Securities.

 

The Company (1) may
deliver Outstanding Securities of a series (other than any previously called
for redemption) and (2) may apply as a credit Securities of a series which
have been redeemed either at the election of the Company pursuant to the terms
of such Securities or through the application of permitted optional sinking
fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to any
Securities of such series required to be made pursuant to the terms of such
Securities as and to the extent provided for by the terms of such Securities;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the Redemption Price, as specified in the
Securities so to be redeemed, for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.

 

Section 1203. 
Redemption of Securities for Sinking Fund.

 

Not less than 90 days
prior to each sinking fund payment date for any Securities, the Company will
deliver to the Trustee an Officers’ Certificate specifying the amount of the
next ensuing sinking fund payment for such Securities pursuant to the terms of
such Securities, the portion thereof, if any, which is to be satisfied by
payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities pursuant to Section 1202 and will also
deliver to the Trustee any Securities to be so delivered. Not less than 60 days
prior to each such sinking fund payment date, the Trustee shall select the
Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 1103 and cause notice of the redemption thereof to be
given in the name of and at the expense of the Company in the manner provided
in Section 1104. Such notice having been duly given, the redemption of
such Securities shall be made upon the terms and in the manner stated in
Sections 1106 and 1107.

 

ARTICLE
THIRTEEN

 

DEFEASANCE AND COVENANT
DEFEASANCE

 

Section 1301. 
Company’s Option to Effect Defeasance or Covenant Defeasance.

 

The Company may elect, at
its option at any time, to have Section 1302 or Section 1303 applied
to any Securities or any series of Securities, as the case may be, designated
pursuant to Section 301 as being defeasible pursuant to such Section 1302
or 1303, in accordance with any applicable requirements provided pursuant to Section 301
and upon compliance with the conditions set forth below in this Article. Any
such election shall be evidenced by a Board Resolution or in another manner
specified as contemplated by Section 301 for such Securities.

 

Section 1302. 
Defeasance and Discharge.

 

Upon the Company’s
exercise of its option (if any) to have this Section applied to any
Securities or any series of Securities, as the case may be, the Company shall
be deemed to have been discharged from its obligations [and the Subordination
Provisions shall cease to be effective,]* with respect to such Securities as
provided in this Section on and after the date the conditions set forth in
Section 1304 are satisfied (hereinafter called “Defeasance”). For this
purpose, such Defeasance means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by such Securities and to
have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise terminated
or discharged hereunder: (1) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1304 and as more
fully set forth in such Section, payments in respect of the principal of and
any premium and interest on such Securities when payments are due, (2) the
Company’s obligations with respect to such Securities under Sections 304, 305,
306, 1002 and 1003, (3) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and (4) this Article. Subject to compliance with
this Article, the Company may exercise its option 

 

41

 

(if any) to have this Section applied to
any Securities notwithstanding the prior exercise of its option (if any) to
have Section 1303 applied to such Securities.

 

Section 1303. 
Covenant Defeasance.

 

Upon the Company’s
exercise of its option (if any) to have this Section applied to any
Securities or any series of Securities, as the case may be, (1) the
Company shall be released from its obligations under Sections 1006 through 1008,
inclusive, and any covenants provided pursuant to Section 301(18), 901(2) or
901(7) for the benefit of the Holders of such Securities[, and] (2) the
occurrence of any event specified in Sections 501(4) (with respect to any
of Sections 1006 through 1008, inclusive, and any such covenants provided
pursuant to Section 301(18), 901(2) or 901(7)) and 501(7) shall
be deemed not to be or result in an Event of Default [and (3) the
Subordination Provisions shall cease to be effective]*, in each case with
respect to such Securities as provided in this Section on and after the
date the conditions set forth in Section 1304 are satisfied (hereinafter
called “Covenant Defeasance”). For this purpose, such Covenant Defeasance means
that, with respect to such Securities, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such specified Section (to the extent so specified in the
case of Section 501(4)), whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or by reason of any
reference in any such Section to any other provision herein or in any
other document, but the remainder of this Indenture and such Securities shall
be unaffected thereby.

 

Section 1304.  Conditions to Defeasance or Covenant
Defeasance.

 

The following shall be
the conditions to the application of Section 1302 or Section 1303 to
any Securities or any series of Securities, as the case may be:

 

(1)           The Company shall
irrevocably have deposited or caused to be deposited with the Trustee (or
another trustee which satisfies the requirements contemplated by Section 609
and agrees to comply with the provisions of this Article applicable to it)
as trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefits of
the Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or (C) a
combination thereof, in each case sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee (or any such other qualifying trustee) to pay
and discharge, the principal of and any premium and interest on such Securities
on the respective Stated Maturities, in accordance with the terms of this
Indenture and such Securities. As used herein, “U.S. Government Obligation”
means (x) any security which is (i) a direct obligation of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged or (ii) an obligation of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case (i) or (ii), is not callable or redeemable at the option of
the issuer thereof, and (y) any depositary receipt issued by a bank (as defined
in Section 3(a)(2) of the Securities Act) as custodian with respect
to any U.S. Government Obligation which is specified in Clause (x) above
and held by such bank for the account of the holder of such depositary receipt,
or with respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by such
depositary receipt.

 

(2)           In the event of an
election to have Section 1302 apply to any Securities or any series of
Securities, as the case may be, the Company shall have delivered to the Trustee
an Opinion of Counsel stating that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of this instrument, there has been a change in the applicable Federal
income tax law, in either case (A) or (B) to the effect that, and
based thereon such opinion shall confirm that, the Holders of such Securities
will not recognize gain or loss for Federal income tax purposes as a result of
the deposit, Defeasance and discharge to be effected with 

 

42

 

respect to such Securities and will be
subject to Federal income tax on the same amount, in the same manner and at the
same times as would be the case if such deposit, Defeasance and discharge were
not to occur.

 

(3)           In the event of an
election to have Section 1303 apply to any Securities or any series of
Securities, as the case may be, the Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that the Holders of such Securities will
not recognize gain or loss for Federal income tax purposes as a result of the
deposit and Covenant Defeasance to be effected with respect to such Securities
and will be subject to Federal income tax on the same amount, in the same
manner and at the same times as would be the case if such deposit and Covenant
Defeasance were not to occur.

 

(4)           The Company shall
have delivered to the Trustee an Officers’ Certificate to the effect that
neither such Securities nor any other Securities of the same series, if then
listed on any securities exchange, will be delisted as a result of such
deposit.

 

(5)           No event which is,
or after notice or lapse of time or both would become, an Event of Default with
respect to such Securities or any other Securities shall have occurred and be
continuing at the time of such deposit or, with regard to any such event
specified in Sections 501(6) and (7), at any time on or prior to the 90th
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 90th day).

 

(6)           Such Defeasance or
Covenant Defeasance shall not cause the Trustee to have a conflicting interest
within the meaning of the Trust Indenture Act (assuming all Securities are in
default within the meaning of such Act).

 

(7)           Such Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or constitute
a default under, any other agreement or instrument to which the Company is a
party or by which it is bound.

 

(8)           Such Defeasance or
Covenant Defeasance shall not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment Company
Act unless such trust shall be registered under such Act or exempt from
registration thereunder.

 

(9)           [At the time of such
deposit, (A) no default in the payment of any principal of or premium or
interest on any Senior Indebtedness shall have occurred and be continuing, (B) no
event of default with respect to any Senior Indebtedness shall have resulted in
such Senior Indebtedness becoming, and continuing to be, due and payable prior
to the date on which it would otherwise have become due and payable (unless
payment of such Senior Indebtedness has been made or duly provided for), and (C) no
other event of default with respect to any Senior Indebtedness shall have
occurred and be continuing permitting (after notice or lapse of time or both)
the holders of such Senior Indebtedness (or a trustee on behalf of such
holders) to declare such Senior Indebtedness due and payable prior to the date
on which it would otherwise have become due and payable.]*

 

(10)         The Company shall
have delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent with respect to such
Defeasance or Covenant Defeasance have been complied with.

 

Section 1305. 
Deposited Money and U.S. Government Obligations to Be Held in Trust;
Miscellaneous Provisions.

 

Subject to the provisions
of the last paragraph of Section 1003, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee or
other qualifying trustee (solely for purposes of this Section and Section 1306,
the Trustee and any such other trustee are referred to collectively as the “Trustee”)
pursuant to Section 1304 in respect of any Securities shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
such Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities, of all sums due and
to become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law.

 

43

 

The Company shall pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the U.S. Government Obligations deposited pursuant to Section 1304
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of
Outstanding Securities.

 

Anything in this Article to
the contrary notwithstanding, the Trustee shall deliver or pay to the Company
from time to time upon Company Request any money or U.S. Government Obligations
held by it as provided in Section 1304 with respect to any Securities
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to such Securities.

 

Section 1306. 
Reinstatement.

 

If the Trustee or the
Paying Agent is unable to apply any money in accordance with this Article with
respect to any Securities by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations under this Indenture and such Securities from
which the Company has been discharged or released pursuant to Section 1302
or 1303 shall be revived and reinstated as though no deposit had occurred
pursuant to this Article with respect to such Securities, until such time
as the Trustee or Paying Agent is permitted to apply all money held in trust
pursuant to Section 1305 with respect to such Securities in accordance
with this Article; provided, however,
that if the Company makes any payment of principal of or any premium or
interest on any such Security following such reinstatement of its obligations,
the Company shall be subrogated to the rights (if any) of the Holders of such
Securities to receive such payment from the money so held in trust.

 

Section 1307. 
[Effect on Subordination Provisions.

 

Unless otherwise expressly
provided pursuant to Section 301(20) with respect to the Securities of any
series, the Subordination Provisions established pursuant to Section 301(20)
with respect to such series are hereby expressly made subject to the provisions
for satisfaction and discharge and defeasance and covenant defeasance set forth
in Section 1302 and Section 1303 and, anything herein to the contrary
notwithstanding, upon the effectiveness of such satisfaction and discharge and
defeasance and covenant defeasance pursuant to Section 1302 and Section 1303
with respect to the Securities of such series, such Securities shall thereupon
cease to be so subordinated and shall no longer be subject to the Subordination
Provisions established pursuant to Section 301(20) with respect to such
series and, without limitation to the foregoing, all moneys, U.S. Government
Obligations and other securities or property deposited with the Trustee (or
other qualifying trustee) in trust in connection with such satisfaction and
discharge, defeasance or covenant defeasance, as the case may be, and all
proceeds therefrom may be applied to pay the principal of, premium, if any, and
interest, if any, with respect to the Securities of such series as and when the
same shall become due and payable notwithstanding such Subordination
Provisions.]*

 

 

This instrument may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.

 

44

 

IN WITNESS WHEREOF, the
parties hereto have caused this Indenture to be duly executed, and their
respective corporate seals to be hereunto affixed and attested, all as of the
day and year first above written.

 

	
   

  	
  HERITAGE COMMERCE CORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [                                                                                                         ]

  
	
   

  	
  [As Trustee]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

S-1

 

	
  STATE OF CALIFORNIA

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  )

  

 

On
                                    ,
2009, before me,                                                  ,
personally appeared
                                                            ,
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.

 

I certify under PENALTY
OF PERJURY under the laws of the State of California that the foregoing
paragraph is true and correct.

 

	
   

  	
  WITNESS my hand and official seal.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature of Notary Public)

  

(Seal)

 

	
  STATE OF CALIFORNIA

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  )

  

 

On
                                    ,
2009, before me,                                                  ,
personally appeared
                                                            ,
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.

 

I certify under PENALTY
OF PERJURY under the laws of the State of California that the foregoing
paragraph is true and correct.

 

	
   

  	
  WITNESS my hand and official seal.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature of Notary Public)

  

(Seal)Exhibit 10.15

 

LOAN AND SECURITY AGREEMENT

 

THIS
LOAN AND SECURITY AGREEMENT (herein “Agreement”) dated as of January 17,
1997 between BFG ACQUISITION CORP., an Illinois corporation (hereafter, the “Borrower”)
1309 S. Cicero Avenue, Cicero, Illinois 60650 and LASALLE BANK NI, an Illinois
state banking corporation (hereafter, the “Lender”), 3201 N. Ashland Avenue,
Chicago, Illinois 60657.

 

W I T N E S S E T H:

 

WHEREAS,
the Borrower has asked the Lender to make to the Borrower a secured
$2,700,000.00 term loan and a secured $2,200,000.00 revolving loan to finance
the acquisition of certain assets (the “Acquisition”) which are currently owned
by Brad Foote Gear Works, Inc., a Delaware corporation (the “Seller”) and
to provide working capital for the Borrower; and

 

WHEREAS,
the Lender has agreed to make such loans on the terms and subject to the
conditions set forth in this Agreement;

 

NOW
THEREFORE, in consideration of the foregoing premises, the terms and conditions
contained herein, and of any loans or extension of credit heretofore, now or
hereafter made to or for the benefit of Borrower by Lender, the Borrower and
the Lender hereby agree as follows:

 

SECTION 1.  DEFINITION.

 

1.1           Defined Terms.  As used in this Agreement, the following
terms shall have the following respective meanings:

 

“Accounts”, “Inventory”, “Equipment”, and “General Intangibles”
shall have the meanings assigned to them in Section 7 hereof.

 

“Acquisition” - see Preamble.

 

“Agreement” shall mean this Loan and Security Agreement, as
amended, modified, restated or supplemented from time to time.

 

“Bank Commitment” shall mean the commitment letter dated December 16,
1996 issued by the Lender with respect to the Loans.

 

“Bankruptcy Code” shall mean Title 11 of the United States
Code (11 U.S.C.  §101 et seq.), as
amended from time to time, and any successor statute.

 

“Borrower” - see Preamble.

 

1

 

“Borrowing Base” shall mean, as of any applicable date of
determination, an amount equal to (i) eighty-five percent (85%) of
Borrower’s Eligible Accounts, less (ii) until the Reserve Elimination
Date, the Reserve.

 

“Borrowing Base Certificate” shall mean a certificate in such
form and content as the Lender may request, completed in all appropriate
respects and executed by the President of Borrower or such other officer of
Borrower authorized in writing by the Borrower, and setting forth Borrower’s
computation of the Borrowing Base as of the date of such certificate.

 

“Business Day” shall mean a day on which the Lender is open
to carry on its normal commercial lending business.

 

“Capital Expenditures” shall mean such expenditures
(including, in any event, all capitalized rentals and leasehold improvements)
as shall be determined in accordance with GAAP to constitute capital
expenditures.

 

“Cash Flow Coverage” shall mean, as of any applicable date of
determination, (i) EBITDA, divided by (ii) current maturities of bank
long term debt, plus interest expense (including interest owed to Lender and
former owners), plus lease payments for Leased Equipment.

 

“Cash Interest Expense” shall mean, as of any applicable date
of determination, Borrower’s total interest expense, whether paid or accrued
(including the interest component of capital leases), including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit, but excluding, however, interest expense not payable in cash
(including amortization of discount), all as determined in conformity with
GAAP.

 

“Charges” shall mean all national, federal, state, county,
city, municipal, and/or other governmental (including, without limitation, the
Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon and/or relating to (i) the Collateral
or any portion thereof, (ii) the Indebtedness or any portion thereof, (iii) Borrower’s
employees, payroll, income and/or gross receipts, (iv) Borrower’s
ownership and/or use of any of its assets, or (v) any other aspect of
Borrower’s business.

 

“Collateral” shall mean all property and interests in
property now owned or hereafter acquired by the Borrower in or upon which a
security interest, lien or mortgage is granted or in which a collateral
assignment is made under this Agreement or under the other Collateral
Documents.

 

“Collateral Assignment of Life Insurance” shall mean the
collateral assignment of the life insurance policy on the life of J. Cameron
Drecoll described in Section 6 hereof.

 

“Collateral Documents” shall mean this Agreement, the
Collateral Assignment of Life Insurance, the Stock Pledge Agreements, the
Security Agreement-Leased Equipment, and any other agreement, instrument,
mortgage, deed of trust or document pursuant to which a security

 

2

 

interest
or lien is granted by the Borrower or any other obligor, to secure the payment
and performance of the Indebtedness.

