Document:

a6688025ex10_4.htm

Exhibit 10.4

 

ARADIGM CORPORATION

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (this “Agreement”) is dated as of [insert date], and is between Aradigm Corporation, a California corporation (the “Company”), and [insert name of indemnitee] (“Indemnitee”).

 

RECITALS

 

A.        Indemnitee’s service to the Company substantially benefits the Company.

 

B.        Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.

 

C.        The articles of incorporation and bylaws of the Company provide that the Company is authorized to indemnify directors, officers, employees and other agents of the Company to the fullest extent permitted by applicable law, and the Company’s articles of incorporation limit the liability for monetary damages of directors of the Company to the fullest extent permitted by applicable law. In addition, Indemnitee may be entitled to indemnification pursuant to the California General Corporation Law (the “CGCL”). The Company’s articles of incorporation, bylaws and the CGCL expressly provide that the indemnification provisions set forth therein are not exclusive and thereby contemplate that contracts may be entered into between the Company and directors, officers and other persons with respect to indemnification.

 

D.        The Company and Indemnitee are parties to an existing indemnification agreement (the “Existing Agreement”).

 

E.        Indemnitee does not regard the protection currently expressly provided by applicable law, the Company’s governing documents, the Existing Agreement and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.

 

E.        In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee to the extent permitted by applicable law.

 

F.        This Agreement is a supplement to and in furtherance of the indemnification provided in the Company’s articles of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder. This Agreement replaces the Existing Agreement in its entirety.

 

The parties therefore agree as follows:

 

1.        Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director, officer, employee or other agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against Expenses (as defined below), judgments, fines, settlements and other amounts actually and reasonably incurred by Indemnitee in connection with the Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, in the case of any criminal Proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company or (ii) Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

2.        Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or other agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action if Indemnitee acted in good faith, in a manner Indemnitee believed to be in the best interests of the Company and its shareholders.

 

  

  

  

 

Exhibit 10.4

 

3.        Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent that Indemnitee has been successful on the merits in defense of any Proceeding referred to in Section 1 or 2 or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith.

 

4.        Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his or her position as a director, officer, employee or agent of the Company, a witness in any action, suit or proceeding to which Indemnitee is not a party, he or she shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

 

5.        Additional Indemnification Rights. Subject to Section 7 and any other provision of this Agreement that prohibits, limits or conditions indemnification by the Company, the Company agrees to indemnify Indemnitee to the fullest extent permitted by law for any acts, omissions or transactions while acting in the capacity of, or that are otherwise related to the fact that Indemnitee was or is serving as, a director, officer, employee or other agent of the Company or, to the extent Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, such other corporation, partnership, joint venture, trust or other enterprise, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s articles of incorporation, the Company’s bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule that expands the right of a California corporation to indemnify a director, officer or other corporate agent beyond that currently permitted under this Agreement, the applicable changes shall be, ipso facto, within the purview of Indemnitee’s rights and Company’s obligations under this Agreement, subject to the restrictions expressly set forth herein or therein. In the event of any change in any applicable law, statute or rule that narrows the right of a California corporation to indemnify a director, officer or other corporate agent, it is the intent of the parties hereto that the rights of the parties in effect prior to such change shall remain in effect to the extent permitted by applicable law.

 

6.        Partial Indemnification. If Indemnitee is entitled under this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by Indemnitee in connection with any Proceeding, but not, however, for the total amount thereof, the Company shall indemnify Indemnitee for such portion of the Expenses, judgments, fines, settlements or other amounts to which Indemnitee is entitled in connection with each successfully resolved matter. For purposes of this section and without limitation, the termination of any discrete claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

7.        Exceptions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):

 

    (a)        for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

 

    (b)        initiated by Indemnitee prior to a Change in Control, , including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Company’s board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation; (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; (iii) indemnification is required to be made under Section 10(e); (iv) otherwise required by applicable law; or (v) indemnification is in connection with actions or Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company’s articles of incorporation or bylaws now or hereafter in effect relating to such Proceeding;

 

    (c)        for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to Section 204(a)(10) of the California General Corporation Law or as to circumstances in which indemnity is expressly prohibited by Section 317 of the California General Corporation Law;

 

  

  

  

    

Exhibit 10.4

 

(d)        for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);

 

    (e)        for Expenses incurred by Indemnitee with respect to any action in which Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company;

 

    (f)        for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, to the extent required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements); or

 

    (g)        if otherwise prohibited by applicable law.

 

8.        Advancement of Expenses. The Company shall advance, to the extent not prohibited by law, all Expenses actually and reasonably incurred by Indemnitee in defending any Proceeding referenced in Sections 1 or 2 prior to the final disposition of the Proceeding (but not amounts actually paid in settlement of any such Proceeding) upon receipt of a written request therefor (together with documentation reasonably evidencing such Expenses). Advances shall be unsecured and interest free and made without regard to Indemnitee’s ability to repay such advances. Indemnitee hereby undertakes to repay such amounts advanced if it shall be determined ultimately that Indemnitee is not entitled to be indemnified by the Company as authorized hereby or by Sections 204(a)(10) or 317 of the CGCL. The advances to be made hereunder shall be made as soon as reasonably practicable, but in any event no later than 30 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). This Section 8 shall not apply to any claim for which indemnity is not permitted under this Agreement or applicable law.

 

9.        Procedures for Notification and Defense of a Claim.

 

    (a)        Notice. Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.

 

    (b)        Notice to Insurers. If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies; provided, however, that nothing in this subsection (b) shall relieve the Company of its obligations hereunder (or allow the Company to delay in its performance of its obligations hereunder) to provide indemnification for or advance any Expenses with respect to any Proceeding referenced in Sections 1 or 2, between the time that it so notifies its insurers and the time that its insurers actually pay any such amounts payable as a result of any such Proceeding to the Company.

 

    (c)        Selection of Counsel. The Company shall be entitled to assume the defense of the Proceeding at its own expense. Indemnitee agrees to consult with the Company and to consider in good faith the advisability and appropriateness of joint representation in the event that either the Company or other indemnitees in addition to Indemnitee require representation in connection with any Proceeding. The Company will not be liable to Indemnitee for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided, however, that (i) Indemnitee shall have the right to employ Indemnitee’s separate counsel in any such Proceeding at Indemnitee’s expense, and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain counsel to defend such Proceeding, then the fees and expenses of Indemnitee’s separate counsel will be expenses for which Indemnitee may receive indemnification or advancement of expenses.

 

  

  

  

 

Exhibit 10.4    

 

(d)        Cooperation by Indemnitee. Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.

 

    (e)        Settlements. Indemnitee shall not settle any Proceeding (or any part thereof) which would impose any Expense, judgment, fine, penalty or limitation on the Company without the Company’s prior written consent, which shall not be unreasonably withheld.

 

    (f)        Right to Settle Proceedings. The Company shall not settle any Proceeding (or any part thereof) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent, which shall not be unreasonably withheld.

 

10.        Procedures upon Application for Indemnification.

 

    (a)        Notice. To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement.

 

    (b)        Determination. Following a written request by Indemnitee for indemnification pursuant to Section 10(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by (i) a majority vote of a quorum consisting of directors who are not parties to the Proceeding; (ii) if such a quorum of directors is not obtainable, by Independent Legal Counsel (as defined below) in a written opinion; (iii) approval by the shareholders in accordance with Section 153 of the California General Corporation Law, with the shares owned by Indemnitee not being entitled to vote thereon; or (iv) the court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the Company; provided, however, that if a Change in Control (as defined below) shall have occurred, by Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval will not be unreasonably withheld) in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 30 days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.

