Document:

exv10w49

 

EXHIBIT 10.49

LOAN AND SECURITY AGREEMENT

Between

MARTEK BIOSCIENCES CORPORATION,

A Delaware Corporation,

and

MARTEK BIOSCIENCES BOULDER CORPORATION,

a Delaware Corporation,

Borrower,

and

ALLFIRST BANK,

Lender,

$10,000,000.00 Revolving Line Of Credit

Dated: February 25, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	ARTICLE 1 - DEFINITIONS AND RULES OF CONSTRUCTION
	 	 	 	 
	 	Section 1.1      Definitions
	 	 	1	 
	 	Section 1.2      Accounting Terms; Rules of Construction
	 	 	11	 
	ARTICLE 2 - THE LOAN; LETTERS OF CREDIT; HEDGES
	 	 	 	 
	 	Section 2.1.     Credit Line
	 	 	12	 
	 	 	  2.1.1
     Loans
	 	 	12	 
	 	 	  2.1.2
     Use of Proceeds of Loans
	 	 	12	 
	 	 	  2.1.3
     Repayment of Principal of Loans
	 	 	12	 
	 	 	  2.1.4
     Letters of Credit
	 	 	12	 
	 	 	  2.1.5
     Hedges
	 	 	15	 
	 	Section  2.2     Interest on the Loans
	 	 	16	 
	 	Section  2.3     Note
	 	 	16	 
	 	Section  2.4     Prepayment
	 	 	16	 
	 	Section  2.5     Commitment Fee
	 	 	16	 
	 	Section  2.6     Reinstatement of Avoided Payments
	 	 	16	 
	 	Section  2.7     Obligations Of Borrower Unconditional
	 	 	17	 
	 	Section  2.8.    Capital Adequacy
	 	 	17	 
	 	Section  2.9.    Advancements
	 	 	17	 
	 	Section 2.10    Conditions Precedent to each Loan or Letter of Credit
	 	 	17	 
	ARTICLE 3 - SECURITY FOR THE OBLIGATIONS
	 	 	 	 
	 	Section 3.1.     Grant Of Security Interest
	 	 	18	 
	 	Section 3.2      Proceeds And Products
	 	 	18	 
	 	Section 3.3.     Priority Of Security Interests
	 	 	18	 
	 	Section 3.4.     Future Advances
	 	 	18	 
	 	Section 3.5.     Receivable Collections
	 	 	19	 
	 	Section 3.6.     Collection Of Receivables By Lender
	 	 	19	 
	 	Section 3.7.     Maintenance Of Principal Accounts
	 	 	20	 
	 	Section 3.8.     Guaranty Agreements
	 	 	20	 
	 	Section 3.9.     [Intentionally omitted.]
	 	 	20	 
	 	Section 3.10.   Further Assurances
	 	 	20	 
	ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
	 	 	 	 
	 	Section 4.1.     Accuracy Of Information
	 	 	20	 
	 	Section 4.2.     No Litigation
	 	 	21	 
	 	Section 4.3.     No Liability Or Adverse Change
	 	 	21	 
	 	Section 4.4.     Title To Collateral
	 	 	21	 
	 	Section 4.5.     Authority; Approvals And Consents
	 	 	21	 
	 	 	Section 4.5.1.     Authority
	 	 	21	 
	 	 	Section 4.5.2.     Approvals
	 	 	21	 
	 	 	Section 4.5.3.     Consents
	 	 	21	 
	 	Section 4.6.     Binding Effect Of Documents, Etc
	 	 	21	 
	 	Section 4.7.     Other Names
	 	 	22	 
	 	Section 4.8.     No Events Of Default
	 	 	22	 

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	 	Section 4.9.     Guaranty Agreements
	 	 	22	 
	 	Section 4.10.   Taxes
	 	 	22	 
	 	Section 4.11.   Compliance With Laws
	 	 	22	 
	 	Section 4.12.   Chief Place Of Business
	 	 	22	 
	 	Section 4.13.   Location Of Inventory
	 	 	22	 
	 	Section 4.14.   No Subsidiaries
	 	 	23	 
	 	Section 4.15.   No Labor Agreements
	 	 	23	 
	 	Section 4.16.   Eligible Accounts
	 	 	23	 
	 	Section 4.17.   Eligible Inventory
	 	 	23	 
	 	Section 4.18.   Approvals
	 	 	23	 
	 	Section 4.19.   Financial Statements
	 	 	23	 
	 	Section 4.20.   Solvency
	 	 	24	 
	 	Section 4.21.   Fair Labor Standards Act
	 	 	24	 
	 	Section 4.22.   Employee Benefit Plans
	 	 	24	 
	 	 	Section 4.22.1.     Compliance
	 	 	24	 
	 	 	Section 4.22.2.     Absence Of Termination Event
	 	 	24	 
	 	 	Section 4.22.3.     Actuarial Value
	 	 	24	 
	 	 	Section 4.22.4.     [Intentionally Omitted.]
	 	 	24	 
	 	Section 4.23.   Environmental Conditions
	 	 	24	 
	 	 	Section 4.23.1.     Existence Of Permits
	 	 	24	 
	 	 	Section 4.23.2.     Compliance With Permits
	 	 	24	 
	 	 	Section 4.23.3.     No Litigation
	 	 	24	 
	 	 	Section 4.23.4.     No Releases
	 	 	25	 
	 	 	Section 4.23.5.     Transportation
	 	 	25	 
	 	 	Section 4.23.6.     No Violation Notices
	 	 	25	 
	 	 	Section 4.23.7.     No Notice Of Violations
	 	 	25	 
	ARTICLE 5 - AFFIRMATIVE COVENANTS
	 	 	 	 
	 	Section 5.1.     Payment
	 	 	25	 
	 	Section 5.2.     Insurance
	 	 	25	 
	 	Section 5.3.     Books And Records
	 	 	25	 
	 	Section 5.4.     Collection Of Accounts; Sale Of Inventory
	 	 	26	 
	 	Section 5.5.     Notice Of Litigation And Proceedings
	 	 	26	 
	 	Section 5.6.     Payment Of Liabilities To Third Persons
	 	 	26	 
	 	Section 5.7.     Notice Of Change Of Business Location
	 	 	26	 
	 	Section 5.8.     Payment Of Taxes
	 	 	26	 
	 	Section 5.9.     Inspections Of Records
	 	 	26	 
	 	Section 5.10.   Notice Of Events Affecting Collateral; Compromise Of
Receivables;
	 	 	 	 
	 	Returned Or Repossessed Goods
	 	 	27	 
	 	Section 5.11.   Documentation Of Collateral
	 	 	27	 
	 	Section 5.12.   Reporting Requirements
	 	 	27	 
	 	 	Section 5.12.1.     Inventory Reports
	 	 	27	 
	 	 	Section 5.12.2.     Receivables And Accounts Payable Reports
	 	 	28	 
	 	 	Section 5.12.3.     Borrowing Base Report
	 	 	28	 
	 	 	Section 5.12.4.     Quarterly Financial Statements
	 	 	28	 
	 	 	Section 5.12.5.     Annual Financial Statements
	 	 	28	 
	 	 	Section 5.12.6.     SEC And Other Filings
	 	 	28	 
	 	 	Section 5.12.7.     Management Letters
	 	 	28	 

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	 	 	Section 5.12.8.     Certificates Of No Default
	 	 	28	 
	 	 	Section 5.12.9.     Reports To Other Creditors
	 	 	29	 
	 	 	Section 5.12.10.   Management Changes
	 	 	29	 
	 	 	Section 5.12.11.   General Information
	 	 	29	 
	 	Section 5.13.   Employee Benefit Plans And Guaranteed Pension Plans
	 	 	29	 
	 	Section 5.14.   Maintenance Of Fixed Assets
	 	 	30	 
	 	Section 5.15.   Consignments
	 	 	30	 
	 	Section 5.16.   Federal Assignment Of Claims Act
	 	 	30	 
	 	Section 5.17.   Compliance With Laws
	 	 	30	 
	 	Section 5.18.   Fair Labor Standards Act
	 	 	31	 
	 	Section 5.19    Subsidiary Guaranties and Security Agreements
	 	 	31	 
	ARTICLE 6 - NEGATIVE COVENANTS
	 	 	 	 
	 	Section 6.1.     No Change Of Name, Merger, Etc
	 	 	31	 
	 	Section 6.2.     No Sale Or Transfer Of Collateral; Restriction Against
Transfer of Other Assets
	 	 	31	 
	 	Section 6.3.     No Encumbrance Of Collateral
	 	 	32	 
	 	Section 6.4.     No Indebtedness
	 	 	32	 
	 	Section 6.5.     Restricted Payments
	 	 	32	 
	 	Section 6.6.     Transactions With Affiliates
	 	 	32	 
	 	Section 6.7.     Sale-Leasebacks
	 	 	32	 
	 	Section 6.8.     No Acquisition Of Equity In Or Assets Of Third Persons
	 	 	32	 
	 	Section 6.9.     No Assignment
	 	 	32	 
	 	Section 6.10.   No Alteration Of Business
	 	 	32	 
	 	Section 6.11.   Unpermitted Uses Of Loan Proceeds
	 	 	33	 
	 	Section 6.12.   [Intentionally Omitted.]
	 	 	33	 
	 	Section 6.13.   Changes In Fiscal Year
	 	 	33	 
	 	Section 6.14.   Limitation On Issuance Of Equity Interests
	 	 	33	 
	 	Section 6.15    Required EBITDA
	 	 	33	 
	 	Section 6.16    Minimum Required Adjusted Quick Ratio
	 	 	33	 
	ARTICLE 7 - EVENTS OF DEFAULT
	 	 	 	 
	 	Section 7.1      Events of Default
	 	 	33	 
	 	Section 7.2.     Certain Default Remedies
	 	 	35	 
	 	Section 7.3.     Automatic Acceleration
	 	 	35	 
	 	Section 7.4.     Sale Of Collateral
	 	 	35	 
	 	Section 7.5      Confession of Judgment
	 	 	36	 
	 	Section 7.6      Remedies Cumulative
	 	 	36	 
	ARTICLE 8 - GENERAL CONDITIONS AND TERMS
	 	 	 	 
	 	Section 8.1.     Obligations Are Unconditional
	 	 	36	 
	 	Section 8.2.     Indemnity
	 	 	37	 
	 	Section 8.3.     Lender Expenses
	 	 	37	 
	 	Section 8.4.     Authorization To Obtain Financial Information
	 	 	37	 
	 	Section 8.5.     Incorporation
	 	 	37	 
	 	Section 8.6.     Waivers
	 	 	37	 
	 	Section 8.7.     Continuing Obligation Of Borrower
	 	 	37	 
	 	Section 8.8.     Choice Of Law
	 	 	37	 
	 	Section 8.9.     Submission To Jurisdiction; Venue; Actions Against
Lender
	 	 	38	 

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	 	 	Section 8.9.1.     Jurisdiction
	 	 	38	 
	 	 	Section 8.9.2.     Venue
	 	 	38	 
	 	 	Section 8.9.3.     Waiver Of Objections To Venue
	 	 	38	 
	 	Section 8.10.   Notices
	 	 	38	 
	 	Section 8.11.   Participations
	 	 	39	 
	 	Section 8.12.   Miscellaneous Provisions
	 	 	39	 
	 	Section 8.13.   Waiver Of Trial By Jury
	 	 	40	 
	 	Section 8.14.   Confidentiality
	 	 	40	 

	 	 	 
	Schedules	 	 
	
	 	 
	Schedule 1.1(a)	 	
Permitted Liens
	Schedule 4.2	 	
Litigation
	Schedule 4.7	 	
Other Names
	Schedule 4.12	 	
Chief Place Of Business
	Schedule 4.13	 	
Location Of Inventory
	Schedule 4.14	 	
Subsidiaries
	Schedule 4.15	 	
Labor Agreements
	Schedule 4.19	 	
Liabilities And Obligations Not Disclosed In Financial Statements
	Schedule 4.23	 	
Environmental Compliance

-iv- 

 

LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT is dated as of February 25, 2003, by and
between MARTEK BIOSCIENCES CORPORATION, a Delaware corporation, and MARTEK
BIOSCIENCES BOULDER CORPORATION, a Delaware corporation (collectively, the
“Borrower”; provided, that where the context so requires, the term “Borrower”
shall mean either of such persons) and ALLFIRST BANK (“Lender”).

RECITALS

     The Borrower has requested that the Lender provide various credit
accommodations to the Borrower. The Lender is willing to provide the requested
credit accommodations upon the terms and conditions set forth in this Loan And
Security Agreement, including the condition that the Borrower grant to the
Lender the security interests, liens, and other assurances of payment provided
for in this Loan And Security Agreement.

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1 - DEFINITIONS AND RULES OF CONSTRUCTION

     Section 1.1 Definitions. As used in this Loan And Security Agreement, the
terms set forth in this Article 1 have the meanings set forth below, except
where the context clearly requires a different meaning. Terms defined in this
Section or elsewhere in this Loan And Security Agreement shall be capitalized
throughout this Loan And Security Agreement.

     “Account Debtor” means each person: (a) to or for whom any Borrower has
provided or has agreed to provide any goods or services; or (b) which owes any
Borrower any sum of money as a result of goods sold or services provided by any
Borrower; or (c) which is the maker or endorser on any Instrument payable to
any Borrower or otherwise owes any Borrower any sum of money on account of any
loan or other payment obligation. With respect to each Receivable which is
payable by any governmental authority, “Account Debtor” includes, without
limitation, the agency, instrumentality or official which has the duty of
remitting or causing the remittance of the amounts owing on such Account or
other Receivable.

     “Accounts,” “Chattel Paper,” “Documents,” “Equipment,” “General
Intangibles,” “Goods,” “Instruments,” and “Investment Property” shall have the
same respective meanings as are given to those terms in the Uniform Commercial
Code-Secured Transactions, Title 9, Commercial Law Article, Annotated Code of
Maryland, as amended. The term “Fixtures” shall have the meaning provided by
the common law of the state in which the fixtures are located.

     “Adjusted Quick Ratio” means, as of any applicable determination date, the
quotient obtained by dividing (a) the amount of the cash and cash equivalents
of the Borrower and its Subsidiaries as of such date, determined on a
consolidated basis in accordance with GAAP, plus the amount of the Borrower’s
and its Subsidiaries’ net Accounts, by (b) the current liabilities of the
Borrower and its Subsidiaries as of such date, determined on a consolidated
basis in accordance with GAAP, plus the LC Obligations (without duplication of
any Reimbursement Obligations constituting current liabilities), plus the Hedge
Exposure Amount then in effect.

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     “Affiliate” means collectively any person: (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with the Borrower, including, without limitation,
the officers, managers and directors of the Borrower; (b) that directly or
beneficially owns or holds ten percent (10%) or more of any equity interests in
the Borrower; or (c) ten percent (10%) or more of whose equity interests are
owned directly or controlled by the Borrower. As used herein, the term
“control” (including, with correlative meanings, the terms “controlled by” and
“under common control with”) shall mean possession, directly or indirectly, of
the power to direct the management or policies of a person, whether through
ownership of equity interests, by contract or otherwise.

     “Agreement” means this Loan And Security Agreement, as amended, extended,
or modified from time to time by the parties hereto, as well as all schedules,
exhibits and attachments hereto.

     “Applicable Margin” means for any day, (a) if the Borrower shall have
submitted all financial statements and other reports then required to have been
submitted by the Borrower pursuant to this Agreement and either (i) the EBITDA
of the Borrower for any fiscal quarter during the term of the Credit Facility
for which the Borrower shall have submitted financial statements as required
hereby is not less than $3,000,000, or (ii) the sum of the amount of the cash
and cash equivalents of the Borrower and its Subsidiaries as of the last day of
the then most recent fiscal quarter for which the Borrower shall have submitted
financial statements as required hereby (or as of the last day of any calendar
month for which the Borrower shall have provided substantially similar
statements) plus the market value of the other marketable investment securities
of the Borrower and its Subsidiaries as of the same day is greater than
$40,000,000, 0.00%, and (b) otherwise, twenty-five one-hundredths of one
percentage point (0.25%).

     “Borrowing Base” means an amount equal to: (a) eighty percent (80%) of
the face amount (less maximum discounts, credits and allowances which may be
taken by or are granted to Account Debtors in connection therewith) of billed
Eligible Accounts; plus (b) the least of (i) $2,000,000, (ii) 25% of the
Lender’s valuation of the Eligible Inventory and (iii) one-third of the amount
described in item (a) above (such that no more than 25% of the Borrowing Base
may be comprised of the Eligible Inventory); minus (c) such reserves as the
Lender, in its reasonable discretion, deems appropriate from time to time with
respect to obligations of the Borrower.

     “Business Day” means any day other than a Saturday, Sunday, or other day
on which commercial banking institutions in the State of Maryland are required
to be closed.

     “Capital Adequacy Requirement” means any law imposing any capital adequacy
requirement or any other similar requirement (including but not limited to the
capital adequacy regulations contained in Parts 3, 208 and 225 of Title 12 of
the Code of Federal Regulations, as amended), any change in such laws or in the
interpretation or application thereof, and any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or government authority having jurisdiction over the Lender.

     “Capital Lease” means a lease with respect to which the lessee’s
obligations thereunder should, in accordance with GAAP, be capitalized and
reflected as a liability on the balance sheet of the lessee.

     “Capital Lease Obligations” means any indebtedness incurred as a lessee
pursuant to a Capital Lease.

     “Cash Collateral Balance” has the meaning given in Subsection 2.1.6
hereof.

     “Cash Collateral Requirement” has the meaning given in Subsection 2.1.6
hereof.

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     “Closing” means the execution and delivery of this Agreement, the Note,
and various other Loan Documents. The date of Closing is the date written
above as the date of this Agreement.

     “Code” means the Internal Revenue Code of 1986, as amended, and all
Treasury regulations, revenue rulings, revenue procedures or announcements
issued thereunder.

     “Collateral” means all of the tangible and intangible assets of the
Borrower, wherever located, whether now owned or hereafter acquired by the
Borrower, together with all substitutions therefor, and all replacements and
renewals thereof, and all accessions, additions, replacement parts, manuals,
warranties and packaging relating thereto, including but not limited to the
following tangible and intangible assets and property rights of the Borrower:
(a) Accounts; (b) Chattel Paper; (c) Documents; (d) Equipment; (e) Fixtures;
(f) General Intangibles; (g) Goods; (h) Instruments; (i) Inventory, including
returned, rejected, or repossessed Inventory and rights of reclamation and
stoppage in transit with respect to Inventory; (j) Investment Property; (k)
Receivables; (l) deposit accounts; (m) letter of credit rights; (n) all Records
relating to or pertaining to any of the above listed Collateral; provided,
however, there shall be excluded from the Collateral: (i) all
Intellectual Property, (ii) all real property, fixtures and equipment
comprising the Borrower’s facility located in Winchester, Kentucky, and (iii)
the rights of the Borrower under any contract, lease, permit, license,
franchise or other agreement which prohibits the grant of a security interest
therein, but only to the extent that (x) such prohibition is not ineffective
under Section 9-406 or 9-408, as applicable, of the Maryland Uniform Commercial
Code and (y) any required consents to the grant of such security interest have
not been obtained.

     “Collection Account” means a bank account designated by the Lender from
which the Lender alone has power of access and withdrawal.

     “Commercial Account” means the commercial checking account to be
established and maintained by the Borrower with the Lender and which may be
utilized as the means of disbursing the proceeds of the Loans.

     “Credit Line” means the line of credit established by the Lender in favor
of the borrower under this Agreement.

     “Default” means any event, occurrence or omission which, with the giving
of notice, the passage of time, or both, would constitute an Event of Default.

     “Default Rate” means the floating and fluctuating rate obtained by adding
two percentage points (2.00%) to the rate at which interest would accrue on the
unpaid principal balance of the Loans absent the existence of any Event of
Default.

     “EBITDA” means, with respect to the Borrower, for any applicable period,
the net income of the Borrower and its Subsidiaries for such period (before
deducting the provision for taxes), plus the interest expense, depreciation and
amortization of the Borrower and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP.