 

“Commitment Amount” shall mean, as of any applicable date of
determination, Two Million Two Hundred Thousand and 00/100 ($2,200,000.00)
Dollars.

 

“Debt” shall mean, as of any applicable date of
determination, all items of indebtedness, obligation or liability of a Person,
whether matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, joint or several, that should be classified as
liabilities in accordance with GAAP.

 

“Default” shall mean a condition or event which, with the
giving of notice or the passage of time, or both, would become an Event of
Default.

 

“Disbursement Date” shall mean each date upon which the
Lender makes a loan to the Borrower under Section 2 of this Agreement.

 

“EBIT” shall mean, as of any applicable date of
determination, with respect to Borrower, the sum of the amounts for such
periods, of (i) Net Income, plus (ii) Cash Interest Expense, plus (iii) federal
and state income taxes, plus (iv) extraordinary losses (and any unusual
losses arising in or outside of the ordinary course of business not included in
extraordinary losses determined in accordance with GAAP, which have been
included in the determination of Net Income), minus, (v) extraordinary
gains (and any unusual gains arising in or outside of the ordinary course of
business not included in extraordinary gains determined in accordance with GAAP
which have been included in the determination of Net Income).

 

“EBITDA” shall mean, as of any applicable date of
determination, with respect to Borrower, the sum of the amounts for such
periods, of (i) Net Income, plus (ii) depreciation and amortization
expense, plus (iii) Cash Interest Expense, plus (iv) federal and
state income taxes, plus (v) extraordinary losses (and any unusual losses
arising in or outside of the ordinary course of business not included in
extraordinary losses determined in accordance with GAAP, which have been
included in the determination of Net Income), minus, (vi) extraordinary
gains (and any unusual gains arising in or outside of the ordinary course of
business not included in extraordinary gains determined in accordance with GAAP
which have been included in the determination of Net Income).

 

“Eligible Accounts” shall mean those Accounts included in a
Borrowing Base Certificate which, as of the date of such Borrowing Base
Certificate and at all times thereafter: 
(i) satisfy the requirements for eligibility as described in Section 2.6
of this Agreement, (ii) do not violate the negative covenants and other
provisions of this Agreement and do satisfy the affirmative covenants and other
provisions of this Agreement, and (iii) are deemed by Lender, in its
reasonable credit judgment, to be Eligible Accounts.

 

“Equipment Lease” shall mean that certain Equipment Lease
Agreement dated January 17, 1997 between Seller as lessor and Borrower as
lessee, covering the Leased Equipment.

 

3

 

“ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any successor statute.

 

“Event of Default” shall mean any of those conditions or
events listed in Section 15 of this Agreement.

 

“Financing Statements” shall mean UCC financing statements
describing the Lender as secured party and Borrower as debtor covering the
Collateral and otherwise in such form, for filing in such jurisdictions and
with such filing offices, as the Lender shall deem necessary or advisable.

 

“GAAP” shall mean, as of any applicable date of
determination, generally accepted accounting principles, consistently applied,
set forth in the rules, regulations, statements, opinions and pronouncements of
the American Institute of Certified Public Accountants and of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the accounting profession).

 

“Guarantors” shall mean collectively, J. Cameron Drecoll,
Patrick Rosmonowski and Dennis Palmer, and “Guarantor” shall refer to any one
of them.

 

“Guaranties” shall mean the continuing guaranties to be
executed by the Guarantors in accordance with Section 5 hereof, pursuant
to which the Guarantors jointly and severally unconditionally guarantee
repayment to the Lender of all the Indebtedness, and “Guaranty”
shall refer to any one of the Guaranties.

 

“Hazardous Material” shall have the meaning set forth in Section 13.1(u) hereof.

 

“Indebtedness” shall mean and include all loans, advances,
debts, liabilities, obligations, covenants and duties owing to the Lender by
the Borrower, whether now existing, or hereafter created or arising, including,
without limitation:  (1) the
Revolving Loan, together with all loans, advances and overadvances now or
hereafter made thereunder, and all extensions, renewals, amendments,
refinancings, modifications, consolidations and conversions thereof or
increases thereto; and (2) the Term Loan, together with all extensions,
renewals, amendments, refinancings, modifications, consolidations and
conversions thereof; and (3) all interest, fees, charges, expenses,
attorneys’ fees and other costs and sums now or hereafter payable by the
Borrower under the terms of this Agreement, the Notes, or any of the other Loan
Documents; and (4) any and all other loans, advances, overdrafts,
indebtedness, liabilities and obligations now or hereafter owed by Borrower to
Lender, of every kind and nature, howsoever created, arising or evidenced, and
howsoever owned, held or acquired, whether now due or to become due, whether
direct or indirect, or absolute or contingent, whether several, joint or joint
and several, whether liquidated or unliquidated, whether legal or equitable,
whether disputed or undisputed, whether secured or unsecured, or whether
arising under this Agreement or any of the other Loan Documents or any other
document or instrument, and, advances made by Lender to pay or discharge any
other lien, security interest or encumbrance upon the Collateral; and (5) all
advances made by Lender to protect the Collateral, and/or Lender’s security
interest therein; and (6) all costs, expenses and fees (including
reasonable attorneys’ fees) incurred by Lender pursuant to the terms of this
Agreement or any of the other Loan Documents, or in connection 

 

4

 

with
(i) the drafting and preparation of this Agreement and the other Loan
Documents, (ii) the administration, enforcement and defense of this
Agreement and any other Loan Documents, or the relationships and security
interests created hereunder or thereunder, (iii) the collection of the
Indebtedness and any other obligation or indebtedness secured hereby, and (iv) the
sale or other disposition of the Collateral, or any portion thereof.

 

“Leased Equipment” shall mean all of the equipment described
in the Equipment Lease, as described in Exhibit A
attached hereto.

 

“Lender” - see Preamble.

 

“Loan Documents” shall mean this Agreement, the Notes, the
Negative Pledge Agreement, the Collateral Assignment of Life Insurance, and all
other agreements, instruments and documents, including, without limitation, the
Collateral Documents, and any other security agreements, notes, guaranties,
mortgages, assignments, financing statements, and all other writings
heretofore, now, or hereafter executed by the Borrower or any other obligor,
and delivered to Lender in connection with or relating to this Agreement,
together with all agreements, instruments and documents referred to therein or
contemplated thereby.

 

“Loans” shall mean collectively, the Revolving Loan, the Term
Loan and all extensions, renewals, amendments, refinancings, modifications,
consolidations, conversions, and increases thereof or thereto.

 

“Lock Box” shall mean the United States post office lock box
established pursuant to the terms of Section 2 of this Agreement.

 

“Negative Pledge Agreement” shall mean the negative pledge
agreement to be executed by Borrower in accordance with Section 6 hereof.

 

“Net Income” shall mean the net income or loss of the
Borrower for any period determined in accordance with GAAP, but excluding in
any event:

 

(a)                                  any gains or
losses on the sale or other disposition, not in the ordinary course of
business, of investments or fixed or capital assets, and any taxes on excluded
gains and any tax deductions or credits on account of any excluded losses; and

 

(b)                                 net earnings of
any Person in which the Borrower has an ownership interest, unless such net
earnings have actually been received by the Borrower in the form of cash
distributions.

 

“Notes” shall mean collectively, the Revolving Note, the Term
Note and all extensions, renewals, amendments, refinancings, modifications,
consolidations and conversions thereof or thereto.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation
and any Person succeeding to the functions thereof.

 

“Permitted Liens” shall mean:

 

5

 

(a)                                  Liens and
encumbrances in favor of the Lender;

 

(b)                                 Liens for
taxes, assessments or other governmental charges incurred in the ordinary
course of business and for which no interest, late charge or penalty is
attaching or which is being contested in good faith by appropriate proceedings
and, if requested by the Lender, bonded in an amount and manner satisfactory to
the Lender;

 

(c)                                  Liens, not
delinquent, created by statute in connection with worker’s compensation,
unemployment insurance, social security and similar statutory obligations; and

 

(d)                                 Liens of
mechanics, materialmen, carriers, warehousemen or other like statutory or
common law liens securing obligations incurred in good faith in the ordinary
course of business that are not yet due and payable.

 

(e)                                  The subordinate
security interest in the Collateral granted by Borrower to Seller, which has
been subordinated to Lender’s security interest in the Collateral pursuant to
the terms of the Seller/Bank Intercreditor Agreement.

 

“Person” shall mean and include any individual, corporation
(including, without limitation, any affiliate or subsidiary of Borrower),
partnership, joint venture, limited liability company, limited liability
partnership, sole proprietorship, association, trust, unincorporated
association, joint stock company, government, institution, municipality,
political subdivision or agency, or other entity of whatever nature.

 

“Pledged Stock” shall have the meaning ascribed to it in Section 6
hereof.

 

“Prime Rate” shall mean the rate of interest publicly
announced by LaSalle National Bank from time to time as its “prime rate”,
without regard to whether such announced “prime rate” is the lowest rate of
interest then offered by the Lender to its borrowers.

 

“Real Property” shall mean, for purposes of all provisions of
this Agreement relating to Hazardous Materials, all real property now or
hereafter occupied, owned or controlled by the Borrower.

 

“Reserve” shall have the meaning ascribed to it in Section 2.7
hereof.

 

“Reserve Elimination Date” shall have the meaning ascribed to
it in Section 2.7 hereof.

 

“Revolving Loan” shall mean the $2,200,000.00 revolving line
of credit loan extended by the Lender to the Borrower under Section 2 of
this Agreement, and any and all extensions, renewals, amendments,
modifications, refinancings, conversions, consolidations and increases thereof
or thereto.

 

“Revolving Note” shall mean the promissory note evidencing
the Revolving Loan executed by Borrower in accordance with Section 2
hereof, and any and all extensions, renewals, amendments, refinancings, or
modifications, conversions or consolidations thereof or thereto.

 

6

 

“Seller/Bank Intercreditor Agreement” shall mean the
intercreditor agreement of even date herewith between Seller and the Lender
described in Section 6 hereof.

 

“Seller Note” shall mean the subordinated promissory note
dated January 17, 1997 in the principal sum of $1,200,000.00 issued by
Borrower to Seller in connection with the Acquisition.

 

“Stock Pledge Agreements” shall have the meaning ascribed to
it in Section 6 hereof.

 

“Security Agreement-Leased Equipment” shall have the meaning
ascribed to it in Section 6 hereof.

 

“Subordinated Debt” shall mean indebtedness of the Borrower
to third parties (including, without limit, the indebtedness evidenced by the
Seller Note and all payments due and to become due under the Equipment Lease)
which has been subordinated to the Indebtedness pursuant to a subordination
agreement in form and content satisfactory to the Lender.

 

“Subsidiary” shall mean any corporation (whether now existing
or hereafter organized or acquired) in which more than fifty percent (50%) of
the outstanding securities having ordinary voting power for the election of
directors, as of any applicable date of determination, shall be owned directly,
or indirectly through one or more Subsidiaries, by Borrower.

 

“Tangible Net Worth” shall mean, as of any applicable date of
determination, an amount equal to (i) the net book value of all assets of
Borrower (other than patents, patent rights, trademarks, trade names,
franchises, copyrights, licenses, goodwill, and similar intangible assets)
after all appropriate deductions in accordance with GAAP, including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation, and
amortization, less (ii) all loans due from officers, directors,
shareholders, employees and/or affiliates of Borrower, less (iii) prepaid
expenses, less (iv) all Debt, other than Subordinated Debt.

 

“Term Loan” shall mean the term loan described in Section 3
hereof and all extensions, renewals, amendments, refinancings, modifications,
and consolidations thereof or thereto.

 

“Term Note” shall mean the promissory note evidencing the
Term Loan executed by Borrower in accordance with Section 3 hereof, and
any and all extensions, renewals, amendments, refinancings, modifications or
consolidations thereof or thereto.

 

“Termination Date” shall mean April 1, 1999, or such
earlier date upon which the Revolving Note becomes due and payable.

 

“UCC” shall mean the Illinois Uniform Commercial Code, 810
ILCS 5\1-101 et.  seq., as amended.

 

1.2                                 Accounting
Terms.  All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
GAAP.

 

1.3                                 Other Terms.  All other terms contained in this Agreement
which are not otherwise defined in this Section 1 or in any other section
of this Agreement, shall, unless the

 

7

 

context
indicates otherwise, have the meanings provided for by the UCC to the extent
the same are used or defined therein.

 

1.4                                 Singular and
Plural.  Where the context herein
requires, the singular number shall be deemed to include the plural, the
masculine gender shall include the feminine and neuter genders, and vice versa.

 

SECTION 2.  REVOLVING LOAN.

 

2.1                                 Revolving
Credit Commitment.  Subject to
and upon the terms and conditions of this Agreement, the Lender agrees to makes
loans to Borrower on a revolving basis in such amount as the Borrower shall
request pursuant to Section 2.2 of this Agreement at any time from the
date of this Agreement until the Termination Date, up to an aggregate principal
amount outstanding at any time not to exceed the lesser of the Commitment
Amount or the Borrowing Base, provided that each Disbursement Date under this
Agreement must be a Business Day and provided that the principal amount of each
advance under the Revolving Loan must be in the minimum amount of One Thousand
and no/100 ($1,000) Dollars.

 

2.2                                 Borrowing
Procedures.

 

2.2.1                        Notice.  The Borrower shall give written notice to the
Lender not later than 2:00 p.m. on or before the Business Day on which the
Borrower requests the Lender to make an advance under the Revolving Loan.

 

2.2.2                        Lender
Obligations.  The Lender,
in its reasonable discretion and upon its reasonable determination, that the
conditions set forth in this Agreement have been duly satisfied, will make the
amount set forth in the Borrower’s notice available to or upon the order of the
Borrower in immediately available funds at the Lender’s principal office, on
the date of the proposed borrowing (which shall be a Business Day), provided,
however, that the Lender shall not be obligated if:

 

(a)                                  With respect to
the initial disbursement under the Revolving Loan, any of the conditions
precedent set forth in Section 6 hereof shall not have been satisfied, or

 

(b)                                 With respect to
all other advances under the Revolving Loan:

 

(i)                                     Any Default or
Event of Default has occurred and is continuing, or

 

(ii)                                  Any of the
warranties or representations set forth in this Agreement shall not be true or
correct on and as of such Disbursement Date, or

 

(iii)                               Such proposed
advance under the Revolving Loan would cause the aggregate unpaid principal
amount of the Revolving Loan outstanding under this Agreement to exceed the
lesser of the Commitment Amount or the Borrowing Base on the Disbursement Date,
or

 

(iv)                              The
Disbursement Date is on or after the Termination Date.

 

8

 

2.3                                 Revolving Note.  The Revolving Loan shall be evidenced by a
revolving note, executed by the Borrower, dated the date of this Agreement,
payable to the Lender on April 1, 1999, and in the principal sum of Two
Million Two Hundred Thousand and 00/100 ($2,200,000.00) Dollars (the “Revolving
Note”).  The date and amount of each
advance under the Revolving Loan made by the Lender and of each repayment of
principal thereon received by the Lender shall be recorded by the Lender in its
records.  The aggregate unpaid principal
amount so recorded by the Lender shall be rebuttable presumptive evidence as to
the principal amount outstanding thereunder, provided, however,
that the failure by the Lender so to record any such amount or any error in so
recording any such amount shall not limit or otherwise affect the obligations
of the Borrower under this Agreement or the Revolving Note to repay the
principal amount of the-entire Revolving Loan together with all interest
accrued or accruing thereon.

 

Interest
on the Revolving Note shall be payable monthly, commencing on February 1,
1997 and continuing on the same day of each month thereafter.  Interest shall accrue on the unpaid principal
balances of the Revolving Note calculated at a variable rate per annum equal to
the Prime Rate plus one-half percent (.50%) per annum, such rate to change on
the day or days the Prime Rate changes. 
Interest after maturity of the Revolving Note or an Event of Default
shall be calculated on the unpaid principal balances of the Revolving Note at
the variable rate per annum equal to the Prime Rate plus three and one-half
percent (3.5%) per annum, such rate to change on the day or days the Prime Rate
changes.  Interest on the Revolving Note
shall be calculated on the basis of a 360-day year for the actual number of
days the principal is outstanding.

