Document:

Exhibit 4.5

 

SECOND AMENDMENT

TO

RIGHTS AGREEMENT

 

THIS SECOND AMENDMENT TO RIGHTS AGREEMENT (the “Amendment”)
is entered into as of April 20, 2010, between EVOLVING SYSTEMS, INC., a
Delaware corporation (the “Company”), and AMERICAN STOCK TRANSFER &
TRUST COMPANY LLC (the “Rights Agent”).

 

WHEREAS, the Company and the Rights Agent have entered
into that certain Rights Agreement dated as of March 4, 2009, as amended
by that certain First Amendment to Rights Agreement dated as of December 10,
2010 (as amended, the “Rights Agreement”); and

 

WHEREAS, the Company and the Rights Agent wish to
amend the Rights Agreement in order to increase the percentage of shares of the
Common Shares that a Person may become the Beneficial Owner of without being
deemed to be an Acquiring Person.

 

NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein set forth, the parties hereby agree as follows:

 

1.     Section 1(a) of
the Rights Agreement is hereby amended and restated in its entirety to read as
follows:

 

(a)           “Acquiring
Person” shall mean any Person (as such term is hereinafter defined) who or
which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as such
term is hereinafter defined) of 29.0% or more of the Common Shares then
outstanding.  Notwithstanding the
foregoing, (i) the term Acquiring Person shall not include (A) the
Company, (B) any Subsidiary (as such term is hereinafter defined) of the
Company, (C) any employee benefit or compensation plan of the Company or
any Subsidiary of the Company, (D) any Person holding Common Shares for or
pursuant to the terms of any such employee benefit or compensation plan, and (ii) no
Person shall become an “Acquiring Person”: (A) as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 29.0% or more of the Common Shares then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 29.0%
or more of the Common Shares then outstanding by reason of share purchases by
the Company and shall, following written notice from, or public disclosure by
the Company of such share purchases by the Company, become the Beneficial Owner
of any additional Common Shares without the prior consent of the Company and
shall then Beneficially Own more than 29.0% of the Common Shares then
outstanding, then such Person shall be deemed to be an “Acquiring Person,” (B) a
Person who would otherwise be an “Acquiring Person,” as defined pursuant to the
foregoing provisions of this Section 1(a), has become such as a result of
the acquisition of Common Shares directly from the Company or pursuant to the exercise
of options pursuant to the option plan of the Company; provided, however, that
if such Person shall purchase additional Common Shares after becoming the
Beneficial Owner of 29.0% or more of the Common Shares then outstanding, such
Person shall be deemed an “Acquiring Person,” subject to the exceptions set
forth in this Section 1(a), or (C) if the Board of Directors
determines in good faith that a Person who would otherwise be an “Acquiring
Person,” as defined pursuant to the foregoing provisions of this Section 1(a),
has become such inadvertently, and such Person divests, as promptly as
practicable (as determined in good faith by the Board of Directors), but in any
event within five Business Days, following receipt of written notice from the
Company of such event, of Beneficial Ownership of a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this Section 1(a), then such
Person shall no longer be deemed to be an “Acquiring Person” for purposes of
this Agreement; provided, however, that if such Person shall again become the
Beneficial Owner of 29.0% or more of the Common Shares then outstanding, such
Person shall be deemed an “Acquiring Person,” subject to the exceptions set
forth in this Section 1(a).

 

1

 

2.     Section 23(b)(ii) of
the Rights Agreement is hereby amended and restated in its entirety to read as
follows:

 

(ii)           In
addition, the Board of Directors of the Company may, at its option, at any time
after the time a Person becomes an Acquiring Person and the expiration of any
period during which the holder of Rights may exercise the rights under Section 11(a)(ii) hereof
but prior to any event described in clause (i), (ii) or (iii) of Section 13(a) hereof,
redeem all but not less than all of the then outstanding Rights at the
Redemption Price (x) in connection with any merger, consolidation or sale
or other transfer (in one transaction or in a series of related transactions)
of stock, assets or earning power aggregating 50% or more of the stock, assets
or earning power of the Company and its subsidiaries (taken as a whole) in
which all holders of Common Shares are treated alike and not involving (other
than as a holder of Common Shares being treated like all other such holders) an
Interested Stockholder or a Transaction Person or (y)(A) if and for so
long as the Acquiring Person is not thereafter the Beneficial Owner of 29.0% or
more of the then outstanding Common Shares, and (B) at the time of
redemption no other Persons are Acquiring Persons.

 

3.     Exhibit C
of the Rights Agreement is hereby amended and restated in its entirety to read
as provided in Exhibit C hereto.

 

4.     The Rights
Agreement, as amended hereby, shall be and remain in full force and effect in
accordance with its terms and is ratified and confirmed hereby in all respects.

 

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

 

6.     This
Amendment shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.

 

7.     This
Amendment and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof.

 

8.     If any
term, provision, covenant or restriction of this Amendment is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

2

 

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

 

	
   

  	
  Attest: EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ THADDEUS DUPPER

  
	
   

  	
  Thaddeus Dupper

  
	
   

  	
  Chairman and Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  ANITA T. MOSELEY

  
	
   

  	
  Anita T.Moseley

  
	
   

  	
  Secretary

  

 

 

	
   

  	
  Attest: AMERICAN STOCK
  TRANSFER &

  TRUST COMPANY LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ HERBERT J. LEMMER

  
	
   

  	
  Print Name:

  	
  Herbert J. Lemmer

  

 

 

EXHIBIT C TO RIGHTS AGREEMENT

 

FORM OF SUMMARY OF RIGHTS TO PURCHASE PREFERRED
SHARES

 

 

EVOLVING SYSTEMS, INC.

 

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED SHARES

 

On March 4,
2009, the Board of Directors of Evolving Systems, Inc. (the “Company”)
declared a dividend of one preferred share purchase right (a “Right”) for each
outstanding share of common stock, par value $0.001 per share (the “Common
Shares”), of the Company.  The dividend
is effective as of March 16, 2009 (the “Record Date”) with respect to the
stockholders of record on that date.  The
Rights will also attach to new Common Shares issued after the Record Date.  Each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series C Junior
Participating Preferred Stock, par value $0.001 per share (the “Preferred
Shares”), of the Company at a price of $8.00 per one one-hundredth of a
Preferred Share (the “Purchase Price”), subject to adjustment.  Each Preferred Share is designed to be the
economic equivalent of 100 Common Shares. 
The description and terms of the Rights are set forth in a Rights
Agreement dated as of March 4, 2009 between the Company and American Stock
Transfer & Trust Company LLC (the “Rights Agent”), as amended by the
First Amendment to Rights Agreement dated as of December 10, 2009, between
the Company and the Rights Agent and the Second Amendment to Rights Agreement
dated as of April 20, 2010, between the Company and the Rights Agent (as
amended, the “Rights Agreement”).

 

DETACHMENT
AND TRANSFER OF RIGHTS

 

Initially,
the Rights will be evidenced by the stock certificates representing Common
Shares then outstanding, and no separate Right Certificates will be
distributed.  Until the earlier to occur
of (i) a public announcement that a person or group of affiliated or
associated persons, has become an “Acquiring Person” (as such term is defined
in the Rights Agreement) or (ii) 10 business days (or such later date as
the Board may determine) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer which would result in the
beneficial ownership by an Acquiring Person of 29.0% or more of the outstanding
Common Shares (the earlier of such dates being called the “Distribution Date”),
the Rights will be evidenced, with respect to any of the Common Share
certificates outstanding as of the Record Date, by such Common Share
certificate.  In general, an “Acquiring
Person” is a person, the affiliates or associates of such person, or a group,
which has acquired beneficial ownership of 29.0% or more of the outstanding
Common Shares.

 

The
Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferable with
and only with the Common Shares.  Until
the Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference.  Until the
Distribution Date (or earlier redemption or expiration of the Rights) the
surrender or transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate.  As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights (“Right
Certificates”) will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.

 

EXERCISABILITY
OF RIGHTS

 

The
Rights are not exercisable until the Distribution Date.  The Rights will expire on March 4, 2019
(the “Final Expiration Date”), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed or exchanged by the Company, in each
case as described below.  Until a Right
is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends.

 

The
Purchase Price payable, and the number of Preferred Shares or other securities
or property issuable or payable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution.  The number of outstanding Rights and the
number of one one-hundredths of a Preferred Share issuable upon exercise of
each Right are also subject to adjustment in the event of a stock split of the
Common Shares or a stock dividend on the Common Shares payable in Common
Shares, or subdivisions, consolidations or combinations of the Common Shares
occurring, in any such case, prior to the Distribution Date.  With certain exceptions, no adjustment in the
Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price.  No fractional Preferred Shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Company, be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Shares on the last trading day prior
to the date of exercise.

 

 

TERMS
OF PREFERRED SHARES

 

Preferred
Shares purchasable upon exercise of the Rights will not be redeemable.  Each Preferred Share will be entitled to a
minimum preferential quarterly dividend payment of $l per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per Common
Share.  In the event of liquidation, the
holders of the Preferred Shares will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment of 100 times the payment made per Common Share.  Each Preferred Share will have 100 votes,
voting together with the Common Shares. 
Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share.  These rights are protected by customary
anti-dilution provisions.  Because of the
nature of the Preferred Shares’ dividend, liquidation and voting rights, the
value of the one one-hundredth interest in a Preferred Share purchasable upon
exercise of each Right should approximate the value of one Common Share.  The Preferred Shares would rank junior to any
other series of the Company’s preferred stock.

 

TRIGGER
OF FLIP-IN AND FLIP-OVER RIGHTS

 

In the
event that any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring Person or any
affiliate or associate thereof (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right.  This right will commence on the date of
public announcement that a person has become an Acquiring Person (or the
effective date of a registration statement relating to distribution of the
rights, if later) and terminate 60 days later (subject to adjustment in the
event exercise of the rights is enjoined).

 

In the
event that the Company is acquired in a merger or other business combination
transaction or 50% or more of its stock, consolidated assets or earning power
are sold to an Acquiring Person, its affiliates or associates or certain other
persons in which such persons have an interest, proper provision will be made
so that each such holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of
the Right.

 

REDEMPTION
AND EXCHANGE OF RIGHTS

 

At any
time prior to the earliest of (i) the close of business on the day of the
first public announcement that a person has become an Acquiring Person, or (ii) the
Final Expiration Date, the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $0.001 per Right (the “Redemption
Price”).  In general, the redemption of
the Rights may be made effective at such time on such basis with such
conditions as the Board of Directors in its sole discretion may establish.  Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.

 

At any
time after any Person becomes an Acquiring Person and prior to the acquisition
by such person or group of 50% or more of the outstanding Common Shares, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by such person or group which will have become void), in whole or in
part, at an exchange ratio of one Common Share, or, under circumstances set
forth in the Rights Agreement, cash, property or other securities of the
Company, including fractions of a Preferred Share (or of a share of a class or
series of the Company’s preferred stock having equivalent designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions), per Right (with value equal to such Common Shares).

 

AMENDMENT
OF RIGHTS

 

The
terms of the Rights generally may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as the Rights are distributed no such amendment may adversely
affect the interests of the holders of the Rights (excluding the interest of
any Acquiring Person).

 

ADDITIONAL
INFORMATION

 

A copy
of the Rights Agreement has been filed with the Securities and Exchange
Commission (the “SEC”) as an Exhibit to a Current Report on Form 8-K
dated March 5, 2009 and a copy of the First Amendment to Rights Agreement
has been filed with the SEC as an Exhibit to an Annual Report on Form 10-K
dated December 14, 2009.  A copy of
the Rights Agreement is available from the Company by writing to: Anita T.
Moseley, Evolving Systems, Inc., 9777 Pyramid Court, Suite 100,
Englewood, CO 80112.  This summary
description of the Rights is not intended to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.Exhibit 10.1

 

FINANCING AND SECURITY AGREEMENT

 

THIS FINANCING AND
SECURITY AGREEMENT (this “Agreement”) is made this 30th day of April, 2010, by
and between LIQUIDITY SERVICES, INC., a corporation organized under the laws of
the State of Delaware (“Borrower”), and BANK OF AMERICA, N.A., a national
banking association, its successors and assigns (“Lender”).

 

RECITALS

 

A.            Borrower has applied to Lender for certain credit
facilities consisting of (i) a revolving credit facility in the maximum
principal amount of Thirty Million Dollars ($30,000,000) and (ii) as part
of that revolving credit facility, a letter of credit facility in the maximum
principal amount of Ten Million Dollars ($10,000,000).

 

B.            Lender is willing to make the credit facilities available
to Borrower upon the terms and subject to the conditions set forth in this
Agreement.

 

AGREEMENTS

 

NOW, THEREFORE, in
consideration of the premises and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree as
follows:

 

ARTICLE I 

DEFINITIONS

 

Section 1.1                                      Certain Defined Terms.