     “Eligible Accounts” means those Accounts which are acceptable to the
Lender, in its discretion exercised in a manner consistent with its usual
practices. The criteria for eligibility may be fixed and revised from time to
time by the Lender in its discretion in a manner consistent with its usual
practices. An account in no event shall be deemed eligible unless: (a) the
Account arises from goods sold or leased or from services

-3-

 

performed in the
ordinary course of business of the Borrower; (b) the delivery of the goods or
the performance of the services has been completed; (c) no return, rejection,
or repossession has occurred; (d) the goods delivered or the services performed
have been finally and unconditionally accepted by the Account Debtor without
dispute, objection, complaint, offset, defense, counterclaim, adjustment or
allowance; (e) the Account Debtor’s obligation to pay the Account is not
subject to any repurchase obligation or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval (except with
respect to Accounts in connection with which Account Debtors are entitled to
return Inventory solely on the basis of the quality of such Inventory) or
consignment basis; (f) no more than ninety (90) days have elapsed from the
billing or invoice date and no more than sixty (60) days have elapsed from the
due date; (g) no prior, contemporaneous, or subsequent assignment, claim, lien,
or security interest, other than that of the Lender, applies to the Account;
(h) no bankruptcy or insolvency proceedings or payment moratoriums of any kind
apply to the Account; (i) the Account Debtor is not, in the Lender’s sole but
reasonable opinion, unlikely to pay because of death, incompetency,
disappearance, potential bankruptcy, insolvency, damage to or disposition of
the goods, default, or any other reason whatsoever; (j) the Lender has not, by
notice to the Borrower, in the Lender’s sole discretion, deemed the Account
unsatisfactory for any reason; (k) no bonding company or surety asserts or has
the ability to assert any claim based upon the legal doctrine of equitable
subrogation, or under any other right to claim a lien into or right to payment
of the Account; (l) the Account does not arise from or pertain to any
transaction with any Affiliate; (m) excluding those Accounts for which Mead
Johnson B.V. is the Account Debtor, the Account is not payable from any Account
Debtor located outside of the geographic boundaries of the United States of
America (unless such Account is fully secured by a letter of credit or credit
insurance acceptable to the Lender); (n) the Borrower is legally empowered to
collect the Account against the Account Debtor in the jurisdiction in which the
Account Debtor is located; (o) the Account is not payable by an Account Debtor
with respect to which more than 50% of the dollar amount of that Account
Debtor’s Receivables to the Borrower are more than ninety (90) days due from
the date of invoice or more than sixty (60) days due from the due date; (p) the
Account does not arise from any contract or agreement with any federal, state,
local or foreign government unless such governmental authority is the United
States of America or an agency or representative thereof and the Lender has
obtained full compliance to its complete satisfaction with all provisions
necessary to protect the Lender’s interests under The Assignment of Claims Act
of 1940, as amended, and all regulations promulgated thereunder, and all other
applicable federal procurement laws and regulations; and (q)
the Lender has a perfected first priority security interest therein. An
Account which otherwise satisfies the Lender’s criteria for eligibility shall
also be subject to the following eligibility limitations: (i) if the Account
is payable by an Account Debtor to whom the Borrower owes money, only the
portion of the Account in excess of the amount owed by the Borrower to the
Account Debtor may be eligible; (ii) if the Account is due from an Account
Debtor whose Accounts in the aggregate constitute in excess of 50% of all of
the Accounts of the Borrower, only the portion of the aggregate amount of the
Accounts from that Account Debtor which does not exceed 50% of all of the
Accounts of the Borrower may be eligible (and for purposes of this item (ii),
Mead Johnson B.V. and Mead Johnson Nutritionals shall be considered separate
Account Debtors, notwithstanding any affiliation); and (iii) to the extent the
Account contains finance charges, delivery charges or sales taxes, such finance
charges, delivery charges or sales taxes shall not be eligible.

     “Eligible Inventory” means all Inventory owned by the Borrower which is
acceptable to the Lender, in its discretion exercised in a manner consistent
with its usual practices, to be included in the calculation of the Borrowing
Base. The criteria for eligibility may be fixed and revised by the Lender from
time to time in its discretion in a manner consistent with its usual practices.
Inventory in no event shall be deemed to be eligible unless: (a) the Lender
has a first priority perfected security interest in its Inventory; (b) it is
normally and currently saleable in the ordinary course of business of the
Borrower; (c) it constitutes finished goods (including Dutch State Mines (DSM)
purchased oil), not raw materials or work in process; (d) it is located on

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the
premises owned or leased by the Borrower (including space rented by the
Borrower in a warehouse) and, if leased, subject to item (j) below; (e) it does
not consist of obsolete, returned or repossessed items of Inventory or used
goods or goods taken in trade; (f) it does not consist of slow moving items or
items determined by the Lender in its sole discretion to be stale or dated
merchandise; (g) it does not consist of packing materials, catalogs, promotion
materials, items used as demonstrators, prototypes, or salesman’s samples; (h)
it does not consist of an item consigned to the Borrower or with respect to
which any person claims a lien; (i) it has not been consigned by the Borrower
to a consignee; (j) it is not held by any person (other than the Borrower) or
located upon any premises not owned in fee simple by the Borrower unless such
person or the owner of such premises has executed a lien waiver agreement in
form and substance satisfactory to the Lender; and (k) it has not been deemed
unsatisfactory by the Lender for any reason, in the Lender’s sole but
reasonable discretion, by written notice to the Borrower. The value of any
Inventory deemed to meet the criteria for Eligible Inventory shall be
determined at the least of: (i) the Borrower’s net purchase or manufacturing
cost; (ii) the lowest then-existing market price; (iii) the Borrower’s lowest
selling price, less estimated expenses for packing, selling and delivery; or
(iv) any price ceiling which may be established by governmental order,
regulation, or restriction. The Lender shall be the discretionary judge of the
value of any Inventory, based upon such information as it deems, in its
discretion, to be relevant or applicable in making that determination.

     “Employee Benefit Plan” means an “employee benefit plan” as defined in
Section 3(3) of ERISA.

     “Environmental laws” means individually or collectively any applicable
local, state or federal law, statute, rule, regulation, order, ordinance,
common law, permit or license term or condition, or state superlien or
environmental clean-up or environmental disclosure statutes pertaining to the
environment or to environmental contamination, regulation, management, control,
treatment, storage, disposal, containment, removal, clean-up, reporting, or
disclosure, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (including, but
not limited to, the Superfund Amendments and Reauthorization Act); the Resource
Conservation and Recovery Act, as amended (including, but not limited to, the
Hazardous and Solid Waste Amendments of 1984); the Toxic Substances Control
Act, as amended; the Clean Water Act, as now or hereafter amended; the Safe
Drinking Water Act, as amended; or the Clean Air Act, as amended.

     “EPA Permit” has the meaning given that term in Section 4.23 of this
Agreement.

     “ERISA” means the Employee Retirement Income Security Act of 1974 and
regulations issued thereunder, as amended from time to time and any successor
statute.

     “ERISA Affiliate” means, in relation to any person, any trade or business
(whether or not incorporated) which is a member of a group of which that person
is a member and which is under common control within the meaning of the
regulations promulgated under Section 414 of the Code.

     “ERISA Liabilities” means the aggregate of all unfunded vested benefits
under any employee pension benefit plan, within the meaning of Section 3(2) of
ERISA, of the Borrower or any ERISA Affiliate of the Borrower under any plan
covered by ERISA that is not a Multiemployer Plan and all potential withdrawal
liabilities of the Borrower or any ERISA Affiliate under all Multiemployer
Plans.

     “Event of Default” means any of the events set forth in Section 7.1 of
this Agreement, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other expressly stated condition, has been
satisfied.

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     “Facilities” means all real property and the improvements thereon used or
occupied or leased by the Borrower or otherwise used at any time by the
Borrower in the operation of its business or for the manufacture, storage, or
location of any of the Collateral.

     “Fiscal Year” means the fiscal year of the Borrower which is the twelve
(12) month accounting period commencing November 1 of each calendar year and
ending the following October 31, subject to change by the Borrower in
accordance with the provisions hereof.

     “GAAP” means generally accepted accounting principles as used by the
Financial Accounting Standards Board and/or the American Institute of Certified
Public Accountants, as in effect from time to time, consistently applied and
maintained throughout the periods indicated.

     “Guaranteed Pension Plan” means any pension plan maintained by the
Borrower or an ERISA Affiliate of the Borrower, or to which the Borrower or an
ERISA Affiliate contributes, some or all of the benefits under which are
guaranteed by the United States Pension Benefit Guaranty Corporation.

     “Guarantors” means collectively all persons which shall have executed and
delivered a guaranty agreement as required by Section 5.19 hereof.

     “Guaranty Agreements” means collectively the Guaranty Agreements executed
from time to time by the Guarantors for the benefit of the Lender.

     “Guaranty Indebtedness” means any obligation, contingent or otherwise, of
any referenced person directly or indirectly guaranteeing any debt or
obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person: (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such debt or obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise, other than agreements to purchase goods at an arm’s length price in
the ordinary course of business); or (b) entered into for the purpose of
assuring in any other manner the holder of such debt or obligation of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part) The term Guaranty Indebtedness shall not include
endorsements for collection or deposit in the ordinary course of business.

     “Hedge” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, equity or equity index swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing) between the Lender or any of its affiliates
and the Borrower or any of its Affiliates, whether or not any such transaction
is governed by or subject to any master agreement, and (b) any and all
transactions of any kind between the Lender and any of its affiliates and the
Borrower any of its Affiliates, and the related confirmations, which are
subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivatives Association,
Inc., any International Foreign Exchange Master Agreement, or any other master
agreement (any such master agreement, together with any related schedules,

-6-

 

a “Master Agreement”), including any such obligations or liabilities of the
Borrower under any such Master Agreement.

     “Hedge Exposure Amount” means, as of any day, the amount determined by the
Lender, in accordance with its usual policies, to be the credit exposure
allocated to all Hedges then in effect; provided, that in no event will the
Hedge Exposure Amount be less than $0.00.

     “Indebtedness” means, as to any referenced person (determined without
duplication): (a) indebtedness of such person for borrowed money (whether by
loan or the issuance and sale of debt securities), or for the deferred purchase
or acquisition price of property or services (other than accounts payable
incurred in the ordinary course of business); (b) obligations of such person in
respect of letters of credit or similar instruments issued or accepted by
financial institutions for the account of such person (whether or not such
obligations are contingent); (c) Capital Lease Obligations of such person; (d)
obligations of such person to redeem or otherwise retire equity interests in
such person; (e) as to any contract of a type described in the definition of
“Hedge”, regardless of whether such contract is made with the Lender, after
taking into account the effect of any legally enforceable netting agreement
relating to such contract, (i) for any date on or after the date such contract
has been closed out and termination value determined in accordance therewith,
such termination value, and (ii) for any date prior to the date referenced in
clause (i), the amount determined as the mark-to-market value for such
contract, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such contract (which
may include the Lender or any affiliate of the Lender); (f) indebtedness of
others of the type described in clause (a), (b), (c), (d) or (e) above secured
by a lien on any of the property of such person, whether or not the respective
obligation so secured has been assumed by such person; and (g) Guaranty
Indebtedness.

     “Intellectual Property” means all of the Borrower’s right, title and
interest, whether now owned or existing or hereafter acquired or arising, in
all of the following property: (a) all domestic and foreign copyrights,
copyright registrations and copyright applications, whether or not registered
or filed with any governmental authority, (b) all domestic and foreign
trademarks, trademark registrations, trademark applications, trade names,
service marks, certification marks, logos and other source business
identifiers, whether or not registered or filed with any governmental
authority, and (c) all United States and foreign patents, and pending and
abandoned United States and foreign patent applications, including, without
limitation, the inventions and improvements described or claimed therein,
together with (i) all renewals, reissues, divisions, continuations,
certificates of reexamination, extensions and continuations-in-part of all of
the foregoing, (ii) all present and future rights of the Borrower under all
present and future license agreements relating to all of the foregoing, whether
the Borrower is licensee or licensor thereunder, (iii) all income, royalties,
damages and payments now or hereafter due and/or payable to the Borrower under
all of the foregoing or with respect thereto, including, without limitation,
damages and payments for past, present or future infringements thereof, (iv)
all of the Borrower’s present and future claims, causes of action and rights to
sue for past, present or future infringements of all of the foregoing, (e) all
rights corresponding thereto throughout the world, (f) all goodwill of the
Borrower in connection with the use of, and symbolized by, any of the
foregoing, and (g) all proceeds of all of the foregoing.

     “Insolvency Proceedings” means, with respect to any referenced person, any
case or proceeding commenced by or against such person, under any provision of
the United States Bankruptcy Code, as amended, or under any other federal or
state bankruptcy or insolvency law, or any assignments for the benefit of
creditors, formal or informal moratoriums, receiverships, compositions or
extensions with some or all creditors with respect to any indebtedness of such
person.

-7-

 

     “Inventory” shall have the same meaning as provided to such term in the
Uniform Commercial Code - Secured Transactions, Title 9, Commercial Law
Article, Annotated Code of Maryland, as amended, together with all of the
Borrower’s goods, merchandise, materials, raw materials, goods in process,
finished goods, work in progress, bindings or component materials, packaging
and shipping materials and other tangible or intangible personal property, now
owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or which contribute to the finished
products or the sale, promotion, storage and shipment thereof, whether located
at facilities owned or leased by the Borrower, in the course of transport to or
from Account Debtors, used for demonstration, placed on consignment, or held at
storage locations.

     “LC Application” has the meaning given in Subsection 2.1.4(c) hereof.

     “LC Obligations” means, as of any time of determination, the sum of (a)
the aggregate of the Stated Amounts of all Letters of Credit, plus (b) the
amount, if any, of all amounts drawn under the Letters of Credit and not fully
reimbursed to the Lender (either by the making of a Loan for such purpose or
otherwise).

     “Lender Expenses” means the out-of-pocket expenses or costs incurred by
the Lender arising out of, pertaining to, or in any way connected with this
Agreement, any of the other Loan Documents or the Obligations, or any documents
executed in connection herewith or transactions hereunder. The term “Lender
Expenses” shall include, without limitation: (a) the reasonable costs or
expenses required to be paid by the Borrower pursuant to this Agreement or any
of the Loan Document; (b) taxes and insurance premiums advanced or otherwise
paid by the Lender in connection with the Collateral or on behalf of the
Borrower; (c) filing, recording, title insurance, environmental and consulting
fees, audit fees, search fees and other expenses paid or incurred by the Lender
in connection with the Lender’s transactions with the Borrower and incurred
pursuant to the Loan Documents; (d) reasonable costs and expenses incurred by
the Lender in the collection of the Accounts (with or without the institution
of legal action), or to enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, evaluating, preserving, storing,
shipping, selling, preparing for sale and/or advertising to sell the Collateral
or any other property of the Borrower whether or not a sale is consummated; (e)
reasonable costs and expenses of litigation incurred by the Lender, or any
participant of the Lender in any of the Obligations, in enforcing or defending
this Agreement or any portion hereof or in collecting any of the Obligations;
(f) reasonable attorneys’ fees and expenses incurred by the Lender in obtaining
advice or the services of its attorneys with respect to the structuring,
drafting, negotiating, reviewing, amending, terminating, enforcing or defending
of this Agreement, or any portion hereof or any agreement or matter related
hereto, whether or not litigation is instituted; and (g) reasonable and
itemized travel expenses related to any of the foregoing.

     “Letters of Credit” means collectively letters of credit issued from time
to time by the Lender for the account or benefit of the Borrower.

     “Letter of Credit Sublimit” means $1,500,000.

     “Loan” has the meaning given in Subsection 2.1.1 hereof.

     “Loan Documents” means all agreements, instruments and documents,
including without limitation each document listed as a “Loan Document” on a
Closing Index of even date herewith, together with all other loan agreements
(including without limitation this Agreement), notes (including without
limitation the Note), guarantees, subordination agreements, intercreditor
agreements, pledges, affidavits, powers of attorney, consents, assignments,
landlord and mortgage waivers, collateral assignments, reimbursement
agreements,

-8-

 

contracts, notices, leases, financing statements, mortgages, deeds
of trusts, assignments of rents or contract proceeds, intellectual property
security agreements, pledges, LC Applications, Interest Rate Hedge, and all
other written matter, whether heretofore, now or hereafter executed by or on
behalf of the Borrower or any of the Guarantors in connection with any of the
Obligations.

     “Lock Box” has the meaning given that term in Section 3.5 of this
Agreement.

     “Material Adverse Event” means the occurrence of any event, condition, or
omission which could reasonably be expected to have a material adverse effect
upon: (a) the financial condition, results of operations, properties, assets,
liabilities (including, without limitation, tax liabilities, liabilities under
Environmental laws, and ERISA Liabilities), businesses, operations, licenses or
franchises of the Borrower (taken as a whole); (b) the ability of the Borrower
to perform any of the Obligations when and as required by the terms of the Loan
Documents; (c) the rights and remedies of the Lender as provided by the Loan
Documents; or (d) the value, condition, use, or availability of any of the
Collateral or upon any material portion of the Lender’s liens and security
interests securing the Obligations.

     “Maximum Credit Amount” means as of any day (a) $10,000,000 minus (b) the
Hedge Exposure Amount in effect for such day.

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA which is maintained for employees of the Borrower, or any
ERISA Affiliate of the Borrower.

     “Note” has the meaning given in Section 2.3 hereof.

     “Obligations” means collectively all of the obligations of the Borrower to
pay to the Lender: (a) sums due to the Lender arising out of or in connection
with the Credit Line or otherwise pursuant to the terms of the Loan Documents;
(b) indemnification obligations owed by the Borrower to the Lender in
accordance with the terms of the Loan Documents; (c) Lender Expenses; (d)
overdrafts of the Borrower upon any accounts with the Lender; (e) payments,
duties or obligations owed to the Lender arising from or with respect to any
Hedge; (f) any sums owed to the Lender arising out of or relating to any
Letters of Credit including, without limitation, all Reimbursement Obligations,
and obligations to pay Letter of Credit fees; (g) all duties of payment and
performance owed to the Lender in connection with any guaranties; (h) all other
indebtedness or liability of the Borrower to the Lender, whether direct or
indirect, joint or several, absolute or contingent, contemplated or not
presently contemplated, now existing or hereafter arising; and (i) any
indebtedness or liability which may exist or arise as a result of any payment
made by or for the benefit of the Borrower being avoided or set aside for any
reason including, without limitation, any payment being avoided as a preference
under Sections 547 and 550 of the United States Bankruptcy Code, as amended, or
under any state law governing insolvency or creditors’ rights.

     “Outstanding Credit Amount” means as of any time of determination, the sum
of (a) the aggregate principal amount of the Loans then outstanding, plus (b)
the amount of the LC Obligations then outstanding.

     “Permitted Liens” means: (a) liens for taxes, assessments, or similar
charges incurred in the ordinary course of business that are not yet due and
payable or which are being contested in compliance with the provisions of
Section 5.8 hereof; (b) liens in favor of the Lender; (c) any existing liens
specifically described on Schedule 1.1(a) hereof; (d) any lien on specifically
allocated money or securities to secure payments under workmen’s compensation,
unemployment insurance, social security and other similar laws, or to secure
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure

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statutory obligations or appeal bonds, or to
secure indemnity, performance or other similar bonds in the ordinary course of
business; (e) purchase money security interests in Equipment (and security
interests in Equipment securing the refinancing of Indebtedness previously
secured by a purchase money security interest therein) not to exceed in
aggregate amount outstanding at any one time the sum of One Million Dollars
($1,000,000), provided that such purchase money security interests do not
attach to any to any assets other than the specific item(s) of Equipment
acquired with the proceeds of the loan secured by such purchase money security
interests and the proceeds thereof; (f) interests of lessors under Capital
Leases, (g) liens on and security interests in property which is not part of
the Collateral; (h) liens of carriers, warehousemen, mechanics, materialmen and
landlords arising in the ordinary course of business for sums not overdue or
sums being diligently contested in good faith by appropriate procedures and for
which adequate reserves have been set aside; and (i) subsequently arising liens
which are expressly approved in advance of the creation of any such liens by
the Lender in writing.