 

Lender
will reduce the interest rate charged on the Revolving Note by one-half percent
(.5%) to Prime floating if (i) at Borrower’s fiscal year ended December 31,
1997, Borrower’s EBIT is equal to or greater than $2,000,000, and (ii) no
Event of Default shall then have occurred and be continuing hereunder and
Borrower shall be in full compliance with all of its financial covenants made
in Section 14.1 hereof.

 

In
addition, a late charge equal to five percent (5%) of each late payment may be
charged on any payment not received by the Lender within five (5) calendar
days after the payment due date, but acceptance of payment of this charge shall
not waive any Default or Event of Default.

 

Immediately
upon demand by Lender, the Borrower shall pay to Lender an amount of money
equal to the amount theretofore advanced by the Lender to the Borrower upon any
Account that is no longer an Eligible Account, and the Lender shall apply such
payment to and on account of the Revolving Loan.  The Borrower shall notify the Lender within a
reasonable time after learning that an Account is no longer an Eligible
Account, but in any event, not later than the date of the next request by the
Borrower for an advance under the Revolving Loan.

 

Borrower
covenants to Lender and agrees that if at any time the then unpaid principal
balance of the Revolving Loan shall be in excess of the lesser of the (i) Commitment
Amount and (ii) the Borrowing Base as then determined and computed, the
Borrower shall immediately without notice or demand pay over the amount of the
excess to the Lender as and for a mandatory prepayment on the Revolving Loan.

 

9

 

If
Borrower shall voluntarily terminate the Revolving Loan for any reason prior to
January 17, 1998, Borrower promises to pay to Lender on the date of such
termination, in addition to the entire outstanding principal balance of the
Revolving Note and all accrued interest thereon, a prepayment premium in the
amount of Twenty-Two Thousand ($22,000.00) Dollars.

 

2.4                                 Lock Box.  Borrower shall at its sole expense establish
and maintain, so long as the Revolving Loan shall remain unpaid, a United
States post office lock box (the “Lock Box”), to which the Lender shall have
exclusive access, and to which the Borrower shall have no access.  Borrower expressly authorizes Lender, from
time to time to remove all contents from the Lock Box, for disposition in
accordance with this Agreement.  Borrower
agrees to notify all Account Debtors and other parties obligated to it that all
payments made on any Account, invoice, or other Collateral shall be remitted,
for the credit of Borrower, to the Lock Box, and Borrower shall include a like
statement on all invoices.  Borrower
shall execute all documents, authorizations and other agreements necessary to
establish the Lock Box, and Lender’s exclusive access thereto.

 

Any
and all cash, checks, drafts and other instruments for the payment of money
received by Borrower at any time, in full or partial payment of any of the
Collateral shall forthwith, upon receipt, be transmitted to and delivered to
Lender (properly endorsed, where required, so that such items may be collected
by Lender).  Any such items received by
Borrower shall not be commingled with any other of Borrower’s funds or
property, but will be held separate and apart from Borrower’s own funds or
property, and upon express trust for the benefit of Lender until delivery is
made to Lender.

 

All
items or amounts which are remitted to the Lock Box or otherwise delivered by
or for the benefit of the Borrower to Lender on account of partial or full
payment of, or any other amount payable with respect to, any of the Collateral
shall, at Lender’s option:  (i) be
applied to the payment of the Indebtedness, in such order of application as
Lender may determine in its sole discretion, or (ii) shall be deposited to
the credit of a non-interest bearing cash collateral account in the name of
Lender for the benefit of Borrower, to be established by Borrower with Lender
pursuant to this section, as security for payment of the Indebtedness.  Borrower shall have no right whatsoever to
withdraw any funds so deposited. 
Borrower further grants to Lender a first priority security interest in
and lien on all funds on deposit in such account.  Borrower hereby irrevocably authorizes and
directs Lender to endorse all items received for deposit to said cash
collateral account, notwithstanding the inclusion on any such item of a
restrictive notation, e.g., “paid in full”, “balance of account”, or other
restriction.

 

2.5                                 Collection of
Proceeds.  Borrower
agrees to collect and enforce payment of all Accounts until Lender shall direct
Borrower to the contrary and, from and after this direction, Borrower agrees to
fully and promptly cooperate and assist Lender (or any other person designated
by Lender) in the collection and enforcement of all Accounts.  Borrower shall not grant any extension of
time for the payment of Accounts, shall not compromise, compound or settle the
Accounts or any part thereof for less than the full amount thereof, shall not
release, in whole or in part, any person liable for the payment of the Accounts
or any part thereof, or allow any credit, discount or allowance whatsoever upon
the Accounts or any part thereof, unless such

 

10

 

activity
shall be deemed to be in the ordinary course of business and shall not occasion
or threaten a material adverse change in the financial condition, results of
operation or business of the Borrower, without first obtaining the written
consent of the Lender.

 

Borrower
irrevocably authorizes Lender or any employee or agent of Lender to endorse the
name of Borrower upon any checks or other items which are received in payment
of any Accounts or for any Inventory, and to do any and all things necessary in
order to reduce these items to money.

 

The
Lender shall have no duty as to the collection or protection of Collateral or
the proceeds thereof, nor as to the preservation of any related rights, beyond
the use of reasonable care in the custody and preservation of Collateral in the
possession of Lender.  Borrower agrees to
take all steps necessary to preserve rights against prior parties with respect
to Borrower’s property in the possession of Lender.

 

For
the purpose of calculating interest on the Revolving Loan, Borrower understands
that the Lender imposes a minimum two Business Days delay in crediting payments
received by the Lender on Eligible Accounts or other Collateral against the
Revolving Loan to allow time for collection and Borrower agrees that the Lender
may, at Lender’s option, make such credits only when payments are actually
collected by Lender in immediately available funds.  Any credit of payment by Lender prior to
receipt by Lender of immediately available funds is conditional upon Lender’s
receipt of those funds.

 

All
remittances will be received by Lender subject to collection, and the Lender
assumes no responsibility in connection therewith beyond the exercise of
ordinary care and will not be liable for default, negligence or willful
misconduct of any correspondent or for losses in transit.

 

Borrower
agrees that the Lender shall not be liable for any loss or damage which
Borrower suffers or may suffer as a result of the Lender’s processing of items
or its exercise of any other rights or remedies under this Agreement,
including, without limitation, indirect, special or consequential damages, loss
of revenues or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items or the exercise of
any other rights or remedies hereunder. 
Borrower further agrees to indemnify and hold Lender harmless from and
against all such third party claims, demands or actions, including, without
limitation, litigation costs and reasonable attorneys’ fees.

 

2.6                                 Eligible
Accounts.  Upon
Borrower’s delivery to Lender of a Borrowing Base Certificate, Lender shall
determine, in its reasonable discretion, which Accounts listed thereon are “Eligible
Accounts”.  In making this determination,
Lender will consider the following requirements:

 

(a)                                  The Account is
not owing more than ninety (90) days after the date of the original invoice or
other writing evidencing such Account;

 

(b)                                 it is not owing
by an Account Debtor who has failed to pay twenty-five percent (25%) or more of
the aggregate amount of its Accounts owing to Borrower within ninety (90) days
after the date of the respective invoices or other writings evidencing such
Accounts;

 

11

 

(c)                                  it arises from
the sale of goods and such goods have been shipped or delivered to the Account
Debtor under such Account; or it arises from services rendered and such
services have been performed;

 

(d)                                 it is evidenced
by an invoice, dated not later than the date of shipment or performance,
rendered to such Account Debtor or some other evidence of billing acceptable to
Lender;

 

(e)                                  it is not
evidenced by any note, trade acceptance, draft or other negotiable instrument
or by any chattel paper, unless such note or other document or instrument
previously has been endorsed and delivered by Borrower to Lender and is
acceptable to Lender;

 

(f)                                    it is a valid,
legally enforceable obligation of the Account Debtor thereunder, and is not
subject to any offset, counterclaim or other defense on the part of such
Account Debtor or to any claim on the part of such Account Debtor denying
liability thereunder in whole or in part;

 

(g)                                 it is not
subject to any sale of accounts, any rights of offset, assignment, lien or
security interest whatsoever other than to Lender, and the subordinate security
interest of Seller;

 

(h)                                 it is not owing
by a parent, subsidiary, affiliate, officer, employee or partner of Borrower,
nor by an Account Debtor which (i) does not maintain its chief executive
office in the United States of America or Canada, (ii) is not organized
under the laws of the United States of America, or any state thereof, or under
the laws of any province in Canada, or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality or
other instrumentality thereof;

 

(i)                                     it is not an
Account owing by the United States of America or any state or political
subdivision thereof, or by any department, agency, public body corporate or
other instrumentality of any of the foregoing, unless all necessary steps are
taken to comply with the Federal Assignment of Claims Act of 1940, as amended,
or with any comparable state law, if applicable, and all other necessary steps
are taken to perfect Lender’s security interest and collection rights in such
Account.

 

(j)                                     it is not owing
by an Account Debtor for which Borrower has received a notice of (i) the
death of the Account Debtor or any partner of the Account Debtor, (ii) the
dissolution, liquidation, termination of existence, insolvency or business
failure of the Account Debtor, (iii) the appointment of a receiver for any
part of the property of the Account Debtor, or (iv) an assignment for the
benefit of creditors, the filing of a petition in bankruptcy, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Account Debtor;

 

(k)                                  it is not an
account billed in advance, payable on delivery, for consigned goods, for
guaranteed sales, for unbilled sales, for progress billings, payable at a
future date in accordance with its terms, subject to a retainage or holdback by
the Account Debtor or insured by a surety company;

 

12

 

(1)                                  If the Account
Debtor is located in either the State of New Jersey, the State of Minnesota, or
the State of Indiana, Borrower has filed a Notice of Business Activities Report
or comparable report with the applicable state authority for the then current
year;

 

(m)                               it is not owing
by any Account Debtor whose obligations Lender, acting in its sole discretion,
shall have notified Borrower are not deemed to constitute Eligible Accounts.

 

For
purposes of determining eligibility, should twenty percent (20%) or more of the
Eligible Accounts be due and owing from any one Account Debtor at any time,
then the excess of said twenty percent (20%) of such Accounts shall not be
eligible, regardless of whether such Accounts otherwise satisfy the criteria
for eligibility set forth above.

 

An
Account which is at any time an Eligible Account, but which subsequently fails
to meet any of the foregoing requirements, shall forthwith cease to be an
Eligible Account.

 

2.7                                 Reserve/Reserve
Elimination Date.  The
borrowing availability under the Revolving Loan shall be reduced by a
$50,000.00 reserve (the “Reserve”).  The
Reserve shall be eliminated on the date the first annual $50,000.00 payment is
made by Borrower to Regal-Beloit Corporation pursuant to that certain
Settlement Agreement dated December 2, 1996 by and among Borrower,
Regal-Beloit Corporation, Seller and the Guarantors (the “Reserve Elimination
Date”).

 

Proceeds
of the Revolving Loan and the Term Loan will be used solely for the purpose of
providing financing for the Acquisition and working capital for the Borrower in
the Borrower’s ordinary course of business.

 

2.8                                 Unused Facility
Fee.  The Borrower will pay to
Lender an unused facility fee of one-quarter percent (1/4%) on the unused
portion of the Revolving Loan, which fee shall be paid monthly in arrears.

 

SECTION 3.  TERM LOAN.

 

3.1                                 Term Loan.  The Lender agrees to make the Borrower a
secured term loan in the principal amount of Two Million Seven Hundred Thousand
and no/100 ($2,700,000.00) Dollars (herein, the “Term Loan”).  The Term Loan shall be evidenced by a term
note of even date herewith, executed by Borrower, in the principal sum of Two
Million Seven Hundred Thousand and no/100 ($2,700,000.00) Dollars (the “Term
Note”), payable to the order of the Lender in twenty-three (23) successive
monthly installments of principal in the sum of $32,143.00 each, plus interest,
commencing March 1, 1997, and payable on the first (1st) day of each month
thereafter, followed by a final balloon payment of the entire unpaid principal
balance and accrued interest due on February 1, 1999.  Interest shall be payable monthly on the
unpaid principal balance of the Term Note (concurrently with each principal
payment), calculated at a per annum rate equal to the Prime Rate plus one-half
percent (1/2%) per annum, and after default or maturity, at a rate per annum
equal to the Prime Rate plus three and one-half percent (3-1/2%) per
annum.  In addition, a late charge equal
to five percent (5%) of each late payment may be charged on any payment not
received by the Lender within five (5) calendar days after the payment due
date, but acceptance of payment of this charge shall not waive any Default or
Event 

 

13

 

of
Default.  Interest on the Term Note shall
be calculated on the basis of a 360-day year for the actual number of days the
principal is outstanding.

 

Lender
will reduce the interest rate charged on the Term Note by one-half percent
(.5%) to Prime floating if (i) at Borrower’s fiscal year ended December 31,
1997, Borrower’s EBIT is equal to or greater than $2,000,000, and (ii) no
Event of Default shall then have occurred and be continuing hereunder and
Borrower shall be in full compliance with all of its financial covenants made
in Section 14.1 hereof.

 

If
Borrower shall prepay the Term Loan for any reason prior to January 17,
1998, Borrower promises to pay to Lender on the date of such prepayment, in
addition to the entire outstanding principal balance of the Term Note and all
accrued interest thereon, a prepayment premium in the amount of Twenty-Seven
Thousand ($27,000.00) Dollars.

 

SECTION 4.  COLLATERAL;
LOANS CROSS-DEFAULTED AND CROSS-COLLATERALIZED.

 

All
Loans and other Indebtedness shall be secured by Borrower’s grant to the Lender
of a first priority security interest in and to the Collateral (except that
Lender shall maintain a second priority security interest in the Pledged Stock
as herein provided).

 

Borrower
acknowledges and agrees that all Loans shall be cross-defaulted, meaning that a
default under any of the Loans shall constitute a default under all Loans, and (b) all
Loans shall be cross-collateralized, meaning that the Collateral, and all other
collateral in which the Lender is granted a security interest in connection
with the Loans, shall secure all of the Loans, and all other Indebtedness.

 

SECTION 5.  GUARANTORS.

 

The
payment and performance of all indebtedness, liabilities and obligations of the
Borrower to the Lender, whether now existing or hereafter created or arising,
including, without limitation, the Loans (and all renewals, extensions,
modifications, amendments, refinancings and consolidations thereof or thereto),
shall be jointly and severally unconditionally guaranteed by Guarantors,
pursuant to continuing guaranties, in form and substance satisfactory to the
Lender.

 

The
Guaranty of J. Cameron Drecoll shall be unlimited.  The Guaranties of Patrick Rosmonowski and
Dennis Palmer shall each be limited to the aggregate sum of $50,000.00 each.

 

SECTION 6.  CONDITIONS
PRECEDENT TO INITIAL LOAN DISBURSEMENT.

 

The
obligation of the Lender to make the Loans to Borrower is subject to the
fulfillment of each and every one of the following conditions precedent:

 

(a)                                  The Lender
shall have received on or before the day of the initial disbursement of the
Loans, each of the following, in form, substance and execution satisfactory to
the Lender and 

 

14

 

its
counsel:  this Agreement, the Notes,
Guaranties, UCC Financing Statements, Negative Pledge Agreement, Stock Pledge
Agreement, Collateral Assignment of Life Insurance, lockbox agreement,
Borrower’s opinion of counsel, consent of shareholders, authority to procure
loans, authorization certificate, insurance certificates, projected opening day
balance sheet prepared on a compiled basis (prepared by a firm of independent
certified public accountants acceptable to Lender), cash flow projections,
solvency affidavit, and such other documents, instruments, certificates,
affidavits, debt subordination, landlord’s waiver certificate(s), supporting
documents, approvals, evidence of insurance coverages, payoff letters, and
searches of public records required by the Lender in connection with the Loans.