 

    (c)        Disputes. Subject to Section 10(f), if (i) a determination is made that Indemnitee is not entitled to indemnification under this Agreement, (ii) no determination of entitlement to indemnification shall have been made pursuant to this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iii) payment of indemnification pursuant to this Agreement is not made (A) within 30 days after a determination has been made that Indemnitee is entitled to indemnification, or (B) with respect to indemnification pursuant to Sections 3, 4 or 10(e) of this Agreement, within 30 days after receipt by the Company of a written request therefor, (iv) advancement of Expenses is not timely made pursuant to Section 8 or 10(e) of this Agreement, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration in accordance with this Agreement.

 

  

  

  

 

Exhibit 10.4    

 

(d)        Presumptions. Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Legal Counsel or shareholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Legal Counsel or shareholders that Indemnitee has not met the applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to Section 10(c) shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to Section 10(c), the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Agreement that the procedures and presumptions in this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before such arbitrator that the Company is bound by all the provisions of this Agreement.

 

    (e)        Expenses Incurred to Enforce this Agreement. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled to receive advancement of Expenses hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation Expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled to receive advancement of Expenses hereunder with respect to such action.

 

    (f)        Timing of Determination of Entitlement to Indemnification. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.

 

11.        Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers and other corporate agents or advancing Expenses under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

 

12.        Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding, and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.

 

13.        Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

14.        No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.

 

15.        Directors’ and Officers’ Liability Insurance. The Company will make commercially reasonable efforts to obtain and maintain liability insurance applicable to directors, officers or fiduciaries in an amount determined by the Company’s board of directors; provided, however, that nothing in this Section 15 shall relieve the Company of its obligations hereunder (or allow the Company to delay in its performance of its obligations hereunder) to provide indemnification for or advance any Expenses with respect to any claim. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.

 

  

  

  

 

Exhibit 10.4

 

16.        Duration. The indemnification and the advancement of Expenses provided under this Agreement will continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

 

17.        Services to the Company. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any other corporation, partnership, joint venture, trust or enterprise) and Indemnitee.

 

18.        Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

19.        Nonexclusivity. The rights of indemnification and to receive advancement of Expenses provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s articles of incorporation, its bylaws, any agreement, any vote of shareholders or disinterested directors, the CGCL or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or 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 prohibit the concurrent assertion or employment of any other right or remedy.

 

20.        Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

21.        Effectiveness of the Agreement. This Agreement shall be effective as of the date set forth in the introductory sentence of this Agreement and may apply to acts or omissions of Indemnitee that occurred prior to such date if Indemnitee was a director, officer, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred.

 

22.        Construction of Certain Phrases.

 

    (a)        For purposes of this Agreement, references to the “Company” shall also include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

 

    (b)        For purposes of this agreement, a “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

        (i)        Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities;

 

  

  

  

 

Exhibit 10.4

        

(ii)        Change in Board Composition. During any one (1) year period (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Company’s board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 22(b)(i), 22(b)(iii) and 22(b)(iv)) whose election by the board of directors or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Company’s board of directors;

 

        (iii)        Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

 

        (iv)        Asset Sale. All or substantially all of the assets of the Company are sold or disposed of in a transaction or series of related transactions;

 

        (v)        Liquidation. The approval by the shareholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

        (vi)        Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement.

 

    (c)        For purposes of this Agreement, “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. and shall include each member of the “group” as defined in such Sections; provided, however, that “Person” shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

    (d)        For purposes of this Agreement, “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided, however, that “Beneficial Owner” shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the shareholders of the Company approving a merger of the Company with another entity or (ii) the Company’s board of directors approving a sale of securities by the Company to such Person.

 

    (e)        For purposes of this Agreement, references to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries.

 

    (f)        For purposes of this Agreement, Indemnitee shall be deemed to have acted in “good faith” if Indemnitee’s action is in good faith reliance or the records or books of account of the Company, including financial statements, or on information supplied to the Indemnitee by officers of the Company in the course of their duties, or on the advice of legal counsel for the Company or on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser or other expert selected by the Company. The provisions of this Section 22(f) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

 

    (g)        For purposes of this Agreement, “Expenses” means all reasonable direct and indirect costs (including attorneys’ fees, retainers, court costs, transcription costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses) reasonably incurred in connection with (i) presenting, defending, preparing to present or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding, or (ii) establishing or enforcing a right to indemnification under this Agreement, the Company’s Articles of Incorporation or Bylaws or applicable law. Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding, including the premium, security for and other costs relating to any cost bond, or other appeal bond or its equivalent. For the avoidance of doubt, Expenses, however, shall not include any judgments, fines or settlements.

 

  

  

  

 

Exhibit 10.4    

 

(h)        For purposes of Section 10 of this Agreement, “Independent Legal Counsel” means a law firm or a lawyer that is experienced in matters of corporate law and neither currently is, nor in the three years previous to its selection or appointment has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceedings giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this agreement.

 

23.        Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators. The Company shall require and shall cause any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of the Company, by written agreement with the Company expressly to assume and agree to perform this Agreement in the manner and to the same extent that the Company would be requred to perform if no such succession had taken place.

 

24.        Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand, messenger or courier service addressed:

 

    (a)        if to Indemnitee, to Indemnitee’s address, facsimile number or electronic mail address as shown on the signature page of this Agreement or in the Company’s records, as may be updated in accordance with the provisions hereof; or

 

    (b)        if to the Company, to the attention of the Chief Executive Officer or Chief Financial Officer of the Company at 3929 Point Eden Way, Hayward, CA 94545, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall not constitute notice) to John W. Campbell, Morrison & Foerster LLP, 425 Market Street, San Francisco, California 94105.

 

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via facsimile, upon confirmation of facsimile transfer or, if sent via electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day.

 

25.        Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California.

 

26.        Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action or proceeding instituted under this Agreement shall be brought only in the state courts of the State of California.

 

27.        Amendment and Waiver. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing, signed by both parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in an indemnified capacity prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.

 

28.        Integration and Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Company’s articles of incorporation and bylaws and applicable law.

 

29.        Captions. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

30.        Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall constitute an original.

 

(signature page follows)

 

 

 

 

  

  

  

 

Exhibit 10.4

 

The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.

 

	 	  	  	  
	 	
ARADIGM CORPORATION

	 	  	  
	 	
By:

	  	  
	 	  	  	
Name:

	 	 	 	 
	 	  	  	
Title:

 

	 	  	  
	 	  	  
	 	
Address:

	
3929 Point Eden Way

Hayward, CA 94545

 

Agreed to and accepted:

 

INDEMNITEE

 

	  
	  
	  
	
(type or print name)

	  
	  
	
(signature)

	  
	  
	
(street address)

	  
	  
	
(city, state and zip code)Exhibit 10.18

                           LOAN AND SECURITY AGREEMENT

     This LOAN AND SECURITY AGREEMENT, is entered into as of November 1, 2010 by
and among Amincor, Inc., a Nevada corporation ("Amincor"), its wholly-owned
subsidiary Baker's Pride, Inc., a Delaware corporation ("Baker's Pride" and
together with "Amincor", collectively, the "Borrower"), and Capstone Capital
Group, LLC, a Delaware limited liability company ("Lender").

                                    RECITALS

     A. Borrower has requested that Lender provide financial accommodations to
Borrower as more fully set forth herein and in the Loan Documents.