     “Prime Rate” means a fluctuating annual rate of interest equal to the
greater of: (i) that rate announced from time to time by the Lender as its
“prime rate;” or (ii) the rate obtained by adding one percent (1%) to the
average rate, rounded to the nearest one-tenth of one percent, for three month
maturity dealer placed commercial paper for the week most recently reported in
the Federal Reserve Statistical Release No. H.15(519) entitled “Selected
Interest Rates” or any succeeding publication.

     “Receivables” means all of the Accounts, Instruments, Documents, General
Intangibles, Chattel Paper, notes, notes receivable, drafts, acceptances, and
choses in action, of the Borrower, now existing or hereafter created or
acquired, and all proceeds and products thereof, and all rights thereto,
arising from the sale or lease of or the providing of Inventory, Goods, or
services by the Borrower to Account Debtors, as well as all other rights,
contingent or non-contingent, of any kind of the Borrower to receive payment,
benefit, or credit from any person.

     “Records” means correspondence, memoranda, tapes, discs, papers, books and
other documents, or transcribed information of any type, whether expressed in
ordinary, computer or machine language.

     “Regulated Substance” means any substance which, pursuant to any
Environmental law, is identified as a hazardous substance (or other term having
similar import) or is otherwise subject to special requirements in connection
with the use, storage, transportation, disposition or other handling thereof.

     “Reimbursement Obligation” means the Borrower’s obligation to reimburse
the Lender for each amount paid by the Lender pursuant to any drawing under any
Letter of Credit.

     “Release” means a “release” as defined in Section 101(22) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as now or hereafter amended.

     “Required EBITDA means, with respect to the Borrower, for each period
indicated below, the corresponding amount specified below as the Required
EBITDA:

	 	 	 	 	 
	Period	 	Required EBITDA
	Quarter ending April 30, 2003
	 	$	1,000,000	 
	Quarter ending July 31, 2003
	 	$	2,000,000	 
	Quarter ending October 31, 2003
	 	$	3,000,000	 
	Quarter ending January 31, 2004
	 	$	5,000,000	 

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     “Restricted Payment” means collectively: (a) any redemption, purchase or
other acquisition for value, direct or indirect, by the Borrower of any equity
interest in the Borrower now or hereafter outstanding (other than repurchases
of shares held by employees or directors pursuant to the terms of any
restricted share plan); or (b) any payment made by the Borrower to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights
to acquire equity interests in the Borrower now or hereafter outstanding.

     “Solvent” means, as to any referenced person, that as of the date of
determination both: (a) (i) the then fair saleable value of the property of
such person is greater than the total amount of liabilities (including
contingent liabilities) of such person and is not less than the amount that
will be required to pay the probable liabilities on such person’s then existing
debts as they become absolute and matured considering all financing
alternatives and potential asset sales reasonably available to such person;
(ii) such person’s capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction; and (iii) such person
does not intend to incur, or believe (nor should it reasonably believe) that it
will incur, debts beyond its ability to pay such debts as they become due; and
(b) such person is “solvent” within the meaning given that term and similar
terms under applicable laws relating to fraudulent transfers and conveyances.
For purposes of this definition, the amount of any contingent liability at any
time shall be computed as the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability

     “Stated Amount” means, with respect to any Letter of Credit, the maximum
amount available to be drawn thereunder, without regard to whether any of the
conditions required for the making of a drawing thereunder are satisfied.

     “Subsidiary” means, with respect to any person, any other person of which
securities or other ownership interests representing an aggregate of fifty
percent (50%) of more of the equity or the ordinary voting power are, at the
time as of which any determination is being made, owned or controlled directly,
or indirectly through one or more intermediaries, by such person.

     “Termination Date” means February 28, 2004.

     “Termination Event” means: (a) a “Reportable Event” described in Section
4043 of ERISA and the regulations issued thereunder, but not including any such
event for which the 30-day notice requirement has been waived by applicable
regulation; (b) the withdrawal of the Borrower or an ERISA Affiliate of the
Borrower from a Guaranteed Pension Plan during a plan year in which it was a
“substantial employer” as defined in Section 4001(a)(2) of ERISA; (c) the
filing of a notice of intent to terminate a Guaranteed Pension Plan or the
treatment of a Guaranteed Pension Plan amendment as a termination under Section
4041 of ERISA; (d) the institution of proceedings to terminate a Guaranteed
Pension Plan by the Pension Benefit Guaranty Corporation; (e) the withdrawal or
partial withdrawal of the Borrower or an ERISA Affiliate of the Borrower from a
Multiemployer Plan; or (f) any other event or condition which might reasonably
be expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Guaranteed Pension Plan.

     Section 1.2 Accounting Terms; Rules of Construction. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and compliance with the
financial covenants set forth herein shall be determined, in accordance with
GAAP. The singular shall include the plural and the plural may refer to only
the singular; the use of any gender shall be applicable to all genders; the
headings, captions and any table of contents or index contained herein are for

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the purpose of convenience only and are not a part of this Agreement. Except
where the context clearly requires otherwise, when used in this Agreement, the
words “herein,” “hereof” and “hereunder” and words of similar import shall
refer to this Agreement as a whole and not only to any particular provision of
this Agreement; and the words “section,” “subsection,” “attachment,” “schedule”
and “exhibit” shall refer to sections and subsections of, and attachments,
schedules and exhibits to, this Agreement; the words “include,” “included,”
“including,” “includes” and words of similar import shall be deemed to be
followed by the words “without limitation;” the word “law” means and includes
any ordinance, statute, rule, regulation, order, injunction, writ or decree of
any government or political subdivision or agency or instrumentality thereof,
or any court or similar entity established by any thereof; the word “person”
shall include any natural person, corporation, partnership, limited liability
company, trust, unincorporated association, governmental authority, or other
entity of any kind; and in each instance in which a provision of this Agreement
refers to an “agreement” of a person, such reference shall mean any applicable
covenant, promise, representation, warranty or other undertaking.

ARTICLE 2 - THE CREDIT LINE; LETTERS OF CREDIT; HEDGES

     Section 2.1. Credit Line.

          2.1.1 Loans. Upon request of the Borrower from time to time during the
period from and including the Closing Date until the Termination Date or any
earlier date on which the Credit Line shall be terminated in accordance with
this Agreement, subject to the terms and conditions set forth herein (including
the conditions precedent set forth in Section 2.10), the Lender shall make
loans or advances to the Borrower from time to time (each such loan or advance
is referred to herein as a “Loan”) in an aggregate principal amount of up to
$10,000,000 outstanding at any one time; provided, however that in no event
shall the Lender have any obligation to make any Loan if, after giving effect
thereto, the Outstanding Credit Amount shall exceed the lesser of (i) the
Borrowing Base then in effect and (ii) the Maximum Credit Amount. Without
limiting any other provision of this Agreement, the Lender is hereby
irrevocably and unconditionally authorized, upon any drawing under any Letter
of Credit not otherwise immediately reimbursed by the Borrower, to make a Loan
to the Borrower in the amount of such drawing and apply the proceeds of such
Loan directly to the Reimbursement Obligation owing in respect of such drawing;
in the event that the conditions for the making of a Loan hereunder are not
then satisfied, the Lender shall nonetheless have the right, but not the
obligation, to make any such Loan for such purpose.

          2.1.2 Use of Proceeds of Loans. The Borrower shall use the proceeds of
the Loans solely for the Borrower’s general corporate purposes.

          2.1.3 Repayment of Principal of Loans; Mandatory Prepayment . All amounts
outstanding under the Loans, including the principal thereof, all accrued
unpaid interest thereon and any and all applicable fees, charges and other
amounts owing by the Borrower under this Agreement, shall be absolutely due and
payable on the Termination Date or any earlier date on which the Credit Line is
terminated in accordance with this Agreement. In addition, on any date on
which the Outstanding Credit Amount exceeds the lesser of (i) the Maximum
Credit Amount and (ii) the Borrowing Base then in effect, the Borrower shall
make a mandatory prepayment of Loans in a principal amount equal to such
excess.

          2.1.4 Letters of Credit. From time to time until the Termination Date,
the Borrower may request, and the Lender, upon any such request but subject to
the terms and conditions set forth herein, shall provide, standby or commercial
Letters of Credit for the account of the Borrower in amounts up to the limits

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set forth in this part and otherwise in accordance with the terms and
conditions set forth in this part and subject to the further conditions
precedent set forth in Section 2.10 hereof:

               (a) Limitation on Amount of Letters of Credit. Each Letter of Credit
shall be issued in the amount specified by the Borrower in the LC Application
(defined below) therefor submitted by the Borrower; provided, that (i) no
Letter of Credit shall be
issued in an amount which would cause the aggregate amount of the LC
Obligations to exceed the Letter of Credit Sublimit, and (ii) no Letter of
Credit shall be issued in an amount which would cause the Outstanding Credit
Amount, after giving effect to the requested Letter of Credit, to exceed the
Maximum Credit Amount.

               (b) Term. Unless otherwise specifically and in writing agreed by the
Lender, no Letter of Credit shall have a term in excess of 12 months, and no
Letter of Credit shall be renewed or extended unless the conditions precedent
to issuance of Letters of Credit are satisfied with respect to such Letter of
Credit, as renewed.

               (c) LC Application. Without limiting any other conditions to the Lender’s
agreement to issue any Letter of Credit hereunder, the Lender shall have no
obligation to issue any Letter of Credit except upon the delivery by the
Borrower of an Application for Letter of Credit with respect thereto in form
and substance satisfactory to the Lender, with all applicable information
completed in accordance with terms approved by the Lender, executed by the
Borrower (each such Application for Letter of Credit is referred to herein as
an “LC Application”; “LC Application” shall include each Application for Letter
of Credit made with respect to those Letters of Credit issued before the
execution and delivery of this Agreement). Each Letter of Credit issued shall
be in a form satisfactory to the Lender and the terms and conditions thereof
shall be as indicated in the applicable LC Application and any other
documentation executed by the Borrower and delivered to and approved by the
Lender in connection with the issuance of such Letter of Credit. Without
limiting any obligations of the Borrower set forth in any LC Application, the
Borrower hereby promises to pay to the Lender, upon demand, the full amount of
all Reimbursement Obligations not otherwise paid with the proceeds of a Loan
made pursuant to subsection 2.1.1 hereof, together with interest thereon until
paid in full at the floating annual rate equal to the Default Rate obtained
from time to time, unless a different rate is specified in the applicable LC
Application. The Borrower hereby waives presentment, notice of dishonor and
protest with respect to each amount which becomes owing by the Borrower to the
Lender in connection with any Letter of Credit.

               (d) Letter of Credit Fees. Upon the issuance (and each renewal or
extension, as applicable) of each Letter of Credit, the Lender shall have
earned a non-refundable Letter of Credit fee, calculated on an annual basis
(using a 360-day year applied to the actual number of calendar days to elapse
in the applicable period) for the period beginning on and including the date of
issuance thereof (and each date of extension, as applicable) and ending on and
including the expiration date thereof, in an amount obtained by applying the
Letter of Credit Fee Rate to the Stated Amount of the Letter of Credit as of
such date of issuance (or renewal or extension, as the case may be). The
“Letter of Credit Fee Rate” is (i) 1.25% per annum, except as may otherwise be
agreed in writing by the lender and the Borrower with respect to any Letter of
Credit. The Letter of Credit fees shall be payable by the Borrower, with
respect to each Letter of Credit, in advance on each issuance, renewal or
extension date.

               (e) Payment Obligations Unconditional. The payment obligations of the
Borrower under this subsection 2.1.4 shall be unconditional and irrevocable and
shall be paid strictly in accordance with this Agreement and the applicable LC
Applications regardless of the circumstances. Without limiting the

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foregoing,
none of the following circumstances shall reduce, discharge, stay, defer or
impair in any other manner the payment obligations of the Borrowers under this
part:

                           (i) any lack of validity or enforceability of any Letter of Credit, any LC
Application, this Agreement or any related document;

                           (ii) any amendment, waiver, release or termination of or any consent to
departure from the terms of any Letter of Credit, any LC Application, this
Agreement or any related document;

                           (iii) any extension of time or other modification or the terms and
conditions governing the making and honoring of any drawing, or any extension
of time or other modification of the terms and conditions for any other act to
be performed under the terms of any Letter of Credit;

                           (iv) the existence of any claim, set-off, defense or other right which any
Borrower may have at any time against any beneficiary under, or any transferee
of, any Letter of Credit (or any person for whom any such beneficiary or
transferee may hold
a Letter of Credit or any interest therein), or the Lender or any other
person, regardless of whether such claim, set-off, defense or other right is
held or asserted in connection with this Agreement or any unrelated
transaction;

                           (v) the surrender or impairment of any security for the Obligations;

                           (vi) any demand, draft, certification, statement or any other document
presented under any Letter of Credit being forged or otherwise fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;

                           (vii) payment by the Lender under any Letter of Credit against
presentation of a draft, certificate or other documentation which does not
comply with the terms of such Letter of Credit, except to the extent that such
payment constitutes gross negligence or willful misconduct of the Lender; or

                           (viii) any other circumstance or occurrence whatsoever, whether or not
similar to any of the foregoing, except to the extent resulting principally
from the gross negligence or willful misconduct of the Lender.

               (f) Subrogation to and Assignment of Beneficiary’s Rights. In each
instance in which the Lender honors any drawing under any Letter of Credit, the
Lender shall be subrogated to all of the rights of the beneficiary and all of
the rights of any other person having any beneficial interest in the amounts
drawn under such Letter of Credit (whether held against the Borrower or any
other person or against any monies or property) and, immediately upon payment
to such person of amounts drawn under such Letter of Credit, the Lender shall
be entitled to an assignment of such rights, in form and substance satisfactory
to the Lender. Such rights of subrogation shall be in addition to all other
rights of the Lender under this Agreement, the related loan documents and
applicable law. The Borrower shall have the obligation to do all things and
take all such action, at the Borrower’s sole expense, as may be required from
time to time to confirm or establish the Lender’s right of subrogation, as
aforesaid.

               (g) Issuance of Letters of Credit Subject to Applicable Law. The Lender
shall have no obligation to issue any Letter of Credit if, in the Lender’s good
faith determination, such issuance (i) would violate any applicable law or any
other guideline or directive (whether or not having the force of law)

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issued by
any governmental authority having supervisory or other regulatory authority
over the Lender, if it is the Lender’s usual practice to comply with guidelines
or directives issued by such governmental authority, or (ii) would subject the
Lender to any cost or to any reduction in the amounts or rate of return to be
received by the Lender with respect to the Credit Line (other than costs or
reductions which would be applicable under the laws, guidelines and directives
applicable to the Lender or Letters of Credit issued hereunder and in effect on
the Effective Date) unless the Lender shall have received from the Borrower an
amount deemed by the Lender to be sufficient to fully compensate the Lender for
any such cost or reduction in amounts or rate of return to be received by the
Lender.

          2.1.5 Hedges . From time to time, the Borrower may request, and the
Lender, upon any such request but subject to the terms and conditions set forth
herein, and also in the Lender’s sole and absolute discretion, may enter into
any Hedge with the Borrower upon terms and conditions mutually satisfactory to
the Lender and the Borrower. Without limiting the Lender’s discretion in any
such matter, the parties anticipate that no Hedge will be made which shall
cause the Hedge Exposure Amount to exceed $1,000,000.

          2.1.6 Deposit of Cash Collateral For LC Obligations and Hedge Exposure
Amount Upon Termination of Credit Line. If, on or after the Termination Date
or on any other date on which the Credit Line is otherwise terminated in
accordance with this Agreement, any Letter of Credit remains outstanding or any
Hedge remains in effect, the Borrower shall, without demand or the taking of
any other action by the Lender, deposit with the Lender, in Dollars and in
immediately available funds, the amount which is equal to the sum of (i) 101%
of the aggregate of the Stated Amounts of such Letters of Credit, plus (ii) the
Hedge Exposure Amount (the sum of (i) and (ii) as of any applicable
determination date on or after the termination of the Credit Line shall be
referred to as the “Cash Collateral Requirement”), which funds shall be held by
the Lender in a restricted collateral account maintained by the Lender in its
own name, for the purpose of providing the Lender security for and a source for
reimbursement for drawings and acceptances paid under such Letters of Credit
and security for the payment to the Lender of amounts payable by the Borrower
to the Lender under such Hedges (the amount on deposit in the aforesaid
restricted collateral account from time to time shall be referred to herein as
the “Cash Collateral Balance”). From time to time,
upon the expiration or surrender of any such outstanding Letter of Credit
or the termination of such Hedge(s), after receiving payment of the
Reimbursement Obligations in respect of such Letters of Credit and, if any, the
accrued unpaid interest thereon, and, as applicable, amounts payable to the
Lender in connection with the termination of such Hedge(s), the Lender shall
promptly remit to the Borrower, from the remaining balance of such collateral
account, the amount equal to the excess of the Cash Collateral Balance over the
Cash Collateral Requirement, provided that no Event of Default shall have
occurred and be continuing. The aforesaid collateral account shall be an
interest bearing account of a type then generally offered by the Lender in the
ordinary course of its business as a depository institution and shall be
mutually satisfactory to the Lender and the Borrower, provided that if such
account is a time deposit account, the term or terms for which the rate or
rates applicable to such account is fixed shall end on or before the expiration
date(s) of the Letter(s) of Credit in respect of which such account is
established. Upon any drawing on any of such Letters of Credit or upon any
amount becoming due and payable to the Lender under any Hedge, the Lender shall
be, and hereby irrevocably is, authorized to apply the amounts in such
collateral account against the obligation becoming due in connection with such
drawing or such Hedge, as the case may be; provided, however, that prior to
such application, the amounts contained in the applicable collateral account
shall be applied to pay any applicable early withdrawal fees, breakage costs or
similar charges incurred upon the liquidation of such collateral account. The
amount of any deposit required pursuant to this Section shall be considered to
constitute a principal obligation then due and payable for purposes of
determining the amount owing by Borrower

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hereunder, including any such
determination made in connection with an action brought to enforce the payment
of the Obligations.

     Section 2.2 Interest on the Loans. Interest on the Loans shall accrue on
the outstanding principal balance of each Loan at a floating and fluctuating
per annum rate which for each day shall be equal to the rate obtained by adding
the Applicable Margin then in effect to the Prime Rate then in effect;
provided, that for each day on which any Event of Default has occurred and is
continuing, the applicable interest rate shall be the Default Rate in effect
for such day. All computations of interest payable under this Agreement and
the Note shall be made on the basis of a three hundred sixty (360) day year,
for actual days elapsed. Interest shall continue to accrue on each Loan as
provided herein until full payment thereof. Interest on each outstanding Loan
shall be due and payable on each of the following dates: (i) on the first day
of each calendar month until the earlier of the Termination Date or the full
repayment of such Loan, (ii) on the Termination Date and on any other date on
which the principal of such Loan becomes due and payable (whether by
acceleration or otherwise), and (iii) after the Termination Date or any other
date on which the principal of such Loan becomes due and payable, upon demand
until all Obligations are paid in full. Interest accrued upon the Loans and
the Reimbursement Obligations shall be computed on outstanding balances as
reflected on the Lender’s books and records.

     Section 2.3 Note. The Borrower shall execute and deliver to the Lender
the Borrower’s Revolving Credit Note made to the order of the Lender in the
stated principal amount of $10,000,000.00, in substantially the form of Exhibit
A attached hereto (as the same may be extended, renewed, or otherwise modified
or replaced from time to time, the “Note”), which instrument shall evidence the
Borrower’s obligation to pay to the Lender all amounts outstanding from time to
time under the Loans, including principal, interest, charges and fees. The
date and amounts of each Loan made by the Lender and each payment made by the
Borrower shall be recorded by the Lender on the books and records of the
Lender, but any failure to record such dates or amounts shall not relieve the
Borrower of its duties and obligations under the Loan Documents.

     Section 2.4 Optional Prepayment. The Borrower may make optional
prepayments of the Loans from time to time, without penalty or premium.
Amounts prepaid may be readvanced subject to the terms and conditions of this
Agreement.

     Section 2.5 Commitment Fee. On the Closing Date, the Borrower shall have
paid to the Lender the full amount of the commitment fee described in the
commitment letter dated January 23, 2003 issued by the Lender to the Borrower,
in the amount of $20,000, which shall be non-refundable. Such commitment fee
has been fully earned by the Lender.