 

As used in this
Agreement, the terms defined in the Preamble and Recitals hereto shall have the
respective meanings specified therein, and the following terms shall have the
following meanings:

 

“Account” individually
and “Accounts” collectively mean all presently existing or hereafter acquired
or created accounts, accounts receivable, health-care insurance receivables,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in, or a
lease of, goods, all rights to payment of a monetary obligation or other
consideration under present or future contracts (including, without limitation,
all rights (whether or not earned by performance) to receive payments under
presently existing or hereafter acquired or created letters of credit), or by
virtue of property that has been sold, leased, licensed, assigned or otherwise
disposed of, services rendered or to be rendered, loans and advances made or
other considerations given, by or set forth in or arising out of any present or
future chattel paper, note, draft, lease, acceptance, writing, bond, insurance
policy, instrument, document or general intangible, and all extensions and
renewals of any thereof, all rights under or arising out of present or future
contracts, agreements or general interest in goods which gave rise to any or
all of the foregoing, including all commercial tort claims, other claims or
causes of action now existing or hereafter arising in connection with or under
any agreement or document or by operation of law or otherwise, all collateral
security of any kind (including, without limitation, real property mortgages
and deeds of trust) Supporting Obligations, letter-of-credit rights and letters
of credit given by any Person with respect to any of the foregoing, all books
and records in whatever media (paper, electronic or otherwise) recorded or
stored, with respect to any or all of the foregoing and all equipment

 

 

and general
intangibles necessary or beneficial to retain, access and/or process the
information contained in those books and records, and all Proceeds of the
foregoing.

 

“Account Debtor” means
any Person who is obligated on a Receivable and “Account Debtors” mean all
Persons who are obligated on the Receivables.

 

“ACH Transactions” means
any cash management or related services including the automatic clearing house
transfer of funds by Lender for the account of Borrower pursuant to agreement
or overdrafts.

 

“Adjustment Date” has the
meaning described in Section 8.5 (Assignments by Lender).

 

“Affiliate” means, with
respect to any designated Person, any other Person, directly or indirectly
controlling, directly or indirectly controlled by, or under direct or indirect
common control with the Person designated. 
For purposes of this definition, the term “control” (including with
correlative meanings, the terms “controlling”, “controlled by” and “under
common control with”) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities or other equity
interests or by contract or otherwise.

 

“Agreement” means this Financing
and Security Agreement, as amended, restated, supplemented or otherwise
modified in writing in accordance with the provisions of Section 8.2
(Amendments; Waivers).

 

“Assignee” means any
Person to which Lender assigns all or any portion of its interests under this
Agreement, any Commitment, and the Revolving Loan, in accordance with the
provisions of Section 8.5 (Assignments by Lender), together with any and
all successors and assigns of such Person; “Assignees” means the collective
reference to all Assignees.

 

“Bankruptcy Code” means
Title 11 of the United States Code, as amended from time to time, and any
successor Laws.

 

“BBA LIBOR Daily Floating
Rate” means a fluctuating rate of interest per annum equal to the British
Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other
commercially available source providing quotations of BBA LIBOR as selected by
Lender from time to time) as determined for each Business Day at approximately
11:00 a.m. London time two (2) London Banking Days prior to the date
in question, for U.S. Dollar deposits (for delivery on the first day of such
interest period) with a one month term, as adjusted from time to time in Lender’s
sole discretion for reserve requirements, deposit insurance assessment rates
and other regulatory costs.  If such rate
is not available at such time for any reason, then the rate will be determined
by such alternate method as reasonably selected by Lender.

 

“Borrower” means each
Person defined as a “Borrower” in the preamble of this Agreement.

 

“Business Day” means any
day other than a Saturday, Sunday or other day on which commercial banks in the
State are authorized or required to close.

 

“Capital Adequacy
Regulation” means any guideline, request or directive of any central bank or
other Governmental Authority, or any other law, rule or regulation,
whether or not having the force of law, in each case, regarding capital
adequacy of any bank or of any corporation controlling a bank.

 

2

 

“Capital Lease” means
with respect to any Person any lease of real or personal property, for which
the related Lease Obligations have been or should be, in accordance with GAAP
consistently applied, capitalized on the balance sheet of that Person.

 

“Cash Equivalents” means (a) securities
with maturities of one year or less from the date of acquisition issued or
fully guaranteed or insured by the United States Government or any agency
thereof, (b) certificates of deposit with maturities of one (1) year
or less from the date of acquisition of, or money market accounts maintained
with, Lender, any Affiliate of Lender, or any other domestic commercial bank having capital
and surplus in excess of One Hundred Million Dollars ($100,000,000) or such
other domestic financial institutions or domestic brokerage houses to the
extent disclosed to, and approved by, Lender and (c) commercial paper of a
domestic issuer rated at least either A-1 by Standard & Poor’s
Corporation (or its successor) or P-1 by Moody’s Investors Service, Inc.
(or its successor) with maturities of six (6) months or less from the date
of acquisition.

 

“Cash Flow” is
EBITDA, plus, rent and lease expenses, plus extraordinary items and the unrealized gain from
securities and derivatives, minus unrealized loss from securities and
derivatives, minus cash Taxes paid, minus dividends, withdrawals, and other distributions
(except distributions required to be made by Borrower or its Subsidiaries to
any Person which in accordance with GAAP are treated as cost or expense in the
calculation of income from operations), minus capital expenditures.

 

“Change
in Control” means any of the following events: 
(a) any Person or two or more Persons acting in concert, other than
any Person holding Borrower’s voting stock as of the Closing Date, shall have
acquired beneficial ownership, directly or indirectly, of, or shall have
acquired by contract or otherwise, voting stock of Borrower (or other
securities convertible into such voting stock) representing thirty-five percent
(35%) or more of the combined voting power of all voting stock of Borrower or (b) Borrower
ceases to own, directly or indirectly, sixty-five percent (65%) of the
ownership interests of any of its Subsidiaries (or such lesser portion as may
be owned by Borrower as of the date hereof).

 

“Chattel Paper” means a
record or records (including, without limitation, electronic chattel paper)
that evidence both a monetary obligation and a security interest in specific
goods, a security interest in specific goods and software used in the goods, or
a lease of specific goods; all Supporting Obligations with respect thereto; any
returned, rejected or repossessed goods and software covered by any such record
or records and all proceeds (in any form including, without limitation,
accounts, contract rights, documents, chattel paper, instruments and general
intangibles) of such returned, rejected or repossessed goods; and all Proceeds
of the foregoing.

 

“Closing Date” means the
Business Day, in any event not later than April 30, 2010, on which Lender
shall be satisfied that the conditions precedent set forth in Section 5.1
(Conditions to Initial Advance) have been fulfilled or otherwise waived by
Lender.

 

“Collateral” means all
property of Borrower subject from time to time to the Liens of this Agreement,
any of the Security Documents and/or any of the other Financing Documents,
together with any and all Proceeds thereof.

 

“Collateral Disclosure
List” has the meaning described in Section 3.3 (Collateral Disclosure
List).

 

3

 

“Commitment” means the
Revolving Credit Commitment or the commitment for any loan, letter of credit,
interest rate protection, foreign exchange risk, cash management, and other
Credit Facility now or hereafter provided to Borrower by Lender whether under
this Agreement or otherwise and “Commitments” means the collective reference to
the Revolving Credit Commitment, and the commitment for any loan, letter of
credit, interest rate protection, foreign exchange risk, cash management, and
other Credit Facility now or hereafter provided to Borrower by Lender whether
under this Agreement or otherwise.

 

“Compliance Certificate”
means a periodic Compliance Certificate described in Section 6.1.1
(Financial Statements).

 

“Commonly Controlled
Entity” means an entity, whether or not incorporated, which is under common
control with Borrower within the meaning of Section 414(b) or (c) of
the Internal Revenue Code.

 

“Copyrights” means and
includes, in each case whether now existing or hereafter arising, all of
Borrower’s rights, title and interest in and to (a) all copyrights, rights
and interests in copyrights, works protectable by copyright, copyright
registrations, copyright applications, and all renewals of any of the foregoing,
(b) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past, current or future infringements of any of the
foregoing, (c) the right to sue for past, present and future infringements
of any of the foregoing, and (d) all rights corresponding to any of the
foregoing throughout the world.

 

“Corporate Guarantor”
means GovDeals, Inc., a corporation organized and existing under the laws
of the State of Delaware.

 

“Corporate Guaranty”
means that certain Guaranty of Payment Agreement for the benefit of Lender of
even date herewith from Corporate Guarantor, as the same may from time to time
be amended, restated, supplemented or otherwise modified.

 

“Credit Facility” means
the Revolving Credit Facility or the Letter of Credit Facility, as the case may
be, and “Credit Facilities” means collectively the Revolving Credit Facility
and the Letter of Credit Facility and any and all other credit facilities now
or hereafter extended under or secured by this Agreement.

 

“Current Letter of Credit
Obligations” has the meaning described in Section 2.2.5 (Payments of
Letters of Credit).

 

“Default” means an event
which, with the giving of notice or lapse of time, or both, could or would
constitute an Event of Default under the provisions of this Agreement.

 

“Documents” means all
documents of title or receipts, whether now existing or hereafter acquired or
created, and all Proceeds of the foregoing.

 

“DoD Contracts” means (i) Defense
Logistics Agency, Surplus Commercial Property, Defense Reutilization and
Marketing Service, Invitation for Bids, No. 99-0001, December, 2000, (ii) Defense
Logistics Agency, Multi-Year Sale of Surplus Scrap Material at Locations
Nationwide, Defense Reutilization and Marketing Service, Invitation for Bids, No. 99-4001,
December 7, 2004, and (iii) Surplus Usable Property Sales Contract
(Sales Contract Number 08-0001-0001) between Borrower and the Defense
Reutilization and Marketing Service of the U.S. 

 

4

 

Department of
Defense, in each case as amended, supplemented, replaced or otherwise modified
from time to time.

 

“DoD Surplus” means DoD
Surplus, LLC, a limited liability company organized under the laws of the State
of Delaware, and its successors and assigns.

 

“EBITDA” means as to
Borrower and its Subsidiaries for any period of determination thereof, the sum
of (a) the net profit (or loss) prior to discontinued operations and
extraordinary items, determined in accordance with GAAP consistently applied,
plus (b) interest expense for such period, plus (c) income tax
provisions for such period, plus (d) depreciation, depletion and
amortization expense for such period, plus (e) non-cash stock compensation
expense, to the extent each of the foregoing are included in the calculation of
net profit.

 

“Enforcement Costs” means
all documented expenses, charges, costs and fees whatsoever (including, without
limitation, outside counsel attorney’s fees and expenses) of any nature
whatsoever paid or incurred by or on behalf of Lender in connection with (a) any
or all of the Obligations, this Agreement and/or any of the other Financing
Documents, (b) the creation, perfection, collection, maintenance,
preservation, defense, protection, realization upon, disposition, sale or
enforcement of all or any part of the Collateral, this Agreement or any of the
other Financing Documents, including, without limitation, those costs and
expenses more specifically enumerated in Section 3.6 (Costs) and/or Section 8.10
(Enforcement Costs), and further including, without limitation, amounts paid to
lessors, processors, bailees, warehousemen, sureties, judgment creditors and
others in possession of or with a Lien against or claimed against the
Collateral, and (c) the monitoring, administration, processing and/or
servicing of any or all of the Obligations, the Financing Documents, and/or the
Collateral.  Notwithstanding the
foregoing, in the event Lender assigns to an Assignee a portion of Lender’s
Commitments pursuant to Section 8.5 or Lender sells to another financial
institution a participating interest in a portion of Lender’s Commitments
pursuant to Section 8.6.  “Enforcement
Costs” will be limited to one law firm for all of the Lenders in each relevant
jurisdiction.

 

“Equipment” means all
equipment, machinery, computers, chattels, tools, parts, machine tools,
furniture, furnishings, fixtures and supplies of every nature, presently
existing or hereafter acquired or created and wherever located, whether or not
the same shall be deemed to be affixed to real property, and all of such types
of property leased by Borrower and all of Borrower’s rights and interests with
respect thereto under such leases (including, without limitation, options to
purchase), together with all accessions, additions, fittings, accessories,
special tools, and improvements thereto and substitutions therefor and all
parts and equipment which may be attached to or which are necessary or
beneficial for the operation, use and/or disposition of such personal property,
all licenses, warranties, franchises and General Intangibles related thereto or
necessary or beneficial for the operation, use and/or disposition of the same,
together with all Accounts, Chattel Paper, Instruments and other consideration
received by Borrower on account of the sale, lease or other disposition of all
or any part of the foregoing, and together with all rights under or arising out
of present or future Documents and contracts relating to the foregoing and all
Proceeds of the foregoing.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time.

 

5

 

“Event of Default” has
the meaning described in ARTICLE VII (Default and Rights and Remedies).

 

“Facilities” means the
collective reference to the loan, letter of credit, interest rate protection,
foreign exchange risk, cash management, and other credit facilities now or
hereafter provided to Borrower by Lender.

 

“Fees” means the
collective reference to each fee payable to Lender under the terms of this
Agreement or under the terms of any of the other Financing Documents.