     B. This Agreement is entered into and will be performed in the Controlling
State.

     NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Parties hereby agree as follows:

                                    AGREEMENT

1. CERTAIN DEFINITIONS AND INDEX TO DEFINITIONS.

     1.1. ACCOUNTING TERMS. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP consistently applied.

     1.2. DEFINITIONS. All other terms contained in this Agreement which are not
specifically defined herein shall have the meanings provided in the UCC to the
extent the same are used herein. All references herein to the singular or plural
shall also mean the plural or the singular, respectively. As used herein, the
following terms shall have the following meanings:

          1.2.1. "ADVANCES" - see Section 2.1.1 hereof.

          1.2.2. "AGREEMENT" - this Loan and Security Agreement, together with
all exhibits and schedules hereto, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated, or replaced.

          1.2.3. "ALLOWABLE AMOUNT" - the lesser of (i) the Borrowing Base less
Availability Reserves, if any and (ii) the Maximum Amount.

          1.2.4. "ANNIVERSARY DATE" - the date which is three (3) years from the
date hereof.

          1.2.5. "AUDIT FEE" - Actual cost of Audit

          1.2.6. "AVAILABILITY RESERVES" - as of any date of determination, such
amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Advances which would otherwise be available to Borrower
hereunder:

                                  Page 1 of 22
<PAGE>
               1.2.6.1. To reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations or its
value, (ii) the assets, business or prospects of Borrower or any Obligor, or
(iii) the security interest and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof);

               1.2.6.2. To reflect Lender's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect; or

               1.2.6.3. In respect of any state of facts that Lender determined
in good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.

          1.2.7. "AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" - the Maximum Amount
less the average Obligations that were outstanding during the immediately
preceding month.

          1.2.8. "BALANCE SUBJECT TO INTEREST" - the unpaid balance of (a)
Advances, (b) payments by Lender on account of Letters of Credit, and (c) other
payments made by Lender arising hereunder for which Borrower is liable to
Lender.

          1.2.9. "BORROWER" - see Preamble hereof.

          1.2.10. "BORROWING BASE" - the sum of:

               1.2.10.1. Eighty percent (80%) of the Net Face Amount of
Borrower's Eligible Accounts; plus

               1.2.10.2. Fifty percent (50%) of the value (determined at the
lower of cost or market) of Borrower's Eligible Inventory.

          1.2.11. "BORROWING BASE CERTIFICATE" - a request for an Advance, in a
form acceptable to Lender.

          1.2.12. "BUSINESS DAY" - any day which is not a Saturday, Sunday, or
other day on which national banks are authorized or required to be closed.

          1.2.13. "CLEARANCE DAYS" - Three (3) Business Days.

          1.2.14. "CLEARANCE DAY PAYMENTS" - payments received by Lender, in
whatever form and from whatever source, except wire transfers, in reduction of
the Obligations,

          1.2.15. "COLLATERAL" - All of Baker's Pride's present and future
Accounts, Chattel Paper, Goods (including inventory and Equipment), Instruments,
Investment Property, Documents, and General Intangibles, and the proceeds
thereof;

          1.2.16. "COLLATERAL MANAGEMENT FEE" - N/A.

                                  Page 2 of 22
<PAGE>
          1.2.17. "CONTROLLING STATE" - New York.

          1.2.18. "CREDIT ACCOMMODATION" - any advance or other extension of
credit by Lender to or on behalf of Borrower hereunder,

          1.2.19. "DEFAULT RATE" - Six percent (6%) per annum in excess of the
Interest Rate or to the maximum extent permitted by applicable law.

          1.2.20. "DELINQUENT ACCOUNT" - see Section 1.2.22.1.

          1.2.21. "EARLY TERMINATION FEE" - N/A.

          1.2.22. "ELIGIBLE ACCOUNT" - an Account, excluding the following:

               1.2.22.1. any Account which remain uncollected for more than
ninety (90) days from invoice date (each a "Delinquent Account");

               1.2.22.2. any Account due from an Account Debtor that is
insolvent;

               1.2.22.3. any Account due from an Account Debtor affiliated with
Borrower in any manner;

               1.2.22.4. any Account which is not unconditionally due and owing;

               1.2.22.5. any Account with respect to which the Account Debtor is
not a resident or citizen of, located in, or subject to service of process in,
the United States, and which are not either (i) covered by credit insurance in
form and amount, and by an insurer, satisfactory to Lender, or (ii) supported by
one or more letters of credit issued by a financial institution, acceptable to
Lender;

               1.2.22.6. any Account due from an Account Debtor who is any
national, federal state or municipal government, including, without limitation,
any instrumentality, division, agency, body or department thereof, except where
the Account Debtor is bound to make payment directly to Lender;

               1.2.22.7. Accounts due from an Account Debtor as to which
one-hundred (100%) percent or more of the aggregate dollar amount of all
outstanding Accounts owing from such Account Debtor are Delinquent Accounts;

               1.2.22.8. That portion of Accounts due from an Account Debtor
which is in excess of twenty five (25%) percent of Borrower's aggregate dollar
amount of all outstanding Accounts Receivable;

               1.2.22.9. Accounts which are not free of all liens, encumbrances,
charges, rights and interest of any kind, except in favor of Lender;

                                  Page 3 of 22
<PAGE>
               1.2.22.10. Accounts which are supported or represented by a
promissory note, postdated check or letter of credit unless Lender holds a first
perfected security interest therein;

               1.2.22.11. Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services.

               1.2.22.12. Accounts for which Borrower is or may become indebted
to the Account Debtor.

               1.2.22.13. Accounts which are unsuitable as collateral, as
determined by Lender in the exercise of its reasonable sole discretion.

          1.2.23. "ELIGIBLE INVENTORY" - Inventory of Borrower which is:

               1.2.23.1. Subject to Lender first, perfected security interest;

               1.2.23.2. [INTENTIONALLY OMITTED]; and

               1.2.23.3. Otherwise acceptable to Lender in its reasonable sole
discretion.

          1.2.24. "EVENT OF DEFAULT" - see Section 11 hereof.

          1.2.25. "EVIDENCE OF SPECIAL CREDIT ACCOMMODATION" - see Section 2.2
hereof.

          1.2.26. "GAAP" - means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and pronouncements of the
Financial Accounting Standards Board (or any successor authority) that are
applicable as of the date of determination.

          1.2.27. "Guarantor)" - [INTENTIONALLY OMITTED].

          1.2.28. "Guaranty" - [INTENTIONALLY OMITTED],

          1.2.29. "INTEREST RATE" - Eighteen Percent (18%) percent per annum.

          1.2.30. "KEY EMPLOYEES" - N/A

          1.2.31. "LENDER" - See Preamble.

          1.2.32. "LENDING OFFICE" - Lender's office described in the Section
24.1.

          1.2.33. "LOAN DOCUMENTS" - this Agreement, together with any
documents, instruments and agreements, executed and/or delivered in connection
herewith, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

          1.2.34. "LOAN FEE"-N/A

                                  Page 4 of 22
<PAGE>
          1.2.35. "MAXIMUM AMOUNT" - $850,000

          1.2.36. "MINIMUM MONTHLY FEE" - N/A

          1.2.37. "MISDIRECTED PAYMENT FEE" - fifteen percent (15%) of the
amount of any payment on an Account where said payment has been received by
Borrower and not delivered in kind by Borrower to Lender within three (3)
Business Days of receipt thereof.