     Section 2.6 Reinstatement of Avoided Payments. If any amount received by
the Lender on account of the Obligations is required to be returned or paid to
any Borrower or any other person pursuant to any insolvency or bankruptcy law
or for any other reason (each such amount, together with any interest required
to be paid by the Lender thereon, is referred to as an “Avoided Payment”), then
as of the date the Lender makes such return or other payment, (i) the
Borrower’s agreements and obligations under the Loan Documents shall be
reinstated, (ii) the amount of the Avoided Payment shall be reinstated as
principal bearing interest at the Default Rate, and all such amounts
shall be immediately due and payable (without presentment, demand, notice
of default or protest, all of which are hereby waived by the Borrower). The
provisions of this Section shall survive the termination of this Agreement.

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     Section 2.7 Obligations Of Borrower Unconditional. The payment of the
Obligations and the performance under all of the Borrower’s agreements under
the Loan Documents shall be the absolute and unconditional joint and several
duty and obligation of the Borrower, and shall be independent of any defense or
any rights of set-off, recoupment or counterclaim which any Borrower might
otherwise have against the Lender, and the Borrower shall pay absolutely all
payments of principal, interest, fees and other amounts to be paid on account
of the Obligations, free of any deduction and without abatement, diminution or
set-off.

     Section 2.8. Capital Adequacy. If the Lender determines at any time that
the adoption or implementation of any Capital Adequacy Requirement, or the
compliance therewith by the Lender or any corporation or other person
controlling the Lender, affects the amount of capital to be maintained by the
Lender or any person controlling the Lender as a result of its obligations
hereunder, or reduces the effective rate of return on the Lender’s or such
controlling person’s capital to a level below that which the Lender or such
controlling person would have achieved but for such Capital Adequacy
Requirement as a consequence of its obligations hereunder (taking into
consideration the Lender’s or such controlling person’s policies with respect
to capital adequacy), then after submission by the Lender to the Borrower of a
written request therefor and a statement of the basis for such determination,
the Borrower shall pay to the Lender such additional amounts as will compensate
the Lender or the controlling person for the cost of maintaining the increased
capital or for the reduction in the rate of return on capital, together with
interest thereon at the highest rate of interest then in effect under the Note
from the date the Lender requests such additional amounts until those amounts
are paid in full.

     Section 2.9. Advancements. If the Borrower fails to perform any of its
agreements or covenants contained in this Agreement or if the Borrower fails to
protect or preserve the Collateral or the status and priority of the security
interest of the Lender in the Collateral, the Lender may make advances to
perform the same on behalf of the Borrower to protect or preserve the
Collateral or the status and priority of the security interest of the Lender in
the Collateral, and all sums so advanced shall immediately upon advance become
secured by the security interests granted in this Agreement, and shall become
part of the principal amount owed to the Lender with interest to be assessed at
the applicable rate thereon and subject to the terms and provisions of this
Agreement and all of the Loan Documents. The Borrower shall repay on demand
all sums so advanced on the Borrower’s behalf, plus all expenses or costs
incurred by the Lender, including reasonable legal fees, with interest thereon
at the highest rate authorized in the Note. The provisions of this Section
shall not be construed to prevent the institution of the rights and remedies of
the Lender upon the occurrence of an Event of Default. The authorization
contained in this Section is not intended to impose any duty or obligation on
the Lender to perform any action or make any advancement on behalf of the
Borrower and is intended to be for the sole benefit and protection of the
Lender.

     Section 2.10 Conditions Precedent to Each Loan or Letter of Credit. Each
Loan (including any Loan to be made on the Closing date) and each Letter of
Credit (including any renewal or extension of any Letter of Credit) shall be
subject to the satisfaction of all of the following conditions precedent:

          (a) The Lender shall have received a request for such Loan or Letter of
Credit containing such information as the Lender may require and the Borrower
shall have executed and delivered the Note, the LC Application or other
applicable instrument which shall evidence the Borrower’s obligations with
respect to such Loan or Letter of Credit;

          (b) After giving effect to such Loan or Letter of Credit, the limits set
forth in Section 2.1 as to the maximum amounts of Loans or Letters of Credit
hereunder shall not have been breached;

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          (c) The Borrower shall have submitted to the Lender all Borrowing Base
Certificates, financial statements and other reports or information then
required to have been submitted by the Borrower under this Agreement;

          (d) Each matter represented or warranted by the Borrower under Article 4
of this Agreement shall be as so represented or warranted, in all material
respects;

          (e) It shall not be unlawful for the Lender to provide the requested
extension of credit or otherwise to perform the agreements of the Lender
hereunder; and it shall not be unlawful for the Borrower or any Guarantor to
perform the agreements of the Borrower or such Guarantor under the Loan
Documents;

          (f) No Material Adverse Event shall have occurred and be continuing; and

          (g) No Event of Default or Default shall have occurred and be continuing.

ARTICLE 3 - SECURITY FOR THE OBLIGATIONS

     The payment, performance and satisfaction of the Obligations shall be
secured by the following assurances of payment and security.

     Section 3.1. Grant Of Security Interest. In order to secure the repayment
and performance of all Obligations, both currently existing and arising in the
future, the Borrower grants to the Lender an immediate and continuing security
interest in and to the Collateral. The Borrower further pledges, hypothecates
and grants to the Lender a continuing security interest in and to, all amounts
that may be owing at any time and from time to time by the Lender to the
Borrower in any capacity, including but not limited to any balance or share
belonging to the Borrower of any deposit or other account with the Lender,
which security interest shall be independent of and in addition to any right of
set-off to which the Lender may be entitled. The Lender shall have the right
to require the Borrower to pledge and grant a security interest to the Lender
in such additional security as the Lender may request from time to time in the
event that the Lender deems itself to be insecure.

     Section 3.2 Proceeds And Products. The Lender’s security interests
provided for herein shall apply to the proceeds, including but not limited to
insurance proceeds, and the products of the Collateral.

     Section 3.3. Priority Of Security Interests. Each of the security
interests, pledges, and liens granted by the Borrower to the Lender pursuant to
any of the Loan Documents shall be perfected first priority security interests,
pledges, and liens, except for Permitted Liens which by operation of law or the
written consent of the Lender constitute prior encumbrances.

     Section 3.4. Future Advances. The security interests, liens, and pledges
granted by the Borrower to the Lender pursuant to the Loan Documents shall
secure all current and all future advances made by the Lender to the Borrower,
or for the account or benefit of the Borrower, and the Lender may advance or
readvance upon repayment by the Borrower all or any portion of the sums loaned
to the Borrower and any such advance or readvance shall be fully secured by the
security interests, liens, and pledges created by the Loan Documents.

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     Section 3.5. Receivable Collections. The Borrower shall deposit into the
Commercial Account, immediately upon receipt thereof, all cash, checks, drafts,
and other instruments for the payment of money, properly endorsed, which have
been received by the Borrower in full or partial payment of any Receivable;
provided, the Borrower shall, if requested in writing by the Lender at any time
following the occurrence of an Event of Default and while the same shall be
continuing, deposit or cause to be deposited into the Collection Account all of
such items of payment immediately upon receipt thereof. Prior to any such
deposit by the Borrower into either the Commercial Account or the Collection
Account, as the case may be, the Borrower will not commingle such items of
payment with any of its other funds or property but will hold them separate and
apart. Upon the written request of the Lender the Borrower shall instruct all
of its Account Debtors to make all payments on the Borrower’s Receivables to a
post office box in which the Lender alone shall have sole access (“Lock Box”).
If payment of the Borrower’s Receivables is paid into the Lock Box the Lender
shall, on each Business Day, withdraw the items of payment from the Lock Box
and deposit them into the Commercial Account; provided, that if an Event of
Default shall have occurred and be continuing, the Lender shall have the right
to cause items or payment received in the Lock Box to be deposited into the
Collection Account, and the Lender, from time to time, shall apply all of the
collected funds held in the Collection Account toward payment of all or any
part of the Obligations, whether or not then due, in such order of application
as the Lender may determine. The Lender shall have no obligation to provide
any provisional or other credit for any deposited funds which are not collected
funds free of any rights of return.

     Section 3.6. Collection Of Receivables By Lender. The Lender shall have
the right during any continuing Event of Default to send notices of assignment
or notices of the Lender’s security interest to any and all Account Debtors or
any third party holding or otherwise concerned with any of the Collateral, and
thereafter the Lender shall have the sole right to collect the Receivables and
to take possession of the Collateral and Records relating thereto. All of the
Lender’s collection expenses shall be charged to the Borrower’s accounts and
added to the Obligations. During any continuing Event of Default the Lender
shall have the right to receive, indorse, assign and deliver in the Lender’s
name or the Borrower’s name any and all checks, drafts and other instruments
for the payment of money relating to the Receivables, and the Borrower hereby
waives notice of presentment, protest and non-payment of any instrument so
endorsed. If the Lender is collecting the Receivables, the Borrower hereby
constitutes the Lender or the Lender’s designee as its attorney-in-fact with
power with respect to the Receivables: (a) to indorse its name upon all notes,
acceptances, checks, drafts, money orders or other evidences of payment of
Collateral that may come into the Lender’s possession; (b) to sign its name on
any invoices relating to any of the Receivables, drafts against Account
Debtors, assignments and verifications of Receivables and notices to Account
Debtors; (c) to send verifications of Receivables to any Account Debtor; (d) to
notify the Post Office to change the address for delivery of mail addressed to
it to such address as the Lender may designate; (e) to receive and open all
mail addressed to it and to remove therefrom all cash, checks, drafts and other
payments of money; and (f) to do all other acts and things necessary, proper,
or convenient to carry out the terms and conditions and purposes and intent of
this Agreement. All acts of such attorney or designee are hereby ratified and
approved, and such attorney or designee shall not be liable for any acts of
omission or commission, nor for any error of judgment or mistake of fact or law
in accordance with this Agreement, with the exception of acts arising from
willful misconduct of the Lender or gross negligence of the Lender. The power
of attorney hereby granted, being coupled with an interest, is irrevocable
while any of the Obligations remain unpaid. The Lender, without notice to or
consent from the Borrower, may sue upon or otherwise collect, extend the time
of payment of or compromise or settle for cash, credit or otherwise upon any
terms, any of the Receivables or any securities, instruments or insurances
applicable thereto or release the obligor thereon. The Lender is authorized
and empowered to accept the return of the goods represented by any of the
Receivables, without notice to or consent by the Borrower, all without
discharging or in any way affecting the liability of the Borrower under the
Loan Documents. The Lender does not, by anything herein or in any assignment
or

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otherwise, assume any of the obligations of the Borrower under any contract
or agreement assigned to the Lender, and the Lender shall not be responsible in
any way for the performance by the Borrower of any of the terms and conditions
thereof.

     Section 3.7. Maintenance Of Principal Accounts. As further security for
the Obligations, the Borrower shall maintain its principal operating accounts
with the Lender.

     Section 3.8. Guaranty Agreements; Security Agreements. Each of the
Guarantors shall execute and deliver a Guaranty Agreement which shall
guarantee, among other things, the absolute full payment and performance by the
Borrower of the Obligations, and each Guarantor shall grant to the Lender a
security interest in such Guarantor’s assets pursuant to a security agreement
meeting the requirements of Section 5.19 hereof.

     Section 3.9. [Intentionally omitted.]

     Section 3.10. Further Assurances. The Borrower will, at its expense,
promptly execute and deliver all further instruments and documents and take all
further action that may be necessary or desirable or that the Lender may
request from time to time in order: (a) to perfect and protect the security
interests to be created hereby; (b) to enable the Lender to exercise and
enforce its rights and remedies hereunder in respect of the Collateral; or (c)
otherwise to effect the purposes of this Agreement, including, without
limitation: (i) upon the Borrower’s acquisition thereof, delivering to the
Lender each item of Chattel Paper of the Borrower, (ii) if any Receivables are
evidenced by an Instrument delivering and pledging to the Lender such
Instrument duly endorsed and accompanied by executed instruments of transfer or
assignment, all in form and substance satisfactory to the Lender, (iii)
executing and filing such financing statements or amendments thereto as may be
necessary or desirable or that the Lender may request in order to perfect and
preserve the security interests purported to be created hereby, (iv) upon the
acquisition after the date hereof by the Borrower of any Equipment covered by a
certificate of title or ownership, cause the Lender to be listed as the
lienholder on such certificate of title and within sixty (60) days of the
acquisition thereof deliver evidence of the same to the Lender, and (v) upon
the acquisition after the date hereof of any asset for which an assignment,
pledge, mortgage, or other document is required to be filed in order to grant
or perfect a lien therein for the benefit of the Lender, execute and deliver to
the Lender such
assignment, pledge, mortgage, or other Instrument within thirty (30) days
of the acquisition thereof. If the Borrower fails to execute any instrument or
document described above within five (5) Business Days of being requested to do
so by the Lender, the Borrower hereby appoints the Lender or any officer of the
Lender as the Borrower’s attorney in fact for purposes of executing such
instruments or documents in the Borrower’s name, place and stead, which power
of attorney shall be considered as coupled with an interest and irrevocable.

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES

     To induce the Lender to establish the Credit Line and to enter into this
Agreement, the Borrower represents and warrants to the Lender the matters set
forth in this Article 4, as of the date of Closing and as of each date on which
any extension of credit is provided under the Credit Line. The Borrower
acknowledges the Lender’s justifiable right to rely upon these representations
and warranties.

     Section 4.1. Accuracy Of Information. All information submitted by or on
behalf of the Borrower or any of the Guarantors in connection with any of the
Obligations is true, accurate and complete in

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all material respects as of the
date made and contains no knowingly false, incomplete or misleading statements.

     Section 4.2. No Litigation. Except as specifically disclosed on Schedule
4.2 hereof, there are no actions, suits, investigations, or proceedings pending
or, to the knowledge of the Borrower, threatened against the Borrower or the
assets of the Borrower which could reasonably be expected to represent or
result in a Material and Adverse Event.

     Section 4.3. No Liability Or Adverse Change. The Borrower has no direct
or contingent material liability known to the Borrower and not previously
disclosed to the Lender, nor does the Borrower know of or have any reason to
expect the occurrence of any Material Adverse Event.

     Section 4.4. Title To Collateral. The Borrower has good and marketable
title to the Collateral, subject to Permitted Liens. The liens granted by the
Borrower to the Lender in the Collateral will have the priority required by the
Loan Documents.

     Section 4.5. Authority; Approvals And Consents.

          Section 4.5.1. Authority. The Borrower has the legal authority to enter
into each of the Loan Documents and to perform, observe and comply with all of
the Borrower’s agreements and obligations thereunder, including, without
limitation the borrowings contemplated hereby.

          Section 4.5.2. Approvals. The execution and delivery by the Borrower of
each of the Loan Documents, the performance by the Borrower of all of its
agreements and obligations under the Loan Documents, and the borrowings
contemplated by this Agreement, have been duly authorized by all necessary
action on the part of the Borrower and do not and will not (i) contravene any
provision of the organizational documents of the Borrower; (ii) conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, or result in the creation of any lien upon any of the property
of the Borrower under any agreement, trust deed, indenture, mortgage or other
instrument to which the Borrower is a party or by which the Borrower or any
property of the Borrower is bound or affected (except for liens created for the
benefit of the Lender); (iii) violate or contravene any provision of any law,
rule or regulation (including, without limitation, Regulations U of the Board
of Governors of the Federal Reserve System) or any order, ruling or
interpretation thereunder or any decree, order of judgment of any court or
governmental or regulatory authority, bureau, agency or official (all as from
time to time in effect and applicable to the Borrower); or (iv) require any
waivers, consents or approvals by any of the creditors of the Borrower which
have not been obtained.

          Section 4.5.3. Consents. Other than filings and recordings required to
perfect the security interests and liens granted hereunder, no approval,
consent, order, authorization or license by, or giving notice to, or taking any
other action with respect to, any governmental or regulatory authority or
agency is required for the execution and delivery by the Borrower of the Loan
Documents or for the performance by the Borrower of any of the agreements and
obligations thereunder.

     Section 4.6. Binding Effect Of Documents, Etc. Each of the Loan Documents
which the Borrower has executed and delivered as contemplated and required to
be executed and delivered as of the date of Closing by this Agreement, has been
duly executed and delivered by the Borrower and is the legal, valid and binding
obligation of the Borrower and is enforceable against the Borrower in
accordance with all stated terms, subject in each case to the effect of any
applicable bankruptcy, insolvency, reorganization,

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moratorium or similar law
affect creditors’ rights generally and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in
equity or at law).

     Section 4.7. Other Names. The Borrower has not changed its name, been the
surviving entity in a merger, or changed the location of its chief executive
office within the last twelve (12) years, except as is disclosed on Schedule
4.7 attached hereto. The Borrower does not trade under any trade or fictitious
names except as set forth on Schedule 4.7.

     Section 4.8. No Events Of Default. There is not currently existing any
action, event, or condition which presently constitutes a Default or an Event
of Default

     Section 4.9. Guaranty Agreements. If any Guaranty Agreement is required
to be in effect pursuant to Section 5.19 hereof, such Guaranty Agreements are
the valid and binding obligation of the Guarantors and are fully enforceable
against the Guarantors in accordance with all stated terms, subject in each
case to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affect creditors’ rights generally and subject to the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law).

     Section 4.10. Taxes. The Borrower: (a) has filed all federal, state and
local tax returns and other reports which the Borrower is required by law to
file prior to the date hereof and which are material to the conduct of the
business of the Borrower; (b) has paid or caused to be paid all taxes,
assessments and other governmental charges that are due and payable prior to
the date hereof unless being contested in compliance with the provisions of
Section 5.8 hereof; and (c) has made adequate provision for the payment of such
taxes, assessments or other charges accruing but not yet payable. The Borrower
has no knowledge of any deficiency or additional assessment in connection with
any taxes, assessments or charges not provided for on the Borrower’s books of
account or reflected in the Borrower’s financial statements.

     Section 4.11. Compliance With Laws. The Borrower has complied in all
material respects with all applicable laws, including, but not limited to, all
laws with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; and (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business, except where noncompliance could not reasonably be
expected to be or result in a Material and Adverse Effect.

     Section 4.12. Chief Place Of Business. The chief executive office, chief
place of business, and the place where the Borrower keeps its Records
concerning the Collateral are set forth on Schedule 4.12 attached hereto,
including any supplements or amendments to such schedule which shall have
become effective. Any supplement to any such schedule shall become effective
to modify such schedule on the 30th day after the Lender has received such
schedule, except in any instance in which the Lender consents in writing to an
earlier effective date.

     Section 4.13. Location Of Inventory. The Inventory is and shall be kept
solely at the Borrower’s locations set forth on Schedule 4.13 attached hereto,
and shall not be moved, sold or otherwise disposed of without prior
notification to the Lender, except for sales of Inventory to Account Debtors in
the ordinary course of the Borrower’s business. None of the Inventory is
stored with or in the possession of any bailee, warehouseman, or other similar
person, except as specifically disclosed on Schedule 4.13 attached hereto,
including any supplements or amendments to such schedule which shall have
become effective. Any supplement to any such schedule shall become effective
to modify such schedule on the 30th day after the

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Lender has received such
schedule, except in any instance in which the Lender consents in writing to an
earlier effective date.

     Section 4.14. No Subsidiaries. The Borrower has no Subsidiaries, except
as disclosed on Schedule 4.14 attached hereto, including any supplements or
amendments to such schedule which shall have become effective. Any supplement
to any such schedule shall become effective to modify such schedule
on the 30th
day after the Lender has received such schedule, except in any instance in
which the Lender consents in writing to an earlier effective date.

     Section 4.15. No Labor Agreements. The Borrower is not subject to any
collective bargaining agreement or any agreement, contract, decree or order
requiring it to recognize, deal with or employ any persons organized as a
collective bargaining unit or other form of organized labor, except as
disclosed on Schedule 4.15 attached hereto, including any supplements or
amendments to such schedule which shall have become effective. Any supplement
to any such schedule shall become effective to modify such schedule on the 30th
day after the Lender has received such schedule, except in any instance in
which the Lender consents in writing to an earlier effective date.