 

“Financing Documents”
means at any time collectively this Agreement, the Revolving Credit Note, the
Security Documents, the Pledge Agreements, the Guaranties, the Letter of Credit
Documents, and any other instrument, agreement or document previously,
simultaneously or hereafter executed and delivered by Borrower, any Guarantor
and/or any other Person, singly or jointly with another Person or Persons,
evidencing, securing, guarantying or in connection with this Agreement, the
Revolving Credit Note, any of the Security Documents, any of the Pledge
Agreements, any of the Guaranties, any of the Letter of Credit Documents, any
of the Facilities, and/or any of the Obligations.

 

“Fixed Charge
Coverage Ratio” means as to Borrower for any period of determination thereof
the ratio of (a) Cash Flow to (b) Fixed Charges.

 

“Fixed Charges” means as to the Borrower for any period
of determination, the sum of (a) current maturities of long term debt and
Capital Leases measured as of the date that is twelve (12) months prior to the
last day of such testing period, plus (b) required payments of interest on
all Indebtedness for Borrowed Money of the Borrower, plus (c) cash Taxes
paid, plus (d) rent and lease expense.

 

“Fixed or Capital Assets”
of a Person at any date means all assets which would, in accordance with GAAP
consistently applied, be classified on the balance sheet of such Person as
property, plant or equipment at such date.

 

“Foreign Subsidiary”
means (i) a Subsidiary treated as a corporation for U.S. federal income
tax purposes that is formed or incorporated outside of the United States, (ii) a
Subsidiary substantially all of whose assets consist, directly or indirectly,
of Subsidiaries described in clause (i) of this definition, and (iii) an
entity treated as disregarded for U.S. federal income tax purposes that owns
more than sixty-six percent (66%) of the voting stock of a Subsidiary described
in clauses (i) or (ii) of this definition.

 

“Funded Debt” means at
any date, the aggregate of all Indebtedness for Borrowed Money of the Borrower
and its Subsidiaries, including Subordinated Indebtedness.

 

“GAAP”
means generally accepted accounting principles in the United States of
America in effect from time to time.

 

“General Intangibles”
means all general intangibles of every nature, whether presently existing or
hereafter acquired or created, and without implying any limitation of the
foregoing, further means all books and records, commercial tort claims, other
claims (including without limitation all claims for income tax and other
refunds), payment intangibles, Supporting Obligations, choses in action,
claims, causes of action in tort or equity, contract rights, judgments,
customer lists, software, Patents, Trademarks, licensing agreements, rights in
intellectual property, goodwill (including goodwill of Borrower’s business
symbolized by and

 

6

 

associated with
any and all Trademarks, trademark licenses, Copyrights and/or service marks),
royalty payments, licenses, letter-of-credit rights, letters of credit,
contractual rights, the right to receive refunds of unearned insurance
premiums, rights as lessee under any lease of real or personal property,
literary rights, Copyrights, service names, service marks, logos, trade
secrets, amounts received as an award in or settlement of a suit in damages,
deposit accounts, interests in joint ventures, general or limited partnerships,
or limited liability companies or partnerships, rights in applications for any
of the foregoing, books and records in whatever media (paper, electronic or
otherwise) recorded or stored, with respect to any or all of the foregoing, all
Supporting Obligations with respect to any of the foregoing, and all Equipment
and General Intangibles necessary or beneficial to retain, access and/or
process the information contained in those books and records, and all Proceeds
of the foregoing.

 

“GMV” means, with respect
to any Person, gross merchandise volume, as determined in a manner consistent
with the method used to report gross merchandise volume to the Securities
and Exchange Commission.

 

“Government Liquidation”
means Government Liquidation.com, LLC, a limited liability company organized
under the laws of the State of Delaware.

 

“Governmental Authority”
means any nation or government, any state or other political subdivision
thereof and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government and any department,
agency or instrumentality thereof.

 

“Guarantor” means
Corporate Guarantor or LLC Guarantor, as the case may be, and “Guarantors”
means Corporate Guarantor and LLC Guarantor.

 

“Guaranty” means the
Corporate Guaranty or the LLC Guaranty, as the case may be, and “Guaranties”
means the Corporate Guaranty and the LLC Guaranty.

 

“Hazardous Materials”
means (a) any “hazardous waste” as defined by the Resource Conservation
and Recovery Act of 1976, as amended from time to time, and regulations
promulgated thereunder; (b) any “hazardous substance” as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended from time to time, and regulations promulgated thereunder; (c) any
substance the presence of which on any property now or hereafter owned,
acquired or operated by Borrower is prohibited by any Law similar to those set
forth in this definition; and (d) any other substance which by Law
requires special handling in its collection, storage, treatment or disposal.

 

“Hazardous Materials
Contamination” means the contamination (whether presently existing or occurring
after the date of this Agreement) by Hazardous Materials of any property owned,
operated or controlled by Borrower or for which Borrower has responsibility,
including, without limitation, improvements, facilities, soil, ground water,
air or other elements on, or of, any property now or hereafter owned, acquired
or operated by Borrower, and any other contamination by Hazardous Materials for
which Borrower is, or is claimed to be, responsible.

 

“Indebtedness” of a
Person means at any date the total liabilities of such Person at such time
determined in accordance with GAAP consistently applied.

 

“Indebtedness for
Borrowed Money” of a Person means at any time the sum at such time of (a) Indebtedness
of such Person for borrowed money or for the deferred purchase price of
property or services, (b) any obligations of such Person in respect of
letters of credit, banker’s or 

 

7

 

other acceptances
or similar obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all
liabilities secured by any Lien on any property owned by such Person, to the
extent attached to such Person’s interest in such property, even though such
Person has not assumed or become personally liable for the payment thereof, (e) obligations
of third parties which are being guarantied or indemnified against by such
Person or which are secured by the property of such Person; and (f) any
obligations, liabilities or indebtedness, contingent or otherwise, under or in
connection with, any Swap Contract; but excluding trade and other accounts
payable which are not overdue by more than ninety (90) days or which are being
disputed in good faith by such Person and for which adequate reserves are being
provided on the books of such Person in accordance with GAAP.

 

“Indemnified Parties” has
the meaning set forth in Section 8.19 (Indemnification).

 

“Instrument” means a
negotiable instrument or any other writing which evidences a right to payment
of a monetary obligation and is not itself a security agreement or lease and is
of a type that in the ordinary course of business is transferred by delivery
with any necessary endorsement or assignment, and all Supporting Obligations
with respect to any of the foregoing and all Proceeds with respect to any of
the foregoing.

 

“Internal Revenue Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the
Income Tax Regulations issued and proposed to be issued thereunder.

 

“Inventory” means all
goods of Borrower and all right, title and interest of Borrower in and to all
of its now owned and hereafter acquired goods and other personal property
furnished under any contract of service or intended for sale or lease,
including, without limitation, all raw materials, work-in-process, finished
goods and materials and supplies of any kind, nature or description which are
used or consumed in Borrower’s business or are or might be used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such goods and other personal property and all licenses, warranties,
franchises, General Intangibles, personal property and all documents of title
or documents relating to the same, together with all Accounts, Chattel Paper,
Instruments and other consideration received by Borrower on account of the
sale, lease or other disposition of all or any part of the foregoing, and
together with all rights under or arising out of present or future Documents
and contracts relating to the foregoing and all Proceeds of the foregoing.

 

“Investment Property”
means a security, whether certificated or uncertificated, security entitlement,
securities account, commodity contract or commodity account and all Proceeds
of, and Supporting Obligations with respect to, the foregoing.

 

“ISP” means, with respect
to any Letter of Credit, the International Standby Practices (ISP 98), ICC
Publication No. 590 published by the Institute of International Banking
Law & Practice (or such later version thereof as may be in effect at
the time of issuance).

 

“Item of Payment” means
each check, draft, cash, money, instrument, item, and other remittance in
payment or on account of payment of the Receivables or otherwise with respect
to any Collateral, including, without limitation, cash proceeds of any
returned, rejected or repossessed goods, the sale or lease of which gave rise
to a Receivable, and other proceeds of Collateral; and “Items of Payment” means
the collective reference to all of the foregoing.

 

“Laws” means all
ordinances, statutes, rules, regulations, orders, injunctions, writs, or
decrees of any Governmental Authority.

 

8

 

“Lease Obligations” of a
Person means for any period the rental commitments of such Person for such
period under leases for real and/or personal property (net of rent from
subleases thereof, but including taxes, insurance, maintenance and similar
expenses which such Person, as the lessee, is obligated to pay under the terms
of said leases, except to the extent that such taxes, insurance, maintenance
and similar expenses are payable by sublessees), including rental commitments
under Capital Leases.

 

“Letter of Credit” and “Letters
of Credit” shall have the meanings described in Section 2.2.1 (Letters of
Credit).

 

“Letter of Credit Agreement”
means the collective reference to each letter of credit application and
agreement substantially in the form of Lender’s then standard form of
application for letter of credit or such other form as may be approved by
Lender, executed and delivered by Borrower in connection with the issuance of a
Letter of Credit, as the same may from time to time be amended, restated,
supplemented or modified and “Letter of Credit Agreements” means all of the
foregoing in effect at any time and from time to time.

 

“Letter of Credit Cash
Collateral Account” has the meaning described in Section 2.2.3 (Terms of
Letters of Credit).

 

“Letter of Credit
Documents” means any and all drafts under or purporting to be under a Letter of
Credit, any Letter of Credit Agreement, and any other instrument, document or
agreement executed and/or delivered by Borrower or any other Person under,
pursuant to or in connection with a Letter of Credit or any Letter of Credit
Agreement.

 

“Letter of Credit
Facility” means the facility established pursuant to Section 2.2 (Letter
of Credit Facility).

 

“Letter of Credit Fee”
and “Letter of Credit Fees” have the meanings described in Section 2.2.2
(Letter of Credit Fees).

 

“Letter of Credit
Obligations” means all Obligations of Borrower with respect to the Letters of
Credit and the Letter of Credit Agreements.

 

“Lien” means any
mortgage, deed of trust, deed to secure debt, grant, pledge, security interest,
assignment, encumbrance, judgment, lien, financing statement, hypothecation,
provision in any instrument or other document for confession of judgment,
cognovit or other similar right or other remedy, claim, charge, control over or
interest of any kind in real or personal property securing any indebtedness,
duties, obligations, and liabilities owed to, or claimed to be owed to, a
Person, all whether perfected or unperfected, avoidable or unavoidable, based
on the common law, statute or contract or otherwise, including, without
limitation, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction, excluding the
precautionary filing of any financing statement by any lessor in a true lease
transaction, by any bailor in a true bailment transaction or by any consignor
in a true consignment transaction under the Uniform Commercial Code of any
jurisdiction or the agreement to give any financing statement by any lessee in
a true lease transaction, by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.

 

“LLC Guarantor” means
Surplus Acquisition Venture, LLC, a limited liability company organized and
existing under the laws of the State of Delaware, and its successors and assigns.

 

9

 

“LLC Guaranty” means that
certain Guaranty of Payment Agreement for the benefit of Lender of even date
herewith from LLC Guarantor, as the same may from time to time be amended,
restated, supplemented or otherwise modified.

 

“Loan Notice” has the
meaning described in Section 2.1.2 (Procedure for Making Advances).

 

“London Banking Day” is a
day on which banks in London are open for business and dealing in offshore
dollars.

 

“Major Contract” means a
contract or other agreement producing GMV equal to or greater than ten percent
(10%) of Borrower’s GMV for the immediately preceding four (4) fiscal
quarters.

 

“Material Adverse Effect”
means a material adverse effect on the business, operations, properties, assets
or financial condition of Borrower and its Subsidiaries, taken as a whole.

 

“Maximum Rate” has the
meaning described in Section 2.3.5 (Maximum Interest Rate).

 

“Multi-employer Plan”
means a Plan that is a Multi-employer plan as defined in Section 4001(a)(3) of
ERISA.

 

“Obligations” means all
present and future indebtedness, duties, obligations, and liabilities, whether
now existing or contemplated or hereafter arising, of Borrower to Lender under,
arising pursuant to, in connection with and/or on account of the provisions of
this Agreement, the Revolving Credit Note, each Security Document, and/or any
of the other Financing Documents, the Revolving Loan, any Swap Contract and/or
any of the Facilities including, without limitation, the principal of, and
interest on, the Revolving Credit Note, late charges, the Fees, Enforcement
Costs, and prepayment fees (if any), letter of credit reimbursement
obligations, letter of credit fees or fees charged with respect to any guaranty
of any letter of credit; also means all other present and future indebtedness,
duties, obligations, and liabilities, whether now existing or contemplated or
hereafter arising, of Borrower to Lender or its Affiliates of any nature
whatsoever, regardless of whether such indebtedness, duties, obligations, and
liabilities be direct, indirect, primary, secondary, joint, several, joint and
several, fixed or contingent; and also means any and all renewals, extensions,
substitutions, amendments, restatements and rearrangements of any such indebtedness,
duties, obligations, and liabilities by Lender and includes all obligations of
DoD Surplus and Government Liquidation in connection with any treasury products
and services now or hereafter provided by Lender or its Affiliates to DoD
Surplus or Government Liquidation.

 

“Origination Fee” has the
meaning described in Section 2.3.3 (Origination Fee).