          1.2.38. "MISSING NOTATION FEE" - fifteen percent (15%) of the Net Face
Amount.

          1.2.39. "MONETARY COLLATERAL" - cash, checks or other proceeds of
Collateral in tangible form. .

          1.2.40. "NET FACE AMOUNT" - with respect to an Account, the gross face
amount of such Account less all trade discounts or other deductions and claims
to which the Account Debtor is entitled.

          1.2.41. "OBLIGATED PARTY" - any entity obligated with respect to any
Collateral.

          1.2.42. "OBLIGATIONS" - all present and future obligations owing by
Borrower to Lender whether or not for the payment of money, whether or not
evidenced by any note or other instrument, whether direct or indirect, absolute
or contingent, due or to become due, joint or several, primary or secondary,
liquidated or unliquidated, secured or unsecured, original or renewed or
extended, whether arising before, during or after the commencement of any
Bankruptcy Case in which Borrower is a debtor, including but not limited to any
obligations arising pursuant to letters of credit or acceptance transactions or
any other financial accommodations; and all principal, interest, fees, charges,
expenses, attorneys' fees and accountants' fees chargeable to Borrower or
incurred by Lender in connection with this Agreement and/or the transaction(s)
related thereto;

          1.2.43. "OBLIGORS" - Borrower and all Guarantors.

          1.2.44. "PRIME RATE" - N/A

          1.2.45. "SPECIAL CREDIT ACCOMMODATION" - see Section 2.2 hereof.

          1.2.46. "SPECIAL CREDIT ACCOMMODATION FEE" - fifteen percent (15%)
percent of the amount of any Special Credit Accommodation.

          1.2.47. "STANDARD FEE SCHEDULE" - the schedule of Lender's standard
fees for services.

          1.2.48. "SUBORDINATING CREDITOR" - N/A

          1.2.49. "SUBORDINATION AGREEMENT" - a subordination agreement in form
and substance acceptable to Lender whereby Subordinating Creditor subordinates
in favor of Lender obligations owed to it by Borrower..

                                  Page 5 of 22
<PAGE>
          1.2.50. "TERMINATION DATE" - the earlier of (i) three (3) years from
the date hereof, or (ii) the date on which Lender elects to terminate this
Agreement pursuant to the terms herein..

          1.2.51. "UCC" - The Uniform Commercial Code in effect in the
Controlling State at the date on which a determination thereunder is to be made.

          1.2.52. "UNUSED LINE FEE" - N/A.

          1.2.53. "VALUE OF ELIGIBLE INVENTORY" - means, as determined by Lender
in good faith, the lower of (a) cost, computed on a first-in-first-out basis in
accordance with GAAP, or (b) market value.

2. CREDIT FACILITIES.

     2.1. ADVANCES Subject to the terms and conditions of this Agreement, from
the date on which this Agreement becomes effective until the Termination Date:

          2.1.1. Lender, shall, from time to time, at the request of Borrower,
make advances ("Advances") to Borrower, less any Availability Reserves, so long
as, before and after such Advance, the Obligations do not exceed the Allowable
Amount.

          2.1.2. Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, reduce the Borrowing Base to the
extent that Lender determines in good faith that:

               2.1.2.1. the dilution with respect to the Accounts for any period
(based on the ratio of (a) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (b) the aggregate amount of total sales)
has increased in any material respect or may be reasonably anticipated to
increase in any material respect above historical levels;

               2.1.2.2. the general creditworthiness of Account Debtors has
declined; or

               2.1.2.3. The number of days of the turnover of the Inventory for
any period has changed in any material respect, or (a) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, or (b) the
nature and quality of the Inventory has deteriorated.

          2.1.3. In determining whether to reduce the Borrowing Base, Lender may
consider events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.

     2.2. SPECIAL CREDIT ACCOMMODATIONS. Lender may, in its sole and absolute
discretion, from time to time, extend Credit Accommodations to Borrower in
excess of the Allowable Amount (any Credit Accommodation extended pursuant to
this Section 2.2 being a "Special Credit Accommodation"). Each Special Credit
Accommodation shall be evidenced by a writing in form and substance satisfactory
to Lender in its sole discretion (any such writing, an "Evidence of Special
Credit Accommodation"). Unless expressly stated to the contrary in any Evidence

                                  Page 6 of 22
<PAGE>
of Special Credit Accommodation, each Special Credit Accommodation shall be
payable on demand.

     2.3. GENERAL PROVISIONS.

          2.3.1. BORROWING BASE CERTIFICATE. Each request from Borrower for a
Credit Accommodation shall be accompanied by a Borrowing Base Certificate,
completed and signed by Borrower.

          2.3.2. CREDITING BORROWER'S ACCOUNT. All Credit Accommodations by
Lender may be made by deposits or transfers to any demand deposit account of
Borrower.

          2.3.3. AUTHORIZATION FOR CREDIT ACCOMMODATIONS. Subject to the terms
and conditions of this Agreement, Lender is authorized to make Credit
Accommodations:

               2.3.3.1. upon telephonic, facsimile or other instructions
received from anyone purporting to be an officer, employee or representative of
Borrower; or

               2.3.3.2. At the sole discretion of Lender, and notwithstanding
any other provision in this Agreement, if necessary to meet any Obligations,
including but not limited to any interest not paid when due.

     2.4. LIMITATIONS ON CREDIT ACCOMMODATIONS. Notwithstanding anything to the
contrary contained herein, Lender shall not be obligated to make a Credit
Accommodation if, before or as a result thereof, the Obligations shall exceed
the Allowable Amount.

3. PAYMENTS BY BORROWER.

     3.1. IN GENERAL.

          3.1.1. Place of Payments. All payments hereunder shall be made by
Borrower to Lender at the Lending Office, or at such other place as Lender may
designate in writing.

          3.1.2. Prepayments; Application of Payments. Borrower shall have the
right to make payments at any time in reduction of the Obligations, in whole or
in part; provided, however, that Lender may apply any payments received to the
Obligations, or portion thereof, in any manner and in any order as Lender may
determine in its sole discretion, notwithstanding contrary instructions
received.

          3.1.3. ACH Debits. In order to satisfy any of the Obligations, Lender
is hereby authorized by Borrower to initiate electronic debit entries through
the ACH or other electronic payment system to any account maintained by
Borrower. At the Lender's request, Borrower shall execute and deliver to Lender
an authorization agreement for ACH debits.

     3.2. INTEREST AND FEES.

          3.2.1. Interest.

                                  Page 7 of 22
<PAGE>
               3.2.1.1. Basic Interest. Subject to Section 3.2.1.2 hereof,
interest on the Balance Subject to Interest shall be payable monthly, in
arrears, shall be computed at the Interest Rate, and shall be due on the first
(1st) day of each month following the accrual thereof. Lender is authorized to
debit Borrower's loan account on the first business day of each month for
interest accrued hereunder during the preceding month;

               3.2.1.2. Default Interest. Immediately upon the occurrence of an
Event of Default, Borrower shall pay to Lender, monthly until the first (1st)
Anniversary Date on which all Obligations have been fully paid, the greater of:

                    3.2.1.2.1. interest, before and after judgment at the higher
of:

                         3.2.1.2.1.1. Default Rate; or

                         3.2.1.2.1.2. the greater of:

                              3.2.1.2.1.2.1. the monthly average of all interest
and fees paid by Borrower to Lender hereunder for the preceding one-hundred
eighty (180) days (or portion thereof if Obligations have not been outstanding
for at least one-hundred eighty (180) days); or

                              3.2.1.2.1.2.2, The Minimum Monthly Fee.