     Section 4.16. Eligible Accounts. Each Account which the Borrower contends
should be included in the calculation of the Borrowing Base from time to time
will be an Eligible Account. At the time each Eligible Account is listed on or
included in (whether singularly or in the aggregate with other Eligible
Accounts) a schedule or report delivered to the Lender to be included in the
calculation of the Borrowing Base, all of such Eligible Accounts will have been
generated in compliance with the Borrower’s normal credit policies as
historically in effect (or as modified from time to time on prior written
notice of the Lender), or on such other reasonable terms disclosed in writing
to the Lender in advance of the creation of such Accounts, and such terms shall
be expressly set forth on the face of all invoices.

     Section 4.17. Eligible Inventory. Each item of Inventory which the
Borrower from time to time contends should be included in the calculation of
the Borrowing Base shall be Eligible Inventory.

     Section 4.18. Approvals. The Borrower possesses all franchises,
approvals, licenses, contracts, merchandising agreements, merchandising
contracts and governmental approvals, registrations and exemptions necessary
for it lawfully to conduct its business and operation as presently conducted
and as anticipated to be conducted after Closing, except where any such failure
could not reasonably be expected to be or result in a Material Adverse Event.

     Section 4.19. Financial Statements. The financial statements of the
Borrower which have been delivered to the Lender prior to the date of this
Agreement, fairly present the financial condition of the Borrower as of the
respective dates thereof and the results and operations of the Borrower for the
fiscal periods ended on such respective dates, all in accordance with GAAP.
The Borrower has no direct or contingent liability or obligation known to the
Borrower and not disclosed on the financial statements delivered to the Lender
prior to the date hereof or pursuant to Section 5.12 hereof or disclosed on
Schedule 4.19 hereto, including any supplements or amendments to such schedule
which shall have become effective. Any supplement to any such schedule shall
become effective to modify such schedule on the 30th day after the Lender has
received such schedule, except in any instance in which the Lender consents in
writing to an earlier effective date. There has been no material adverse
change in the financial condition of the Borrower since the financial
statements of the Borrower dated October 31, 2002, and the Borrower does not
know of or have any reason to expect any material adverse change in the assets,
liabilities, properties, business, or condition, financial or otherwise, of the
Borrower.

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     Section 4.20. Solvency. The Borrower (taken as a whole) will be Solvent
both before and after Closing, after giving full effect to the Obligations and
all of the Borrower’s liabilities.

     Section 4.21. Fair Labor Standards Act. The Borrower has complied in all
material respects with the Fair Labor Standards Act of 1938, as amended, except
to the extent any noncompliance would not represent a Material Adverse Event.

     Section 4.22. Employee Benefit Plans.

          Section 4.22.1. Compliance. The Borrower and its ERISA Affiliates are in
compliance in all material respects with all applicable provisions of ERISA and
the regulations thereunder and of the Code with respect to all Employee Benefit
Plans, except to the extent any noncompliance would not represent a Material
Adverse Event.

          Section 4.22.2. Absence Of Termination Event. No Termination Event has
occurred or is reasonably expected to occur with respect to any Guaranteed
Pension Plan.

          Section 4.22.3. Actuarial Value. The actuarial present value (as defined
in Section 4001 of ERISA) of all benefit commitments (as defined in Section
4001 of ERISA) under each Guaranteed Pension Plan does not exceed the assets of
that plan.

          Section 4.22.4. [Intentionally Omitted.]

     Section 4.23. Environmental Conditions. Except as disclosed in Schedule
4.23 attached hereto, and except to the extent the inaccuracy of any of the
following statements (which, to the best of the Borrower’s knowledge are
accurate in all material respects) could not reasonably be expected to be or
result in any Material Adverse Event:

          Section 4.23.1. Existence Of Permits. The Borrower has obtained all
legally required governmental permits, licenses, variances, clearances and all
other necessary approvals required under the Environmental laws for the
operation and conduct of its business as currently conducted (including, but
not limited to, any handling, transporting, treating, storage, disposal,
discharge, or Release of Regulated Substances, if any, into, on or from the
environment (including, but not limited to, any air, water, or soil) from all
applicable federal, state, and local governmental authorities including, but
not limited to, any and all appropriate Federal or State environmental
protection agencies and other county or city departments (collectively, the
“EPA Permits”).

          Section 4.23.2. Compliance With Permits. Each issued EPA Permit is in
full force and effect, has not expired or been suspended, denied or revoked,
and is not under challenge by any person. The Borrower is in compliance in all
material aspects with each issued EPA Permit.

          Section 4.23.3. No Litigation. Neither the Borrower nor any of the
Facilities owned or leased by the Borrower (the “Borrower Facilities”) is the
subject of any private or governmental litigation, or to the knowledge of the
Borrower, threatened litigation, lien or judicial or administrative notice,
order or action under Environmental laws relating to Regulated Substances or
liabilities under Environmental laws.

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          Section 4.23.4. No Releases. To the knowledge of the Borrower, there has
been no Release into, on or from any of the Borrower Facilities and no
Regulated Substances are located on or have been treated, stored, processed,
disposed of, handled or transported to or from, any of the Borrower Facilities
in violation of any Environmental laws. To the knowledge of the Borrower, no
Regulated Substances have been treated, stored, disposed, Released, located,
discharged, possessed, managed, processed, or otherwise handled in the
operation or conduct of the Borrower’s business in violation of any
Environmental laws. The Borrower has complied in all material respects with
all Environmental laws affecting the Borrower Facilities and the Borrower’s
businesses.

          Section 4.23.5. Transportation. The Borrower does not transport, in any
manner, any Regulated Substances except in the ordinary course of the
Borrower’s business in material compliance with all Environmental laws.

          Section 4.23.6. No Violation Notices. The Borrower has not received any
notices that any Regulated Substances transported from any Borrower Facility
have been disposed of in violation of any Environmental laws.

          Section 4.23.7. No Notice Of Violations. The Borrower has not received
written notice of any circumstances which would be likely to result in any
obligation of the Borrower under any Environmental law to investigate or
remediate any Regulated Substances in, on or under any of the Borrower
Facilities.

ARTICLE 5 - AFFIRMATIVE COVENANTS

     The Borrower agrees during the term of this Agreement and while any
Obligations are outstanding and unpaid to do and perform each of the acts and
promises set forth in this Article 6:

     Section 5.1. Payment. All Obligations shall be paid in full when and as
due.

     Section 5.2. Insurance. The Borrower shall obtain and maintain such
insurance coverages as are reasonable, customary and prudent for businesses
engaged in activities similar to the business activities of the Borrower.
Without limitation to the foregoing, the Borrower shall maintain for all of its
assets and properties, whether real, personal, or mixed and including but not
limited to the Collateral, fire and extended coverage casualty insurance in
amounts satisfactory to the Lender and sufficient to prevent any co-insurance
liability (which amount shall be the full insurable value of the assets and
properties insured unless the Lender in writing agrees to a lesser amount),
naming the Lender as sole loss payee with respect to the Collateral, with
insurance companies and upon policy forms containing standard mortgagee clauses
which are acceptable to and approved by the Lender. The Borrower shall submit
to the Lender the originals of the casualty insurance policies and paid
receipts evidencing payment of the premiums due on the same. The casualty
insurance policies shall be endorsed so as to make them noncancellable unless
thirty (30) days prior notice of cancellation is provided to the Lender. The
proceeds of any insured loss shall be applied by the Lender to the Obligations,
in such order of application as determined by the Lender, unless the Lender in
its sole discretion permits the use thereof to repair or replace damaged or
destroyed Collateral.

     Section 5.3. Books And Records. The Borrower shall notify the Lender in
writing if the Borrower modifies or changes its method of accounting in any
material respect or enters into, modifies, or terminates any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm for the preparation and/or storage of the Borrower’s accounting
records.

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     Section 5.4. Collection Of Accounts; Sale Of Inventory. The Borrower
shall only collect its Receivables and sell its Inventory in the ordinary
course of the Borrower’s business.

     Section 5.5. Notice Of Litigation And Proceedings. The Borrower shall
give prompt notice to the Lender of any action, suit, citation, violation,
direction, notice or proceeding before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Borrower, or the assets or properties thereof, which, if
determined adversely to the Borrower: (a) could require the Borrower to pay
over more than One Million Dollars ($1,000,000) or deliver assets the value of
which exceeds that sum (except to the extent covered by insurance); or (b)
could reasonably be expected to be a Material Adverse Event.

     Section 5.6. Payment Of Liabilities To Third Persons. The Borrower shall
pay when and as due, or within applicable grace periods, all liabilities due to
third persons, except when the amount thereof is being contested in good faith
by appropriate proceedings and with adequate reserves therefor being set aside
by the Borrower.

     Section 5.7. Notice Of Change Of Business Location. The Borrower shall
notify the Lender thirty (30) days in advance of: (a) any change in the
location of its existing offices or place of business; (b) the establishment of
any new, or the discontinuation of any existing, place of business; and (c) any
change in or addition to the locations at which the Collateral is kept. Prior
to moving any Collateral to any location not owned by the Borrower (other than
deliveries to Account Debtors of sold or leased items), the Borrower shall
obtain and deliver to the Lender an agreement, in form and substance acceptable
to the Lender, pursuant to which the owner of such location shall: (a)
subordinate any rights which it may have, or thereafter may obtain, in any of
the Collateral to the rights and security interests of the Lender in the
Collateral; and (b) allow the Lender access to the Collateral in order to
remove the Collateral from such location. In the event any Collateral is
stored with a warehousemen or other bailee, and the Collateral is evidenced by
a negotiable document of title, the Borrower shall immediately deliver the
document of title to the Lender.

     Section 5.8. Payment Of Taxes. The Borrower shall pay or cause to be paid
when and as due all taxes, assessments and charges or levies imposed upon it or
on any of its property or which it is required to withhold and pay over to the
taxing authority or which it must pay on its income, except where contested in
good faith, by appropriate proceedings and at its own cost and expense;
provided, however, that the Borrower shall not be deemed to be contesting in
good faith by appropriate proceedings unless: (a) such proceedings operate to
prevent the taxing authority from attempting to collect the taxes, assessments
or charges; (b) the Collateral is not subject to sale,
forfeiture or loss during such proceedings; (c)the Borrower’s contest does
not subject the Lender to any claim by the taxing authority or any other
person; (d) the Borrower establishes appropriate reserves, satisfactory to the
Lender in its sole discretion, for the payment of all taxes, assessments,
charges, levies, legal fees, court costs and other expenses for which the
Borrower would be liable if unsuccessful in the contest; (e) the Borrower
prosecutes the contest continuously to its final conclusion; and (f) at the
conclusion of the proceedings (including all appeals), the Borrower promptly
pays all amounts determined to be payable, including but not limited to all
taxes, assessments, charges, levies, legal fees and court costs.

     Section 5.9. Inspections Of Records. The Borrower shall permit
representatives of the Lender access to the Borrower’s places of business, at
intervals and at such times as determined by the Lender, to inspect the
Collateral and to review and make extracts from or photocopies of the books and
records of the Borrower. Unless the Lender in good faith deems that there is
an imminent and material threat to the

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Collateral or that it is otherwise
appropriate to conduct such inspection or review without prior notice, the
Lender will provide the Borrower with at least three days’ telephonic notice of
such inspection or review and will conduct the inspection or review during
normal business hours or at such other time as may be mutually agreeable to the
Borrower and the Lender. The Borrower agrees to pay to the Lender the
reasonable audit fees and other expenses incurred by the Lender in connection
with such inspections; provided, however, that unless an Event of Default shall
have occurred and be continuing, the Borrower shall have no obligation to pay
for more than one audit or inspection in any single twelve month period.

     Section 5.10. Notice Of Events Affecting Collateral; Compromise Of
Receivables; Returned Or Repossessed Goods. The Borrower shall promptly report
to the Lender: (a) any reclamation, return or repossession of goods
constituting Collateral; (b) all claims or disputes asserted by any Account
Debtor or other obligor involving in excess of Two Hundred Fifty Thousand
Dollars ($250,000); and (c) all matters materially affecting the value,
enforceability or collectibility of any of the Collateral. Without the
Lender’s consent, the Borrower shall not compromise or adjust any of the
Receivables which have been included by the Borrower in the determination of
the Borrowing Base, extend the time for payment thereof, or grant any
additional discounts, allowances or credits thereon; provided, however, that
(x) if no Event of Default shall have occurred and be continuing, the Borrower
may, with respect to any Receivable, take any of the actions described in the
foregoing provisions of this sentence if the exclusion of such Receivable from
the Borrowing Base would not cause the Outstanding Credit Amount to exceed the
limits set forth in this Agreement, and (y) the Borrower may grant, in the
ordinary course of business, to any party obligated on any of the Receivables,
any rebate, refund, or adjustment to which such party may be lawfully entitled,
and may accept, in connection therewith, the return of goods, sale, or lease of
which shall have given rise to such Receivables. If any goods, the sale of
which has resulted in Receivables included in determining the Borrowing Base,
are returned by the Account Debtor for credit or repossessed by the Borrower,
the Borrower shall receive and hold such goods as trustee for the Lender and as
additional security for the payment of the Obligations, and make disposition
thereof as required by the Lender.

     Section 5.11. Documentation Of Collateral. The Borrower agrees that upon
the request of the Lender, the Borrower will provide the Lender with: (a)
written statements or schedules identifying and describing the Collateral, and
all additions, substitutions, and replacements thereof, in such detail as the
Lender may reasonably require; (b) copies of Account Debtors’ invoices or
billing statements; (c) evidence of shipment or delivery of goods or
merchandise to or performance of services for Account Debtors; and (d) such
other schedules and information as the Lender reasonably may require. The
items to be provided under this Section shall be in form satisfactory to the
Lender in its reasonable discretion and are to be executed and delivered to the
Lender from time to time solely for the Lender’s convenience in maintaining
Records of the Collateral. The failure of the Borrower to give any of such
items to the Lender shall not affect, terminate, modify or otherwise limit the
Lender’s security interests in the Collateral. The Lender shall have the
right, at any time and from time to time, to verify the eligibility of the
Borrower’s Receivables, including, after the occurrence and during the
continuance of an Event of Default, obtaining verification of the Receivables
directly from Account Debtors.

     Section 5.12. Reporting Requirements. The Borrower shall submit the
following items to the Lender:

          Section 5.12.1. Inventory Reports. On or before the 21st day of each
calendar month, reports of Inventory on such reporting forms as are required by
the Lender from time to time, certified to be accurate and correct by the chief
financial officer of the Borrower, which reports shall be compiled in a manner
acceptable to the Lender.

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          Section 5.12.2. Receivables And Accounts Payable Reports. On or before
the 21st day of each calendar month: (i) a Receivables report and aging; and
(ii) an accounts payable report and aging, both in form reasonably acceptable
to the Lender and containing such information as the Lender may specify from
time to time. Such reports shall be accompanied by such reports, copies of
sales journals, remittance reports, and other documentation as the Lender may
reasonably request from time to time.

          Section 5.12.3. Borrowing Base Report. Once each calendar month, or more
frequently if requested by the Lender, a collateral and loan report in such
form and context as may be specified by the Lender from time to time.

          Section 5.12.4. Quarterly Financial Statements. As soon as available and
in any event within forty-five (45) calendar days after the end of each of the
first three quarters of each Fiscal Year, the Borrower shall submit to the
Lender a consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such quarter, a consolidated statement of income and retained
earnings of the Borrower and its Subsidiaries for the period commencing at the
end of the previous Fiscal Year and ending with the end of such quarter, and a
consolidated statement of cash flow of the Borrower and its Subsidiaries for
the portion of the Fiscal Year ended with the last day of such quarter, all in
reasonable detail and stating in comparative form the respective consolidated
figures for the corresponding date and period in the previous Fiscal Year and
all prepared in accordance with GAAP. and certified by the chief financial
officer of the Borrower (subject to year-end adjustments). If the Lender so
requires, the Borrower shall provide the Lender with consolidating schedules
with respect to the financial statements described in this subsection.

          Section 5.12.5. Annual Financial Statements. As soon as available and in
any event within ninety (90) calendar days after the end of each Fiscal Year of
the Borrower, the Borrower shall submit to the Lender a consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year
and a consolidated statement of income and retained earnings of the Borrower
and its Subsidiaries for such Fiscal Year, and a consolidated statement of cash
flow of the Borrower and its Subsidiaries for such Fiscal Year, all in
reasonable detail and stating in comparative form the respective consolidated
and consolidating figures for the corresponding date and period in the prior
Fiscal Year and all prepared in accordance with GAAP and accompanied by an
audit opinion by independent accountants selected by the Borrower and
reasonably acceptable to the Lender. If the Lender so requires, the Borrower
shall provide the Lender with consolidating schedules with respect to the
financial statements described in this subsection.

          Section 5.12.6. SEC And Other Filings. Within five (5) days after the
sending, filing, or receipt thereof, copies of: (a) all financial statements,
reports, notices and proxy statements that the Borrower sends to its
shareholders; and (b) all regular, periodic and special reports, registration
statements and prospectuses that the Borrower renders to or files with the
Securities And Exchange Commission or any national securities exchange,
including without limitation each of the Forms 10-K and 10-Q filed by the
Borrower with the Securities and Exchange Commission.

          Section 5.12.7. Management Letters. Promptly upon receipt thereof, the
Borrower shall submit to the Lender copies of any management letter or similar
report submitted to the Borrower or any Subsidiary by independent certified
public accountants in connection with the examination of the financial
statements of the Borrower or any Subsidiary made by such accountants.

          Section 5.12.8. Certificates Of No Default. Within thirty (30) calendar
days after the end of each of the quarters of each Fiscal Year of the Borrower,
the Borrower shall submit to the Lender certificates

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of the chief financial
officers of the Borrower certifying that: (i) there exists no Default or Event
of Default, or if a Default or an Event of Default exists, specifying the
nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto; (ii) no Material Adverse Event has
occurred since the previous certificate was sent to the Lender by the Borrower
or, if any such change has occurred, specifying the nature thereof and what
action the Borrower has taken or proposes to take with respect thereto; (iii)
all insurance premiums then due have been paid; (iv) all taxes then due have
been paid or, for those taxes which have not been paid, a statement of the
taxes not paid and a description of the Borrower’s rationale therefor; (v) no
material litigation, investigation or proceedings, or injunction, writ or
restraining order is pending or threatened or, if any
such litigation, investigation, proceeding, injunction, writ or order not
previously disclosed to the Lender in writing is pending, describing the nature
thereof; and (vi) stating whether or not the Guarantors and the Borrower are in
compliance with the covenants in this Agreement, including a calculation of the
financial covenants in the schedule attached to such officers’ certificates in
form satisfactory to the Lender.

          Section 5.12.9. Reports To Other Creditors. Promptly after the furnishing
thereof, the Borrower shall submit to the Lender copies of any statement or
report furnished to any other person pursuant to the terms of any indenture,
loan, or credit or similar agreement and not otherwise required to be furnished
to the Lender pursuant to any other provisions of this Agreement.

          Section 5.12.10. Management Changes. The Borrower shall notify the Lender
promptly of any changes in the personnel holding the positions of either Chief
Executive Officer or Chief Financial Officer of the Borrower.

          Section 5.12.11. General Information. In addition to the items set forth
in subparagraphs 5.12.1 through 5.12.10 above, the Borrower agrees to submit to
the Lender such other information respecting the condition or operations,
financial or otherwise, of the Borrower as the Lender may reasonably request
from time to time.

     Section 5.13. Employee Benefit Plans And Guaranteed Pension Plans. The
Borrower will, and will cause each of its ERISA Affiliates to: (a) comply with
all requirements imposed by ERISA and the Code, applicable from time to time to
any of its Guaranteed Pension Plans or Employee Benefit Plans; (b) make full
payment when due of all amounts which, under the provisions of Employee Benefit
Plans or under applicable law, are required to be paid as contributions
thereto; (c) not permit to exist any material accumulated funding deficiency,
whether or not waived; (d) file on a timely basis all reports, notices and
other filings required by any governmental agency with respect to any of its
Employee Benefits Plans; (e) make any payments to Multiemployer Plans required
to be made under any agreement relating to such Multiemployer Plans, or under
any law pertaining thereto; (f) not amend or otherwise alter any Guaranteed
Pension Plan if the effect would be to cause the actuarial present value of all
benefit commitments under any Guaranteed Pension Plan to be less than the
current value of the assets of such Guaranteed Pension Plan allocable to such
benefit commitments; (g) furnish to all participants, beneficiaries and
employees under any of the Employee Benefit Plans, within the periods
prescribed by law, all reports, notices and other information to which they are
entitled under applicable law; and (h) take no action which would cause any of
the Employee Benefit Plans to fail to meet any qualification requirement
imposed by the Code except to the extent any such failure to so act or comply
would not be a Material Adverse Event. As used in this Section, the term
“accumulated funding deficiency” has the meaning specified in Section 302 of
ERISA and Section 412 of the Code, and the terms “actuarial present value”,
“benefit commitments” and “current value” have the meaning specified in Section
4001 of ERISA.