 

“Outstanding Letter of
Credit Obligations” has the meaning described in Section 2.2.3 (Terms of
Letters of Credit).

 

“Patents” means and
includes, in each case whether now existing or hereafter arising, all of
Borrower’s rights, title and interest in and to (a) any and all patents
and patent applications, (b) any and all inventions and improvements
described and claimed in such patents and patent applications, (c) reissues,
divisions, continuations, renewals, extensions and continuations-in-part of any
patents and patent applications, (d) income, royalties, damages, claims
and payments now or hereafter due and/or payable under and with respect to any
patents or patent applications, including, without limitation, damages and
payments for past and future infringements, (e) rights 

 

10

 

to sue for past,
present and future infringements of patents, and (f) all rights
corresponding to any of the foregoing throughout the world.

 

“PBGC” means the Pension
Benefit Guaranty Corporation.

 

“Permitted Acquisitions”
means a transaction or series of transactions whereby Borrower acquires all or
substantially all of the assets of a business, or purchases an equity interest
in a business (the “Target”), provided, that, (i) the Target shall be in a
Permitted Business; (ii) both before and after giving effect to such
transaction, no Default or Event of Default shall be continuing or would occur
after giving effect to such transaction; (iii) Borrower will be in
compliance with all financial covenants after giving pro forma effect to such
transaction; (iv) after giving effect to such transaction there must be at
least Twenty Million Dollars ($20,000,000) of availability under the Revolving
Credit Facility based on a Pro Forma Calculation of the Funded Debt to EBITDA
financial covenant as set forth in Section 6.1.13 (Financial Covenants)
below; (v) Lender shall have received evidence satisfactory to Lender in
its reasonable discretion that arrangements shall have been made for the
termination of all Liens encumbering any asset of the Target other than
Permitted Liens; (vi) no Indebtedness shall be assumed by Borrower in
connection with such transaction other than unsecured Indebtedness in an
aggregate amount which when combined with all other existing Indebtedness of
Borrower and its Subsidiaries will not exceed the maximum amount of
Indebtedness permitted pursuant to Section 6.2.4(d) of this Agreement
and Indebtedness with respect to Capital Leases which when combined with all
other existing Indebtedness of Borrower and its Subsidiaries will not exceed
the maximum amount of Indebtedness permitted pursuant to clause (e) of the
definition of Permitted Liens; (vii) any Indebtedness of Borrower incurred
to the sellers pursuant to the financing of such transaction will be
subordinated to Lender pursuant to a subordination agreement in form and
substance satisfactory to Lender in its reasonable discretion in all material
respects; (viii) Lender shall have received complete copies of the
Purchase Agreement Documents; and (ix) within thirty (30) days of closing
any transaction contemplated hereby, if the Target is a Registered
Organization, it shall become a guarantor of the Credit Facilities, deliver to
Lender a guaranty of payment agreement for the benefit of Lender in form
substantially identical to the Corporate Guaranty, grant to Lender a Lien in
all of its assets to the same extent required by the Security Agreements and
Borrower shall pledge to Lender, shares or membership interests representing
one hundred percent (100%) of the voting and non voting ownership interests of
the new Subsidiary; provided, however, subject to the requirements of Section 6.2.2,
including the GMV threshold in the proviso thereto, if such Subsidiary is a
Foreign Subsidiary, in lieu of such Subsidiary granting to Lender a Lien in all
of its assets and guarantying the Obligations, Borrower shall grant, pledge and
assign to Lender shares representing sixty-six percent (66%) of the ownership
of such Subsidiary.

 

“Permitted Business”
means surplus sales, liquidations, auctions and auction services, listing
services, distribution, logistics and logistics services, management services,
advertising and transaction settlement or lines of business reasonably related
or ancillary to any of the foregoing.

 

“Permitted Liens” means (a) Liens
for Taxes (i) in an aggregate amount not to exceed One Million Dollars
($1,000,000), provided such Liens are released within six (6) months of
filing and no Governmental Authority has taken any enforcement action against
Borrower or the Collateral to enforce any such Liens or (ii) which are not
delinquent or which Lender has determined in the exercise of its reasonable
discretion (A) are being diligently contested in good 

 

11

 

faith and by
appropriate proceedings, and such contest operates to suspend collection of the
contested Taxes and enforcement of a Lien, (B) Borrower has the financial
ability to pay, with all penalties and interest, at all times without
materially and adversely affecting Borrower, and (C) are not currently
entitled to priority over any Lien of Lender; (b) deposits or pledges to secure
obligations under workers’ compensation, social security or similar laws, or
under unemployment insurance in the ordinary course of business; (c) Liens
securing the Obligations; (d) judgment Liens to the extent the entry of
such judgment does not constitute a Default or an Event of Default under the
terms of this Agreement or result in the sale or levy of, or execution on, any
of the Collateral; (e) Liens securing Capital Leases on property acquired
or held by Borrower incurred for the financing or acquisition of such property
securing in the aggregate no more than One Million Dollars ($1,000,000) and (f) such
other Liens, if any, as are set forth on Schedule 4.1.19 attached hereto
and made a part hereof.

 

“Permitted Uses” means (i) for
working capital and other corporate needs incurred in the ordinary course of
Borrower’s business, (ii) to fund Permitted Acquisitions, (iii) and
to support the issuance of Letters of Credit.

 

“Person” means and
includes an individual, a corporation, a partnership, a joint venture, a
limited liability company or partnership, a trust, an unincorporated
association, a Governmental Authority, or any other organization or entity.

 

“Plan” means any pension
plan that is covered by Title IV of ERISA and in respect of which Borrower or a
Commonly Controlled Entity is an “employer” as defined in Section 3 of
ERISA.

 

“Pledge Agreements” means
(i) that certain Pledge, Assignment and Security Agreement of even date
hereof from Borrower for the benefit of Lender, pursuant to which Borrower
grants, pledges and assigns to Lender shares representing one hundred percent
(100%) of the ownership of Corporate Guarantor, as the same may from time to
time be amended, restated, supplemented or otherwise modified and (ii) that
certain Pledge, Assignment and Security Agreement of even date hereof from
Borrower for the benefit of Lender, pursuant to which Borrower grants, pledges
and assigns to Lender ownership interests representing one hundred percent
(100%) of the ownership of LLC Guarantor, as the same may from time to time be
amended, restated, supplemented or otherwise modified.

 

“Post-Default Rate”
means, a rate three percent (3.00%) per annum in excess of the then highest
current rate or rates of interest in effect under the Revolving Credit Note.

 

“Post-Expiration Date
Letter of Credit” and “Post-Expiration Date Letters of Credit” have the
meanings described in Section 2.2.3 (Terms of Letters of Credit).

 

“Pro Forma
Calculation” means a calculation made on a pro forma basis (after giving effect
to cost savings and synergies arising from acquisitions, dispositions,
investments and business restructurings that have been or are expected to be
realized within twelve (12) months from the date of determination to the extent
they are reasonably identifiable and factually supportable) with certain other
adjustments to be agreed and otherwise in a manner satisfactory to Lender in
its reasonable discretion.

 

“Proceeds” has the
meaning described in the Uniform Commercial Code as in effect from time to
time.

 

12

 

 

“Purchase Agreement
Documents” means collectively any agreement hereafter executed in connection
with any Permitted Acquisition and any and all other agreements, documents or
instruments (together with any and all amendments, modifications, and
supplements thereto, restatements thereof, and substitutes therefor)
previously, now or hereafter executed and delivered by Borrower or any other
Person in connection with any Permitted Acquisition.

 

“Receivable” means one of
Borrower’s now owned and hereafter owned, acquired or created Accounts, Chattel
Paper, General Intangibles and Instruments; and “Receivables” means all of
Borrower’s now or hereafter owned, acquired or created Accounts, Chattel Paper,
General Intangibles and Instruments, and all Proceeds thereof.

 

“Registered Organization”
means an organization organized solely under the law of a single state or the
United States and as to which the state or the United States must maintain a
public record showing the organization to have been organized.

 

“Reportable Event” means
any of the events set forth in Section 4043(c) of ERISA or the
regulations thereunder.

 

“Responsible Officer”
means the chief executive officer of Borrower or the president of Borrower or,
with respect to financial matters, the chief financial officer of Borrower.

 

“Revolving Credit
Commitment” means the agreement of Lender relating to the making of the
Revolving Loan and advances thereunder subject to and in accordance with the
provisions of this Agreement.

 

“Revolving Credit
Commitment Period” means the period of time from the Closing Date to the
Business Day preceding the Revolving Credit Termination Date.

 

“Revolving Credit
Committed Amount” has the meaning described in Section 2.1.1 (Revolving
Credit Facility).

 

“Revolving Credit Expiration
Date” means May 31, 2013.

 

“Revolving Credit
Facility” means the facility established by Lender pursuant to Section 2.1
(Revolving Credit Facility).

 

“Revolving Credit Note”
has the meaning described in Section 2.1.3 (Revolving Credit Note).

 

“Revolving Credit
Termination Date” means the earlier of (a) the Revolving Credit Expiration
Date, or (b) the date on which the Revolving Credit Commitment is
terminated pursuant to Section 7.2 (Remedies) or otherwise.

 

“Revolving Credit Unused
Line Fee” and “Revolving Credit Unused Line Fees” have the meanings described
in Section 2.1.6 (Revolving Credit Unused Line Fee).

 

“Revolving Loan” has the
meaning described in Section 2.1.1 (Revolving Credit Facility).

 

“Revolving Loan Account”
has the meaning described in Section 2.1.5 (Revolving Loan Account).

 

“Revolving Loan Optional
Prepayment” and “Revolving Loan Optional Prepayments” have the meanings
described in Section 2.1.4 (Optional Prepayment of Revolving Loan).

 

13

 

“Security Agreements”
means (i) that certain Security Agreement of even date hereof from
Corporate Guarantor for the benefit of Lender, as the same may from time to
time be amended, restated, supplemented or otherwise modified and (ii) that
certain Security Agreement of even date hereof from LLC Guarantor for the
benefit of Lender, as the same may from time to time be amended, restated,
supplemented or otherwise modified.

 

“Security Documents”
means, collectively, the Pledge Agreements, the Security Agreements, any
assignment, pledge agreement, security agreement, mortgage, deed of trust, deed
to secure debt, financing statement and any similar instrument, document or
agreement under or pursuant to which a Lien is now or hereafter granted to, or
for the benefit of, Lender on any real or personal property of any Person to
secure all or any portion of the Obligations, all as the same may from time to
time be amended, restated, supplemented or otherwise modified.

 

“State” means the State
of New York.

 

“Subordinated
Indebtedness” means all Indebtedness, incurred at any time by Borrower, which
is in amounts, subject to repayment terms, and subordinated to the Obligations,
as set forth in one or more written agreements, all in form and substance
satisfactory to Lender in its reasonable discretion.

 

“Subsidiary” means any
corporation more than fifty percent (50%) of the voting shares of which at the
time are owned directly by Borrower and/or by one or more Subsidiaries of
Borrower.

 

“Supporting Obligation”
means a letter-of-credit right, secondary obligation or obligation of a
secondary obligor or that supports the payment or performance of an account,
chattel paper, a document, a general intangible, an instrument or investment
property.

 

“Swap Contract” means any
document, instrument or agreement between Borrower and Lender or any affiliate
of Lender, now existing or entered into in the future, relating to an interest
rate swap transaction, forward rate transaction, interest rate cap, floor or
collar transaction, any similar transaction, any option to enter into any of
the foregoing, and any combination of the foregoing, which agreement may be
oral or in writing, including, without limitation, any master agreement
relating to or governing any or all of the foregoing and any related schedule
or confirmation, each as amended from time to time.

 

“Taxes” means all taxes
and assessments whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character (including all penalties or interest
thereon), which at any time may be assessed, levied, confirmed or imposed by
any Governmental Authority on Borrower or any of its properties or assets or
any part thereof or in respect of any of its franchises, businesses, income or
profits.

 

“Trademarks” means and
includes in each case whether now existing or hereafter arising, all of
Borrower’s rights, title and interest in and to (a) any and all trademarks
(including service marks), trade names and trade styles, and applications for
registration thereof and the goodwill of the business symbolized by any of the
foregoing, (b) any and all licenses of trademarks, service marks, trade
names and/or trade styles, whether as licensor or licensee, (c) any
renewals of any and all trademarks, service marks, trade names, trade styles
and/or licenses of any of the foregoing, (d) income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto,
including, without limitation, damages, claims, and payments for past, present
and future infringements thereof, (e) rights to sue for past, present and
future 

 

14

 

infringements of
any of the foregoing, including the right to settle suits involving claims and
demands for royalties owing, and (f) all rights corresponding to any of
the foregoing throughout the world.

 

“Uniform Commercial Code”
means, unless otherwise provided in this Agreement, the Uniform Commercial Code
as adopted by and in effect from time to time in the State or in any other jurisdiction,
as applicable.

 

“Wholly Owned Subsidiary”
means any domestic United States corporation, all the shares of stock of all
classes of which (other than directors’ qualifying shares) at the time are
owned directly or indirectly by Borrower and/or by one or more Wholly Owned
Subsidiaries of Borrower.