 

(b)                                 The Lender
shall have received from Seller on or before the day of the initial disbursement
of the Loans (i) the original executed Equipment Lease in pledge, a
security agreement and assignment of lease (the “Security Agreement-Leased
Equipment”) and UCC financing statements, each in such form and content
satisfactory to the Lender, and sufficient to grant to the Lender a first
priority security interest in the Equipment Lease and Leased Equipment, (ii) a
certified copy of the Seller Note, in such form and content satisfactory to the
Lender, which Seller Note shall contain a legend on the face page thereof
disclosing that the indebtedness evidenced thereby has been subordinated to all
indebtedness owed by the Borrower to the Lender pursuant to the intercreditor
agreement hereafter described, (iii) an intercreditor agreement executed
by Seller, in form and content satisfactory to the Lender, whereby Seller shall
have subordinated its security interest in the Collateral to the Lender’s
security interest therein, and its right to payment of the Seller Note and the
Equipment Lease, to the Lender’s right to receive payment of the Indebtedness
(the “Seller/Bank Intercreditor Agreement”); and (iv) copies of the final
security agreement and UCC financing statement to be executed by Borrower in
favor of Seller (which UCC financing statement shall contain a legend on the
face page thereof, in form acceptable to the Lender, disclosing that the
Seller’s security interest in the collateral described therein is subordinate
to the Lender’s security interest in such collateral pursuant to the
Seller/Bank Intercreditor Agreement.

 

(c)                                  The Lender
shall have received on or before the day of the initial disbursement of the
Loans copies of all other documents to be delivered by Borrower and Seller or
others in connection with the Acquisition, including, without limit, a complete
copy of the asset purchase agreement, bill of sale, consulting and employment
agreements, leases or subleases of leased premises, and all other documents and
instruments executed in connection with the Agreement, and the Lender shall
have approved the terms and conditions thereof, in its sole discretion.

 

(d)                                 Borrower shall
have furnished to the Lender, in form, content and amount satisfactory to the
Lender, a negative pledge agreement (the “Negative Pledge Agreement”), agreeing
not to mortgage, encumber or sell the commercial real property commonly known
as 1310 S. 47th Avenue, Cicero, Illinois, being acquired from Seller.

 

(e)                                  Lender shall
have received such valuations, appraisals and certifications as it may require
to satisfy itself as to the value of the Collateral and the Leased Equipment
and the financial condition of the Borrower and the Guarantors, each
satisfactory to the Lender, in its sole discretion.

 

15

 

(f)                                    Borrower shall
have complied with all conditions set forth in the Lender Commitment, and no
Event of Default shall have occurred thereunder.

 

(g)                                 The Borrower
shall be in full compliance with all of the terms and conditions of this
Agreement and the other Loan Documents, and the Borrower and other obligors
shall be in full compliance with all of the terms and conditions of the
Collateral Documents.

 

(h)                                 The Lender
shall be satisfied with the corporate and legal structure and capitalization of
Borrower, including the terms and conditions of its articles of incorporation
and bylaws.

 

(i)                                     There shall
have been no material adverse change in the business of Borrower or the
financial condition of Borrower or any Guarantor from the most recent financial
statements submitted by each of them to the Lender.

 

(j)                                     The Lender
shall be satisfied with the corporate and legal structure and capitalization of
Seller, including the terms and conditions of its articles of incorporation and
bylaws.

 

(k)                                  The
representations and warranties of Borrower contained in this Agreement and in
all other Loan Documents shall be true and correct on the day of the initial
loan disbursement.

 

(1)                                  The
representations and warranties of Seller contained in the security agreement
executed by it shall be true and correct on the day of the initial loan
disbursement, and no event of default shall have occurred under such agreement.

 

(m)                               There shall
exist no Event of Default as defined in Section 15 hereof and no
condition, event or act which with notice or lapse of time, or both, would
constitute an Event of Default.

 

(n)                                 All actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement or other Loan Documents and all other related
legal matters shall have been satisfactory to and approved by legal counsel for
the Lender, and said counsel shall have been furnished with such certified
copies of actions and proceedings and such other instruments and documents as
they shall have reasonably requested.

 

(o)                                 The Lender
shall have been provided with evidence of all requisite governmental and third
party approvals required for Borrower, Borrower’s conduct of business and the
Real Property.

 

(p)                                 The Lender
shall have been furnished with an original life insurance policy on the life of
J. Cameron Drecoll in the sum of $1,000,000.00, together with an executed
collateral assignment of such policy by Borrower to the Lender, on the Lender’s
form or a form acceptable to Lender (“Collateral Assignment of Life Insurance”),
acknowledged by the life insurer, and evidence of the payment of at least one
year’s premium.  Borrower covenants to
provide the Lender annually with evidence of payment of the then current
premium for such insurance.

 

16

 

(q)                                 The Guarantors
shall have executed and delivered to the Lender security agreements (the “Stock
Pledge Agreements”), granting the Lender a second priority security interest in
all shares of stock of the Borrower (the “Pledged Stock”), subordinate only to
the first priority security interest therein being granted to the Seller.  In addition, Guarantors shall execute and
deliver to the Lender UCC financing statements and such other documents
required by the Lender to perfect its second priority security interest in the
Pledged Stock.

 

(r)                                    The Lender
shall receive evidence that Borrower has received a minimum cash infusion of
$500,000.00, injected by shareholders of Borrower in accordance with the terms
of the Bank Commitment.

 

(s)                                  Borrower must
have a minimum of $500,000.00 of borrowing availability under the Revolving
Loan on the date hereof, in accordance with the terms of the Bank Commitment.

 

(t)                                    On or prior to
the initial loan disbursement, Borrower shall have paid all accrued fees and
expenses of the Lender.

 

SECTION 7.  SECURITY
INTEREST.

 

7.1                                 Grant of
Security Interest.  To secure
the prompt and complete payment, observance and performance of the
Indebtedness, Borrower hereby gives, grants and pledges to the Lender a
continuing security interest in and to all of the Borrower’s right, title and
interest in and to the following property and interests in property, whether
now owned or existing or hereafter acquired or arising and wheresoever located:

 

ACCOUNTS:  All present and future accounts, accounts receivable,
and other rights of the Borrower to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether now existing or hereafter arising and wherever arising, and whether or
not they have been earned by performance (collectively, “Accounts”);

 

INVENTORY:  All inventory and goods now owned or
hereafter acquired by the Borrower (wherever located, whether in the possession
of the Borrower or of a bailee or other person for sale, storage, transit,
processing, use or otherwise and whether consisting of whole goods, spare
parts, components, supplies, materials, or consigned, returned, repossessed or
reconsigned goods) which are held for sale or lease or to be furnished (or have
been furnished) under any contract of service or which are raw materials, work
in process or materials used or consumed in the Borrower’s business
(collectively, “Inventory”);

 

EQUIPMENT:  All machinery, all manufacturing,
distribution, selling, data processing and office equipment, all furniture,
furnishings, appliances, fixtures and trade fixtures, tools, tooling, molds,
dies, vehicles, vessels, aircraft and all other goods of every type and
description (other than Inventory), in each instance whether now owned or
hereafter acquired by the Borrower and wherever located (collectively, “Equipment”);

 

GENERAL
INTANGIBLES:  All rights, interests,
choses in action, causes of action, claims and other intangible property of the
Borrower of every kind and nature (other than Accounts), in each instance
whether now owned or hereafter acquired by the Borrower and 

 

17

 

however
and whenever arising, including, without limitation, all corporate and other
business records; all loans and other obligations receivable and all rights,
remedies and security with respect thereto, all inventions, designs, all trade
processes and trade secrets, computer programs, software, printouts and other
computer materials, goodwill, corporate name, trade names, registration,
copyrights, royalties, licenses, franchises, customer lists, credit files,
correspondence, and advertising materials; all customer and supplier contracts,
firm sale orders, rights under license and franchise agreements, and all other
contracts and contract rights; all interests in partnerships and joint
ventures; all tax refunds and tax refund claims; all right, title and interest
under leases, subleases, licenses and concessions and other agreements relating
to real or personal property; all payments due or made to Borrower in
connection with any reacquisition, confiscation, condemnation, seizure or
forfeiture of any property by any person or governmental authority; all deposit
accounts (general or special) with any bank or other financial institution,
including, without limitation, any deposits or other sums at any time credited
by or due to the Borrower from Lender; all credits with and other claims
against carriers and shippers; all rights to indemnification; all patents,
trademarks, patent applications and trademark applications, and all other
intellectual property not described herein, all reversionary interests in
pension and profit sharing plans and reversionary, beneficial and residual
interest in trusts; all proceeds of insurance of which the Borrower is the
beneficiary; and all letters of credits, guaranties, liens, security interests
and other security held by or granted to the Borrower; all return insurance
premiums, and all other intangible property, whether or not similar to the foregoing
(all of the foregoing collectively, “General Intangibles”);

 

CHATTEL
PAPER, INSTRUMENTS AND DOCUMENTS:  All
chattel paper, all leases, all instruments, all notes and debt instruments and
all payments thereunder and instruments and other property from time to time
delivered in respect thereof or in exchange therefor and all of the Borrower’s
right, title and interest and all of the Borrower’s rights, remedies,
collateral security, liens in, and in respect of any of the foregoing, and all
bills of lading, warehouse receipts and other documents of title and all other
documents, in each instance whether now owned or hereafter acquired by the
Borrower;

 

OTHER
PROPERTY:  All property and interest in
property now owned or hereafter acquired by the Borrower which now may be owned
or hereafter may come into the possession, custody or control of the Lender in
any way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); and all rights and interests of the Borrower,
now existing or hereafter arising and however and wherever arising, in respect
of any and all (i) notes, drafts, letters of credit, stocks, bonds, and
debt and equity securities, whether or not certificated.  and warrants, options, puts and calls and
other rights to acquire or otherwise relating to the same, and all other
investment property now owned or hereafter acquired by Borrower; (ii) money;
(iii) proceeds of loans, including, without limitation, the Loans; and (iv) insurance
proceeds and books and records relating to any of the property covered by this
Agreement; together, in each instance, with all accessions and additions
thereto, substitutions therefor, and all renewals, replacements, proceeds and
products thereof.

 

7.2                                 Authorization.  The Borrower hereby authorizes the Lender to
set-off and retain, without any necessity on the Lender’s part to resort to
other security or sources of reimbursement 

 

18

 

for
the Indebtedness, at any time following the occurrence and during the
continuance of any Event of Default, and without further notice to Borrower
(such notice being expressly waived), any of the deposits referred to in Section 7.1
or elsewhere in this Agreement (whether general, or special, time or demand,
provisional or final) or other sums or property held by Lender, for application
against any Indebtedness, irrespective of whether any demand has been made or
whether such Indebtedness is mature.  The
Lender will promptly notify Borrower of the Lender’s receipt of such funds or
other property for application against the Indebtedness, but failure to do so
will not affect the validity or enforceability thereof.

 

7.3                                 Attachment and
Continuity of Security Interest.  The pledge of, lien upon, and security
interest granted and hereby created in the Collateral shall extend and attach
to the entire Collateral which is presently in existence and which is owned by
Borrower or in which Borrower has an interest, and all Collateral which
Borrower may purchase or in which Borrower may acquire an interest at any time
and from time to time in the future, whether such Collateral is in transit or
in Lender’s constructive, actual or exclusive occupancy or possession or not,
or held by Borrower or others for Borrower’s or Lender’s account and wherever
the same may be located, including, but without limiting the generality of the
foregoing, all Collateral which may be located on Borrower’s premises or upon
the premises of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents, consignees, finishers, converters or other third
parties who may have possession of the Collateral.

 

Upon
the sale, exchange, or other disposition of the Collateral, the security
interest and lien created and provided for herein shall, without break in
continuity and without further formality or act, continue in and attach to the
instruments for the payment of money, Accounts, documents of title, shipping
documents, chattel paper and all other cash and noncash proceeds of such sale,
exchange or disposition, including Collateral returned or rejected by customers
or repossessed by Borrower or Lender.  As
to any such sale, exchange or disposition, Lender shall have all the rights of
an unpaid seller, including stoppage in transit, replevin and reclamation.

 

7.4                                 Perfection and
Maintenance of Security Interest.  The Borrower agrees that until all of the
Indebtedness has been indefeasibly paid in full and this Agreement has been
terminated, the Lender’s security interests in and liens on and against the
Collateral, and all proceeds and products thereof, shall continue in full force
and effect.  Borrower shall perform any
and all steps reasonably requested by the Lender to perfect, maintain and
protect the Lender’s security interests in and liens on and against the
Collateral granted or purported to be granted hereby and by the other Loan
Documents or Collateral Documents, or to enable the Lender to exercise its
rights and remedies hereunder and under the other Loan Documents or Collateral
Documents with respect to any Collateral, including, without limitation, (i) executing
and filing financing and continuation statements, or amendments thereof, in
form and substance reasonably satisfactory to the Lender, (ii) executing
and recording the Collateral Documents in form and substance reasonably
satisfactory to the Lender, (iii) delivering to the Lender all
certificates, notes and other instruments (including, without limitation, all
letters of credit on which Borrower is named as a beneficiary) representing or
evidencing Collateral duly endorsed and accompanied by duly executed
instruments of transfer or assignment, including, but not limited to, note
powers, all in form and substance satisfactory to the Lender, (iv) maintaining
complete and accurate stock records, (v) delivering to the Lender
warehouse receipts covering that portion of the Collateral, if any, located in
warehouses and for which warehouse receipts are

 

19

 

issued,
(vi) after the occurrence and during the continuance of an Event of
Default, transferring Inventory to warehouses designated by the Lender or
taking such other steps as are deemed necessary by the Lender to maintain the
Lender’s control of the Inventory, (vii) placing notations on Borrower’s
books of account to disclose the Lender’s security interest therein and marking
conspicuously each document, contract, chattel paper and all records pertaining
to the Collateral with a legend, in form and substance satisfactory to the
Lender, indicating that such document, contract, chattel paper, or Collateral
is subject to the security interest granted herein and (viii) executing
and delivering all further instruments and documents, and taking all further
action, as the Lender may reasonably request.

 

7.5                                 Financing
Statements.  To the
extent permitted by applicable law, the Borrower hereby authorizes the Lender
to file one or more financing or continuation statements and amendments
thereto, disclosing the security interest granted to the Lender under this
Agreement without Borrower’s signature appearing thereon and Lender agrees to
notify Borrower when such a filing has been made.  Borrower agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.

 

SECTION 8.  COLLATERAL:  ACCOUNTS.

 

8.1                                 Verification of
Accounts.  Any of
Lender’s officers, employees or agents shall have the right, at any time or
times hereafter, in Lender’s name, or in the name of a firm of independent
certified public accountants acceptable to Lender, to verify the validity,
amount or any other matter relating to any Accounts by mail, telephone,
telegraph or otherwise.

 

8.2                                 Assignments,
Records and Borrowing Base Certificate.  Borrower shall keep accurate and complete
records of its Accounts.  Borrower shall
deliver to Lender a daily Borrowing Base Certificate, together with formal
written assignments of all of its Accounts and copies of the invoices related
thereto if requested by Lender.  Borrower
shall also deliver to Lender upon demand, the original copy of all documents,
including, without limitation, repayment histories, present status reports and
shipment reports, relating to the Accounts included in any Borrowing Base
Certificate and such other matters and information relating to the status of
then existing Accounts as Lender shall reasonably request.

 

8.3                                 Notice
Regarding Disputed Accounts.  Borrower shall give Lender prompt written
notice of any Accounts in excess of Ten Thousand and no/100 ($10,000.00)
Dollars which are in dispute between any Account Debtor and Lender.

 

SECTION 9.  COLLATERAL:  INVENTORY.

 

9.1                                 Sale of
Inventory.  Until an
Event of Default occurs, Borrower may sell Inventory in the ordinary course of
its business (which does not include a transfer in partial or total
satisfaction of indebtedness).

 

9.2                                 Safekeeping of
Inventory; Inventory Covenants.  Lender shall not be responsible for (i) the
safekeeping of the Inventory; (ii) any loss or damage thereto or
destruction thereof occurring or arising in any manner or fashion from any
cause; (iii) any diminution in the value of

 

20

 

the
Inventory; or (iv) any act or default of any carrier, warehouseman, bailee
or forwarding agency or any other Person in any way dealing with or handling
the Inventory.  All risk of loss, damage,
distribution or diminution in value of the Inventory shall be borne by the
Borrower except in the case of gross negligence or willful misconduct by
Lender.