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     Section 5.14. Maintenance Of Fixed Assets. The Borrower shall maintain
and preserve all of its fixed assets useful and necessary to the operation of
its business, taken as a whole, in a state of good and efficient working order
subject to ordinary wear and tear.

     Section 5.15. Consignments. The Borrower shall advise the Lender of all
persons o whom it has consigned or assigned Inventory for sale or distribution,
and the location of the Inventory subject to any such consignment or assignment
arrangement. The Borrower shall: (a) duly and properly file financing
statements in all applicable places of public record with respect to each of
such consignments or assignments, which filings shall comply with Section 9-114
of the 1972 version of the Uniform Commercial Code and with all other
requirements necessary for the Borrower to protect its interests therein under
applicable laws; (b) supply the Lender with prior evidence of such filing and
with a financing statement, judgment and tax lien search in the name
of the consignee or assignee in all applicable places of public record;
and (c) provide written notification to any holder of any security interests in
the inventory of the consignee or assignee who has filed a financing statement
before the Borrower files its financing statement, which notice shall state
that the Borrower expects to deliver goods on consignment, shall describe the
goods by item or type and which notification shall be received by any such
holder within five (5) years before the consignee receives possession of the
goods and at five (5) year intervals thereafter.

     Section 5.16. Federal Assignment Of Claims Act. The Borrower shall notify
the Lender if any Receivable in excess of $250,000 arises out of a contract
with the United States of America, or any department, agency or instrumentality
thereof, and upon the Lender’s request, shall execute all documents or
instruments and shall take all steps or actions required by the Lender so that
all monies due or to become due under such contract are assigned to the Lender
and notice given thereof to the United States in accordance with the
requirements of the Federal Assignment of Claims Act, as amended.

     Section 5.17. Compliance With Laws. Except to the extent described in
Schedule 4.23 attached hereto, the Borrower shall comply in all material
respects with all applicable laws, including, but not limited to, all laws with
respect to: (a) all restrictions, specifications, or other requirements
pertaining to products that it sells or to the services it performs; (b) the
conduct of its business; (c) the use, maintenance, and operation of the real
and personal properties owned or leased by it in the conduct of its business;
and (d) the obtaining and maintenance of all necessary licenses, franchises,
permits and governmental approvals, registrations and exemptions necessary to
engage in its business. Without limiting the generality of the preceding
provisions of this Section, except to the extent described in Schedule 4.23
attached hereto, the Borrower shall: (i) comply in all material respects with,
and ensure such compliance by all tenants and subtenants, if any, with, all
applicable Environmental laws and obtain and comply in all material respects
with and maintain, and ensure that all tenants and subtenants obtain and comply
with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental laws; (ii)
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental laws, and
promptly comply with all lawful orders and directives of any governmental
authority regarding Environmental laws; and (iii) defend, indemnify and hold
harmless the Lender, and its employees, agents, officers and directors, from
and against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any Environmental laws
applicable to the operations of the Borrower, or any orders, requirements or
demands of governmental authorities related thereto, including, without
limitation, reasonable attorney’s and consultant’s fees, investigation and
laboratory fees, response costs, court costs and litigation expenses, except to
the extent that any of the foregoing directly result from the gross negligence
or willful misconduct of the Lender or its employees, agents, officers or
directors. The Borrower agrees to

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promptly notify the Lender of any Release of
a Regulated Substance on, to or from any Borrower Facility in violation of any
Environmental laws or of any notice received by the Borrower that the Borrower
or any Borrower Facility is not in compliance with any Environmental laws.
Notwithstanding the foregoing, non-compliance by the Borrower with any
applicable law shall not constitute a breach of this Section constituting an
Event of Default unless such non-compliance could reasonably be expected to be
or result in a Material adverse Event; provided, however, that the Borrower
shall provide indemnification in accordance with this Section and Section 8.2
hereof with respect to any non-compliance by the Borrower with applicable law,
regardless of whether such non-compliance constitutes an Event of Default.

     Section 5.18. Fair Labor Standards Act. The Borrower shall comply in all
material respects with the Fair Labor Standards Act of 1938, as amended, unless
such failure could not reasonably be expected to be or result in a Material
Adverse Event.

     Section 5.19 Subsidiary Guaranties and Security Agreements. The Borrower
shall cause each of its Subsidiaries to guarantee the payment of the
Obligations and the performance of the Borrower’s agreements hereunder in
accordance with a guaranty agreement in the form and substance satisfactory to
the Lender in its reasonable discretion, and to grant to the Lender a security
interest in the assets of such Subsidiary in accordance with a security
agreement in form and substance satisfactory to the Lender in its reasonable
discretion (the scope of the security interest shall be substantially similar
to that granted hereunder).

ARTICLE 6 - NEGATIVE COVENANTS

     The Borrower covenants while any Obligations are outstanding and unpaid
not to do or to permit to be done or to occur any of the acts or occurrences
set forth in this Article 6 without the prior written authorization of the
Lender.

     Section 6.1. No Change Of Name, Merger, Etc. The Borrower shall not
change its name unless it shall have given the Lender not less than thirty (30)
days prior written notice thereof and shall have executed, delivered and, where
applicable caused to be filed for recording such documents as the Lender may
reasonably require to preserve the perfection and priority of the Lender’s
security interest in the Collateral. The Borrower shall not enter into any
merger or consolidation provided that (a) Martek Biosciences Corporation may
merge or consolidate with Martek Biosciences Boulder Corporation, (b) a
Subsidiary may merge into or consolidate with the Borrower if the Borrower is
the surviving entity, and (c) the Borrower may merge into or consolidate with
another person if the Borrower is the surviving entity and, as of the time of
such merger (immediately before giving effect thereto), an acquisition by the
Borrower of substantially all of the assets or stock of such person could have
been made in compliance with the provisions of Section 6.8(b) hereof, and no
Default or Event of Default shall have occurred and be continuing at the time
of thereof after giving effect thereto.

     Section 6.2. No Sale Or Transfer Of Collateral; Restriction Against
Transfer of Other Assets. The Borrower shall not sell, transfer, lease or
otherwise dispose of all or any part of the Collateral, except that (a)
Inventory may be sold to Account Debtors and worn out or obsolete Equipment may
be disposed of in the ordinary course of the Borrower’s business, and (b) the
Borrower may sublease space and share Equipment with tenants provided that the
annual rent for any such arrangement shall not exceed $2,000,000 and shall be
at market rates. The Borrower shall not transfer or dispose of any of its
other assets constituting any material license, permit or other property the
transfer or disposition of which would impair, in any material respect, the

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marketability of any material portion of the Collateral or otherwise impair, in
any material respect, the Borrower’s ability to conduct its business
substantially as the same shall be conducted immediately before giving effect
to such transfer or disposition.

     Section 6.3. No Encumbrance Of Collateral. The Borrower shall not
mortgage, pledge, grant or permit to exist a security interest in or lien upon
any of the Collateral, now owned or hereafter acquired, except for Permitted
Liens.

     Section 6.4. No Indebtedness. The Borrower shall not incur, create,
assume, or permit to exist any Indebtedness except: (a) the Obligations; (b)
Indebtedness secured by Permitted Liens (including refinancings thereof); (c)
Indebtedness owed to Subsidiaries; and (d) additional Indebtedness in an amount
not to exceed One Million Dollars ($1,000,000.00) outstanding at any one time.

     Section 6.5. Restricted Payments. The Borrower shall not make any
Restricted Payments in any Fiscal Year in excess of One Million Dollars
($1,000,000.00) in any Fiscal Year.

     Section 6.6. Transactions With Affiliates. The Borrower shall not make
any contract for the purchase of any items from any Affiliate or the
performance of any services (including employment services) by any Affiliate,
unless such contract is on terms which fairly represent generally available
terms to be obtained in transactions of a similar nature with independent third
persons.

     Section 6.7. Sale-Leasebacks. The Borrower shall not enter into any
sale-leaseback transactions.

     Section 6.8. No Acquisition Of Equity In Or Assets Of Third Persons. (a)
The Borrower shall not make any investment in any person, except (i) the
Borrower may invest in cash, government and marketable investment securities,
and other cash equivalents, (ii) the Borrower may acquire and own investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business, (iii) the Borrower may make loans and advances to
employees provided that the total amount of such loans at any time outstanding
shall not exceed $100,000.00, (iv) the Borrower may make any acquisition
permitted under Section 6.8(b) below, (v) Martek Biosciences Corporation may
invest in Martek Biosciences Boulder Corporation (and vice versa), (vi) the
Borrower may make capital contributions and loans to Subsidiaries, and (vii)
the Borrower may hold other investments not set forth in clauses (i) through
(vi) above in an aggregate amount not to exceed One Million Dollars
($1,000,000.00) in any Fiscal Year.

          (b) The Borrower will not make any acquisition of all or substantially
all of the stock or assets of any person unless (i) the aggregate cash
consideration paid or to be paid by the Borrower in connection with all
acquisitions in any Fiscal Year shall not exceed Two Million Dollars
($2,000,000.00) in any Fiscal Year, and (ii) no Default or Event of Default
shall have occurred and be continuing or exist immediately following such
acquisition.

     Section 6.9. No Assignment. The Borrower shall not assign or attempt to
assign its rights under this Agreement.

     Section 6.10. No Alteration Of Business. The Borrower shall not amend or
change materially its line of business.

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     Section 6.11. Unpermitted Uses Of Loan Proceeds. The Borrower shall not
use any part of the proceeds of any extension of credit hereunder for any
purpose which constitutes a violation of, or is inconsistent with, regulations
of the Board of Governors of the Federal Reserve System, including without
limitation, the purchase or carrying of (or refinancing of indebtedness
originally incurred to purchase or carry) margin securities.

     Section 6.12. [Intentionally Omitted.] .

     Section 6.13. Changes In Fiscal Year. The Borrower shall not change its
Fiscal Year unless it shall have given the Lender not less than 30 days prior
written notice of such change.

     Section 6.14. Limitation On Issuance Of Equity Interests. The Borrower
shall not issue or sell any equity interest in the Borrower that, by its terms
or by the terms of any security into which it is convertible or exchangeable,
is, or upon the happening of an event or passage of time would be: (a)
convertible or exchangeable into Indebtedness of the Borrower; or (b) required
to be redeemed or repurchased, including at the option of the holder, in whole
or in part, or has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due.

     Section 6.15 Required EBITDA. As of the last day of each quarter of each
Fiscal Year, the Borrower shall not permit the EBITDA of the Borrower for such
quarter to be less than Required EBITDA for such period.

     Section 6.16 Minimum Required Adjusted Quick Ratio. As of the last day of
each quarter of each Fiscal Year, the Borrower shall not permit the Adjusted
Quick Ratio of the Borrower to be less than 1.50.

ARTICLE 7 – EVENTS OF DEFAULT; REMEDIES

     Section 7.1 Events of Default. The occurrence of any of the following
events shall constitute an event of default (each an “Event of Default”).

          (a) Any failure by the Borrower to pay any amount of principal of the
Loans when the same becomes due; or any failure by the Borrower to pay any
other amount constituting Obligations with three Business Days after the same
shall have become due;

          (b) Any violation by the Borrower of any of the covenants or agreements
contained in Article 6 hereof;

          (c) Any failure of any representation or warranty made by the Borrower or
by the Guarantors to be true in any material respect, as of the date made;

          (d) Any breach of or default by the Borrower or any Guarantor under the
terms, covenants, and conditions set forth in any other Loan Document, which
remains uncured following the expiration of any applicable cure period;

          (e) Any breach of or default under the terms, covenants, or conditions of
any agreement, loan, guaranty, or other transaction of the Borrower or any of
the Guarantors with the Lender, which remains uncured or unwaived following the
expiration of any applicable cure period;

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          (f) The Borrower shall suffer one or more final judgments for the payment
of money in an aggregate amount in excess of One Million Dollars
($1,000,000.00) (other than amounts covered by insurance) and shall not
discharge the same within a period of thirty (30) days unless, pending further
proceedings, execution has not been commenced or if commenced has been
effectively stayed;

          (g) A judgment creditor of the Borrower shall obtain possession of any
material portion of the Collateral by any means, including but not limited to
levy, distraint, replevin or self-help, and the Borrower shall not remedy same
within thirty (30) days thereof; or a writ of garnishment is served on the
Lender relating to any of the accounts of the Borrower maintained by the
Lender;

          (h) The Borrower shall fail to pay any of its debts, in an amount which,
in the aggregate, exceeds One Million Dollars ($1,000,000.00), and such failure
shall continue beyond any applicable grace period, unless the applicable
Borrower holds a good faith defense to payment and has set aside reasonable
reserves for the payment thereof;

          (i) Any Borrower or Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or the like of such
Borrower or Guarantor of property of such Borrower or Guarantor, or (ii) admit
in writing the inability of such Borrower to pay its debts generally as they
become due, or (iii) make a general assignment for the benefit of creditors, or
(iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case
under the United States Bankruptcy Code or file a voluntary petition or answer
seeking reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer admitting the
material allegations of a petition filed against such Borrower or Guarantor in
any bankruptcy, reorganization or insolvency proceeding, or take corporate
action for the purpose of effecting any of the foregoing;

          (j) Any Borrower or Guarantor shall (i) have instituted against it a
proceeding in any court of competent jurisdiction, under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect
of such Borrower or Guarantor an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or the like of such
Borrower or Guarantor or of all or any substantial part of the assets of such
Borrower or Guarantor or other like relief in respect thereof under any
bankruptcy or insolvency law, and the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B) remain
undismissed and undischarged for a period of 60 days;

          (k) [Intentionally omitted.]

          (l) The failure by any of the Guarantors to satisfy any obligation imposed
upon the Guarantors in the Guaranty Agreements, which remains uncured or
unwaived following the expiration of any applicable cure period;

          (m) The receipt by the Lender of notice from any Guarantor that the
Guarantor is attempting to terminate or limit any portion of its obligations
under a Guaranty Agreement;

          (n) If any Termination Event shall occur and as of the date thereof or any
subsequent date, the sum of the various liabilities of the Borrower and its
ERISA Affiliates (such liabilities to include, without limitation, any
liability to the Pension Benefit Guaranty Corporation (or any successor
thereto) or to

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any other party under Sections 4062, 4063, or 4064 of ERISA or
any other provision of law and to be calculated after giving effect to the tax
consequences thereof) resulting from or otherwise associated with such event
exceeds One Million Dollars ($1,000,000.00); or the Borrower or any of its
ERISA Affiliates as an employer under any Multiemployer Plan shall have made a
complete or partial withdrawal from such Multiemployer Plans and the plan
sponsors of such Multiemployer Plans shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability requiring a
payment in an amount exceeding One Million Dollars ($1,000,000.00);

          (o) The indictment of any Borrower or Guarantor for a felony under any
federal, state or other law;

          (p) The issuance of any injunction against the Borrower which enjoins or
restrains the Borrower from continuing to conduct any material part of the
Borrower’s business affairs; or

          (q) any breach or violation by the Borrower of any covenant or other
agreement of the Borrower under this Agreement other than those addressed by
the preceding paragraphs of this Section 7.1, and the failure of the Borrower
to cure such breach or violation within 30 days after written notice thereof to
the Borrower.

     Section 7.2. Certain Default Remedies. In addition to all other rights
and remedies provided by law and the Loan Documents, upon the occurrence of any
Event of Default, the Lender may: (a) terminate the Credit Line; (b)
accelerate and call immediately due and payable all or any part of the
Obligations; (c) seek specific performance or injunctive relief to enforce
performance of the undertakings, duties, and agreements provided in the Loan
Documents, whether or not a remedy at law exists or is adequate; and (d)
exercise any rights of a secured creditor under the Uniform Commercial Code, as
adopted and amended in Maryland, including the right to take possession of the
Collateral without the use of judicial process or hearing of any kind and the
right to require the Borrower to assemble the Collateral at such place as the
Lender may specify.

     Section 7.3. Automatic Acceleration. Upon the occurrence of an Event of
Default as described in Sections 7.1(i) or 7.1(j) of this Agreement, the
Obligations shall be automatically accelerated and due and payable without any
notice, demand or action of any type on the part of the Lender.

     Section 7.4. Sale Of Collateral. In addition to any other remedy provided
herein, upon the occurrence of an Event of Default, the Lender, in a
commercially reasonable fashion, may sell at public or private sale or
otherwise realize upon, in Baltimore, Maryland, or elsewhere, the whole or,
from time to time, any part of all Collateral which is personal property, or
any interest which the Borrower may have therein. Pending any such action, the
Lender may collect and liquidate the Collateral. After deducting from the
proceeds of sale or other disposition of such Collateral all expenses,
including all expenses for legal services, the Lender shall apply such proceeds
toward the satisfaction of the Obligations. Any remainder of the proceeds
after satisfaction in full of the Obligations shall be distributed as required
by applicable law. Notice of any sale or other disposition (other than sales
or other dispositions of Collateral which is perishable or threatens to decline speedily in value
or is of a type customarily sold on a recognized market) shall be given to the
Borrower not less than ten (10) calendar days before the time of any intended
public sale or of the time after which any intended private sale or other
disposition of the Collateral is to be made, which the Borrower hereby agrees
shall be commercially reasonable notice of such sale or other disposition. The
Borrower shall assemble, or shall cause to be assembled, at the Borrower’s own
expense, the Collateral at such place or places as the Lender shall designate.
At any such sale or other disposition, the Lender may, to the extent

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permissible under applicable law, purchase the whole or any part of the
Collateral, free from any right of redemption on the part of the Borrower,
which right is hereby waived and released to the extent lawfully permitted.
Without limiting the generality of any of the rights and remedies conferred
upon the Lender under this Section, the Lender may, to the full extent
permitted by applicable law: (a) enter upon the premises of the Borrower,
exclude therefrom the Borrower or any person connected therewith, and take
immediate possession of the Collateral, either personally or by means of a
receiver appointed by a court of competent jurisdiction, using all necessary
force to do so; (b) at the Lender’s option, use, operate, manage, and control
the Collateral in any lawful manner; (c) collect and receive all income,
revenue, earnings, issues, and profits therefrom; and (d) maintain, alter or
remove the Collateral as the Lender may determine in the Lender’s discretion.

     Section 7.5 Confession of Judgment. Upon the occurrence of an Event of
Default, the Borrower authorizes any attorney admitted to practice before any
court of record in the United States to appear on behalf of the Borrower in any
court in one or more proceedings, or before any clerk thereof or prothonotary
or other court official, and to confess judgment against the Borrower without
prior notice or opportunity of the Borrower for prior hearing, in favor of the
Lender in an amount equal to the sum of the full amount of the Obligations then
outstanding (including the principal of and interest on the Loans and the
Reimbursement Obligations and all fees, costs, charges and other amounts owing
under the Loan Documents), plus attorneys’ fees equal to the amount equal to
15% of the sum of the amounts described in clauses (a) and (b) of this
sentence, plus court costs. The Borrower consents to the jurisdiction of the
Circuit Court for Baltimore City, Maryland or any County in the State of
Maryland, as selected by the Lender, or of the United States District Court for
the District of Maryland in the event there is a basis for federal subject
matter jurisdiction, and consents that venue and jurisdiction shall be proper
in any of the aforesaid Circuit Courts selected by the Lender or in the United
States District Court for the District of Maryland. The Borrower waives the
benefit of any and every statute, ordinance, or rule of court which may be
lawfully waived conferring upon the Borrower any right or privilege of
exemption, homestead rights, stay of execution, or supplementary proceedings,
or other relief from the enforcement or immediate enforcement of a judgment or
related proceedings on a judgment. The authority and power to appear for and
enter judgment against the Borrower shall not be exhausted by one or more
exercises thereof, or by any imperfect exercise thereof, and shall not be
extinguished by any judgment entered pursuant thereto; such authority and power
may be exercised on one or more occasions from time to time, in the same or
different jurisdictions, as often as the Lender shall deem necessary or
advisable.