 

Section 1.2                                      Accounting Terms and Other Definitional
Provisions.

 

Unless otherwise defined
herein, as used in this Agreement and in any certificate, report or other
document made or delivered pursuant hereto, accounting terms not otherwise
defined herein, and accounting terms only partly defined herein, to the extent
not defined, shall have the respective meanings given to them under GAAP, as
consistently applied to the applicable Person. 
All terms used herein which are defined by the Uniform Commercial Code
shall have the same meanings as assigned to them by the Uniform Commercial Code
unless and to the extent varied by this Agreement.  The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, subsection, schedule and exhibit references are references to
articles, sections or subsections of, or schedules or exhibits to, as the case
may be, this Agreement unless otherwise specified.  As used herein, the singular number shall
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may
require.  Reference to any one or more of
the Financing Documents shall mean the same as the foregoing may from time to
time be amended, restated, substituted, extended, renewed, supplemented or otherwise
modified.

 

ARTICLE II 

THE CREDIT FACILITIES

 

Section 2.1                                      The Revolving Credit Facility.

 

2.1.1                        Revolving Credit Facility.

 

Subject to and upon the
provisions of this Agreement, Lender establishes a revolving credit facility in
favor of Borrower.  The aggregate of all
advances under the Revolving Credit Facility is sometimes referred to in this
Agreement as the “Revolving Loan”.

 

The maximum
principal amount of Thirty Million Dollars ($30,000,000) is the “Revolving
Credit Committed Amount”.

 

During the Revolving
Credit Commitment Period, Borrower may request advances under the Revolving
Credit Facility in accordance with the provisions of this Agreement; provided
that after giving effect to Borrower’s request, the aggregate outstanding
principal balance of the Revolving Loan and all Letter of Credit Obligations
would not exceed the Revolving Credit Committed Amount.

 

15

 

Unless sooner paid, the
unpaid Revolving Loan, together with interest accrued and unpaid thereon, and
all other Obligations shall be due and payable in full on the Revolving Credit
Expiration Date.

 

2.1.2                        Procedure for Making Advances Under the
Revolving Loan; Lender Protection Loans.

 

Borrower may borrow under
the Revolving Credit Facility on any Business Day.  Advances under the Revolving Loan shall be
deposited to a demand deposit account of Borrower with Lender (or an Affiliate
of Lender) or shall be otherwise applied as directed by Borrower, which
direction Lender may require to be in writing. 
No later than 12:00 p.m. (Eastern Time) on the date of the
requested borrowing, Borrower shall give Lender oral or written notice (a “Loan
Notice”) of the amount and (if requested by Lender) the purpose of the
requested borrowing.  Any oral Loan
Notice shall be confirmed in writing by Borrower within three (3) Business
Days after the making of the requested advance under the Revolving Loan.  Each Loan Notice shall be irrevocable.

 

In addition, Borrower
hereby irrevocably authorizes Lender at any time and from time to time, without
further request from or notice to Borrower, to make advances under the
Revolving Loan, which Lender, in its sole and absolute discretion, deems
necessary or appropriate to protect the interests of Lender, including, without
limitation, advances and reserves under the Revolving Loan made to cover debit
balances in the Revolving Loan Account, principal of, and/or interest on, the
Revolving Loan, the Obligations (including, without limitation, any Letter of
Credit Obligations), and/or Enforcement Costs, prior to, on, or after the
termination of other advances under this Agreement, regardless of whether the
outstanding principal amount of the Revolving Loan that Lender may advance or
reserve hereunder exceeds the Revolving Credit Committed Amount.

 

2.1.3                        Revolving Credit Note.

 

The obligation of
Borrower to pay the Revolving Loan, with interest, shall be evidenced by a
promissory note (as from time to time extended, amended, restated, supplemented
or otherwise modified, the “Revolving Credit Note”) substantially in the form
of EXHIBIT A attached hereto and made a part hereof, with appropriate
insertions.  The Revolving Credit Note
shall be dated as of the Closing Date, shall be payable to the order of Lender
at the times provided in the Revolving Credit Note, and shall be in the
principal amount of the Revolving Credit Committed Amount. Borrower
acknowledges and agrees that, if the outstanding principal balance of the
Revolving Loan outstanding from time to time exceeds the face amount of the
Revolving Credit Note, the excess shall bear interest at the Post-Default Rate
for the Revolving Loan and shall be payable, with accrued interest, ON
DEMAND.  The Revolving Credit Note shall
not operate as a novation of any of the Obligations or nullify, discharge, or
release any such Obligations or the continuing contractual relationship of the
parties hereto in accordance with the provisions of this Agreement.

 

2.1.4                        Optional Prepayments of Revolving Loan.

 

Borrower shall have the
option, at any time and from time to time, to prepay (each a “Revolving Loan
Optional Prepayment” and collectively the “Revolving Loan Optional Prepayments”)
the Revolving Loan, in whole or in part without premium or penalty.

 

16

 

2.1.5                        Revolving Loan Account.

 

Lender will establish and
maintain a loan account on its books (the “Revolving Loan Account”) to which
Lender will (a) debit (i) the principal amount of each advance
of the Revolving Loan made by Lender hereunder as of the date made, (ii) the
amount of any interest accrued on the Revolving Loan as and when due, and (iii) any
other amounts due and payable by Borrower to Lender from time to time under the
provisions of this Agreement in connection with the Revolving Loan, including,
without limitation, Enforcement Costs, Fees, late charges, and service,
collection and audit fees, as and when due and payable, and (b) credit
all payments made by Borrower to Lender on account of the Revolving Loan as of
the date made.  Lender may debit the
Revolving Loan Account for the amount of any Item of Payment that is returned
to Lender unpaid.  All credit entries to
the Revolving Loan Account are conditional and shall be readjusted as of the
date made if final and indefeasible payment is not received by Lender in cash or
solvent credits.  Any and all periodic or
other statements or reconciliations, and the information contained in those
statements or reconciliations, of the Revolving Loan Account shall be final,
binding and conclusive upon Borrower in all respects, absent manifest error,
unless Lender receives specific written objection thereto from Borrower within
thirty (30) Business Days after such statement or reconciliation shall have
been sent by Lender.

 

2.1.6                        Revolving Credit Unused Line Fee.

 

Borrower shall pay to
Lender a quarterly revolving credit facility fee (collectively, the “Revolving
Credit Unused Line Fees” and individually, a “Revolving Credit Unused Line Fee”)
in an amount equal to two tenths of one percent (0.20%) per annum of the
average daily unused and undisbursed portion of the Revolving Credit Committed
Amount, minus the face amount of any outstanding Letters of Credit, in effect
from time to time accruing during each calendar quarter.  The accrued and unpaid portion of the
Revolving Credit Unused Line Fee shall be paid by Borrower to Lender on the
first day of each calendar quarter, commencing on the first such date following
the date hereof, and on the Revolving Credit Termination Date.

 

Section 2.2                                      The Letter of Credit Facility.

 

2.2.1                        Letters of Credit.

 

Subject to and upon the
provisions of this Agreement, and as a part of the Revolving Credit Commitment,
Borrower, upon the prior approval of Lender, may obtain standby letters of
credit (as the same may from time to time be amended, supplemented or otherwise
modified, each a “Letter of Credit” and collectively the “Letters of Credit”)
from Lender from time to time from the Closing Date until the Business Day
preceding the Revolving Credit Termination Date.  Borrower will not be entitled to obtain a
Letter of Credit hereunder unless (a) after giving effect to the request,
the outstanding principal balance of the Revolving Loan and of the Letter of
Credit Obligations would not exceed the Revolving Credit Committed Amount, (b) the
sum of the aggregate face amount of the then outstanding Letters of Credit
(including the face amount of the requested Letter of Credit) does not exceed
Ten Million Dollars ($10,000,000) and (c) the term of the requested Letter
of Credit is not greater than three hundred sixty-five (365) days (it being
understood that the Letters of Credit hereunder may contain “evergreen”
automatic renewal provisions).

 

17

 

2.2.2                        Letter of Credit Fees.

 

Prior to or
simultaneously with the opening of each Letter of Credit, Borrower shall pay to
Lender, a letter of credit fee (each a “Letter of Credit Fee” and collectively
the “Letter of Credit Fees”) in an amount equal to one percent (1.00%) per
annum of the face amount of the Letter of Credit.  The Letter of Credit Fees shall be paid in
advance on a quarterly basis, commencing on the opening of each Letter of
Credit and on the last day of each calendar quarter thereafter.  In addition, Borrower shall pay to Lender all
other reasonable and customary amendment, negotiation, processing, transfer or
other fees to the extent and as and when required by the provisions of any
Letter of Credit Agreement.  All Letter
of Credit Fees and all such other additional fees are included in and are a
part of the “Fees” payable by Borrower under the provisions of this Agreement
and are a part of the Obligations.

 

2.2.3                        Terms of Letters of Credit.

 

Each Letter of Credit
shall (a) be opened pursuant to a Letter of Credit Agreement, and (b) expire
on a date not later than the Business Day, which is 364 days after the
Revolving Credit Expiration Date; provided, however, if any Letter of Credit
does have an expiration date later than the Business Day preceding the
Revolving Credit Termination Date (each a “Post-Expiration Date Letter of
Credit” and collectively, the “Post-Expiration Date Letters of Credit”),
effective as of the Business Day preceding the Revolving Credit Termination
Date and without prior notice to or the consent of Borrower, Lender shall make
advances under the Revolving Loan for the account of Borrower in the aggregate
face amount of all such Letters of Credit. 
Lender shall deposit the proceeds of such advances into one or more
non-interest bearing accounts with and in the name of Lender and over which Lender
alone shall have exclusive power of access and withdrawal (collectively, the “Letter
of Credit Cash Collateral Account”).  The
Letter of Credit Cash Collateral Account is to be held by Lender as additional
collateral and security for any Letter of Credit Obligations relating to the
Post-Expiration Date Letters of Credit. 
Borrower hereby assigns, pledges, grants and sets over to Lender a first
priority security interest in, and Lien on, all of the funds on deposit in the
Letter of Credit Cash Collateral Account, together with any and all Proceeds
and products thereof as additional collateral and security for the Letter of
Credit Obligations relating to the Post-Expiration Date Letters of Credit.  Borrower acknowledges and agrees that Lender
shall be entitled to fund any draw or draft on any Post-Expiration Date Letter
of Credit from the monies on deposit in the Letter of Credit Cash Collateral
Account without notice to or consent of Borrower.  Borrower further acknowledges and agrees that
Lender’s election to fund any draw or draft on any Post-Expiration Date Letter
of Credit from the Letter of Credit Cash Collateral shall in no way limit,
impair, lessen, reduce, release or otherwise adversely affect Borrower’s
obligation to pay any Letter of Credit Obligations under or relating to the
Post-Expiration Date Letters of Credit. 
At such time as all Post-Expiration Date Letters of Credit have expired
and all Letter of Credit Obligations relating to the Post-Expiration Date
Letters of Credit have been paid in full, Lender agrees to apply the amount of
any remaining funds on deposit in the Letter of Credit Cash Collateral Account
to the then unpaid balance of the Obligations under the Revolving Credit
Facility in such order and manner as Lender shall determine in its sole and
absolute discretion in accordance with the provisions of this Agreement.

 

The aggregate face amount
of all Letters of Credit at any one time outstanding and issued by Lender
pursuant to the provisions of this Agreement, including, without limitation,
any and all Post-Expiration Date Letters of Credit, plus the amount of any 

 

18

 

unpaid Letter of
Credit Fees accrued or scheduled to accrue thereon, and less the aggregate
amount of all drafts issued under or purporting to have been issued under such
Letters of Credit that have been paid by Lender and for which Lender has been
reimbursed by Borrower in full in accordance with Section 2.2.5 (Payments
of Letters of Credit) and the Letter of Credit Agreements, and for which Lender
has no further obligation or commitment to restore all or any portion of the
amounts drawn and reimbursed, is herein called the “Outstanding Letter of
Credit Obligations”.

 

2.2.4                        Procedures for Letters of Credit.

 

Borrower shall give
Lender written notice at least five (5) Business Days prior to the date on
which Borrower desires Lender to issue a Letter of Credit.  Such notice shall be accompanied by a duly
executed Letter of Credit Agreement specifying, among other things:  (a) the name and address of the intended
beneficiary of the Letter of Credit, (b) the requested face amount of the
Letter of Credit, (c) whether the Letter of Credit is to be revocable or
irrevocable, (d) the Business Day on which the Letter of Credit is to be
opened and the date on which the Letter of Credit is to expire, (e) the
terms of payment of any draft or drafts which may be drawn under the Letter of
Credit, (f) whether such Letter of Credit should contain “evergreen”
automatic renewal provisions, and (g) any other terms or provisions
Borrower desires to be contained in the Letter of Credit.  Such notice shall also be accompanied by such
other information, certificates, confirmations, and other items as Lender may
require to assure that the Letter of Credit is to be issued in accordance with
the provisions of this Agreement and a Letter of Credit Agreement.  In the event of any conflict between the
provisions of this Agreement and the provisions of a Letter of Credit
Agreement, the provisions of this Agreement shall prevail and control unless
otherwise expressly provided in the Letter of Credit Agreement.  Upon (x) receipt of such notice, (y) payment
of all Letter of Credit Fees and all other Fees payable in connection with the
issuance of such Letter of Credit, and (z) receipt of a duly executed
Letter of Credit Agreement, Lender shall process such notice and Letter of
Credit Agreement in accordance with its customary procedures and open such
Letter of Credit on the Business Day specified in such notice.