               3.2.1.3. Lender's failure to assess interest at the Default Rate
as provided hereunder shall not be deemed a waiver by Lender to charge such
Default Rate. Lender reserves the right to, and Borrower hereby acknowledges
that Lender may, recalculate interest at the Default Rate.

               3.2.1.4. Calculation of Interest. All interest charged hereunder
shall be computed on all Advances, in advance, at a monthly rate of one-twelfth
(1/12) of the Interest Rate. At the end of the first thirty (30) days any
Advances that remain outstanding, such Advances shall be charged interest in
arrears at a weekly rate of one-fifty-second (1/52) of the Interest Rate.

               3.2.1.5. Application of Collections. Lender shall, for the
purpose of the computation of interest due hereunder, add the Clearance Days to
any Clearance Day Payments, which is acknowledged by the parties to constitute
an integral aspect of the pricing of Lender's facility to Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Lender, Should any check or item of payment not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly.

          3.2.2. Fees.

                                  Page 8 of 22
<PAGE>
               3.2.2.1. Special Credit Accommodation Fee. Borrower shall pay a
Special Credit Accommodation Fee to Lender simultaneously with the making by
Lender of a Special Credit Accommodation.

               3.2.2.2. Misdirected Payment Fee. Borrower shall pay the
Misdirected Payment Fee to Lender immediately upon its accrual.

               3.2.2.3. Missing Notation Fee. Borrower shall pay the Missing
Notation Fee on any invoice that is sent by Borrower to an Account Debtor that
does not contain the notice as required by Section 6.1.1 hereof.

               3.2.2.4. Audit Fee. Borrower shall pay an Audit Fee to Lender in
connection with each audit Lender performs or causes to be performed hereunder

4. GRANT OF SECURITY INTEREST. To secure the payment and performance in full of
the Obligations, the Baker's Pride grants to the Lender a security interest in
the Collateral, and all proceeds and products thereof.

5. AUTHORIZATION TO FILE FINANCING STATEMENTS.

     5.1. The Borrower irrevocably authorizes the Lender at any time and from
time to time to file in any Uniform Commercial Code jurisdiction any initial
financing statements and amendments thereto that:

          5.1.1. indicate the Collateral as all assets of the Borrower or words
of similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC, or as being of an
equal or lesser scope or with greater detail;

          5.1.2. contain any other information required by part 5 of Article 9
of the UCC for the sufficiency or filing office acceptance of any financing
statement or amendment, including (i) whether the Borrower is an organization,
the type of organization, and any organization identification number issued to
the Borrower and, (ii) in the case of a financing statement filed as a fixture
filing or indicating Collateral as as-extracted collateral or timber to be cut,
a sufficient description of real property to which the Collateral relates; and

          5.1.3. contain a notification that the Borrower has granted a negative
pledge to the Lender, and that any subsequent lienor may be tortiouously
interfering with Lender's rights;

          5.1.4. advises third parties that any notification of Borrower's
Account Debtors will interfere with Lender's collection rights.

     5.2. The Borrower agrees to furnish any of the foregoing information to the
Lender promptly upon request.

     5.3. The Borrower ratifies its authorization for the Lender to have filed
any like initial financing statements or amendments thereto if filed prior to
the date hereof.

                                  Page 9 of 22
<PAGE>
     5.4. The Lender may add any supplemental language to any such financing
statement as Lender may determine to be necessary or helpful in acquiring or
preserving rights against third parties.

6. COLLECTION AND ADMINISTRATION OF ACCOUNTS.

     6.1. COLLECTION.

          6.1.1. Borrower shall, place a notification on its invoices sent to
its Account Debtors that Monetary Collateral be (or, if received by Borrower,
shall cause same to be):

               6.1.1.1. sent to Lender or a post office box designated by or in
the name of Lender, or in the name of Borrower, but as to which access is
limited solely to Lender: or

               6.1.1.2. Deposited into a bank account maintained in the name of
Lender or a blocked bank account under arrangements with the depository bank
under which all funds deposited to such blocked bank account are required to be
transferred to Lender. In connection therewith, Borrower shall execute such post
office box and/or blocked bank account agreements as Lender shall specify.

     6.2. ELECTRONIC PROCEEDS OF COLLATERAL. In the event Borrower receives
proceeds of Collateral in the form of wire transfer or other intangible funds
transfer mechanism, Borrower shall immediately pay such proceeds to Lender.

     6.3. LENDER'S POWERS. Borrower hereby authorizes Lender, at Borrower's sole
expense, to exercise at any time in Lender's discretion all or any of the
following powers, which powers are irrevocable until all of the Obligations have
been paid in full:

          6.3.1. receive, take, endorse, assign, deliver, accept and deposit, in
the name of Lender or Borrower, any and all cash, checks, commercial paper,
drafts, remittances and other instruments and documents relating to the
Collateral or the proceeds thereof;

          6.3.2. After an Event of Default:

               6.3.2.1. Take or bring, in the name of Lender or Borrower, all
steps, actions, suits or proceedings deemed by Lender necessary or desirable to
effect collection of or other realization upon any Collateral;

               6.3.2.2. Change the address for delivery of Borrower's mail to
Lender and to receive and open mail addressed to Borrower;

               6.3.2.3. Extend the time of payment of, compromise, or settle for
cash, credit, return of merchandise, any and all Monetary Collateral and
discharge or release any Obligated Party without affecting any of the
Obligations;

          6.3.3. execute, file and serve, in its own name or in the name of
Borrower, mechanics lien or similar notices, or claims under any payment or
performance bond for the benefit of Borrower and

                                 Page 10 of 22
<PAGE>
          6.3.4. Pay any sums necessary to discharge any lien or encumbrance
which is senior to Lender's security interest in the Collateral, which sums
shall be included as Obligations hereunder, and which sums shall accrue interest
at the Default Rate until paid in full.

     6.4. RELEASE. Borrower hereby releases and exculpates Lender, its officers,
employees, agents, designees, attorneys, and accountants from any liability
arising from any acts under this Agreement or in furtherance thereof, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for gross negligence or willful misconduct. In no event
shall Lender have any liability to Borrower for lost profits or other special or
consequential damages.

7. CONDITIONS PRECEDENT TO ALL ADVANCES. Subject to the other terms and
conditions contained herein, Lender's obligation to make any Credit
Accommodation available to Borrower is subject to the satisfaction of, or waiver
of, immediately prior to or concurrently with the making of such Credit
Accommodation, the following conditions precedent:

     7.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in the Loan Documents shall be true and correct in all respects on and
as of the date of such Advance.

     7.2. NO EVENT OF DEFAULT. No Event of Default or event that with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such Advance.

     7.3. PAYMENT OF ALL FEES. Borrower shall have paid to Lender all accrued
and unpaid fees and other amounts due and payable hereunder and pursuant to the
terms hereof.