     In the event that the Lender receives, as a result of execution on a
judgment confessed hereunder, amounts in respect of attorneys’ fees which
exceed the actual attorneys’ fees incurred by the Lender in connection with the
Obligations and the Loan Documents, then, upon full and final payment of all of
the other obligations of the Borrower to the Lender, the Lender shall remit
such excess to the Borrower.

     Section 7.6. Remedies Cumulative. The rights and remedies provided in
this Agreement and in the other Loan Documents or otherwise under applicable
laws shall be cumulative and the exercise of any particular right or remedy
shall not preclude the exercise of any other rights or remedies in addition to,
or as an alternative of, such right or remedy.

ARTICLE 8 - GENERAL CONDITIONS AND TERMS

     Section 8.1. Obligations Are Unconditional. The payment and performance
of the Obligations shall be the absolute and unconditional duty and obligation
of the Borrower, and shall be independent of any defense or any rights of
set-off, recoupment or counterclaim which the Borrower might otherwise have

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against the Lender. The Borrower shall pay the payments of the principal and
interest to be made upon the Obligations, free of any deductions and without
abatement, diminution or set-off other than those herein expressly provided.
Until such time as the Obligations have been fully paid and performed, the
Borrower shall not: (a) suspend or discontinue any payments required by the
Loan Documents; and (b) fail to perform and observe all of the Borrower’s
covenants and agreements set forth in the Loan Documents.

     Section 8.2. Indemnity. The Borrower agrees to defend, indemnify and hold
harmless the Lender and the entities affiliated with the Lender and all of the
Lender’s and its affiliated entities’ employees, agents, officers and
directors, from and against any losses, penalties, fines, liabilities,
settlements, damages, costs and expenses, suffered in connection with any
claim, investigation, litigation or other proceeding (whether or not the Lender
or an affiliated entity is a party thereto) and the prosecution and defense
thereof, arising out of or in any way connected with any Loan Document,
including without limitation reasonable attorneys’ and consultant’s fees,
except to the extent that any of the foregoing directly result from the gross
negligence or willful misconduct of the Lender, an entity affiliated with the
Lender, or any of their respective employees, agents, officers or directors.
Notwithstanding any termination of this Agreement or payment and performance of
the Obligations, the indemnities provided for herein shall continue in full
force and effect and shall protect all of the above-described persons against
events arising after such termination, payment or performance as well as
before.

     Section 8.3. Lender Expenses. All Lender Expenses shall be paid by the
Borrower, whether incurred prior to or after Closing, such that the subject
transactions shall at all times be cost free to the Lender.

     Section 8.4. Authorization To Obtain Financial Information. The Borrower
hereby irrevocably authorizes its accounting firm to provide the Lender from
time to time with such information as may be reasonably requested by the
Lender, and hereby authorizes the Lender to contact directly such accounting
firm in order to obtain such information.

     Section 8.5.
Incorporation The terms and conditions of the Loan Documents are incorporated by reference and made a part hereof, as if fully set
forth herein.

     Section 8.6. Waivers. The Lender at any time or from time to time may
waive all or any rights under this Agreement or any other Loan Document, but
any waiver or indulgence by the Lender at any time or from time to time shall
not constitute a future waiver of performance or exact performance by the
Borrower.

     Section 8.7. Continuing Obligation Of Borrower. The terms, conditions,
and covenants set forth herein and in the Loan Documents shall survive Closing
and shall constitute a continuing obligation of the Borrower during the course
of the transactions contemplated herein. The security interests, liens and
other security provided by this Agreement shall remain in effect so long as any
Obligation, whether direct or contingent, is outstanding, unpaid or
unsatisfied. At any time that the Obligations have been paid in full and no
Hedge or Letter of Credit remains in effect, the Borrower may terminate this
Agreement and the Lender shall provide, at the Borrower’s expense,
documentation sufficient to release all liens and security interests of the Lender in the Collateral;
provided, that the foregoing provisions of this Section shall be subject to
Section 2.6 hereof.

     Section 8.8. Choice Of Law. The laws of the State of Maryland (excluding,
however, conflict of law principles) shall govern and be applied to determine
all issues relating to this Agreement and the rights

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and obligations of the
parties hereto, including the validity, construction, interpretation, and
enforceability of this Agreement and its various provisions and the
consequences and legal effect of all transactions and events which resulted in
the execution of this Agreement or which occurred or were to occur as a direct
or indirect result of this Agreement having been executed.

     Section 8.9. Submission To Jurisdiction; Venue; Actions Against Lender.
For purposes of any action, in law or in equity, which is based directly or
indirectly on this Agreement, any other Loan Document or any matter related to
this Agreement or any other Loan Document, including any action for recognition
or enforcement of any of the Lender’s rights under the Loan Documents or any
judgment obtained by the Lender in respect thereof, the Borrower hereby:

          Section 8.9.1. Jurisdiction. Irrevocably submits to the non-exclusive
general jurisdiction of the courts of the State of Maryland and, if a basis for
federal jurisdiction exists at any time, the courts of the United States of
America for the District of Maryland.

          Section 8.9.2. Venue. Agrees that venue shall be proper in the Circuit
Court for Baltimore City, Maryland, the Circuit Court for any county in the
state of Maryland, as selected by the Lender, and, if a basis for federal
jurisdiction exists, the courts of the United States of America for the
District of Maryland.

          Section 8.9.3. Waiver Of Objections To Venue. Waives any right to object
to the maintenance of any suit in any of the courts specified in Section 8.9.2
above on the basis of improper venue or convenience of forum. The Borrower
further agrees that it shall not institute any suit or other action against the
Lender, in law or in equity, which is based directly or indirectly on this
Agreement, any other Loan Document or any matter related to this Agreement or
any other Loan Document, in any court other than a court specified in Section
9.9.2 above; provided, that in any instance in which there is then pending a
suit instituted by the Lender against the Borrower in a court other than a
court specified in Section 8.9.2 above, the Borrower may file in such suit any
counterclaim which it has against the Lender but only if such counterclaim is a
compulsory counterclaim and would be barred if not filed as a counterclaim in
such suit. The Borrower agrees that any suit brought by it against the Lender
not in accordance with this paragraph should be forthwith dismissed or
transferred to a court specified in Section 8.9.2 above.

     Section 8.10. Notices. Any notice required or permitted by or in
connection with this Agreement shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the Lender or the Borrower at the appropriate address set forth
below or to such other address as may be hereafter specified by written notice
by the Lender or the Borrower. Notice shall be considered given as of the date
of the facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3) calendar
days after the date of mailing, independent of the date of actual delivery or
whether delivery is ever in fact made, as the case may be, provided the giver
of notice can establish the fact that notice was given as provided herein. If
notice is tendered pursuant to the provisions of this Section and is refused by
the intended recipient thereof, the notice, nevertheless, shall be considered
to have been given and shall be effective as of the date herein provided.

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     If to the Lender:

	 	 	ALLFIRST BANK

6395 Dobbin Road, Suite 106

Columbia, Maryland 21045

Attn.: Robert F. Topper, Vice President

Fax No.: (410) 964-6819

     If to the Borrower:

	 	 	MARTEK BIOSCIENCES CORPORATION

6480 Dobbin Road

Columbia, Maryland 21045

Attn.: George P. Barker, Esquire

Fax No.: (410) 740-2985

     With A Courtesy Copy To:

	 	 	Hogan & Hartson, L.L.P.

111 S. Calvert Street, Suite 1600

Baltimore, Maryland 21202

Attn.: Kevin G. Gralley, Esquire

Fax No.: (410) 539-6981

The failure of the Lender to send the above courtesy copy shall not impair the
effectiveness of notice given to the Borrower in the manner provided herein.

     Section 8.11. Participations. The Lender reserves the right to assign all
or any portion of its interests in any of the Obligations or the Loan Documents
or to participate with other lending institutions any of the Obligations and
the Loan Documents on such terms and at such times as the Lender may determine
from time to time, all without any consent thereto or notice thereof to the
Borrower; provided, however, that unless an Event of Default shall have
occurred and be continuing, the Lender may not assign its obligation to make
Loans and issue Letters of Credit hereunder without the prior written consent
of the Borrower (which shall not be unreasonably withheld or delayed). The
Borrower hereby grants to each participating lending institution, to the full
extent of the Obligations, the right to set off deposit accounts maintained by
the Borrower with such institution, and the Borrower agrees to pay the Lender
Expenses of any such participating lending institution which arise or are
incurred as a result of the occurrence of an Event of Default.

     Section 8.12. Miscellaneous Provisions. The parties agree that: (a) this
Agreement shall be effective as of the date first above written, independent of
the date of execution or delivery hereof; (b) this Agreement shall be binding
upon the parties and their successors and assigns, contains the final and
entire agreement and understanding of the parties, and may neither be amended
or altered except by a writing signed by the parties; (c) time is strictly of
the essence of this Agreement; (d) as used herein, the singular includes the
plural and the plural includes the singular, the use of any gender applies to
all genders; (e) the captions contained herein are for purposes of convenience
only and are not a part of this
Agreement; (f) a carbon, photographic, photocopy or other reproduction of
a security agreement or financing statement shall be sufficient as a financing
statement; (g) this Agreement may be delivered by facsimile, and a facsimile of
any party’s signature to this Agreement shall be deemed an original signature
for all purposes; and (h) this

-39-

 

 

Agreement may be executed in several
counterparts, each of which shall be an original, but all of which, when taken
together, shall constitute one and the same document.

     Section 8.13. Waiver Of Trial By Jury. Each party to this Agreement
agrees that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by either party hereto or any successor or assign of any
party on or with respect to this Agreement or any other Loan Document or which
in any way relates, directly or indirectly, to the Obligations or any event,
transaction, or occurrence arising out of or in any way connected with any of
the Obligations, or the dealings of the parties with respect thereto, shall be
tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

     Section 8.14. Confidentiality. The Lender shall hold all non-public
information obtained pursuant to this Agreement in accordance with its
customary procedures for handling confidential information of this nature and
in accordance with safe and sound banking practices.

-40-

 

 

     IN WITNESS WHEREOF, the Lender and the Borrower have duly executed this
Agreement under seal as of the date first above written.

	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	ALLFIRST BANK
	 	 	 	 	 	 	 
	     /s/ Kevin M. Connelly	 	
By:
	 	 	 	/s/ Robert Topper
	
	 	 	 	

	 	 	 	 	Name:
	 	     Robert Topper
	 	 	 	 	 	

	 	 	 	 	Title:
	 	     Vice President
	 	 	 	 	 	

	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES CORPORATION,
	 	 	A Delaware Corporation
	 	 	 	 	 	 	 
	     /s/ Thomas V. Feeley	 	
By:
	 	 	 	/s/ Peter L. Buzy
	
	 	 	 	

	 	 	 	 	Name:
	 	     Peter L. Buzy
	 	 	 	 	 	

	 	 	 	 	Title:
	 	     Chief Financial Officer
	 	 	 	 	 	

	 	 	 	 	 	 	 
	 	 	MARTEK BIOSCIENCES BOULDER
	 	 	CORPORATION
	 	 	 	 	 	 	 
	     /s/ Thomas V. Feeley	 	
By:
	 	 	 	/s/ Peter L. Buzy
	
	 	 	 	

	 	 	 	 	Name:
	 	     Peter L. Buzy
	 	 	 	 	 	

	 	 	 	 	Title:
	 	     Chief Financial Officer
	 	 	 	 	 	

 

 

REVOLVING CREDIT NOTE

Dated February  25, 2003

From

MARTEK BIOSCIENCES CORPORATION and

MARTEK BIOSCIENCES BOULDER CORPORATION,

Borrowers,

To The Order Of

ALLFIRST BANK,

Lender

$10,000,000 Revolving Credit Facility

 

 

	 	 	 	 	 
	Baltimore, Maryland	 	 	
$10,000,000.00	 
	February      , 2003	 	 	 	 

REVOLVING CREDIT NOTE

     THIS REVOLVING CREDIT NOTE (this “Note”) is made this      day of
February, 2003, by MARTEK BIOSCIENCES CORPORATION and MARTEK BIOSCIENCES
BOULDER CORPORATION (collectively, the “Borrower”; provided, that where the
context so requires, the term “Borrower” shall mean either of such persons) to
and for the benefit of ALLFIRST BANK (the “Lender”), and the Lender’s
successors and assigns (including each subsequent holder of this Note). This
Note is the “Note” under the Loan and Security Agreement of even date herewith
by and between the Borrower and the Lender (as amended, supplemented, replaced
or otherwise modified from time to time, collectively, the “Loan Agreement”)
and evidences the Loans made from time to time pursuant to such Loan Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
respective meanings given in the Loan Agreement, except in any instance in
which the context clearly requires otherwise. The rules of construction set
forth in Section 1.2 of the Loan Agreement shall be applicable to this Note, as
if set forth in full herein.

     FOR VALUE RECEIVED, the undersigned Borrower hereby promises (jointly and
severally as to each Borrower) to pay to the order of the Lender, and the
Lender’s successors and assigns (including each subsequent holder of this
Note), at the office of the Lender at 25 South Charles Street, Baltimore,
Maryland 21201 (or at such other address as the holder of this Note may
specify from time to time by written notice to the Borrower), on the
Termination Date specified in the Loan Agreement (including any extension
thereof), the principal sum of TEN MILLION DOLLARS ($10,000,000.00) or so much
thereof as shall be outstanding on account of the principal of the Loans,
together with interest on the unpaid principal balance hereof outstanding from
time to time at the rate or rates hereafter specified until paid in full, and
all other sums owing by the Borrower to the holder under this Note and under
the other Loan Documents.

     1.     Interest Rate; Calculation of Interest; Payment of Interest. Interest
on the unpaid principal balance hereof shall be due and payable and calculated

in accordance with the provisions of Section 2.2 of the Loan Agreement
[captioned “Interest on the Loans”]. Interest shall accrue at the annual
interest rate or rates specified in Section 2.2 of the Loan Agreement until
this Note is fully paid, notwithstanding entry of judgment on this Note.
Without limiting the provisions of Section 2 below, interest payments shall be
made at the times and in the amounts provided in subsection 2.2 of the Loan
Agreement, at the place for payment provided above in this Note.

     2.     Full Payment on Termination Date; Revolving Credit. All amounts
outstanding on this Note, including all unpaid principal, accrued unpaid
interest, charges and fees, are due and payable in full on the Termination Date
specified in the Loan Agreement. Principal amounts hereunder may be paid or
prepaid without penalty or premium and, until the Termination Date and to the
extent provided in the Loan Agreement, readvanced from time to time.

     3.     Late Payment Charge. If any monthly interest payment hereunder is not
received by the holder within 15 days after its due date, the Borrower shall
pay to the holder hereof a late payment charge in an amount
equal to 5% of the amount then due and payable. The late payment charge
shall be due whether or not the holder exercises any right of the holder to
accelerate the maturity hereof or any other default remedy. The existence of
the right by the holder to receive a late payment charge shall not constitute a
grace period or provide any right in the Borrower to make any payment other
than on its due date.

-1-

 

 

     4.     Application of Payments. All payments made hereunder shall be applied
first to late payment charges and reimbursement for collection expenses, if
any, which are then due, next to accrued unpaid interest, and then to
principal, or in such other order or proportion as the holder, in the holder’s
sole discretion, may elect from time to time.

     5.     Default; Acceleration; Confession of Judgment. Upon any failure by
the Borrower to pay any amount evidenced by this Note when and as the same
becomes due, which is not cured within any grace or cure period made applicable
pursuant to the Loan Agreement, or upon the occurrence of any other Event of
Default under the Loan Agreement or any of the other Loan Documents, the entire
unpaid principal balance of this Note, together with all accrued unpaid
interest hereunder and all other amounts due hereunder, shall, at the option of
the holder, become due and payable in full; and, in addition to all other
rights or remedies available to the holder under the Loan Documents or under
applicable law, the Borrower authorizes any attorney admitted to practice
before any court of record in the United States to appear on behalf of the
Borrower in any court in one or more proceedings, or before any clerk thereof
or prothonotary or other court official, and to confess judgment against the
Borrower, without prior notice or opportunity of the Borrower for prior
hearing, in favor of the holder of this Promissory Note in the full amount
outstanding under this Note (including principal, accrued interest and any and
all penalties, fees and costs) plus attorneys’ fees equal to fifteen percent
(15%) of the amount outstanding hereunder plus court costs. The Borrower
agrees and consents that venue and jurisdiction shall be proper in the Circuit
Court of any County of the State of Maryland or of Baltimore City, Maryland, or
in the United States District Court for the District of Maryland. The Borrower
waives the benefit of any and every statute, ordinance, or rule of court which
may be lawfully waived conferring upon any Borrower any right or privilege of
exemption, homestead rights, stay of execution, or supplementary proceedings,
or other relief from the enforcement or immediate enforcement of a judgment or
related proceedings on a judgment. The authority and power to appear for and
enter judgment against the Borrower shall not be exhausted by one or more
exercises thereof, or by any imperfect exercise thereof, and shall not be
extinguished by any judgment entered pursuant thereto; such authority and power
may be exercised on one or more occasions from time to time, in the same or
different jurisdictions, as often as the holder shall deem necessary or
advisable.

     In the event that the Lender receives, as a result of execution on a
judgment confessed hereunder, amounts in respect of attorneys’ fees which
exceed the actual attorneys’ fees incurred by the Lender in connection with the
Obligations and the Loan Documents, then, upon full and final payment of all of
the other obligations of the Borrower to the Lender, the Lender shall remit
such excess to the Borrower.

     6.     Costs of Enforcement. The Borrower shall pay all of the holder’s
reasonable costs, fees (including, without limitation, reasonable attorneys’
fees) and expenses incurred in connection with the holder’s enforcement or
collection of this Note.

     7.     Negotiable Instrument. The Borrower agrees that each holder of this
Note shall have, with respect to this Note, all rights of a holder of a
negotiable instrument, even if, absent this paragraph, this Note would not be
considered a negotiable instrument under applicable law. If the holder hereof
would qualify as a holder in due course with respect to this Note, assuming
that this Note is a negotiable instrument, then the holder shall have all
rights of a holder in due course with respect to this Note.

     8.     Notices. Any notice or demand required or permitted by or in
connection with this Note shall be given in the manner specified in the Loan
Agreement for the giving of notices under the Loan Agreement; provided, that
each notice or demand actually received in writing by the Borrower shall be
effective even if the manner of delivery is other than as provided in the Loan
Agreement.

-2-

 

 

     9.     Joint and Several Liability. All liabilities under this Note shall be
joint and several with respect to each person executing this Note as Borrower
and each other person executing this Note or otherwise assuming liability for
the payment hereof, whether as maker, co-maker, endorser or guarantor.

     10.     Manner and Method of Payment. All payments called for in this
Promissory Note shall be made in lawful money of the United States of America.
If any payment is made by check, draft, or other payment instrument, such
check, draft, or other payment instrument shall represent immediately available
funds. In the holder’s sole discretion, any payment made by a check, draft, or
other payment instrument shall not be considered to have been made until such
time as the funds represented thereby have been collected by the holder. If
the due date of any payment falls on a day which is not a Business Day, the
Borrower shall make such payment on the immediately succeeding Business Day.

     11.     Unconditional Obligation. The payment of this Note shall be the
absolute and unconditional obligation of the Borrower, and shall be independent
of any defense or any rights of set-off, recoupment or counterclaim which the
Borrower might otherwise have against the holder, and the Borrower shall pay
absolutely, when and as due, all amounts which from time to time are
outstanding hereunder, free of any deductions and without abatement, diminution
or set-off.

     12.     Waivers; Consent to Extension. Each Person executing this Note as
Borrower and each other Person which becomes a maker, co-maker, endorser,
guarantor or other co-obligor on this Note hereby (a) waive demand,
presentation, protest, notice of default; and (b) agree that the maturity of
this Note, or any payment due hereunder, may be extended at any time or from
time to time by the holder of this Note without releasing, discharging, or
otherwise affecting the liability of such party.