 

2.2.5                        Payments of Letters of Credit.

 

Borrower hereby promises
to pay to Lender, ON DEMAND and in United States Dollars, the following which
are herein collectively referred to as the “Current Letter of Credit
Obligations”:

 

(a)           the amount which Lender has paid or will
be required to pay under each draft or draw on a Letter of Credit, whether such
demand be in advance of Lender’s payment or for reimbursement for such payment;

 

(b)           any and all reasonable charges and
expenses which Lender may pay or incur relative to the Letter of Credit and/or
such draws or drafts; and

 

(c)           interest on the amounts described in (a) and
(b) not paid by Borrower as and when due and payable under the provisions
of (a) and (b) above from the day the same are due and payable until
paid in full at the Post-Default Rate.

 

19

 

In addition, Borrower
hereby promises to pay any and all other Letter of Credit Obligations as and
when due and payable in accordance with the provisions of this Agreement and
the Letter of Credit Agreements.  The
obligation of Borrower to pay Current Letter of Credit Obligations and all
other Letter of Credit Obligations shall be absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which Borrower or any other account party may have or have
had against the beneficiary of such Letter of Credit, Lender, or any other
Person, including, without limitation, any defense based on the failure of any draft
or draw to conform to the terms of such Letter of Credit, any draft or other
document proving to be forged, fraudulent or invalid, or the legality,
validity, regularity or enforceability of such Letter of Credit, any draft or
other documents presented with any draft, any Letter of Credit Agreement, this
Agreement, or any of the other Financing Documents, all whether or not Lender
had actual or constructive knowledge of the same, and irrespective of any
Collateral, security or guarantee therefor or right of offset with respect
thereto and irrespective of any other circumstances whatsoever which
constitutes, or might be construed to constitute, an equitable or legal
discharge of Borrower for any Letter of Credit Obligations, in bankruptcy or
otherwise; provided, however, that Borrower shall not be
obligated to reimburse Lender for any wrongful payment under such Letter of
Credit made as a result of Lender’s gross negligence or willful
misconduct.  The obligation of Borrower
to pay the Letter of Credit Obligations shall not be conditioned or contingent
upon the pursuit by Lender or any other Person at any time of any right or
remedy against any Person which may be or become liable in respect of all or
any part of such obligation or against any Collateral, security or guarantee
therefor or right of offset with respect thereto.

 

The Letter of Credit
Obligations shall continue to be effective, or be reinstated, as the case may
be, if at any time payment of all or any portion of the Letter of Credit
Obligations is rescinded or must otherwise be restored or returned by Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
any Person, or upon or as a result of the appointment of a receiver,
intervenor, or conservator of, or trustee or similar officer for, any Person,
or any substantial part of such Person’s property, all as though such payments
had not been made.

 

2.2.6                        Change in Law; Increased Cost.

 

If any change in any law
or regulation or in the interpretation thereof by any court or other
Governmental Authority charged with the administration thereof shall either (a) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against Letters of Credit issued by Lender, or (b) impose on Lender any
other condition regarding this Agreement or any Letter of Credit, and the
result of any event referred to in clauses (a) or (b) above shall be
to increase the cost to Lender of issuing, maintaining or extending the Letter
of Credit or the cost to Lender of funding any obligation under or in
connection with the Letter of Credit (other than a cost relating to net income,
franchise or similar taxes), then, upon demand by Lender, Borrower shall
immediately pay to Lender from time to time as specified by Lender, additional
amounts which shall be sufficient to compensate Lender for such increased cost,
together with interest on each such amount from the date demanded until payment
in full thereof at a rate per annum equal to the then highest current rate of
interest on the Revolving Loan.  A
certificate as to such increased cost incurred by Lender, submitted by Lender
to Borrower, shall be conclusive, absent manifest error.

 

20

 

2.2.7                        General Letter of Credit Provisions.

 

Borrower hereby instructs
Lender to pay any draft complying with the terms of any Letter of Credit
irrespective of any instructions of Borrower to the contrary.  Borrower assumes all risks of the acts and
omissions of the beneficiary and other users of any Letter of Credit.  Lender and its respective branches,
Affiliates and/or correspondents shall not be responsible for and Borrower
hereby indemnifies and holds Lender and its respective branches, Affiliates
and/or correspondents harmless from and against all liability, loss and expense
(including reasonable attorney’s fees and costs) incurred by Lender and/or its
respective branches, Affiliates and/or correspondents relative to and/or as a
consequence of (a) any failure by Borrower to perform the agreements hereunder
and under any Letter of Credit Agreement, (b) any Letter of Credit
Agreement, this Agreement, any Letter of Credit and any draft, draw and/or
acceptance under or purported to be under any Letter of Credit, (c) any
action taken or omitted by Lender and/or any of its respective branches,
Affiliates and/or correspondents at the request of Borrower, (d) any
failure or inability to perform in accordance with the terms of any Letter of
Credit by reason of any control or restriction rightfully or wrongfully exercised
by any de facto or de jure Governmental Authority, group or
individual asserting or exercising governmental or paramount powers, and/or (e) any
consequences arising from causes beyond the control of Lender and/or any of its
respective branches, Affiliates and/or correspondents.

 

Except for gross
negligence or willful misconduct, Lender and its respective branches,
Affiliates and/or correspondents, shall not be liable or responsible in any
respect for any (a) error, omission, interruption or delay in
transmission, dispatch or delivery of any one or more messages or advices in
connection with any Letter of Credit, whether transmitted by cable, telegraph,
mail or otherwise and despite any cipher or code which may be employed, and/or (b) action,
inaction or omission which may be taken or suffered by it or them in good faith
or through inadvertence in identifying or failing to identify any beneficiary
or otherwise in connection with any Letter of Credit.

 

Any Letter of Credit may
be amended, modified or revoked only upon the receipt by Lender from Borrower
and the beneficiary (including any transferee and/or assignee of the original
beneficiary), of a written consent and request therefor.

 

If any Laws, order of
court and/or ruling or regulation of any Governmental Authority of the United
States (or any state thereof) and/or any country other than the United States
permits a beneficiary under a Letter of Credit to require Lender and/or any of
its respective branches, Affiliates and/or correspondents to pay drafts under
or purporting to be under a Letter of Credit after the expiration date of the
Letter of Credit, Borrower shall reimburse Lender, as appropriate, for any such
payment pursuant to provisions of Section 2.2.6 (Change in Law; Increased
Cost).

 

Except as may otherwise
be specifically provided in a Letter of Credit or Letter of Credit Agreement, (a) the
rules of the ISP shall apply to each standby Letter of Credit, and (b) the
rules of the Uniform Customs and Practice for Documentary Credits, as most
recently published by the International Chamber of Commerce (the “ICC”)
at the time of issuance shall apply to each commercial Letter of Credit.

 

21

 

Section 2.3                                      General Financing Provisions.

 

2.3.1                        Borrower’s Representatives.

 

Lender is hereby
irrevocably authorized by Borrower to make advances under the Revolving Loan to
Borrower pursuant to the provisions of this Agreement upon the written, oral or
telephone request of any one or more of the Persons who is from time to time a
Responsible Officer of Borrower under the provisions of the most recent
certificate of corporate resolutions and/or incumbency of Borrower on file with
Lender.

 

Lender assumes no
responsibility or liability for any errors, mistakes, and/or discrepancies in
the oral, telephonic, written or other transmissions of any instructions,
orders, requests and confirmations between Lender and Borrower in connection
with the Credit Facilities, the Revolving Loan, any Letter of Credit or any
other transaction in connection with the provisions of this Agreement.

 

2.3.2                        Use of Proceeds of the Revolving Loan.

 

The proceeds of each
advance under the Revolving Loan shall be used by Borrower for Permitted Uses,
and for no other purposes except as may otherwise be agreed by Lender in
writing.

 

2.3.3                        Origination Fee.

 

Borrower shall pay to
Lender on or before the Closing Date a loan origination fee (the “Origination
Fee”) in the amount of Thirty Thousand Dollars ($30,000), which Origination Fee
has been fully earned and is non-refundable.

 

2.3.4                        Computation of Interest and Fees.

 

All applicable Fees and
interest shall be calculated on the basis of a year of 360 days for the actual
number of days elapsed.  Any change in
the interest rate on any of the Obligations resulting from a change in the BBA
LIBOR Daily Floating Rate shall become effective as of the opening of business
on the day on which such change in the BBA LIBOR Daily Floating Rate is
announced, as applicable.

 

2.3.5                        Maximum Interest Rate.

 

In no event shall any
interest rate provided for hereunder exceed the maximum rate permissible for
corporate borrowers under applicable law for loans of the type provided for
hereunder (the “Maximum Rate”).  If, in
any month, any interest rate, absent such limitation, would have exceeded the
Maximum Rate, then the interest rate for that month shall be the Maximum Rate,
and, if in future months, that interest rate would otherwise be less than the
Maximum Rate, then that interest rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of
interest which would have been paid if the same had not been limited by the
Maximum Rate.  In the event that, upon
payment in full of the Obligations, the total amount of interest paid or
accrued under the terms of this Agreement is less than the total amount of
interest which would, but for this Section, have been paid or accrued if the
interest rates otherwise set forth in this Agreement had at all times been in
effect, then Borrower shall, to the extent permitted by applicable law, pay
Lender, an amount equal to the excess of (a) the lesser of (i) the
amount of interest which would have been charged if the Maximum Rate had, at
all times, been in effect or (ii) the amount of interest which would have
accrued had the interest rates otherwise set forth in this Agreement, at all
times, been in effect

 

22

 

 

over (b) the
amount of interest actually paid or accrued under this Agreement.  In the event that a court determines that
Lender has received interest and other charges hereunder in excess of the
Maximum Rate, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations other than interest, in the
inverse order of maturity, and if there are no Obligations outstanding, Lender
shall refund to Borrower such excess.

 

2.3.6                        Payments.

 

All payments of the Obligations,
including, without limitation, principal, interest, any Revolving Loan Optional
Prepayments, and Fees, shall be paid by Borrower without setoff, recoupment or
counterclaim to Lender in immediately available funds not later than 12:00 p.m.
(Eastern Time) on the due date of such payment. 
All payments received by Lender after such time shall be deemed to have
been received by Lender for purposes of computing interest and Fees and
otherwise as of the next Business Day. 
Payments shall not be considered received by Lender until such payments
are paid to Lender in immediately available funds to Lender’s principal office
in Rockville, Maryland or at such other location as Lender may at any time and
from time to time notify Borrower. 
Alternatively, at its sole discretion, Lender may charge any deposit
account of Borrower at Lender or any Affiliate of Lender with all or any part
of any amount due to Lender under this Agreement or any of the other Financing
Documents to the extent that Borrower shall have not otherwise tendered payment
to Lender.

 

2.3.7                        Liens; Setoff.

 

Borrower hereby grants to
Lender as additional collateral and security for all of the Obligations, a
continuing Lien on any and all monies, Investment Property, and other property
of Borrower and any and all proceeds thereof, now or hereafter held or received
by or in transit to, Lender, and/or any Affiliate of Lender, from or for the
account of, Borrower, and also upon any and all deposit accounts (general or
special) and credits of Borrower, if any, with Lender or any Affiliate of
Lender, at any time existing, excluding any deposit accounts held by Borrower
in its capacity as trustee for Persons who are not Affiliates of Borrower.  Without implying any limitation on any other
rights Lender may have under the Financing Documents or applicable Laws, during
the continuance of an Event of Default, Lender is hereby authorized by Borrower
at any time and from time to time, without notice to, or consent of, Borrower,
to set off, appropriate, seize, freeze and apply any or all items hereinabove
referred to against all Obligations then outstanding (whether or not then due),
all in such order and manner as shall be determined by Lender in its sole and
absolute discretion.

 

2.3.8                        Requirements of Law.

 

In the event that Lender
shall have determined in good faith that (a) the adoption of any Capital
Adequacy Regulation, or (b) any change in any Capital Adequacy Regulation
or in the interpretation or application thereof or (c) compliance by
Lender or any corporation controlling Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
central bank or Governmental Authority, does or shall have the effect of
reducing the rate of return on the capital of Lender or any corporation
controlling Lender, as a consequence of the obligations of Lender hereunder to
a level below that which Lender or any corporation controlling Lender would
have achieved but for such adoption, change or compliance (taking into consideration
the policies of Lender and the corporation controlling Lender, with respect to
capital adequacy) by an amount deemed by Lender, in its discretion, to be
material, then from time to time, after submission by Lender to Borrower of a 

 

23

 

written request
therefor and a statement of the basis for Lender’s determination, Borrower
shall pay to Lender ON DEMAND such additional amount or amounts in order to
compensate Lender or its controlling corporation for any such reduction.