8. AUTHORIZATION TO LENDER. The Borrower irrevocably authorizes Lender to take
any and all appropriate action and to execute any and all documents and
instruments, in the name of Borrower, that may be necessary or desirable to
accomplish the purposes of this Agreement including, BUT NOT LIMITED TO:

     8.1. upon the occurrence and during the continuance of an Event of Default,
generally to sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral in such manner as is consistent with
the UCC and as though the Lender were the absolute owner thereof, and to do at
the Borrower's expense, all acts which the Lender deems necessary to protect,
preserve, or realize upon the Collateral and the Lender's security interest
therein, in order to effect the intent of this Agreement, including, without
limitation:

     8.2. the filing and prosecuting of registration and transfer applications
with the appropriate federal or local agencies or authorities with respect to
trademarks, copyrights and patentable inventions and processes;

     8.3. the execution, delivery, and recording, in connection with any sale or
other disposition of any Collateral, of the endorsements, assignments, or other
instruments of conveyance or transfer with respect to such Collateral; or

                                 Page 11 of 22
<PAGE>
     8.4, the filing on behalf of Borrower with such governmental authorities as
are appropriate such documents (including, without limitation, applications,
certificates, and tax returns) as may be required for purposes of having
Borrower qualified to transact business in a particular state or geographic
location.

9. AFFIRMATIVE COVENANTS. Until full payment of the Obligations and termination
of this Agreement, Borrower shall:

     9.1. FINANCIAL STATEMENTS, REPORTS AND CERTIFICATIONS. Furnish to Lender,
in form and substance satisfactory to Lender:

          9.1.1. Annual Financial Statements. As soon as possible after the end
of each fiscal year of Borrower, and in any event within ninety (90) days
thereafter:

               9.1.1.1. a complete copy of Borrower's financial statements,
including but not limited to (a) the management letter, if any, (b) the balance
sheet as of the close of the fiscal year, and (c) the income statement for such
year, together with a statement of cash flows, prepared by a firm of independent
certified public accountants of recognized standing and acceptable to Lender, or
if permitted by Lender in writing, by Borrower; and

               9.1.1.2, A statement certified by the chief financial officer of
Borrower that Borrower is in compliance with all the terms, conditions,
covenants and warranties of this Agreement.

          9.1.2. Other Financial Statements. No later than ten (10) days after
the close of each month (an "Accounting Period"), Borrower's balance sheet as of
the close of such Accounting Period and its income statement for that portion of
the then current fiscal year through the end of such Accounting Period certified
by Borrower's chief financial officer as being complete, correct, and fairly
representing its financial condition and results of operations.

          9.1.3. Tax Returns. Copies of each of Borrower's:

               9.1.3.1. federal income tax returns, and any amendments thereto,
within thirty (30) days of the filing thereof with the Internal Revenue Service;
and

               9.1.3.2, federal payroll tax returns within ten (10) days of
filing, TOGETHER WITH PROOF, SATISFACTORY TO LENDER, THAT ALL TAXES HAVE BEEN
PAID.

          9.1.4. Inventory Reports. A listing of all Borrower's Inventory, based
upon a physical count taken by Borrower every twelve (12) months and whenever
requested by Lender.

     9.2. INSPECTIONS.

          9.2.1. Permit Lender or any representatives thereof, during usual
business hours, with reasonable notice to Borrower, to periodically:

                                 Page 12 of 22
<PAGE>
               9.2.1.1. have access to all premises where Collateral is located
for the purposes of inspecting (and removing, if after the occurrence of an
Event of Default) any of the Collateral, including Borrower's books and records;
and

               9.2.1.2. Permit Lender or its designees to inspect, audit, make
copies of, and make extracts from Borrower's books and records as Lender may
request.

          9.2.2. Without expense to Lender, Lender may use any of Borrower's
personnel, equipment, including computer equipment, programs, printed output and
computer readable media, supplies and premises for the collection of accounts
and realization on other Collateral as Lender, in its sole discretion, deems
appropriate.

     9.3. EXPENSES.

          9.3.1. Generally. Pay all reasonable out-of-pocket expenses of Lender
(including, but not limited to, fees and disbursements of Lender's counsel)
incident to (whether by judicial proceedings or otherwise, and whether any
resulting dispute resolution procedure involving tort, contract or other
claims):

               9.3.1.1. the preparation, negotiation, execution, administration
and enforcement of the Loan Documents, any amendments, extensions and renewals
thereof, and any other documents prepared in connection with any transactions
between Borrower and Lender, whether or not executed;

               9.3.1.2. any expenses incurred by Lender (whether or not for the
benefit of Borrower) under this Agreement, including, without limitation, all
expenses for postage relating to the mailing of statements, invoices, and
verifications, and all expenses relating to any audits of all or any portion of
the Collateral;

               9.3.1.3. the protection of Lender's rights under the Loan
Documents;

               9.3.1.4. defending against any and all claims against Lender
relating to any of its acts of commission or omission directly or indirectly
relating to the Loan Documents;

               9.3.1.5. Or in any way arising out of a bankruptcy proceeding
commenced by or against Borrower, including but not limited to expenses incurred
in enforcing or defending Lender's claims against Borrower or the Collateral,
defending any avoidance actions, and expenses related to the administration of
said proceeding.

          9.3.2. Indemnification. Indemnify and save Lender harmless from any
and all liability with respect to any stamp or other taxes (other than transfer
or income taxes) which may be determined to be payable in connection with the
execution of the Loan Documents or any action of Lender with respect to the
Collateral, including, without limitation, the transfer of the Collateral to
Lender's name or that of Lender's nominee or any purchaser at a foreclosure
sale.

     9.4. ENFORCEMENT OF JUDGMENTS. Reimburse Lender for all costs and expenses,
including attorneys' fees, which Lender incurs in enforcing any judgment

                                 Page 13 of 22
<PAGE>
rendered in connection with this Agreement. This provision is severable from all
other provisions hereof and shall survive, and not be deemed merged into, such
judgment.

     9.5. TAXES AND EXPENSES REGARDING BORROWER'S ASSETS.

          9.5.1. Make timely payment or deposit of all taxes, assessments or
contributions required of Borrower. If Borrower fails to make any such payment
or deposit or furnish proof of such payment immediately upon Lender's request,
Lender may, in its sole discretion and without notice to Borrower:

               9.5.1.1. make payment of the same or any part thereof; or

               9.5.1.2. Set up such reserves against the Obligations as Lender
deems necessary to satisfy the liability therefore, or both.

          9.5.2. Lender may conclusively rely on statements of the amount owing
or other official statements issued by the appropriate governmental agency. Any
payment made by Lender shall constitute neither:

               9.5.2.1. an agreement by Lender to make similar payments in the
future; nor

               9.5.2.2. A waiver by Lender of any default under the Loan
Documents. Lender need not inquire into, nor contest the validity of, any
expense, tax, security interest, encumbrance or lien, and the receipt of the
usual official notice requiring the payment thereof shall be conclusive evidence
that the same was validly due and owing.

     9.6. CHANGE IN NAME. Give Lender written notice immediately upon forming an
intention to change its name, state of organization or form of business
organization.

     9.7. MAINTENANCE OF INSURANCE. The Borrower will maintain with financially
sound and reputable insurers insurance with respect to its properties and
business against such casualties and contingencies as shall be in accordance
with general practices of businesses engaged in similar activities in similar
geographic areas. Such insurance shall be in such minimum amounts that the
Borrower will not be deemed a co-insurer under applicable insurance laws,
regulations, and policies and otherwise shall be in such amounts, contain such
terms, be in such forms and be for such periods as may be reasonably
satisfactory to the Lender. In addition, all such insurance shall be payable to
the Lender under a Lender Loss Payable Endorsement. Without limiting the
foregoing, the Borrower will:

          9.7.1. Keep all of its physical property insured with casualty or
physical hazard insurance on an "all risks" basis, with broad form flood and
earthquake coverage and electronic data processing coverage, with a full
replacement cost endorsement and an "agreed amount" clause in an amount equal to
100% of the full replacement cost of such property;

          9.7.2. Maintain all such workers' compensation or similar insurance as
may be required by law;

                                 Page 14 of 22
<PAGE>
          9.7.3. Maintain, in amounts and with deductibles equal to those
generally maintained by businesses engaged in similar activities in similar
geographic areas, general public liability insurance against claims of bodily
injury, death, or property damage occurring, on, in or about the properties of
the Borrower; business interruption insurance; and product liability insurance.