     13.     Assignable by Lender. This Note may be assigned by the Lender (or any
other holder hereof), in whole or in part, at any time and from time to time.

     14.     Successors and Assigns. This Note shall be binding upon the
successors and assigns of the Borrower and shall inure to the benefit of the
successors and assigns of the Lender (including each subsequent holder hereof).

     15.     Applicable Law. This Note and the other Loan Documents shall be
governed by and construed in accordance with the laws of the State of Maryland,
without regard to the conflicts of law principles.

     16.     Severability. If any provision or part of any provision of this Note
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note and this Note shall be construed as if such invalid,
illegal or unenforceable provision or part thereof had never been contained
herein, but only to the extent of its invalidity, illegality, or
unenforceability.

     17.     Venue; Jurisdiction. The provisions of Section 8.9 of the Loan
Agreement (captioned “Submission To Jurisdiction; Venue; Actions Against
Lender”) are hereby incorporated into this Note by reference and made a part
hereof as if set forth in full herein.

-3-

 

 

     18.     Waiver of Right to Jury Trial. Each party hereto agrees that any
suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by either party hereto or any successor or assign of any party on or
with respect to this Note or any other Loan Document or which in any way
relates, directly or indirectly, to the Loan or any event, transaction, or
occurrence arising out of or in any way connected with the Loan, or the
dealings of the parties with respect thereto, shall be tried only by a court
and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. This Section is a specific and
material aspect of the agreement among the parties.

[Signature page follows.]

-4-

 

 

     IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
as of the date first above written, with specific intention that this Note
shall constitute an instrument under seal.

	 	 	 	 
	WITNESS/ATTEST:	 	
MARTEK BIOSCIENCES CORPORATION
	 	 	 	 
	 	 	 	 
	 	 	 	 
	/s/ Thomas V. Feeley
	 	
By: 	
/s/ Peter L. Buzy

	 	 	 	
Name:  Peter L. Buzy
	 	 	 	
Title: Chief Financial Officer
	 	 	 
	 	 	
MARTEK BIOSCIENCES BOULDER CORPORATION
	 	 	 	 
	 	 	 	 
	 	 	 
	/s/ Thomas V. Feeley
	 	
By: 	
/s/ Peter L. Buzy

	 	 	 	
Name: Peter L. Buzy
	 	 	 	
Title: Chief Financial Officerexv10w4

 

Exhibit 10.4

December 18, 2002

First Amendment to Loan and Security Agreement

     This First Amendment to Loan and Security Agreement (the “LSA”), dated
September 18, 2001, among PRA III, LLC, “Borrower”), WESTSIDE FUNDING
CORPORATION (the “Lender”) and PORTFOLIO RECOVERY ASSOCIATES, L.L.C., PRA
RECEIVABLES MANAGEMENT, LLC (d/b/a ANCHOR RECEIVABLES MANAGEMENT), PRA II, LLC
and PRA HOLDING I, LLC (each a “Guarantor” and collectively, the “Guarantors”)
is entered into this eighteenth day of December 2002.

WITNESSETH:

WHEREAS, the Borrower, Lender and Guarantors have previously entered into the
LSA; and

WHEREAS, the Borrower, Lender and Guarantors desire to amend certain of the
terms and provisions of the LSA;

NOW, THEREFORE, in consideration of the foregoing, other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Borrower, Lender and Guarantors agree as follows:

     Section 1. Definitions and Acknowledgement

(a)     Capitalized terms that are not specifically defined herein shall have the
meanings assigned thereto in the LSA.

(b)     It is hereby acknowledged that Portfolio Recovery Associates, Inc.
(“PRA”) has completed an initial public offering of its equity. In
connection with such offering, Portfolio Recovery Associates, L.L.C.
(“LLC”) has entered into various agreements and arrangements to reorganize
its corporate structure. Accordingly, the members of LLC have transferred
all of their membership units, and warrants to purchase membership units,
to PRA, a newly formed Delaware corporation, in exchange for an equivalent
amount of common stock, and warrants to purchase common stock, of PRA. LLC
is now a wholly owned subsidiary of PRA. Furthermore, in connection with
this reorganization, LLC transferred to PRA all of its membership
interests in each of PRA Receivables Management, LLC (d/b/a Anchor
Receivables Management) and PRA Holding I, LLC and PRA II, LLC merged into
LLC and was dissolved.

(c)     It is hereby acknowledged that PRA II, LLC shall be removed as an LSA
Guarantor and that PRA shall be included as an LSA Guarantor.

 

 

     Section 2. Amendments

(a)     The definition of the term “Assumed Name” shall be amended by deleting
“PRA II, L.L.C.” therefrom and inserting “Portfolio Recovery Associates,
Inc.” in the place thereof.

(b)     The definition of the term “Backup Service Fee” shall be amended by
deleting “Seven Thousand Five Hundred Dollars ($7,500.00)” therefrom and
inserting “Three Thousand Five Hundred Dollars ($3,500.00)” in the place
thereof.

(c)     The definition of the term “Change in Control” shall be amended to read
as follows:

     “CHANGE IN CONTROL: The term “Change in Control” shall mean any of the
following (I) the acquisition by a third party, other than Angelo, Gordon &
Co., L.P. or affiliated entities, of a majority of the issued and
outstanding shares of PRA or (II) the failure of PRA to continue to own,
directly or indirectly, in the aggregate, free and clear of all liens except
for liens in favor of the Lender, 100% of the issued and outstanding
membership interest of the Borrower.”

	 	(d)	 	     The definition of the term “Commitment Fee” shall be amended by deleting
“the product of (i) 0.35% and, (ii) the Facility Amount” therefrom, and
inserting, “One Hundred Forty Thousand Dollars ($140,000.00)” in the place
thereof.
	 
	 	(e)	 	     The definition of the term “Facility Amount” shall be amended by deleting
“Forty Million Dollars ($40,000,000.00)” therefrom and inserting “Twenty
Five Million Dollars ($25,000,000.00)” in the place thereof.
	 
	 	(f)	 	     The definition of the term “Guarantor” shall be amended by deleting “PRA
II, L.L.C.” therefrom and inserting “Portfolio Recovery Associates, Inc.”
in the place thereof.
	 
	 	(g)	 	     The definition of the term “Management Agreement” shall be amended by
deleting “PRA” therefrom and inserting “LLC” in the place thereof.
	 
	 	(h)	 	     The definition of the term “PRA” shall be amended by deleting “Portfolio
Recovery Associates, L.L.C.” therefrom and inserting “Portfolio Recovery
Associates, Inc.” in the place thereof.
	 
	 	(i)	 	     The definition of the term “PRA Purchase Agreement” shall be amended by
deleting “PRA” therefrom and inserting “LLC” in the place thereof.
	 
	 	(j)	 	     The definition of the term “Stated Interest Rate” shall be amended by
deleting “4.35%” therefrom and inserting “3.50%” in the place thereof.
	 
	 	(k)	 	     The definition of the term “Unused Facility Fee” shall be amended to read
as follows:

“UNUSED FACILITY FEE: The term “Unused Facility Fee” shall mean for any
Settlement Date, (i) if the average daily principal balance of the Outstanding
Facility Amount for the month immediately preceding such Settlement Date is
less than $10,000,000, an amount equal to 1/12th of 0.75% multiplied by the
difference between the Facility Amount and the average daily principal balance
of the Outstanding Facility Amount for the month immediately preceding such
Settlement Date, or (ii) if the average daily principal balance of the
Outstanding Facility Amount for the month immediately preceding such Settlement
Date is equal to or more than $10,000,000, an amount equal to 1/12th of 0.25%
multiplied by the difference between the Facility Amount and the average daily
principal balance of the Outstanding Facility Amount for the month immediately
preceding such Settlement Date.”

	 	(l)	 	     Section 1. shall be amended to incorporate the following defined term in
its appropriate alphabetical order:

2

 

     “LLC: The term “LLC” shall mean Portfolio Recovery Associates, L.L.C.”

	 	(m)	 	Section 5.1.A. shall be amended to read as follows:

     “Each of Borrower and Guarantor is a limited liability company or a
corporation, duly formed, validly existing and in good standing under the laws
of the state of its formation or incorporation, as applicable, is duly
qualified to do business and is in good standing as a foreign entity in all
states where such qualification is required, has all necessary power and
authority to enter into this Agreement and each of the documents and
instruments relating hereto and to perform all of its obligations hereunder and
thereunder.”

	 	(n)	 	Section 5.1.D.(II) shall be amended to read as follows:

     “violate any provision of their respective Certificate of Formation, Operating
Agreement, Certificate of Incorporation or By-Laws, as applicable.”

	 	(o)	 	Section 5.1. X. shall be amended to read as follows:

     “None of the Capital Stock of any Subsidiary of PRA shall be a certificated
security.”

	 	(p)	 	Section 6.1.E. shall be amended to read as follows:

     “Carry on and conduct their business in the same manner and in the same fields
of enterprise as they are presently engaged, and shall preserve their limited
liability company or corporate existence, as applicable, licenses or
qualifications as a domestic entity in the jurisdiction of its organization or
incorporation, as applicable, and as a foreign entity in every jurisdiction in
which the character of its assets or properties or the nature of the business
transacted by it at any time makes qualification as a foreign entity necessary,
and to maintain all other material rights and franchises, provided, however,
nothing herein shall be construed to prevent Borrower from closing any retail
location in the good faith exercise of its business judgment.”

	 	(q)	 	     Section 6.1.Q. shall be amended by deleting “PRA” therefrom and inserting
“LLC” in the place thereof.
	 
	 	(r)	 	     Section 6.1.R. shall be amended by deleting “PRA” therefrom and inserting
“LLC” in the place thereof.
	 
	 	(s)	 	     Section 6.2.D. shall be amended to read as follows:

     “Cause or take any of the following actions with respect to either Borrower or
Guarantor (except for PRA): (i) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower’s or Guarantor’s outstanding Capital
Stock; or (ii) purchase or acquire, directly or indirectly, any shares of
Capital Stock, evidences of indebtedness or other securities of any Person or
entity.”

	 	(t)	 	     Section 6.2.E. shall be amended to read as follows:

     “Amend, supplement or otherwise modify either of Borrower’s or Guarantor’s
Certificate of Formation, Operating Agreement, Certificate of Incorporation or
By-Laws, as applicable, in such a way which would have a Material Adverse
Effect on the condition and operations, prospects or financial condition of the
Borrower or Guarantor (as the case may be).”

3

 

	 	(u)	 	     Section 6.2.I. shall be amended to read as follows:

     “Allow Borrower or Guarantor (except for PRA) to be owned and controlled
directly or indirectly by any Person or entity other than the shareholders,
members and senior management that own and control Borrower or Guarantor (as
the case may be) as of the date hereof.”

	 	(v)	 	     Section 6.2.M. shall be amended to read as follows:

     “Permit any equity holder of Borrower or Guarantor (except for PRA) to pledge
or otherwise hypothecate any equity or membership interest in Borrower or
Guarantor (as the case may be).”

	 	(w)	 	     Section 6.5. shall be amended by deleting “or equivalent duly appointed
member of PRA” therefrom.
	 
	 	(x)	 	     The LSA shall be amended to add a new Section 9.21 to read in its
entirety as follows:

     “In connection with this Agreement, each of the Borrower and Guarantor have
agreed to furnish and make available to Lender certain financial and other
information concerning the Borrower or Guarantor. As a condition to the
Borrower or Guarantor furnishing such information to Lender, Lender agrees to
treat the Confidential Material confidentially in accordance with the terms of
this Section 9.21 and to take or refrain from taking certain actions herein
set forth. As used herein, the term “Confidential Material” shall include (x)
any information, regardless of the form in which it is communicated or
maintained (whether prepared by the Borrower, Guarantor or otherwise) and which
is made available or disclosed to Lender or its affiliates, subsidiaries,
directors, officers, employees, agents and representatives (including attorneys
and other advisors) (collectively, “Lender’s Representatives”) by or on behalf
of the Borrower or Guarantor or which Lender or Lender’s Representatives learn
or obtain orally, through observation, or through analysis of such information,
and (y) all reports, analyses, notes or other information that are based on,
contain or reflect any Confidential Material. As used herein, the term
“Confidential Material” does not include information which (i) is or becomes
generally known to the public, other than as a result of a disclosure by Lender
or Lender Representatives in violation of this Agreement, (ii) becomes
available to Lender on a non-confidential basis from a source other than the
Borrower or Guarantor, provided that such source is not known by Lender to be
bound by a confidentiality agreement with or other obligation of secrecy to
the Borrower or Guarantor, or otherwise known by Lender to be prohibited from
transmitting such information to Lender or Lender’s Representatives by a
contractual, legal or fiduciary obligation or (iii) was disclosed to Lender on
a non-confidential basis prior to its disclosure to Lender or Lender’s
Representatives by the Borrower or Guarantor.

     Lender agrees that the Confidential Material will be used solely for the
purpose described in this Agreement, and that such information will be kept
confidential; provided, however, that any such information may be disclosed (i)
to Lender’s Representatives (it being understood that Lender Representatives
shall be informed by Lender of the confidential nature of such information)
(ii) at the request of a regulatory

4

 

agency or in connection with an examination of Lender, (iii) pursuant to
subpoena or other court process, (iv) at the express direction of any other
authorized government agency, or (v) to Lender’s independent auditors or
counsel provided that each person who receives such information has been made
aware of the confidential nature of such information.

In the event that Lender or any of Lender’s Representatives receive a request
or demand to disclose all or any part of the information contained in the
Confidential Material under the terms of a subpoena or order issued by a court
of competent jurisdiction or otherwise, Lender agrees to (i) promptly notify
PRA (unless such notice is not permitted by law) of the existence, terms and
circumstances surrounding such a request so that PRA may seek, at its sole
expense, a protective order or other appropriate relief or remedy or waive
compliance with the terms of this Agreement; and (ii) should PRA seek such a
protective order, consult with PRA in connection with such action. If, in the
opinion of Lender’s counsel, disclosure by Lender of all or any part of the
information contained in the Confidential Material is required by law, Lender
agrees to (x) promptly notify PRA (unless such notice is not permitted by law)
of the proposed disclosure, (y) disclose only such information which is
required by law, in Lender’s counsel’s reasonable opinion, to be disclosed and
(z) mark as “confidential” any information disclosed by Lender to any of
Lender’s Representatives so as to ensure that confidential treatment will be
accorded to the disclosed information to the maximum extent permissible by law.

     All Confidential Material shall remain the exclusive property of the Borrower
and Guarantor and, promptly upon termination of the LSA Lender shall return all
Confidential Material to PRA and not retain any copies, extracts or other
reproductions in whole or in part of such information, except that Lender
may destroy all or any portion of the Confidential Material that may be found
in analyses, compilations, studies or other documents prepared by Lender or
Lender’s Representatives, except that Lender may retain one or more copies of
such Confidential Material as may be required by any applicable regulations, in
accordance with internal document retention policies and for regulatory
purposes and requirements, subject to the confidentiality obligations set forth
herein. Such destruction shall, upon PRA’s request, be certified in writing to
PRA by an authorized officer supervising such destruction. Notwithstanding the
return or destruction of all of the Confidential Material, Lender and Lender’s
Representatives shall continue to be bound by your obligations under this
Section 9.21.

     It is understood and agreed that money damages would not be a sufficient remedy
for any breach of this Section 9.21 by Lender and that PRA shall be entitled to
specific performance or other equitable relief as a remedy for any such breach.
Such remedy shall not be deemed to be the exclusive remedy for Lender’s breach
of this Section 9.21 but shall be in addition to all other remedies available
at law or equity to Borrower or Guarantor. Lender agrees that the provisions of
this Section 9.21 shall be deemed to apply, with equal force and effect, to any
of Lender’s Representatives, as if such persons were a signatory hereto and
that Lender shall be responsible for any breach of the provisions of this
Section 9.21 by any of Lender’s-Representatives.

5

 

     Notwithstanding anything provided in this Section 9.21 to the contrary,
Lender’s obligations and responsibility with respect to any Confidential
Material shall terminate on the second anniversary of the receipt of such
Confidential Material by Lender or Lender’s Representative from Borrower or
Guarantor.”

     Section 3.     Waiver and Consent

Lender hereby consents to the all actions taken by the Borrower and Guarantor
in connection with PRA’s initial public offering and the reorganization of the
Borrower and Guarantor as described in Section 1(b) hereof. Lender further
waives all Default or Events of Defaults under the LSA or any acts by Borrower
or Guarantor which may be deemed to be a violation of any representation,
warranty or covenant under the LSA and Borrower and Guarantor waive all
Defaults or Events of Default under the LSA or any acts by Lender which may be
deemed to be a violation of any representation, warranty or covenant under the
LSA. As of the date hereof, giving effect to the above waiver and consent,
neither Lender, nor Borrower or Guarantor is aware of any Default or Event of
Default under the LSA or any violation of any representation, warranty or
covenant under the LSA.

     Section 4.     Amendment Fee

The Borrower shall pay the Lender on the date hereof an amendment fee in the
amount of Seventy Five Thousand Dollars ($75,000.00).

     Section 5.     Costs and Expenses

The Borrower shall pay the Lender within ten (10) days of the date of any
invoice presented to the Borrower for the legal fees and costs (whether from
internal or external counsel) incurred by the Lender in connection with the
preparation, negotiation and execution of this Amendment.

     Section 6.     Acknowledgement of Guarantors and Ratification of LSA

Each Guarantor hereby acknowledges the amendments to the LSA being made by this
Amendment and except as explicitly amended as provided herein, each of the
Lender, Borrower and each Guarantor hereby ratify and reaffirm the provisions
of the LSA and its obligations under the Guaranty, dated September 18, 2001,
executed by each Guarantor in favor of the Lender.

     Section 7.     Effective Date

This Amendment shall become effective as of the date first above written upon
the execution and delivery thereof by each of the parties hereto.

     Section 8.     Governing Law

THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

     Section 9.     Severability

Each provision of this Amendment shall be severable from every other provision
of this Amendment for the purpose of determining the legal enforceability of
any provision hereof, and the unenforceability of one or more provisions of
this Amendment in one jurisdiction shall not have the effect of rendering such
provision or provisions unenforceable in any other jurisdiction.

6

 

     Section 10.   Counterparts

This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.

     Section 11.   Legal
Opinions

Each Guarantor and the Borrower shall cause to be
delivered to Lender on the date hereof an opinion of counsel to the
Guarantors and the Borrowers covering such matters as the
enforceability of this amendment similar in form to the opinion
delivered on the Closing Date.

IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed as of the date and year first written above.

BORROWER:

PRA III, LLC

a Virginia limited liability company

 

	 	 	 	 
	By:	 	/s/ Kevin P. Stevenson	 
	 	 	

Name: Kevin P. Stevenson

Title:   Member Representative

GUARANTOR:

PORTFOLIO RECOVERY ASSOCIATES, L.L.C.

a Delaware Limited Liability company

 

	 	 	 	 
	By:	 	/s/ Steven D. Fredrickson	 
	 	 	

Name: Steven D. Fredrickson

Title:   President

PRA RECEIVABLES MANAGEMENT, LLC

a Virginia limited liability company

 

	 	 	 	 
	By:	 	/s/ Kevin Stevenson	 
	 	 	

Name: Kevin Stevenson

Title:   Member Representative

PRA HOLDING I, LLC

a Virginia limited liability company

 

	 	 	 	 
	By:	 	/s/ Kevin Stevenson	 
	 	 	

Name: Kevin Stevenson

Title:   Member Representative

7

 

PORTFOLIO RECOVERY ASSOCIATES, INC.

a Delaware corporation

 

	 	 	 	 
	By:	 	/s/ Steven D. Fredrickson	 
	 	 	

Name: Steven D. Fredrickson

Title:   President

LENDER

 

Westside Funding Corporation

a Delaware Corporation

 

	 	 	 	 
	By:	 	/s/ Brian Statfeld	 
	 	 	

Name: Brian Statfeld

Title:   Executive Director
	 
	 
	By:	 	/s/ Jeffrey Kramer	 
	 	 	

Name: Jeffrey Kramer

Title:   Executive Director

8

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