 

2.3.9                        ACH Transactions and Swap Contracts.

 

Borrower may request and
Lender or its Affiliates may, in their sole and absolute discretion, provide
ACH Transactions and Swap Contracts.  In
the event Borrower requests Lender or its Affiliates to procure ACH
Transactions or Swap Contracts, then Borrower agrees to indemnify and hold
Lender or its Affiliates harmless from any and all obligations now or hereafter
owing to Lender or its Affiliates.  Borrower
agrees to pay Lender or its Affiliates all amounts owing to Lender or its
Affiliates pursuant to ACH Transactions and Swap Contracts.  In the event Borrower shall not have paid to
Lender or its Affiliates such amounts, Lender may cover such amounts by an
advance under the Revolving Loan, which advance shall be deemed to have been
requested by Borrower.  Borrower
acknowledges and agrees that the obtaining of ACH Transactions and Swap
Contracts from Lender or its Affiliates (a) is in the sole and absolute
discretion of Lender or its Affiliates and (b) is subject to all rules and
regulations of Lender or its Affiliates.

 

ARTICLE III 

THE COLLATERAL

 

Section 3.1                                      Debt and Obligations Secured.

 

All property and Liens
assigned, pledged or otherwise granted under or in connection with this
Agreement (including, without limitation, those under Section 3.2 (Grant
of Liens)) or any of the Financing Documents shall secure (a) the payment
of all of the Obligations, including, without limitation, any and all
Outstanding Letter of Credit Obligations, and (b) the performance,
compliance with and observance by Borrower of the provisions of this Agreement
and all of the other Financing Documents or otherwise under the Obligations.

 

Section 3.2                                      Grant of Liens.

 

Borrower hereby assigns,
pledges and grants to Lender, and agrees that Lender shall have a perfected and
continuing security interest in, and Lien on, (a) all of Borrower’s
Accounts, Inventory, Chattel Paper, Documents, Instruments, Equipment,
Investment Property, and General Intangibles and all of Borrower’s deposit
accounts with any financial institution with which Borrower maintains deposits,
whether now owned or existing or hereafter acquired or arising, (b) all
returned, rejected or repossessed goods, the sale or lease of which shall have
given or shall give rise to an Account or Chattel Paper, (c) all insurance
policies relating to the foregoing and the right to receive refunds of unearned
insurance premiums under those policies, (d) all books and records in
whatever media (paper, electronic or otherwise) recorded or stored, with
respect to the foregoing and all Equipment and General Intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records; and (e) all Proceeds and products of the foregoing, provided, however, notwithstanding the foregoing, “Collateral”
shall not include (i) any equity interest in DoD Surplus (including,
without limitation, any “ownership interest” (as such term is used in any DoD
Contract) in DoD Surplus), (ii) any permit, lease, license, contract,
instrument or other agreement belonging to the Borrower that prohibits, or
requires the consent of any Person other than the Borrower as a condition to,
the creation of a Lien thereon, or any permit, lease, license contract or other
agreement belonging to the Borrower

 

24

 

to the extent that
any requirement of law applicable thereto prohibits the creation of a Lien
thereon, but only, in each case, to the extent, and for so long as, such
prohibition is not terminated or rendered unenforceable or otherwise deemed
ineffective by the Uniform Commercial Code, Bankruptcy Code or any other
requirement of Law, (iii) any United States intent-to-use trademark or
service mark application to the extent, and solely during the period in which
the grant of a Lien therein would impair the validity or the enforceability of
such intent-to-use trademark or service mark under federal law, and (iv) any
property subject to a Lien permitted by this Agreement, if and for so long as
the contractual obligation governing such Lien prohibits the Lien of this
Agreement applying to such property. 
Borrower further agrees that Lender shall have in respect thereof all of
the rights and remedies of a secured party under the Uniform Commercial Code as
well as those provided in this Agreement, under each of the other Financing
Documents and under applicable Laws.

 

Section 3.3                                      Collateral Disclosure List.

 

On or prior to the
Closing Date, Borrower shall deliver to Lender a list (the “Collateral
Disclosure List”) which shall contain such information with respect to Borrower’s
business and real and personal property as Lender may require and shall be
certified by a Responsible Officer of Borrower, all in the form provided to Borrower
by Lender.  Promptly after demand by
Lender, Borrower shall furnish to Lender an update of the information contained
in the Collateral Disclosure List at any time and from time to time as may be
requested by Lender.

 

Section 3.4                                      Personal Property.

 

Borrower acknowledges and
agrees that it is the intention of the parties to this Agreement that Lender
shall have a first priority, perfected Lien, in form and substance satisfactory
to Lender and its counsel in their reasonable discretion, on all of Borrower’s
assets of any kind and nature whatsoever (except to the extent excluded from
the grant of the security interest pursuant to Section 3.2), whether now
owned or hereafter acquired, subject only to the Permitted Liens, if any.  In furtherance of the foregoing:

 

3.4.1                        Investment Property, Chattel Paper,
Promissory Notes, etc.

 

(a)           On the Closing Date and without implying
any limitation on the scope of Section 3.2 (Grant of Liens), but only to
the extent constituting Collateral, Borrower shall deliver to Lender the
originals of all of its letters of credit, Investment Property, Chattel Paper,
Documents and Instruments and, if Lender so requires, shall execute and deliver
separate pledge, assignment and security agreements in form and content
acceptable to Lender, which pledge, assignment and security agreements shall
assign, pledge and grant a Lien to Lender on all letters of credit, Investment
Property, Chattel Paper, Documents, and Instruments.

 

(b)           In the event that Borrower shall acquire
after the Closing Date any letters of credit, Investment Property, Chattel
Paper, Documents, or Instruments, Borrower shall promptly so notify Lender and
deliver the originals of all of the foregoing to Lender promptly and in any
event within ten (10) days of each acquisition.

 

(c)           All letters of credit, Investment
Property, Chattel Paper, Documents and Instruments shall be delivered to Lender
endorsed and/or assigned as required by any pledge, assignment and security
agreement and/or as Lender may require and, if applicable, shall be accompanied
by blank irrevocable and unconditional stock or bond powers and/or notices as
Lender may require.

 

25

 

3.4.2        Patents,
Copyrights and Other Property Requiring Additional Steps to Perfect.

 

On the Closing Date and
without implying any limitation on the scope of Section 3.2 (Grant of
Liens), Borrower shall execute and deliver all Financing Documents and take all
actions requested by Lender in order to perfect a first priority assignment of
Patents, Copyrights, Trademarks or any other type or kind of intellectual
property acquired by Borrower after the Closing Date.

 

Section 3.5                                      Record Searches.

 

As of the Closing
Date and thereafter at the time any Financing Document is executed and delivered
by Borrower pursuant to this Section, Lender shall have received, in form and
substance satisfactory to Lender in its reasonable discretion, such Lien or
record searches with respect to Borrower and/or any other Person, as
appropriate, and the property covered by such Financing Document showing that
the Lien of such Financing Document will be a perfected first priority Lien on
the property covered by such Financing Document subject only to Permitted Liens
or to such other matters as Lender may approve.

 

Section 3.6                                      Costs.

 

Borrower agrees to pay,
as part of the Enforcement Costs and to the fullest extent permitted by
applicable Laws, on demand all costs, fees and expenses incurred by Lender in
connection with the taking, perfection, preservation, protection and/or release
of a Lien on the Collateral, including, without limitation:

 

(a)           customary fees and expenses incurred in preparing
Financing Documents from time to time (including, without limitation,
reasonable attorneys’ fees incurred in connection with preparing the Financing
Documents, including, any amendments and supplements thereto);

 

(b)           all filing and/or recording taxes or fees;

 

(c)           all costs of Lien and record searches; and

 

(d)           all related costs, fees and expenses.

 

Section 3.7                                      Release.

 

Upon the indefeasible
repayment in full in cash of the Obligations and performance of all Obligations
of Borrower and all obligations and liabilities of each other Person, other
than Lender, under this Agreement and all other Financing Documents, and the termination
and/or expiration of all of the Commitments, all Letters of Credit and all
Outstanding Letter of Credit Obligations, upon Borrower’s request and at
Borrower’s sole cost and expense, Lender shall release and/or terminate any
Financing Document but only if and provided that there is no commitment or
obligation (whether or not conditional) of Lender to re-advance amounts which
would be secured thereby and/or no commitment or obligation of Lender to issue
any Letter of Credit or return or restore any payment of any Current Letter of
Credit Obligations.

 

Section 3.8                                      Inconsistent Provisions.

 

In the event that the
provisions of any Financing Document directly conflict with any provision of
this Agreement, the provisions of this Agreement govern.

 

26

 

ARTICLE IV 

REPRESENTATIONS AND WARRANTIES

 

Section 4.1                                      Representations and Warranties.

 

Borrower represents and
warrants to Lender, as follows:

 

4.1.1                        Subsidiaries.

 

As of the Closing Date,
Borrower has the Subsidiaries listed on the Collateral Disclosure List and no
others, and each of the Subsidiaries is a Wholly Owned Subsidiary.

 

4.1.2                        Existence.

 

Borrower (a) is a
Registered Organization and is in good standing under the laws of the State of
Delaware, (b) has the power to own its property and to carry on its
business as now being conducted, and (c) is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business
makes such qualification necessary, except in each case referred to in clause
(c), to the extent that failure to do so would not reasonably be expected to
have a Material Adverse Effect.  Borrower
is organized under the laws of only one (1) jurisdiction.

 

4.1.3                        Power and Authority.

 

Borrower has full power
and authority to execute and deliver this Agreement, and the other Financing
Documents to which it is a party, to make the borrowings and request Letters of
Credit under this Agreement and to incur and perform the Obligations whether
under this Agreement, the other Financing Documents or otherwise, all of which
have been duly authorized by all proper and necessary action.  No consent or approval of owners or any
creditors of Borrower, and no consent, approval, filing or registration with or
notice to any Governmental Authority on the part of Borrower, is required as a
condition to the execution, delivery, validity or enforceability of this
Agreement, or any of the other Financing Documents, the performance by Borrower
of the Obligations other than filings for the perfection of Liens.

 

4.1.4                        Binding Agreements.

 

This Agreement and the
other Financing Documents executed and delivered by Borrower have been properly
executed and delivered and constitute the valid and legally binding obligations
of Borrower and are fully enforceable against Borrower in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties, and general principles of equity regardless of
whether applied in a proceeding in equity or at law.

 

4.1.5                        No Conflicts.

 

Neither the execution,
delivery and performance of the terms of this Agreement or of any of the other
Financing Documents executed and delivered by Borrower nor the consummation of
the transactions contemplated by this Agreement will conflict with, violate or
be prevented by (a) Borrower’s organizational or governing documents, (b) any
existing mortgage, indenture, contract or agreement binding on Borrower or
affecting its property, or (c) 

 

27

 

any Laws, except
in each case referred to in clause (b) or (c), as would not reasonably be
expected to have a Material Adverse Effect.

 

4.1.6                        No Defaults, Violations.

 

(a)           No Default or Event of Default has
occurred and is continuing.

 

(b)           Neither Borrower nor any of its
Subsidiaries is in default under or with respect to any obligation under any
existing mortgage, indenture, contract or agreement binding on it or affecting
its property in any respect which could reasonably be expected to have a
Material Adverse Effect, or which could materially adversely affect the ability
of Borrower to perform its obligations under this Agreement or the other
Financing Documents, to which Borrower is a party.

 

4.1.7                        Compliance with Laws.

 

Neither Borrower nor any
of its Subsidiaries is in violation of any applicable Laws (including, without
limitation, any Laws relating to employment practices, to environmental,
occupational and health standards and controls) or order, writ, injunction,
decree or demand of any court, arbitrator, or any Governmental Authority
affecting Borrower or any of its properties, the violation of which, considered
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

 

4.1.8                        Margin Stock

 

The proceeds of the
Revolving Loan will not be used, directly or indirectly, by Borrower or any
Subsidiary for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry, any “margin stock” within the meaning of Regulation U (12 CFR Part 221),
of the Board of Governors of the Federal Reserve System or for any other
purpose which might make the transactions contemplated in this Agreement a “purpose
credit” within the meaning of Regulation U, or cause this Agreement to violate
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934 or the Small Business Investment Act of
1958, as amended, or any rules or regulations promulgated under any of
such statutes.

 

4.1.9                        Investment Company Act.

 

Neither Borrower nor any
of its Subsidiaries is an “investment company”, nor is it, directly or
indirectly, “controlled by” any Person which is an “investment company” as such
terms are defined in the Investment Company Act of 1940, as amended.

 

4.1.10                  Litigation.

 

Except as
otherwise disclosed on Schedule 4.1.10 attached hereto and made a part
hereof, there are no proceedings, actions or investigations pending or, so far as
Borrower knows, threatened before or by any court, arbitrator or any
Governmental Authority which, in any one case or in the aggregate, if
determined adversely to the interests of Borrower or any Subsidiary, would
reasonably be expected to have a Material Adverse Effect.