 

9.3                                 Records and
Schedules of Inventory. 
Borrower shall keep correct and accurate daily records on a first-in,
first-out basis, itemizing and describing the kind, type, quality and quantity
of Inventory, and shall, at the request of Lender, furnish to Lender, copies of
the working papers related thereto.  A
physical count of the Inventory shall be conducted no less often than annually
and a report based on such count of Inventory shall promptly thereafter be
provided to Lender together with such supporting information (including,
without limitation, invoices relating to Borrower’s purchase of goods listed in
said report) as Lender shall, in its sole and absolute discretion, request.

 

9.4                                 Returned and
Repossessed Inventory.  If
at any time prior to the occurrence of an Event of Default, any Account Debtor
returns any Inventory to Borrower in excess of Ten Thousand and 00/100
($10,000.00) Dollars, Borrower shall promptly determine the reason for such
return and, if Borrower accepts such return, issue a credit memorandum (with a
copy to be sent to Lender if Lender has so requested) in the appropriate amount
to such Account Debtor.  After the
occurrence of an Event of Default, Borrower shall hold all returned Inventory
in trust for Lender, shall segregate all returned Inventory from all other
property of Borrower or in Borrower’s possession and shall conspicuously label
said returned Inventory as the property of Lender.  Borrower shall, at all times subsequent to
the occurrence of an Event of Default, immediately notify Lender of the return
of any Inventory, specifying the reason for such return and the location and
condition of the returned Inventory.

 

SECTION 10.  FINANCIAL
REPORTING AND AUDITS.

 

As
soon as available, but not later than ninety (90) days after the end of each
fiscal year of Borrower, Borrower shall furnish the Lender with annual audited
financial statements of Borrower, containing the balance sheet of the Borrower
as of the close of each such fiscal year, statements of income and retained
earnings and a statement of cash flows for each such fiscal year; and such
other comments and financial details as are usually included in similar
reports.  Such financial statements shall
(a) be in form and reporting basis satisfactory to the Lender, (b) be
prepared in accordance with GAAP by an independent certified public accounting
firm selected by Borrower and acceptable to the Lender (“Borrower’s Accounting
Firm”), and (c) contain unqualified opinions as to the fairness of the
statements therein contained.  Borrower
shall also provide to the Lender any management letters that may accompany the
statements.  Concurrently with such
annual statements, Borrower shall furnish to the Lender a copy of Borrower’s
corporate federal income tax return and annual updated financial statements of
each Guarantor.

 

As
soon as available, but not later than fifteen (15) days after the end of each
month, Borrower shall furnish the Lender with (i) internally prepared
monthly financial statements of Borrower, in form and content satisfactory to
Lender, and (ii) a monthly covenant compliance certificate, in form and
content satisfactory to Lender (including a certificate by the chief

 

21

 

executive
or financial officer of Borrower containing a computation of, and showing
compliance with, each of the financial covenants contained in Section 14.1
hereof).  The validity and accuracy of
said financial statements shall be certified by the chief executive or
financial officer of the Borrower, in a form satisfactory to the Lender.

 

Borrower
shall deliver to the Lender monthly accounts receivable agings and monthly
accounts payable agings within fifteen (15) days after month-end, in form
acceptable to Lender.

 

Borrower
shall deliver to the Lender a daily borrowing base certificate, in form
acceptable to Lender.

 

Borrower
shall deliver to the Lender annually copies of the federal income tax returns
of each Guarantor within thirty (30) days after the filing of such returns.

 

Borrower
shall deliver to the Lender a quarterly backlog report within fifteen (15) days
after the end of each fiscal quarter.

 

Upon
request by Lender and from time to time (but no more often than annually)
Borrower’s Accounting Firm shall issue Borrower and Lender an accountant’s
reliance letter, in form and substance acceptable to Lender in its sole
discretion.

 

Borrower
shall also promptly provide the Lender with such other information, financial
or otherwise, concerning the Borrower or the Guarantors, as the Lender may
reasonably request from time to time.

 

The
Lender shall make any and all audits and investigations which it deems
reasonably necessary in connection with the Collateral.  For the purposes of this Agreement, the
Lender shall have free and ready access at all times during normal business
hours, upon reasonable advance oral or written notice (unless in the Lender’s
reasonable judgment a rapid deterioration or loss to any Collateral is
threatened, in which case no notice shall be given and access shall not be
limited to normal business hours), to the books of account, records, papers and
documents of Borrower.  Without limiting
the generality of the foregoing, the Lender shall conduct quarterly field audits
of the Borrower (or more frequent audits if deemed reasonably necessary by the
Lender under the circumstances then existing), and Borrower shall reimburse the
Lender for all reasonable costs and expenses incurred by Lender’s internal
auditors for such audits, plus $500 per auditor per diem during the duration of
the Loans.

 

SECTION 11.  OPINION OF
COUNSEL.

 

Prior
to the initial disbursement of the Loans, Borrower shall provide a favorable
opinion of counsel for the Borrower, addressed to the Lender in the form
required by the Lender.

 

SECTION 12.  INSURANCE.

 

Borrower
shall, at its sole cost and expense, keep and maintain the Collateral insured
for its full insurable value against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks as are customarily insured against
by Persons engaged in businesses similar to that of

 

22

 

Borrower
with such companies, in such amounts, with such deductibles, and under policies
in such form, as shall be reasonably satisfactory to Lender.  Each such policy shall contain an
endorsement, in form and substance satisfactory to Lender, showing loss under
such insurance policies payable to Lender pursuant to a Lender’s Loss Payee
endorsement and not containing a co-insurance clause.  Such endorsement, or an independent
instrument furnished to Lender, shall provide that the insurer shall give
Lender at least thirty (30) days written notice before any such policy of
insurance is altered or cancelled and that no act, whether willful or negligent,
or default of Borrower or any other Person shall affect the right of Lender to
recover under such policy of insurance in case of loss or damage.  Borrower hereby directs all insurers under
such policies of insurance to pay all proceeds payable thereunder directly to
Lender.

 

In
addition, Borrower will maintain, at its sole expense, such public liability
and third party property damage insurance as is customary for Persons engaged
in businesses similar to that of Borrower with such companies and in such amounts,
with such deductibles and under policies in such form, as shall be reasonably
satisfactory to Lender.  Each such policy
shall contain an endorsement showing Lender as additional insured thereunder
and providing that the insurer shall give Lender at least thirty (30) days
written notice before any such policy shall be altered or cancelled.

 

Upon
Lender’s request, Borrower shall deliver to Lender certified copies of all such
policies of insurance, together with evidence of payment of all premiums
therefor.

 

If
Borrower shall at any time or times hereafter fail to obtain and/or maintain
any of the policies of insurance required herein, or fail to pay any premium in
whole or in part relating to such policies, after ten (10) days written
notice to Borrower, the Lender may, but shall not be obligated to, obtain
and/or cause to be maintained insurance coverage(s) required herein, and
pay all or any part of the premium therefor, without waiving any default by
Borrower; and any sums so disbursed shall be additional loans to Borrower by
Lender payable on demand.  In the event
of loss or damage to any Collateral exceeding $20,000.00 in value, Borrower
will give immediate notice to the Lender and the Lender may make proof of loss
if not made by Borrower within twenty (20) days after such occurrence.  In addition, the Lender shall have the right
to settle and compromise any and all claims exceeding $20,000.00 under any of
the policies required to be maintained by Borrower hereunder and Borrower
hereby appoints the Lender as its attorney-in-fact with power to demand,
receive, and receipt for all monies payable thereunder, to execute in the name
of Borrower or the Lender or both any proof of loss, notice, draft or other
instruments in connection with such policies or any loss thereunder and
generally to do and perform any and all acts as Borrower, but for this
appointment might or could perform.  If
on the date of a loss, no Event of Default shall have occurred and be
continuing, Borrower will be allowed to employ the insurance proceeds to
restore any portion of the Collateral which has been damaged or destroyed.

 

SECTION 13.  REPRESENTATIONS
AND WARRANTIES.

 

13.1                           General
Representations and Warranties.  Borrower hereby represents and warrants to
the Lender that:

 

(a)                                  The correct
corporate name of Borrower is set forth in the first paragraph of this
Agreement.  The Borrower currently
conducts business under its correct legal name as set forth

 

23

 

in
the first paragraph of this Agreement. 
Except as set forth in Exhibit B
attached hereto, Borrower has not changed its corporate name or used any trade
or fictitious name in the last (5) five years.  The locations listed on Exhibit C
constitute all locations at which Borrower’s Inventory and/or Equipment is
located and Borrower has exclusive possession and/or control of its Equipment
and Inventory.  The chief place of
business and chief executive office of the Borrower is located at the
Borrower’s address specified above in the first paragraph of this
Agreement.  All records concerning
Borrower’s Accounts, General Intangibles and all originals of all chattel paper
which evidence any Account or General Intangible of Borrower are located at the
Borrower’s address set forth in the first paragraph of this Agreement, and none
of the Borrower’s Accounts or General Intangibles is evidenced by a promissory
note or other instrument except for such notes and other instruments delivered
to Lender; and

 

(b)                                 The Borrower is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Illinois, and is qualified or licensed to do business in
all other countries, states and provinces in which the laws thereof require
Borrower to be so qualified and/or licensed; and

 

(c)                                  The Borrower
has the full power and authority to enter into and perform all of its
obligations under this Agreement, and all other Loan Documents; and

 

(d)                                 The execution,
delivery and performance by Borrower of this Agreement and all other Loan
Documents have been duly authorized by all necessary corporate action and will
not violate any provision of law or Borrower’s articles of incorporation or
bylaws, or result in the breach of or constitute a default or require any consent
under, or result in the creation of any lien, charge, or encumbrance upon any
property or assets of Borrower (except the security interest of the Lender)
pursuant to any indenture or other agreement or instrument to which Borrower is
a party or by which Borrower or its property may be bound or affected; and

 

(e)                                  This Agreement
is, and each of the other Loan Documents when executed and delivered by
Borrower under this Agreement will be, the legal, valid and binding obligations
of Borrower enforceable against Borrower in accordance with their respective
terms; and

 

(f)                                    The Borrower is
the sole lawful owner of the Collateral and has the sole right and lawful
authority to deliver this Agreement.  The
Collateral and every part thereof is, and will hereafter remain, free and clear
of all security interests, liens, attachments, levies, and encumbrances of
every kind, nature and description, except the security interest of the Lender
and Permitted Liens.  Borrower will warrant
and defend the Collateral against any claims and demands of all Persons at any
time claiming the same or any interest therein adverse to the Lender; and

 

(g)                                 No financing
statement covering the Collateral or any part thereof, is on file in any public
office (other than financing statements in favor of Lender and the financing
statement evidencing Seller’s subordinate security interest in the
Collateral).  The security interest in
the Collateral granted by Borrower to Lender is valid and enforceable and
constitutes a first priority security interest therein.  The security interest in the Leased Equipment
and Equipment Lease granted by Seller to Lender is valid and enforceable and
constitutes a first priority security interest therein.  The security interest in the Pledged Stock
granted by the Guarantors to Lender is valid and

 

24

 

enforceable
and constitute a second priority security interest therein (behind the first
priority security interest of Seller therein); and

 

(h)                                 No
authorization, approval or other action by, and no notice to or filing with,
any governmental authority that have not already been taken or made and which
are in full force and effect, is required (i) for the grant by the
Borrower of the security interest in the Collateral granted hereby; (ii) the
execution, delivery or performance of this Agreement by the Borrower; or (iii) for
the exercise by the Lender of its rights or remedies hereunder; and

 

(i)                                     Borrower’s use
of the proceeds of any advances and readvances by Lender made by Lender to
Borrower pursuant to this Agreement are, and will continue to be, legal and
proper corporate uses (duly authorized by its Board of Directors, if necessary
pursuant to applicable corporate law, rule or regulation) and such uses
are consistent with all applicable laws and statutes, as in effect as of the
date hereof; and

 

(j)                                     The balance
sheets and statements of income and retained earnings of Borrower, heretofore
furnished to the Lender, and all accompanying financial information heretofore
furnished to the Lender, are complete and correct in all material respects and
fairly represent the financial condition of Borrower as at the dates of said
financial statements and the results of its operations for the periods ending
on said dates.  Borrower has no material
contingent obligations, liabilities for taxes, long-term leases, or unusual
forward or long-term commitments not disclosed by, or reserved against in, said
balance sheets or the notes thereto; and at the present time there are no material
unrealized or anticipated losses from current operations.  Said financial statements were prepared in
accordance with GAAP; and

 

(k)                                  Prior to the
closing of the Loans, there has been no material change in the financial
condition of Borrower or any Guarantor from that set forth in the Borrower’s
most recent financial statement, and, to the best of Borrower’s knowledge, the
financial statements of Guarantors, and the financial information contained
therein was true and correct on the date the statements were issued and there
has been no material adverse changes as of the closing date of the Loans; and

 

(1)                                  There are no
suits or proceedings pending, or to the knowledge of Borrower threatened
against or affecting Borrower which, if adversely determined, would have an
adverse effect on the financial condition or business of Borrower or its
ability to perform its obligations under this Agreement or any of the other
Loan Documents, and there are no proceedings by or before any court,
governmental commission, board, bureau, or other administrative agency pending
or, to the knowledge of Borrower, threatened against Borrower; and

 

(m)                               Borrower has
filed all federal, state and local tax returns required to be filed by it
(including, but not limited to, income and payroll tax returns) and other
reports, which Borrower is required by law, rule or regulation to file,
and all Charges that are due and payable have been paid; and

 

(n)                                 Now and after
consummation of the Loans, Borrower has and shall have capital sufficient to
carry on its business and transactions and all businesses and transactions in
which it is about to

 

25

 

engage
and is now and shall be solvent and able to pay its debts as they mature, and
Borrower now owns and shall own property the fair salable value of which is and
shall be greater than the amount required to pay Borrower’s debts.  For the purposes of this subsection, the term
“fair salable value” shall mean the amount that would be agreed upon between a
willing buyer and a willing seller under no compulsion to make the sale, in the
sale of the assets and business of the Borrower as a going concern; and

 

(o)                                 Borrower is in
compliance with all other statutes, ordinances, governmental rules and
regulations to which it is subject, and has not and shall not fail to obtain
any licenses, permits, franchises, or other governmental authorizations
necessary to the ownership of its properties or to the conduct of its business,
which violation or failure to obtain would adversely affect the business,
prospects, profits, properties, condition (financial or otherwise) of the
Borrower, or the security interest, liens, or rights of the Lender in the
Collateral; and

 

(p)                                 To the best of
its knowledge, Borrower has duly complied with, and its businesses, operations,
assets, Equipment, property, leaseholds, or other facilities are in compliance
with, the provisions of all applicable federal, state, and local environmental,
health, and safety laws, codes and ordinances; and

 

(q)                                 To the best of
its knowledge, Borrower’s present uses of the Real Property comply with all
federal, state and local environmental laws, and regulations; and Borrower has
never received any notice of any violations of environmental laws, rules or
regulations and no actions have been commenced or threatened for
noncompliance.  The Borrower shall
immediately provide the Lender with any notice received by the Borrower
pertaining to any violations of environmental laws, rules or regulations;
and

 

(r)                                    Neither the
business nor the properties of Borrower are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance), materially and adversely affecting such
business or properties or the operation of the Borrower; and

 

(s)                                  The Borrower is
not a party to any indenture, loan or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate
restriction which could have a material adverse effect on the business,
properties, assets, operations, or conditions, financial or otherwise, of the
Borrower, or the ability of the Borrower to carry out its obligations under
this Agreement and the other Loan Documents. 
The Borrower is not in default in any material respect in the
performance, observance, or fulfillment of any of the obligations, covenants,
or conditions contained in any agreement or instrument (material to its
business) to which it is a party.  The
Borrower has disclosed to the Lender in writing all facts which might
materially and adversely affect the business, credit, operations, financial
condition or prospects of the Borrower or any Subsidiary or which might
materially and adversely affect any material portion of the Borrower’s
properties, or the Borrower’s ability to perform its obligations under this
Agreement or the other Loan Documents; and

 

(t)                                    The Borrower
has satisfied all judgments and is not in default with respect to any judgment,
writ, injunction, decree, rule, or regulation of any court, arbitrator, or
federal, state,

 

26

 

municipal,
or other governmental authority, commission, board, bureau, agency, or instrumentality,
domestic or foreign; and

 

(u)                                 To the best of
its knowledge, the Borrower has not used Hazardous Materials on or affecting
the Real Property in any manner which violates federal, state or local laws,
ordinances, statutes, rules, regulations or judgments governing the use,
storage, treatment, handling, manufacture, transportation, or disposal of
Hazardous Materials (“Environmental Laws”), and that, to the best of Borrower’s
knowledge, no prior owner of the Real Property or any current or prior occupant
has used Hazardous Materials on or affecting the Real Property in any manner
which violates Environmental Laws.  The
Borrower covenants and agrees that neither it nor any occupant shall use,
introduce or maintain Hazardous Materials on the Real Property in any manner
unless done in strict compliance with all Environmental Laws.