10. NEGATIVE COVENANTS. Until full payment of the Obligations and termination of
this Agreement, Borrower will not:

     10.1. MODIFY ACCOUNT OBLIGATIONS. After written notice by Lender to
Borrower, and automatically, without notice, after an Event of Default, Borrower
shall not, without the prior written consent of Lender:

          10.1.1. grant any extension of time for payment of any Accounts;

          10.1.2. compromise or settle any Accounts for less than the full
amount thereof;

          10.1.3. release in whole or in part any Account Debtor; or

          10.1.4. Grant any credits, discounts, allowances, deductions, return
authorizations, or the like with respect to any Accounts.

     10.2. FINANCIAL COVENANTS.

          10.2.1. Tangible Net Worth. [INTENTIONALLY OMITTED]; or

          10.2.2. Debt-to Worth Ratio. [INTENTIONALLY OMITTED],

11. EVENTS OF DEFAULT. Each of the following events or conditions shall
constitute an "Event of Default":

     11.1. Borrower defaults in the payment of any Obligations when due, whether
at maturity, upon acceleration, or otherwise;

     11.2. Borrower is in default under any of the Loan Documents;

     11.3. The Obligations at any time exceed the Allowable Amount;

     11.4. An order for relief is entered against any Obligor by any United
States Bankruptcy Court; or any Obligor does not generally pay its debts as they
become due (within the meaning of 11 U.S.C. 303(h) as at any time amended, or
any successor statute thereto); or any Obligor makes an assignment for the
benefit of creditors; or any Obligor applies for or consents to the appointment
of a custodian, receiver, trustee, or similar officer for it or for all or any
substantial part of its assets, or such custodian, receiver, trustee, or similar
officer is appointed without the application or consent of any Obligor; or any
Obligor institutes (by petition, application, answer, consent, or otherwise) any
bankruptcy, insolvency, reorganization, moratorium, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application, or otherwise) against any Obligor; or any judgment, writ,

                                 Page 15 of 22
<PAGE>
warrant of attachment, execution, or similar process shall be issued or levied
against a substantial portion of the property of any Obligor;

     11.5. An adverse change occurs with respect to the financial condition or
operations of Borrower which results in a material impairment of the prospect of
repayment of the Obligations;

     11.6. A sale, hypothecation or other disposition is made of twenty (20%)
percent or more of the beneficial interest in any class of voting stock of
Borrower;

     11.7. [INTENTIONALLY OMITTED];

     11.8. Any Subordinating Creditor fails to perform or observe any of such
Subordinating Creditor's obligations under any Subordination Agreement, or
notifies Lender of the Subordinating Creditor's intention to rescind, modify,
terminate or revoke the Subordination Agreement with respect to future
transactions, or the Subordination Agreement ceases to be in full force and
effect for nay reason whatsoever;

     11.9. [INTENTIONALLY OMITTED]

     11.10. Any provision of this Agreement or any of the Loan Documents ceases,
for any reason, to be valid and binding on Borrower.

12. REMEDIES.

     12.1. Upon the occurrence of any Event of Default at Lender's option:

          12.1.1. Lender may declare this Agreement and all of Lender's
obligations hereunder terminated;

          12.1.2. Lender may declare all Obligations to be immediately due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived by Lender.

          12.1.3. all Obligations shall accrue interest at the Default Rate; and

          12.1.4. Lender may, immediately and without expiration of any period
of grace, enforce payment of all Obligations and exercise any and all other
remedies granted to it under the Loan Documents, at law, in equity, or
otherwise.

     12.2. BORROWER WAIVES ANY REQUIREMENT THAT LENDER INFORM BORROWER BY
AFFIRMATIVE ACT OR OTHERWISE OF ANY ACCELERATION OF BORROWER'S OBLIGATIONS
HEREUNDER. FURTHER, LENDER'S FAILURE TO CHARGE OR ACCRUE INTEREST OR FEES AT ANY
"DEFAULT" OR "PAST DUE" RATE SHALL NOT BE DEEMED A WAIVER BY LENDER OF ITS CLAIM
THERETO.

13. STANDARDS FOR EXERCISING REMEDIES.

                                 Page 16 of 22
<PAGE>
     13.1. To the extent that applicable law imposes duties on the Lender to
exercise remedies in a commercially reasonable manner, the Borrower acknowledges
and agrees that it is not commercially unreasonable for the Lender:

     13.2. to not incur expenses to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition;

     13.3. to fail to obtain third party consents for access to Collateral to be
disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of;

     13.4. to fail to exercise collection remedies against Account Debtors or
other persons obligated on Collateral or to remove liens or encumbrances on or
any adverse claims against Collateral;

     13.5. to exercise collection remedies against Account Debtors and other
persons obligated on Collateral directly or through the use of collection
agencies and other collection specialists;

     13.6. to advertise dispositions of Collateral through publications or media
of general circulation, whether or not the Collateral is of a specialized
nature;

     13.7. to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the collateral is of a specialized
nature;

     13.8. to dispose of Collateral by using Internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capability of doing so, or that match buyers and sellers of assets;

     13.9. to dispose of assets in wholesale rather than retail markets;

     13.10. to disclaim all disposition warranties; or

     13.11. to purchase insurance or credit enhancements to insure the Lender
against risks of loss, collection or disposition of Collateral or to provide to
the Lender a guaranteed return from the collection or disposition of Collateral.

     13.12. The Borrower acknowledges that the purpose of this Section 13 is to
provide non- exhaustive indications of what actions or omissions by the Lender
would not be commercially unreasonable in the Lender's exercise of remedies
against the Collateral and that other actions or omissions by the Lender shall
not be deemed commercially unreasonable solely on account of not being indicated
in this Section. Without limitation upon the foregoing, nothing contained herein
shall be construed to grant any rights to the Borrower or to impose any duties
on the Lender that would not have been granted or imposed by this Agreement or
by applicable law in the absence of this Section.13.

14. PROCEEDS AND EXPENSES OF DISPOSITIONS The Borrower shall pay to the Lender
on demand any and all expenses, including reasonable attorneys' fees and

                                 Page 17 of 22
<PAGE>
disbursements, incurred or paid by the Lender in protecting, preserving, or
enforcing the Lender's rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of said expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral shall, TO THE
EXTENT ACTUALLY RECEIVED IN CASH, be applied to the payment of the Obligations
in such order or preference as the Lender may determine, notwithstanding
contrary instructions received by Lender from the Borrower or any other third
party.

15. LIQUIDATION SUCCESS PREMIUM. [INTENTIONALLY OMITTED]

16. TERMINATION.

     16.1. This Agreement shall become effective upon the execution and delivery
hereof by Borrower and Lender and shall continue in full force and effect until
the Termination Date.

     16.2. Upon the Termination Date, the unpaid balance of the Obligations
shall be due and payable without demand or notice.