 

“Hazardous
Materials” includes, without limitation, any flammable explosives, radioactive
materials, hazardous materials, hazardous wastes, hazardous or toxic substances
or related materials defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et
seq.), the Hazardous Materials Transportation Act, as amended (42 U.S.C. Section 1801,
et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 9601, et seq.) and in the regulations adopted and publications
promulgated pursuant thereto, or any other federal, state or local governmental
law, ordinance, rule, or regulation.

 

13.2                           Account
Representations and Warranties.  Borrower represents and warrants that Lender
may rely, in determining which Accounts listed on any Borrowing Base
Certificate are Eligible Accounts, without independent investigation of any
statements or representations made by Borrower on or with respect to any such
Borrowing Base Certificate, and unless otherwise indicated in writing by
Borrower, that:

 

(a)                                  Such Accounts
are genuine, are in all respects what they purport to be, are not evidenced by
a judgment and, if evidenced by an instrument, agreement, contract or document,
are evidenced by only one executed original instrument, agreement, contract or
document, which has been endorsed and delivered to Lender;

 

(b)                                 Such Accounts
represent undisputed, bona fide transactions completed in accordance with the
terms and provisions contained in any documents related thereto;

 

(c)                                  Except for
credits issued to any Account Debtor in the ordinary course of Borrower’s
business for Inventory returned pursuant to Section 9.4 of this Agreement,
the amounts shown on the Borrowing Base Certificate, and all invoices and
statements delivered to Lender with respect to any Account, are actually and
absolutely owing to Borrower and are not contingent for any reason;

 

(d)                                 To the best of
Borrower’s knowledge, except as may be disclosed on such Borrowing Base
Certificate, there are no setoffs, counterclaims or disputes existing or
asserted with respect to any Accounts included on a Borrowing Base Certificate,
and Borrower has not made any agreement with any Account Debtor for any
deduction from such Account, except for discounts 

 

27

 

or
allowances allowed by Borrower in the ordinary course of its business for
prompt payment, all of which discounts or allowances are reflected in the
calculation of the invoice related to such Account;

 

(e)                                  To the best of
Borrower’s knowledge, there are no facts, events or occurrences which in any
way impair the validity or enforcement of any of the Accounts or tend to reduce
the amount payable thereunder from the amount of the invoice shown on any
Borrowing Base Certificate, and on all contracts, invoices and statements
delivered to Lender with respect thereto;

 

(f)                                    To the best of
Borrower’s knowledge, all Account Debtors are solvent and had the capacity to
contract at the time any contract or other document giving rise to the Account
was executed;

 

(g)                                 The goods, the
sale of which gave rise to the Accounts are not, and were not at the time of
the sale thereof, subject to any lien, claim, security interest or other
encumbrance, except those of Lender and the subordinate security interest of
Seller, and those removed or terminated prior to the date hereof;

 

(h)                                 Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectibility of any of the Accounts;

 

(i)                                     To the best of
Borrower’s knowledge, there are no proceedings or actions which are threatened
or pending against any Account Debtor which might result in any material
adverse change in its financial or other condition;

 

(j)                                     The Accounts
have not been pledged or assigned to any other Person, and the Lender has a
first and valid fully perfected security interest in the Accounts; and

 

(k)                                  No covenant,
representation or warranty contained in this Agreement with respect to such
Accounts has been breached.

 

13.3                           Automatic
Representation and Warranty and Reaffirmation of Representations and Warranties.  Each request for an advance by Borrower
pursuant to this Agreement or the other Loan Documents shall-constitute (i) an
automatic representation and warranty by Borrower to Lender, as of the date of
said request, that there does not exist a Default or an Event of Default, and (ii) a
reaffirmation, as of the date of said request, of all of the representations
and warranties of Borrower contained in this Agreement and the other Loan
Documents.

 

13.4                           Survival of
Representations and Warranties.  Borrower covenants, warrants and represents
to Lender that all representations and warranties of Borrower contained in this
Agreement and the other Loan Documents shall be true at the time of Borrower’s
execution of this Agreement and the other Loan Documents, and shall survive the
execution, delivery and acceptance thereof by the parties thereto and the
closing of the transactions described therein or related thereto.

 

28

 

SECTION 14.  COVENANTS AND
CONTINUING AGREEMENTS.

 

14.1                           Financial
Covenants.  Borrower
covenants to Lender and agrees that so long as any Indebtedness shall remain
unpaid:

 

(a)                                  Minimum
Tangible Net Worth.  Borrower
will maintain at all times a minimum Tangible Net Worth of not less than
$1,250,000.00 (to be tested quarterly).

 

(b)                                 Cash Flow
Coverage.  Borrower
will maintain at all times a Cash Flow Coverage of not less than 1.3 to 1.0 (to
be tested quarterly, initially on a cumulative basis, and after the first four
quarters, on a rolling four quarter basis, beginning with the 3/31/97 income
statement).

 

(c)                                  Total
Unsubordinated Debt to Tangible Net Worth.  Borrower will maintain at all times a ratio
of total unsubordinated Debt to Tangible Net Worth of not greater than 6.0 to
1.0.

 

(d)                                 Capital
Expenditures.  Borrower
will not make or incur Capital Expenditures in excess of $500,000.00 in the
aggregate in any fiscal year.

 

(e)                                  Limit on Lease
Expense.  Borrower will not create,
incur, assume or suffer to exist any obligation as lessee for the rental or
hire of any real or personal property, except leases that do not in the
aggregate require the Borrower to make payments (including taxes, insurance,
maintenance, and similar expenses required to be paid under the leases) in any
fiscal year of Borrower in excess of $120,000.00, exclusive of the lease
payments required under the Equipment Lease.

 

The
financial requirements set forth hereinabove shall be computed in accordance
with GAAP.

 

14.2                           Affirmative
Covenants.  Borrower
covenants to Lender and agrees that until the Loans and all other Indebtedness
shall be fully paid and discharged, it will:

 

(a)                                  Preserve and
maintain its corporate existence and good standing in the state of Illinois and
its qualification to do business in each other country, state or province
where, because of the nature of its activities or properties, the failure of
Borrower to be so qualified would have a material adverse effect on its
financial conditions or operations or on the security interest or rights of the
Lender in the Collateral; and

 

(b)                                 Keep its chief
place of business and chief executive office and the office where it keeps its
records concerning its Accounts and General Intangibles, and the office where
it keeps all originals of all chattel paper which evidence Accounts and General
Intangibles, at the Borrower’s address specified above in the first paragraph
of this Agreement, or, upon thirty (30) days prior written notice to the
Lender, at such other location in the State of Illinois.  The Borrower will hold and preserve such
records and chattel paper and will permit representatives of the Lender at any
time during normal business hours to inspect and make abstracts from such
records and chattel paper; and

 

(c)                                  Keep Borrower’s
Equipment, Inventory and all other tangible personal property at the Borrower’s
address(es) specified in Exhibit C
attached hereto, or, upon thirty (30) days prior written notice to the Lender,
at such other location in the State of Illinois; and

 

29

 

(d)                                 Maintain, keep
and preserve all of its properties (tangible and intangible) necessary or
useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted; and

 

(e)                                  Take all
actions necessary or required by law to protect and preserve the Collateral,
the rights of the Borrower and Lender thereunder, and the priority of the lien
granted thereby, including, without limitation, the payment of all amounts
required for that purpose; and

 

(f)                                    Continue to
engage in a business of the same general type as now conducted by it on the
date of this Agreement; and

 

(g)                                 Keep adequate
records and books of account, in which complete entries will be made in
accordance with GAAP, reflecting all of its financial transactions; and

 

(h)                                 Keep and
maintain at Borrower’s own cost and expense satisfactory and complete records
of the Collateral in a manner consistent with Borrower’s current business
practice, including, without limitation, a record of all payments received and
all credits granted with respect to such Collateral.  Borrower shall, for the Lender’s further
security, deliver and turn over to the Lender or the Lender’s designated
representatives at any time following the occurrence of an Event of Default and
upon three (3) days’ notice from the Lender or the Lender’s designated
representative, any such books and records (including, without limitation, any
and all computer tapes, programs and source codes relating to such Collateral
in which Borrower has an interest or any part or parts thereof; in such event
Lender shall provide Borrower with true and complete copies of such books and
records); and

 

(i)                                     Furnish Lender,
from time to time, with such information relevant to this Agreement and
Borrower’s performance hereunder as Lender may request; and

 

(j)                                     Immediately
upon the execution of this Agreement, make appropriate entries upon its books
disclosing Lender’s security interest in the Collateral.  Upon Lender’s request, following an Event of
Default, Borrower will execute and deliver all papers and instruments, and do
all things required by Lender to facilitate collection of the Collateral; and

 

(k)                                  Provide Lender
from time to time, promptly upon request of Lender, with a comprehensive
updated list of all Account Debtors of Borrower, including their current
addresses and telephone numbers; and

 

(1)                                  Advise the
Lender promptly, in reasonable detail, of (i) any lien, security interest,
encumbrance, or claim made by or asserted against any or all of the Collateral,
and (ii) the occurrence of any other event which would have a material
adverse effect on the aggregate value of such Collateral or on the security
interests and liens with respect to such Collateral created hereunder; and

 

(m)                               At all times
during normal business hours, upon reasonable advance notice (unless in the
Lender’s reasonable judgment a rapid deterioration or loss to any Collateral is
threatened, in which case no notice shall be given), permit the Lender, or any
agent or representative thereof to examine and make copies of and abstracts
from the records and books of account of Borrower

 

30

 

and
visit the properties of Borrower, and to discuss the affairs, finances, and
accounts of Borrower with any of its officers, directors and independent
accountants; and

 

(n)                                 Promptly, upon
the Borrower’s learning thereof, (a) inform the Lender in writing, of any
material delay in Borrower’s performance of any of its obligations to any
Account Debtor; and (b) furnish to and inform the Lender of all material
adverse information relating to the financial condition of any Account Debtor;
and

 

(o)                                 Comply in all
material respects with all applicable laws, ordinances, rules and
regulations to which it is subject and not fail to obtain any licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its properties or to the conduct of its business, which violation
or failure to obtain would materially and adversely affect the business,
prospects, profits, properties, condition (financial or otherwise) of Borrower,
or the security interest, or rights of the Lender in the Collateral; and

 

(p)                                 Promptly after
the commencement thereof, give the Lender notice of all actions, suits and
proceedings before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting Borrower,
which, if determined adversely to Borrower, could have a material adverse
effect on its financial condition, properties or operations; and

 

(q)                                 Pay and
discharge all material obligations of whatever nature, or otherwise satisfy
them at or before maturity or before they become delinquent and any additional
costs are imposed as a result thereof, except those contested by Borrower in
good faith, with due diligence, provided the Lender’s security interest or
rights in the Collateral or any portion thereof, is not, or could not be, in
the Lender’s sole opinion, affected, impaired or modified; and

 

(r)                                    Give the Lender
written notice as soon as possible and in any event within three (3) days
after Borrower obtains knowledge of the occurrence of each Event of Default
hereunder, setting forth the details of such Event of Default and the action
which is proposed to be taken by Borrower with respect thereto; and

 

(s)                                  In any suit,
proceeding or action brought by the Lender with respect to any of Borrower’s
Accounts or General Intangibles or other property comprising part of the
Collateral, the Borrower will save, indemnify and keep the Lender harmless from
and against all expenses, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder, arising out of a breach by Borrower of any obligation or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such obligor or its successors from Borrower, and all such
obligations of Borrower shall be and shall remain enforceable against and only
against Borrower and shall not be enforceable against the Lender; and

 

(t)                                    Promptly after
the sending or filing thereof, provide the Lender with copies of all proxy
statements, financial statements, and reports which Borrower sends to its
stockholders, and copies of all regular, periodic, and special reports, and all
registration statements which Borrower files with the Securities and Exchange
Commission or any governmental authority which may be substituted thereof, or
with any national securities exchange; and

 

31

 

(u)                                 As soon as
possible, and in any event within ten (10) days after Borrower knows or
has reason to know that any circumstances exist that constitute grounds
entitling the PBGC to institute proceedings to terminate a Plan of Borrower
subject to ERISA, and the regulations promulgated thereunder, or to appoint a
Trustee to administer such Plan, or to impose withdrawal liability against
Borrower, Borrower will notify the Lender in writing setting forth all relevant
details and the action which Borrower proposes to take with respect thereto;
and

 

(v)                                 Give Lender
written notice thirty (30) days prior to any change in Borrower’s name, mailing
address, principal place of business, chief executive office, or location of
the Collateral or Borrower’s books and records. 
Borrower further agrees to advise Lender promptly, in sufficient detail,
of any substantial change relating to the type, quantity or quality of the
Collateral, or any event which would have a material adverse effect on the
value of the Collateral or on the lien and security interest granted to Lender
herein; and

 

(w)                               Execute and deliver
to Lender, concurrently with the execution of this Agreement, and at any time
or times thereafter at the reasonable request of Lender, all Financing
Statements and other Collateral Documents (and pay the cost of filing and
recording the same in all public offices deemed necessary by the Lender) as the
Lender may request, in a form reasonably satisfactory to the Lender, to perfect
and keep perfected the security interest in the Collateral granted by Borrower
to the Lender or to otherwise protect and preserve the Collateral and the
Lender’s security interest therein. 
Should Borrower fail to do so, the Lender is authorized to sign any such
Financing Statements as Borrower’s agent; and

 

(x)                                   Deliver to
Lender forthwith upon its demand, such other collateral as the Lender may
request from time to time should the value of the Collateral decline,
deteriorate, depreciate or become impaired, and Borrower shall execute such
documents deemed necessary by the Lender to perfect its security interest in
such other collateral; and

 

(y)                                 In the event
any of the Borrower’s Inventory is consigned to third persons dealing in goods
of that kind, Borrower agrees to obtain and provide Lender with such Financing
Statements, notices and other documents signed by Borrower and the consignees
deemed reasonably necessary by Lender to insulate such consigned collateral
from the claims of the consignee’s creditors; and

 

(z)                                   Cause its
compliance with all present and future Environmental Laws pertaining to
Borrower, the Real Property, or Borrower’s business, and voluntarily to clean
up all Hazardous Materials released, discharged, stored or discharged upon
their discovery and to be fully liable to the Lender for all costs and expenses
incurred by the Lender arising from such Environmental Materials.

 

The
Borrower shall protect, and does hereby agree to defend, indemnify and hold the
Lender harmless from and against any and all loss, damage, cost, expense and
liability (including without limitation reasonable attorneys’ fees and costs)
directly or indirectly arising out of or attributable to the installation, use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of any Hazardous Materials on, under or about
the Real Property, including without limitation (i) all foreseeable
consequential damages; and (ii) the costs of any required or necessary
repair, cleanup, detoxification of the Real

 

32

 

Property;
and (iii) the preparation and implementation of any closure, or remedial
or other required plans.  This indemnity
shall survive the satisfaction, release or extinguishment of the lien of the
Lender’s security interest in the Collateral; and

 

(aa)                            Keep in effect
a $1,000,000.00 life insurance policy upon the life of J. Cameron Drecoll with
an insurance company acceptable to the Lender and at all times keep the
Collateral Assignment of Life Insurance in full force and effect and pay all
required policy premiums.