17. REVOCATION OF BORROWER'S RIGHT TO SELL INVENTORY FREE AND CLEAR OF LENDER'S
SECURITY INTEREST. Lender may, upon the occurrence of an Event of Default,
revoke Borrower's right to sell Inventory free and clear of Lender's security
interest therein.

18. NO LIEN TERMINATION WITHOUT RELEASE. In recognition of Lender's right to
have all its attorneys' fees and other expenses incurred in connection with this
Agreement secured by the Collateral, notwithstanding payment in full of all
Obligations by Borrower, Lender shall not be required to record any terminations
or satisfactions of any of its liens on the Collateral unless and until each
Obligor has executed and delivered to Lender general releases in a form
reasonably acceptable to Lender. BORROWER UNDERSTANDS THAT THIS PROVISION
CONSTITUTES A WAIVER OF ITS RIGHTS UNDER SS.9-513(C) OF THE UCC.

19. ACCOUNT STATED. Lender shall render to Borrower a statement setting forth
the transactions arising hereunder. Each statement shall be considered correct
and binding upon Borrower, absent manifest error, as an account stated, except
to the extent that Lender receives, within thirty (30) days after the mailing of
such statement, written notice from Borrower of any specific exceptions by
Borrower to that statement.

20. RETENTION OF RECORDS. Lender shall retain any documents, schedules, invoices
or other papers delivered by Borrower only for such period as Lender, at its
sole discretion, may determine necessary, after which time Lender may destroy
such records without notice to or consent from Borrower.

21. NOTICES TO THIRD PARTIES. Lender shall have the right at any time to give
any Subordinating Creditor notice of any fact or event relating to this
Agreement, as Lender may deem necessary or desirable in Lender's sole
discretion, including, without limitation, Borrower's financial condition.
Borrower shall provide to each Subordinating Creditor a copy of each notice,
statement or report required to be given to Lender under any of the paragraphs
of this section.

                                 Page 18 of 22
<PAGE>
22. INFORMATION TO PARTICIPANTS. Lender may furnish any financial or other
information concerning Borrower, or any of its subsidiaries, heretofore or
hereafter provided by Borrower to Lender, pursuant to this Agreement or
otherwise, to any prospective or actual purchaser of any participation or other
interest in any loans made by Lender to Borrower (whether under this Agreement
or otherwise), or to any prospective purchaser of any securities issued or to be
issued by Lender.

23. ENTIRE AGREEMENT. This Agreement supersedes all other agreements and
understandings between the parties hereto, verbal or written, express or
implied, relating to the subject matter hereof. No promises of any kind have
been made by Lender or any third party to induce Borrower to execute this
Agreement. No course of dealing, course of performance or trade usage, and no
parole evidence of any nature, shall be used to supplement or modify any terms
of this Agreement.

24. MISCELLANEOUS.

     24.1. NOTICES.

          24.1.1. All notices required to be given to either party hereunder
shall be deemed given upon the first to occur of: (a) deposit thereof in a
receptacle under the control of the United States Postal Service; (b)
transmittal by electronic means to a receiver under the control of the party to
whom notice is being given; or (c) actual receipt by the party to whom notice is
being given, or an employee or agent of thereof. For purposes hereof, the
addresses of the parties are as set forth below or as may otherwise be specified
from time to time in a writing sent by one party to the other in accordance with
the provisions hereof:

                                    BORROWER

Address:    3400 Mt. Pleasant St.
            Burlington, IA 52601
Attention:  Ron Danko
Fax Number: 319-753-6485

                                     LENDER

Address:    1350 Avenue of the Americas
            24th Floor
            New York, NY 10019
Attention:  Joseph F. Ingrassia
Fax Number: 347-821-3469

     24.2. SURVIVAL. All representations, warranties and agreements herein
contained shall be effective so long as any portion of this Agreement remains
executory.

     24.3. AMENDMENT AND WAIVER. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated, nor may any consent to
the departure from the terms hereof be given, orally (even if supported by new
consideration), but only by an instrument in writing signed by all parties to

                                 Page 19 of 22
<PAGE>
this Agreement. Any waiver or consent so given shall be effective only in the
specific instance and for the specific purpose for which given.

     24.4. NO WAIVER. No failure to exercise and no delay in exercising any
right, power, or remedy hereunder shall impair any right, power, or remedy which
Lender may have, nor shall any such delay be construed to be a waiver of any of
such rights, powers, or remedies, or any acquiescence in any breach or default
hereunder; nor shall any waiver by Lender of any breach or default by Borrower
hereunder be deemed a waiver of any default or breach subsequently occurring.
All rights and remedies granted to Lender hereunder shall remain in full force
and effect notwithstanding any single or partial exercise of, or any
discontinuance of action begun to enforce, any such right or remedy. The rights
and remedies specified herein are cumulative and not exclusive of each other or
of any rights or remedies that Lender would otherwise have. Any waiver, permit,
consent or approval by Lender of any breach or default hereunder must be in
writing and shall be effective only to the extent set forth in such writing and
only as to that specific instance.

     24.5. CHOICE OF LAW. This Agreement and all transactions contemplated
hereunder and/or evidenced hereby shall be governed by, construed under, and
enforced in accordance with the internal laws of the Controlling State.

     24.6. WAIVER OF STATUTE OF LIMITATIONS. Borrower waives the pleading of any
statute of limitations with respect to any and all actions in connection
herewith. To the extent that Borrower may now or in the future have any claim
against Lender, arising out of this agreement or the transaction contemplated
herein whether in contract or tort or otherwise, Borrower must assert such claim
within one year of it accruing. Failure to assert such claim within one year
shall constitute of waiver thereof. Borrower agrees that such period is
reasonable and sufficient for it to investigate and act upon the claim. This
Section shall survive any termination of this agreement. A copy of the waiver
may be filed as a written consent in any judicial proceeding.

     24.7. VENUE. The parties agree that any suit, action or proceeding arising
out of the subject matter hereof, or the interpretation, performance or breach
of this Agreement, shall, if Lender so elects, be instituted in the Federal or
state courts of the Controlling State (the "Acceptable Forums"), each party
agrees that the Acceptable Forums are convenient to it, and each party
irrevocably submits to the jurisdiction of the Acceptable Forums, irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement, and waives any and all objections to jurisdiction or venue that it
may have under the laws of the Controlling State or otherwise in those courts in
any such suit, action or proceeding. Should such proceeding be initiated in any
other forum, Borrower waives any right to oppose any motion or application made
by Lender as a consequence of such proceeding having been commenced in a forum
other than an Acceptable Forum.

     24.8. WAIVER OF TRIAL BY JURY. IN RECOGNITION OF THE HIGHER COSTS AND DELAY
WHICH MAY RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT HERETO, IN EACH CASE WHETHER NOW

                                 Page 20 of 22
<PAGE>
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY SUCH
ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

                            [SIGNATURE PAGE FOLLOWS]

                                 Page 21 of 22
<PAGE>
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.,

BORROWER:                               AMNICOR, INC.

                                        By: /s/ Robert Olsen
                                            ------------------------------------
                                        Name: Robert Olsen
                                        Title: CFO

                                        BAKER'S.PRIDE, INC.

                                        By: /s/ Ronald Danko
                                            ------------------------------------
                                        Name: Ronald Danko
                                        Title: CEO

LENDER:                                 CAPSTONE CAPITAL GROUP, LLC

                                        By: /s/ Joseph F. Ingrassia
                                            ------------------------------------
                                        Name: Joseph F. Ingrassia
                                        Title: MM

                                 Page 22 of 22

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