 

14.3                           Negative
Covenants. Borrower further covenants to Lender and agrees
that until the Loans and all other Indebtedness shall be fully paid and
discharged, it will not, without the prior written consent of the Lender:

 

(a)                                  Create, incur,
assume, or suffer to exist, any mortgage, deed of trust, pledge, lien, security
interest, hypothecation, assignment, deposit arrangement, or other preferential
arrangement, charge, or encumbrance (including, without limitation, any
conditional sale, or other title retention agreement, or finance lease), of any
nature, upon or with respect to any of its properties, now owned or hereafter
acquired, or sign or file, under the UCC of any jurisdiction a financing
statement which names the Borrower as a debtor, or sign any agreement
authorizing any party thereunder to file such financing statement, except
mortgages, deeds of trust, pledges, liens, security interests, assignments,
deposit arrangements, or other arrangements, charges, or encumbrances in favor
of the Lender and Permitted Liens; or

 

(b)                                 Sell, lease,
transfer or otherwise dispose of any of its now owned or hereafter acquired
assets (including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables, and leasehold interests), except for Inventory
disposed of in the ordinary course of business, and sales of obsolete, worn out
or unusable tangible personal property which is concurrently replaced with
similar personal property at least equal in value, quality and condition to
that sold, and owned by Borrower free and clear of all liens, claims and
encumbrances except the security interest of the Lender and Permitted Liens; or

 

(c)                                  Store any
assets with any third party against whom or with respect to which location, the
Lender has not filed such UCC-1 financing statements and taken all other
actions as Lender deems necessary to preserve its security interest in such
assets unless Borrower gives Lender at least thirty (30) days prior written
notice thereof; or

 

(d)                                 Change its
corporate name or adopt any fictitious or trade name unless Borrower gives
Lender at least thirty (30) days prior written notice thereof; or

 

(e)                                  Wind up,
liquidate, or dissolve itself, reorganize, merge or consolidate with or into,
or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in
one transaction or a series of transactions) all or substantially all of it
assets (whether now owned or hereafter acquired) or its business to any Person,
or acquire all or substantially all of the assets or the business of any Person
or enter in the sale of any capital stock of Borrower, which shall result in a
change of control of the Borrower; or

 

33

 

(f)                                    Suffer any
judgment for money in excess of $10,000.00 to be entered and not discharged,
stayed or appealed with a supersedeas bond within a period of thirty (30) days,
provided, however, that this subparagraph shall not apply to any judgment for
which the Borrower is fully insured, and with respect to which the insurer has
admitted liability in writing; or

 

(g)                                 Permit any
change in the ownership of the shares of Borrower which shall result in a
change of control of the Borrower; or

 

(h)                                 Make loans to
one or more Persons which in the aggregate exceed $5,000.00 outstanding at any
time (including, without limitation, any officer, shareholder, director or
employee of Borrower except for temporary advances and reimbursements to such
officers and employees for necessary expenses incurred in the ordinary course
of business) or purchase or otherwise acquire any capital stock, assets,
obligations, or other securities of, make any capital contribution to, or
otherwise invest in (except obligations of the United States Government, open
market commercial paper rated one of the top two ratings by a rating agency of
recognized national standing or certificates of deposit in insured financial
institutions) or acquire any interest in any Person, or participate as a
partner or joint venturer with any other Person; or

 

(i)                                     Declare or pay
any dividends in any fiscal year (except if Borrower is an S corporation, the
minimum amount as shall be necessary for shareholders of Borrower to pay
federal and state incomes taxes on net earnings from the Borrower without
jeopardizing the Subchapter S election of the Borrower), or purchase, redeem,
retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; or make any distribution of assets to its shareholders
as such, whether in cash, assets, or in obligations of the Borrower; or
allocate or otherwise set apart any sum for the payment of any dividend or
distribution on, or for the purchase, redemption, or retirement of any shares
of its capital stock; or make any other distribution by reduction of capital or
otherwise in respect of any shares of its capital stock; or

 

(j)                                     Assume,
guaranty, endorse, or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, an agreement to purchase
any obligation, stock, assets, goods or services or to supply or advance any
funds, assets, goods or services, or an agreement to maintain or cause any
Person to maintain a minimum working capital or net worth, or otherwise to
assure the creditors of any Person against loss) for obligations of any Person,
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; or

 

(k)                                  Install, use,
generate, manufacture, produce, store, release, discharge or dispose of on,
under or about the Real Property, nor transport to or from any property, any
Hazardous Materials nor allow any other Person to do so, except in full
compliance with any and all applicable environmental laws, rules and
regulations; or

 

(1)                                  Directly or
indirectly use any part of the proceeds of the Loans for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock or for
any purpose which violates, or is inconsistent with, Regulation X of said Board
of Governors.

 

34

 

SECTION 15.  EVENTS OF
DEFAULT.

 

The
Notes and any and all other Indebtedness shall, at the option of Lender and
notwithstanding any maturity to the contrary, become immediately due and
payable, without notice or demand, upon the occurrence of any of the following
events of default (each an “Event of Default”):

 

(a)                                  Borrower shall
fail to pay when due, any Indebtedness, including, without limitation, any
principal of or interest on any Note, or any other sum payable by the Borrower
to the Lender, and such failure shall continue for five (5) days after
written notice of such default is sent to Borrower by Lender; or

 

(b)                                 Borrower shall
fail duly and punctually to perform or observe any other agreement, covenant or
obligation binding on the Borrower under this Agreement or any of the other
Loan Documents and such failure shall continue for ten (10) days after
written notice of such default is sent to Borrower by Lender; or

 

(c)                                  Any warranty,
representation, statement or financial statement made by Borrower in this
Agreement or by Borrower or any Guarantor in any other Loan Document or in any
other agreement, document, instrument, request, report, schedule or certificate
executed by Borrower or any Guarantor shall prove to have been incorrect or
misleading in any material respect when made; or

 

(d)                                 Any event
occurs or condition exists (other than those described in clauses (a) through
(c) above) which is specified as an event of default under any of the Loan
Documents; or

 

(e)                                  Filing of a
petition in bankruptcy by or against Borrower, or institution of any proceeding
by Borrower for corporate reorganization, readjustment, or similar arrangement
under any insolvency statute (and with respect to any involuntary petition or
proceeding, such petition or proceeding is not dismissed within sixty (60) days
after filing), filing of any proceeding by or against Borrower or any Guarantor
for appointment of a receiver, trustee or liquidator of it, him or her, or all
or any substantial part of its, his or her assets or properties, filing of a
petition for dissolution or liquidation of Borrower, or making by Borrower or
any Guarantor of an assignment for the benefit of creditors, or filing or
imposition of any tax lien against the Collateral, or Borrower or any Guarantor
admits in writing its, his or her inability to pay its, his or her debts as
they become due, or Borrower ceases doing business as a going concern; or

 

(f)                                    The Lender, in
good faith, deems itself reasonably insecure for any reason due to any material
adverse change in the business, assets or liabilities, financial condition,
results of operations or business prospects of Borrower, or in the financial
condition of any Guarantor; or

 

(g)                                 There shall
occur any uninsured damage to or loss, theft, or destruction of any of the
Collateral exceeding $10,000.00; or

 

(h)                                 All or any
portion of the Collateral is attached, seized, levied upon or subjected to a
writ or distress warrant, or comes within the possession of any receiver,
trustee, custodian or assignee

 

35

 

for
the benefit of creditors; or an application is made by Borrower or any other
Person for the appointment of a receiver, trustee, or custodian for such
Collateral; or

 

(i)                                     A notice of
lien, levy or assessment is filed of record with respect to all or any portion
of Borrower’s assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the PBGC, or any taxes or
debts owing to any of the foregoing becomes a lien or encumbrance upon all or
any portion of Borrower’s assets; or

 

(j)                                     Creation by
Borrower of a security interest in any Collateral now existing or hereafter
acquired by Borrower in favor of any Person other than the Lender and the
Permitted Liens; or

 

(k)                                  Borrower is
enjoined, restrained, or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any part of its
business affairs; or

 

(1)                                  Insolvency of
any Guarantor, or any Guarantor shall file a petition in bankruptcy or shall be
adjudicated a bankrupt, or any Guarantor shall die, or become incompetent, or
shall terminate, repudiate, revoke or disavow any of his or her obligations
under the Guaranty or breach any of the terms thereof; or

 

(m)                               Any judgment or
order requiring the payment of money exceeding $10,000.00 shall be rendered
against Borrower and such judgment or order shall remain unsatisfied or
undischarged and in effect for thirty (30) consecutive days without a stay of
enforcement or execution, provided, however, this subparagraph shall not apply
to any judgment for which Borrower is fully insured, and with respect to which
the insurer has admitted liability in writing; or

 

(n)                                 This Agreement
shall at any time after its execution and delivery and for any reason cease (i) to
create a valid and perfected first priority security interest in such of the
Collateral owned by Borrower or in which Borrower has rights therein; or (ii) to
be in full force and effect or shall be declared null and void, or the validity
or enforceability hereof shall be contested by the Borrower or Borrower shall
deny it has any further liability or obligation hereunder; or

 

(o)                                 The Guaranty
shall at any time after its execution and delivery and for any reason cease to
be in full force and effect or shall be declared null and void, or the validity
or enforceability thereof shall be contested by any Guarantor or any Guarantor
shall deny he or she has any further liability or obligation thereunder, or
shall fail to perform his or her obligations thereunder; or

 

(p)                                 Any event shall
occur which results in the acceleration of the maturity of any indebtedness of
Borrower to any other lender or creditor exceeding $20,000.00; or

 

(q)                                 Any proceeding
shall be commenced or filing made under applicable law by any stockholder,
officer or director of Borrower to dissolve or liquidate the Borrower, or any
order, judgment or decree shall be entered against Borrower decreeing its involuntary
dissolution or split up; or Borrower shall otherwise dissolve or cease to
exist; or

 

(r)                                    An event of
default shall occur under any of the Stock Pledge Agreements, and shall not be
cured within the applicable grace period, if any; or

 

36

 

(s)                                  An event of
default shall occur under the Security Agreement-Leased Equipment, and shall
not be cured within the applicable grace period, if any; or

 

(t)                                    Borrower shall
default in the payment or performance of the Equipment Lease, and such default
shall not be cured within the applicable grace period, if any; or

 

(u)                                 Borrower shall
make any payment to Seller in violation of the terms of the Seller/Bank
Intercreditor Agreement; or

 

(v)                                 If within one
hundred twenty (120) days from the date of this Agreement, Borrower shall fail
to provide to Lender all of the following documents, in form and substance
acceptable to Lender:  (i) an
original executed release (in recordable form) of that certain mortgage dated January 15,
1987 and recorded January 21, 1987 in the office of the Recorder of Deeds
of Cook County as Document No. 87040330 in favor of American National Bank
and Trust Company of Chicago (the “Trustee”), as Trustee under Trust Agreement
dated April 25, 1966 and known as Trust No. 23191 and its
beneficiaries, (ii) an original landlord waiver for the Borrower’s leased
premises commonly known as 1309 S. Cicero Avenue, Cicero, Illinois, executed by
the Trustee and all current beneficiaries of the Trustee, and (iii) a
lease extension letter extending the lease for such premises executed by the
Trustee and all such beneficiaries; or

 

(w)                               If the life
insurance policy described in Section 6 hereof shall expire, lapse or
otherwise cease to be in full force and effect or Borrower shall fail to pay
any premium for such policy when due.

 

SECTION 16.  REMEDIES.  (a) if any Event of Default shall have
occurred and be continuing:

 

(i)                                     The Lender
may:  (x) immediately terminate the
Lender’s commitment hereunder to make any further advances under the Revolving
Loan and/or (y) declare the Indebtedness, including, without limitation,
all principal of and interest accrued on the Notes and all other Indebtedness,
to be forthwith due and payable, whereupon the same shall become forthwith due
and payable, notwithstanding the maturity date or dates expressed in any
evidence thereof.  Borrower waives
presentment and protest of any instruments and notice thereof, notice of
default and all other notices to which Borrower might otherwise be entitled
except as specifically provided herein.

 

(ii)                                  The Lender or
its designee may notify the Account Debtors under any Accounts, General
Intangibles and chattel paper, of the assignment of such Accounts, General
Intangibles and chattel paper, to the Lender and direct such Account Debtors to
make payment of all amounts due or to become due to the Borrower thereunder
directly to the Lender and, upon such notification and at the expense of the
Borrower, Lender or its designee may enforce collection of any such Accounts,
General Intangibles and chattel paper, and adjust, settle and compromise the
amount or payment thereof, in the same manner and to the same extent as the
Borrower might have done.  After such
notification all amounts and proceeds (including instruments) received in any
manner by the Borrower in respect of the Accounts, General Intangibles and
chattel paper, shall be segregated from other funds of the Borrower and shall
be forthwith paid over to the Lender in the same form as received (with any necessary
endorsement), and the Borrower shall

 

37

 

not
adjust, settle or compromise the amount of payment of any Account, General
Intangibles or chattel paper, or release wholly or partly any Account Debtor or
obligor thereof, or allow any credit or discount thereon.  To facilitate the foregoing collection rights
of the Lender, the Borrower hereby agrees to provide the Lender with such
information and documentation which the Lender reasonably requests.

 

(iii)                               The Lender may
exercise and pursue any and all rights and remedies available to it hereunder,
and under the other Loan Documents, the Collateral Documents and applicable
law, including, but not limited to, all the rights and remedies of a secured
party upon default under the UCC (whether or not the UCC applies to the
affected Collateral), or any other applicable law.  The Lender may without notice, demand or
legal process of any kind, all of which Borrower waives, at any time or times, (x) peaceably
enter into the Borrower’s premises and take physical possession of the
Collateral and maintain such possession on the Borrower’s premises, at no cost
to the Lender, or remove the Collateral, or any part thereof, to such other
place(s) as the Lender may desire or (y) require the Borrower to, and
the Borrower hereby agrees that it will at its expense and upon request of the
Lender forthwith, assemble all or any part of the Collateral (and the records
pertaining thereto) as directed by the Lender and make it available to the
Lender at a place to be designated by the Lender which is reasonably convenient
to the Lender and (z) without notice except as specified below, sell,
lease, assign, grant an option or options to purchase or otherwise dispose of
the Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker’s board or at any of the Lender’s offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Lender may deem reasonable (and Lender may, to the extent
permitted by applicable law, purchase the Collateral at any such sale).  The Borrower agrees that, to the extent
notice of sale shall be required by law, ten (10) days’ notice to the
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.  The Lender shall not be obligated to make any
sale of Collateral regardless of a notice of sale having been given.  The Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and place to
which it was so adjourned.

 

(iv)                              The Lender
shall apply all net cash proceeds received in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
(after deducting all costs, expenses and reasonable attorneys’ fees incurred at
any time in the collection of the Indebtedness and in the protection and sale
of the Collateral and after payment of any amounts payable to the Lender
pursuant to Section 20), for the benefit of the Lender, against all or any
part of the Indebtedness in such order as Lender shall determine in its sole
discretion.  Any surplus of such cash or
cash proceeds held by the Lender and remaining after payment in full of all the
Indebtedness shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive such surplus. 
Borrower and the Guarantors shall remain liable for any deficiency
remaining after such application, and shall pay such deficiency forthwith.  In addition to all other sums due the Lender,
the Borrower shall pay the Lender all costs and expenses incurred by the
Lender, including court costs and reasonable attorneys’ fees, to obtain,
liquidate and/or enforce payment of the Collateral or the Indebtedness,
including the Loans and all other Indebtedness, or in the prosecution or
defense of any action or proceeding either against the

 

38

 

Lender
or against Borrower concerning any matter arising out of or connected with the
Collateral, this Agreement, or the Indebtedness.

 

(b)                                 Borrower waives
all claims, damages and demands against the Lender arising out of the repossession,
retention or sale of any of the Collateral, or any part or parts thereof,
except any such claims, damages and awards arising out of the gross negligence
or willful misconduct of the Lender.

 

(c)                                  The rights and
remedies provided under this Agreement are cumulative and may be exercised
singly or concurrently and are not exclusive of any rights and remedies
provided by law or equity.

 

(d)                                 To the extent
that the Indebtedness is now or hereafter secured by property other than the
Collateral or by the guarantee, endorsement or property of any other person,
firm or corporation, then Lender shall have the right in its sole discretion to
determine which rights, security, liens, security interests or remedies Lender
shall at any time pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any of
them or any of Lender’s rights hereunder.

 

SECTION 17.  EXERCISE OF
REMEDIES.  In
connection with the exercise of its remedies pursuant to Section 16, the
Lender may (i) exchange, enforce, waive or release any portion of the
Collateral or Collateral Documents in favor of the Lender or relating to any
other security for the Indebtedness; (ii) apply such Collateral or
security and direct the order or manner of sale thereof as the Lender may, from
time to time, determine; and (iii) settle, compromise, collect or otherwise
liquidate any such Collateral or security in any manner following the
occurrence of an Event of Default, without affecting or impairing the Lender’s
right to take any other further action with respect to any Collateral or
security or any part thereof.

 

SECTION 18.  LICENSE.  The Lender is hereby granted a license or
other right to use, following the occurrence and during the continuance of an
Event of Default, without charge, the Borrower’s labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, customer lists and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral, and the Borrower’s rights
under all licenses and all franchise agreements shall inure to the Lender’s
benefit.

 

SECTION 19.  INJUNCTIVE
RELIEF.  The Borrower recognizes that in
the event the Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lender; therefore, the Borrower agrees that the
Lender, if the Lender so requests, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.

 

SECTION 20.  EXPENSES.  The Borrower will upon demand reimburse the
Lender for all costs, fees, and expenses incurred by the Lender in connection
with the negotiation, preparation and conclusion of this Agreement, the other
Loan Documents, the Collateral Documents, and any amendment thereof, including,
but not limited to, reasonable attorneys’

 

39

 

fees,
corporate status, audit fees, appraisal fees, survey fees, lien and title
searches, title insurance policy fees and charges, all taxes and filing or
recording fees payable in connection with the transactions contemplated by this
Agreement, the other Loan Documents and the Collateral Documents and, after the
occurrence of an Event of Default, all reasonable attorneys’ fees and all other
costs, fees and expenses incurred by Lender as a result of, or following such
Event of Default, in collection of the Indebtedness, or the sale or other
disposition of the Collateral.  All of
the foregoing fees, costs and expenses shall be part of the Indebtedness,
payable upon demand, and secured by the Collateral.

 

SECTION 21.  NOTICES.  All notices and other communications provided
for hereunder shall be given in writing and shall be addressed to the party
intended to receive the same at its address hereinbefore set forth (or to such
other and different address as Borrower or Lender may designate pursuant to a
written notice sent in accordance with the provisions hereof), and will be
deemed given or furnished (i) when delivered at such address to such party
(or to an officer of such party) or (ii) when received if deposited in the
United States mail as first-class registered or certified mail, return receipt
requested, postage prepaid, or (iii) when received if deposited at the
office of a nationally-recognized overnight delivery service; or (iv) when
received if sent by facsimile transmission.

 

SECTION 22.  CONTINUING
SECURITY INTEREST; TERMINATION.  (a) This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in
full force and effect until payment in full of the Indebtedness and the termination
of this Agreement, (ii) be binding upon the Borrower, its successors and
assigns (except that Borrower shall not assign any of its rights nor delegate
any of its obligations under this Agreement without the prior written consent
of the Lender, and no such consent by the Lender shall, in any event, relieve
Borrower of any of its obligations under this Agreement), and (iii) inure,
together with the rights and remedies of the Lender hereunder, to the benefit
of the Lender, and any successor Lender. 
Nothing set forth herein or in any other Loan Document is intended or
shall be construed to give any other Person any right, remedy or claim under,
to or in respect of this Agreement or any other Loan Document or any
Collateral.  The Borrower’s successors and
assigns shall include, without limitation, a receiver, trustee or
debtor-in-possession thereof or therefor.

 

(b) Upon
the payment in full of the Indebtedness and the termination of this Agreement,
Lender shall terminate its security interest by executing UCC-3 termination
statements, and thereupon, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the Borrower.  Upon any such termination of security
interest, the Borrower shall be entitled to the return, upon its request and at
its expense, of such of the Collateral held by the Lender as shall not have
been sold or otherwise applied pursuant to the terms hereof and the Lender
will, at the Borrower’s expense, execute and deliver to the Borrower such other
documents as the Borrower shall reasonably request to evidence such
termination.

 

SECTION 23.  NON-WAIVER.  The Lender’s failure at any time or times
hereafter to require strict performance by the Borrower of any provision of
this Agreement shall not waive, affect or diminish any right of the Lender
thereafter to demand strict compliance and performance therewith.  Any suspension or waiver by the Lender of a
default by the Borrower under this Agreement shall not suspend, waive or affect
any other default by Borrower under this

 

40

 

Agreement,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character.  None of the
undertakings, agreements, warranties, covenants and representations of the
Borrower contained in this Agreement and no default by the Borrower hereunder
shall be deemed to have been suspended or waived by the Lender unless such
suspension or waiver is in writing signed by an officer of the Lender and directed
to the Borrower specifying such suspension or waiver.

 

SECTION 24.  PERFORMANCE OF
BORROWER’S DUTIES.  If not
discharged or paid when due, Lender may (but shall not be obligated to)
discharge or pay any amounts required to be discharged or paid by Borrower
under this Agreement, including, without limitation, all taxes, liens, security
interests, encumbrances, and other claims, at any time levied or placed on the
Collateral.  Lender may also (but shall
not be obligated to) pay all costs for insuring, maintaining and preserving the
Collateral.  All such expenditures
incurred or paid by Lender for such purposes will then bear interest at the
highest default rate set forth in the Notes from the date incurred or paid by
Lender to the date of repayment by Borrower. 
All such expenses shall automatically become a part of the Indebtedness
secured hereby, and, at Lender’s option, will be payable on demand.

 

SECTION 25.  SEVERABILITY.  It is the parties’ intention that this
Agreement be interpreted in such a way that it is valid and effective under
applicable law.  However, if one or more
of the provisions of this Agreement shall for any reason be found to be invalid
or unenforceable, the remaining provisions of this Agreement shall be
unimpaired.

 

SECTION 26.  CAPTIONS.  The captions and headings of the various
sections used in this Agreement are for convenience only, and are not to be
construed as confining or limiting in any way the scope or intent of the
provisions hereof.

 

SECTION 27.  REINSTATEMENT
OF INDEBTEDNESS.  To the
extent that Borrower makes a payment or payments to Lender or Lender receives
any payment or proceeds of the Collateral for Borrower’s benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside and/or required to be repaid to a trustee, receiver
or any other party under any bankruptcy act, state or federal law, common law
or equitable cause, then, to the extent of such payment(s) or proceeds
received, the Indebtedness or part thereof intended to be satisfied shall be
reinstated and shall continue in full force and effect, as if such payment(s) or
proceeds had not been received by Lender.

 

SECTION 28.  INDEMNITY.  In addition to all of the Borrower’s other
Indebtedness under this Agreement, the Borrower agrees to defend, protect,
indemnify, pay and hold harmless the Lender and its officers, directors,
employees, attorneys, consultants, agents and affiliates (collectively, the “Indemnitees”)
from and against any and all losses, damages, liabilities, obligations,
penalties, fees, costs, and expenses (including, without limitation, attorneys’
and paralegals’ fees, costs and expenses) incurred by such Indemnitees, whether
prior to or from and after the initial loan disbursement hereunder, whether
direct, indirect or consequential, as a result of or arising from or relating
to any suit, investigation, action or proceeding by any Person, whether
threatened or initiated, asserting a claim for any legal or equitable remedy against
any Person under any statute or regulation (other than suits or other actions
by Borrower against an

 

41

 

Indemnitee),
including, without limitation, any federal or state securities or labor laws,
or under any federal, state or local environmental, health or safety laws,
regulations, or common law principles, arising from or in connection with the
past, present or future operations of the Borrower, any of its Subsidiaries or
its predecessors in interest, or the past, present or future environmental
condition of the Real Property), the presence of any Hazardous Materials on the
Real Property, or the release or threatened release of any Hazardous Materials
into the environment from the Real Property, or under any common law or
equitable cause or otherwise, arising from or in connection with any of the
following:  (i) the negotiation,
preparation, execution or performance of this Agreement or of any document
executed in connection with the transactions contemplated by this Agreement, (ii) the
Lender’s furnishing of funds to the Borrower under this Agreement, including,
without limitation, the management of the Loans, or (iii) any matter
relating to the financing transactions contemplated by this Agreement or by any
document executed in connection with the transactions contemplated by this
Agreement (collectively, the “Indemnified Matters”), provided, however, the
Borrower shall not be liable to indemnify any Indemnitee for claims arising as
a result of such Indemnitee’s gross negligence or willful misconduct.  Such indemnification for all of the foregoing
losses, damages, liabilities, obligations, fees, penalties, costs and expenses
of Lender shall be part of the Indebtedness. 
In no event shall the Lender be liable to Borrower for indirect,
special, consequential or punitive damages as a result of or arising from or
relating to any suit, investigation, action or proceeding by Borrower against
the Lender.

 

SECTION 29.  BANK ACCOUNTS.  Borrower covenants to Lender and agrees to
establish and maintain all of its operating accounts with Lender at all times
so long as the Loans or any other Indebtedness owed by Borrower to Lender shall
remain outstanding.

 

SECTION 30.  BROKERAGE FEES.  Borrower covenants to Lender that there is no
broker fee due in connection with the Loans. 
Borrower agrees to indemnify and hold the Lender harmless with respect
to any costs, expenses or liabilities relating to any such claims.

 

SECTION 31.  LAWFUL
INTEREST.  It is the
intent of the Borrower and Lender that the rates of interest and other charges
to Borrower under this Agreement shall be lawful; therefore, if for any reason
the interest or other charges payable under this Agreement are found by a court
of competent jurisdiction, in a final determination, to exceed the limit which
the Lender may lawfully charge Borrower, then the obligation to pay interest
and other charges shall automatically be reduced to such limit, and if any
amount in excess of such limit shall have been paid, then such amount shall be
refunded to Borrower.

 

SECTION 32.  SURVIVAL.  All covenants, agreements, representations,
warranties and indemnities made herein and in all other Loan Documents shall
survive the making by the Lender of the Loans herein contemplated and shall
continue in full force and effect for so long as the Loans and any other
Indebtedness remain outstanding and unpaid.

 

SECTION 33.  ENTIRE
AGREEMENT.  This
Agreement, together with the other Loan Documents, constitute the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement.  No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound

 

42

 

by
the alteration or amendment.  No
amendment or waiver of any provision of this Agreement nor consent to any
departure by the Borrower herefrom shall in any event be effective unless the
same shall be given in writing and signed by the Lender and Borrower, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.

 

SECTION 34.  CHOICE OF LAW.  ANY DISPUTE BETWEEN THE LENDER AND BORROWER,
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING
IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH
THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF
ILLINOIS.

 

SECTION 35.  PERSONAL
JURISDICTION.

 

(i)                                     Exclusive
Jurisdiction.  EXCEPT AS
PROVIDED IN SUBSECTION (ii) BELOW, THE LENDER AND BORROWER AGREE THAT
ALL DISPUTES BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED, TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL
BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS.  BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.

 

(ii)                                  Other
Jurisdictions.  BORROWER
AGREES THAT THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS
PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE LENDER TO OBTAIN A JUDGMENT
AGAINST THE BORROWER OR TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE INDEBTEDNESS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN
FAVOR OF THE LENDER.  BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE
LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH.

 

SECTION 36.  WAIVER OF JURY
TRIAL.  BORROWER AND THE LENDER EACH
WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE LENDER AND BORROWER OR
ANY OF ITS SUBSIDIARIES ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT.  INSTEAD, ANY DISPUTES
RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

 

SECTION 37.  WAIVER OF
NOTICE, HEARING AND BOND. 
BORROWER WAIVES ALL RIGHTS OF NOTICE AND HEARING OF ANY KIND PRIOR TO
THE EXERCISE BY THE LENDER OF ITS RIGHTS, FROM AND AFTER THE OCCURRENCE

 

43

 

OF
AN EVENT OF DEFAULT, TO REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL, OR OTHER SECURITY FOR THE
INDEBTEDNESS.  BORROWER WAIVES THE
POSTING OF ANY BOND OTHERWISE REQUIRED OF THE LENDER IN CONNECTION WITH ANY
JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH, OR
LEVY UPON COLLATERAL OR OTHER SECURITY FOR THE INDEBTEDNESS TO ENFORCE ANY
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE LENDER, OR TO ENFORCE BY
SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT
INJUNCTION, THIS AGREEMENT, OR ANY OTHER OF THE LOAN DOCUMENTS.

 

SECTION 38.  ADVICE OF
COUNSEL.  BORROWER
REPRESENTS TO THE LENDER THAT IT HAS DISCUSSED THIS AGREEMENT WITH ITS LAWYER.

 

IN
WITNESS WHEREOF, the Borrower and Lender have caused this Agreement to be duly
executed and delivered by their duly authorized officers thereunto duly
authorized as of the date first above written.

 

	
  BORROWER:

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BFG
  ACQUISITION CORP.

  	
   

  	
  LASALLE
  BANK NI

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  J. Cameron Drecoll

  	
   

  	
  By:

  	
  /s/
  [ILLEGIBLE]

  
	
   

  	
  J.
  Cameron Drecoll

  	
   

  	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  	
  Title:

  	
  Commercial
  Loan Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attest:

  	
  /s/
  Joan M. Drecoll

  	
   

  	
   

  	
   

  
	
   

  	
  Joan
  M. Drecoll

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Secretary

  	
   

  	
   

  	
   

  

 

44

 

EXHIBIT A TO LOAN AND SECURITY AGREEMENT

Description of Leased Equipment

 

	
  QUANTITY

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 675, Gleason 100" Model 675
  Hypoid Gear Generator; S/N 782902 (New 1984): W/Sony 2-Axis Digital Readouts

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 678, Gleason No. 675 Hypoid
  Generator Cutter Set-Up Stand

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 676, Gleason 100" Model 675
  Hypoid Gear Generator; S/N 782901
  (New 1984): W/Sony 2-Axis Digital Readouts

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 677, Gleason Model 553 Angular
  Hypoid Gear Tester; S/N 753502 (New 1984): W/3-Axis Digital Readouts

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 662, Gleason Model 655 Hypoid
  Spiral Bevel Gear Cutter; S/N 749201 (New 1975)

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 666, Gleason Model 655 Hypoid
  Spiral Bevel Gear Cutter; S/N 749202 (New 1975)

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Asset No. 667,
  Gleason Model 655 Hypoid Generator Cutter Set-Up Stand

  

 

1

 

EXHIBIT B TO LOAN AND SECURITY AGREEMENT

 

List
of all present trade and fictitious names of Borrower: 

 

None

 

List
of all former trade, fictitious and corporate names of Borrower:

 

None

 

2

 

EXHIBIT C TO LOAN AND SECURITY AGREEMENT

 

List
of all locations of Inventory, Equipment and other tangible personal property
of Borrower:

 

 

	
  Address

  	
   

  	
  Description of Collateral

  
	
   

  	
   

  	
   

  
	
  1309
  S. Cicero Avenue

  	
   

  	
  All
  assets except those at 2 locations below

  
	
  Cicero,
  Illinois 60650

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1310
  S. 47th Avenue

  	
   

  	
  Equipment
  and Inventory

  
	
  Cicero,
  Illinois 60650

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  5100
  Neville Road

  	
   

  	
  Equipment
  and Inventory

  
	
  Neville
  Island

  	
   

  	
   

  
	
  Pittsburg,
  PA 15225

  	
   

  	
   

  

 

3

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