 

28

 

4.1.11                  Financial Condition.

 

The consolidated
financial statements of Borrower dated September 30, 2009, are complete
and correct and fairly present the financial position of Borrower and its
Subsidiaries and the results of their operations and transactions in their
surplus accounts as of the date and for the period referred to and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period involved.  There are no
liabilities, direct or indirect, fixed or contingent, of Borrower or its Subsidiaries
as of the date of such financial statements that are not reflected therein or
in the notes thereto.  There has been no
material adverse change in the financial condition or operations of Borrower or
its Subsidiaries since the date of such financial statements and to Borrower’s
knowledge no such adverse change is threatened in writing.  Neither Borrower nor any Subsidiary has
guaranteed the obligations of, or made any investment in or advances to, any
Person, except as disclosed in such financial statements to the extent required
by GAAP.

 

4.1.12                  Full Disclosure.

 

The financial statements
referred to in Section 4.1.11 (Financial Condition), the Financing
Documents (including, without limitation, this Agreement), and the statements,
reports or certificates furnished by Borrower in connection with the Financing
Documents when taken in their entirety (a) do not contain any untrue
statement of a material fact and (b) do not omit any material fact
necessary to make the statements contained therein not misleading.  There is no fact known to Borrower and
existing on the Closing Date which Borrower has not disclosed to Lender in
writing prior to the date of this Agreement and there is no fact known to
Borrower arising after the Closing Date which Borrower has not disclosed to
Lender in writing or publicly filed with the Securities Exchange Commission,
with respect to the transactions contemplated by the Financing Documents that
in the reasonable opinion of Borrower could materially adversely affect the
condition, financial or otherwise, results of operations, business, or assets
of Borrower or any Subsidiary.

 

4.1.13                  Indebtedness for Borrowed Money.

 

On the Closing Date,
expect for the Obligations and Indebtedness for Borrowed Money otherwise
permitted under this Agreement and except as set forth in Schedule 4.1.13
attached hereto and made a part hereof, Borrower has no Indebtedness for
Borrowed Money.  Lender has received
photocopies of all promissory notes evidencing any Indebtedness for Borrowed
Money set forth in Schedule 4.1.13, together with any and all
subordination agreements, other agreements, documents, or instruments securing,
evidencing, guarantying or otherwise executed and delivered in connection
therewith.

 

4.1.14                  Taxes.

 

Each of Borrower and its
Subsidiaries has filed all returns, reports and forms for Taxes that, to the
knowledge of Borrower, are required to be filed, and has paid all Taxes as
shown on such returns or on any assessment received by it, to the extent that
such Taxes have become due, unless and to the extent only that such Taxes,
assessments and governmental charges are currently contested in good faith and
by appropriate proceedings by Borrower, such Taxes are not the subject of any
Liens other than Permitted Liens, and adequate reserves therefor have been
established as required under GAAP.  All
tax liabilities of Borrower were as of the date of audited financial statements
referred to in Section 4.1.11 (Financial 

 

29

 

Condition), and
are now, adequately provided for on the books of Borrower or its Subsidiaries,
as appropriate.

 

4.1.15                  ERISA.

 

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

 

4.1.16                  Title to Properties.

 

Borrower has good and
marketable title to all of its properties, including, without limitation, the
Collateral and the properties and assets reflected in the balance sheets
described in Section 4.1.11 (Financial Condition), and Borrower has legal,
enforceable and uncontested rights to use freely such property and assets,
except, in each case, as could not reasonably be expected to have a Material
Adverse Effect.

 

4.1.17                  Patents, Trademarks, Etc.

 

Each of Borrower and its
Subsidiaries owns, possesses, or has the right to use all necessary Patents,
licenses, Trademarks, Copyrights, permits and franchises to own its properties
and to conduct its business as now conducted, without known conflict with the
rights of any other Person, except, in each case, as would not reasonably be
expected to have a Material Adverse Effect. 
Any and all obligations to pay royalties or other charges with respect
to such properties and assets are properly reflected on the financial
statements described in Section 4.1.11 (Financial Condition), to the
extent required by GAAP.

 

4.1.18                  Presence of Hazardous Materials or Hazardous Materials
Contamination.

 

To the best of Borrower’s
knowledge, (a) no Hazardous Materials are located on any real property
owned, controlled or operated by of Borrower or for which Borrower is, or is
claimed to be, responsible, except for reasonable quantities of necessary
supplies for use by Borrower in the ordinary course of its current line of
business and stored, used and disposed in accordance with applicable Laws; and (b) no
property owned, controlled or operated by Borrower or for which Borrower has,
or is claimed to have, responsibility has ever been used as a manufacturing,
storage, or dump site for Hazardous Materials nor is affected by Hazardous
Materials Contamination at any other property.

 

30

 

4.1.19                  Perfection and Priority of Collateral.

 

Lender has, or upon
execution of this Agreement and the Security Documents and the filing of any
financing statement required under the Uniform Commercial Code, will have a
valid and perfected Lien on and security interest in all Collateral, free of
all other Liens, claims and rights of third parties whatsoever except Permitted
Liens, including, without limitation, those described on Schedule 4.1.19 attached
hereto and made a part hereof.

 

4.1.20                  Collateral Disclosure List.

 

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

 

4.1.21                  Business Names and Addresses.

 

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

 

4.1.22                  Inventory.

 

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

 

4.1.23                  Accounts.

 

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

 

4.1.24      No
Suspension or Debarment.

 

Neither Borrower nor any
Subsidiary nor any of their respective directors, officers or employees has
received any notice of, or information concerning, any proposed, contemplated
or initiated suspension or debarment, be it temporary or permanent, due to an
administrative or a statutory basis, of Borrower or any Subsidiary by the United States
of America or any
department, agency or instrumentality thereof. 
Borrower and each Subsidiary further warrants and represents that
neither Borrower nor any Subsidiary has defaulted under any DoD Contract, which
default is reasonably likely to result in the termination of such DoD Contract.

 

31

 

Section 4.2                                      Survival; Updates of Representations and
Warranties.

 

All representations and
warranties contained in or made under or in connection with this Agreement and
the other Financing Documents shall survive the Closing Date, the making of any
advance under the Revolving Loan and extension of credit made hereunder, and
the incurring of any other Obligations and shall be deemed to have been made at
the time of each request for, and again at the time of the making of, each
advance under the Revolving Loan or the issuance of each Letter of Credit,
except that the representations and warranties which relate to the financial
statements which are referred to in Section 4.1.11 (Financial Condition),
shall also be deemed to cover financial statements furnished from time to time
to Lender pursuant to Section 6.1.1 (Financial Statements).

 

ARTICLE V 

CONDITIONS PRECEDENT

 

Section 5.1                                      Conditions to the Initial Advance and
Initial Letter of Credit.

 

The making of the initial
advance under the Revolving Loan and the issuance of the initial Letter of
Credit is subject to the fulfillment on or before the Closing Date of the
following conditions precedent in a manner satisfactory in form and substance
to Lender and its counsel in their reasonable discretion:

 

5.1.1                        Organizational Documents - Borrower.

 

Lender shall have
received:

 

(a)           a certificate of good standing certified by the
Secretary of State, or other appropriate Governmental Authority, of the State
of Delaware;

 

(b)           a certified copy from the appropriate Governmental
Authority under which Borrower is organized, of Borrower’s organizational
documents and all recorded amendments thereto;

 

(c)           a certificate of qualification to do business
certified by the Secretary of State or other Governmental Authority of each
jurisdiction in which the character of the properties owned by Borrower therein
or in which the transaction of it 
business makes such qualification necessary; and

 

(d)           a certificate dated as of the Closing Date by the
Secretary or an Assistant Secretary of Borrower covering:

 

(i)            true and complete copies of Borrower’s organizational
and governing documents and all amendments thereto;

 

(ii)           true and complete copies of the resolutions of its
Board of Directors authorizing (A) the execution, delivery and performance
of the Financing Documents to which it is a party, (B) the borrowings
hereunder, and (C) the granting of the Liens contemplated by this
Agreement and the Financing Documents to which Borrower is a party;

 

32

 

 

(iii)          the incumbency, authority and signatures of the
officers of Borrower authorized to sign this Agreement and the other Financing
Documents to which Borrower is a party; and

 

(e)   the favorable opinion of counsel for Borrower
addressed to Lender.

 

5.1.2        Organizational Documents - Corporate Guarantor.

 

Lender shall have
received for Corporate Guarantor:

 

(a)           a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental Authority, of the
state of formation of the Corporate Guarantor;

 

(b)           a certified copy from the appropriate
Governmental Authority under which Corporate Guarantor is organized, of
Corporate Guarantor’s organizational documents and all recorded amendments
thereto;

 

(c)           a certificate of qualification to do
business certified by the Secretary of State or other Governmental Authority of
each jurisdiction in which the character of the properties owned by Corporate
Guarantor therein or in which the transaction of its business makes such
qualification necessary;

 

(d)           a certificate dated as of the Closing
Date by the Secretary or an Assistant Secretary of the Corporate Guarantor
covering:

 

(i)            true and complete copies of the Corporate Guarantor’s
organizational and governing documents and all amendments thereto;

 

(ii)           true and complete copies of the resolutions of the
Board of Directors of the Corporate Guarantor authorizing the execution,
delivery and performance of the Financing Documents to which the Corporate
Guarantor is a party and the granting of the Liens contemplated by any of the
Financing Documents to which the Corporate Guarantor is a party;

 

(iii)          the incumbency, authority and signatures of the
officers of the Corporate Guarantor authorized to sign the Corporate Guaranty
and all other Financing Documents to which the Corporate Guarantor is a party;
and

 

(e)           the favorable opinion of counsel for the
Corporate Guarantor addressed to Lender.

 

5.1.3        Organizational Documents - LLC Guarantor.

 

Lender shall have
received for LLC Guarantor:

 

(a)           a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental Authority, of the
state of formation of the LLC Guarantor;

 

33

 

(b)           a certified copy from the appropriate
Governmental Authority under which LLC Guarantor is organized, of LLC Guarantor’s
organizational documents and all recorded amendments thereto;

 

(c)           a certificate of qualification to do
business certified by the Secretary of State or other Governmental Authority in
each jurisdiction in which the character of the properties owned by it therein
or in which the transaction of its business makes such qualification necessary;

 

(d)           a certificate dated as of the Closing
Date by the members of the LLC Guarantor covering:

 

(i)            true and complete copies of the LLC Guarantor’s
organizational and governing documents and all amendments thereto;

 

(ii)           true and complete copies of the resolutions of the
members of the LLC Guarantor authorizing the execution, delivery and
performance of the Financing Documents to which the LLC Guarantor is a party
and the granting of the Liens contemplated by any of the Financing Documents to
which the LLC Guarantor is a party;

 

(iii)          the incumbency, authority and signatures of the
members of the LLC Guarantor authorized to sign the LLC Guaranty and all other
Financing Documents to which the LLC Guarantor is a party; and

 

(e)   the favorable opinion of counsel for the LLC Guarantor
addressed to Lender.

 

5.1.4        Consents, Licenses, Approvals, Etc.

 

Lender shall have
received copies of all consents, licenses and approvals, required in connection
with the execution, delivery, performance, validity and enforceability of the
Financing Documents, and such consents, licenses and approvals shall be in full
force and effect.

 

5.1.5        Revolving Credit Note.

 

Lender shall have
received the Revolving Credit Note, conforming to the requirements hereof and
executed by a Responsible Officer of Borrower and attested by a duly authorized
representative of Borrower.

 

5.1.6        Financing Documents and Collateral.

 

Borrower shall have
executed and delivered the Financing Documents to be executed by it, and shall
have delivered original Chattel Paper, Instruments, Investment Property, and
related Collateral and all opinions, and other documents contemplated by
ARTICLE III (The Collateral).

 

34

 

5.1.7        Other Financing Documents.

 

In addition to the
Financing Documents to be delivered by Borrower, Lender shall have received the
Financing Documents duly executed and delivered by Persons other than Borrower.

 

5.1.8        Other Documents, Etc.

 

Lender shall have
received such other certificates, opinions, documents and instruments
confirmatory of or otherwise relating to the transactions contemplated hereby
as may have been reasonably requested by Lender.

 

5.1.9        Financial Statements.

 

Lender shall have
received the financial statements described in Section 4.1.11 (Financial
Condition).

 

5.1.10      Payment of Fees.

 

Lender shall have
received payment of any Fees due on or before the Closing Date.

 

5.1.11      Collateral Disclosure List.

 

Borrower shall have
delivered the Collateral Disclosure List required under the provisions of Section 3.3
(Collateral Disclosure List) duly executed by a Responsible Officer of Borrower.

 

5.1.12      Recordings and Filings.

 

Borrower shall have: (a) executed
and delivered all Financing Documents required to be filed, registered or
recorded in order to create, in favor of Lender, a perfected Lien in the
Collateral (subject only to the Permitted Liens) in form and in sufficient
number for filing, registration, and recording in each office in each
jurisdiction in which such filings, registrations and recordations are
required, and (b) delivered such evidence as Lender deems satisfactory in
its reasonable discretion that all necessary filing fees and all recording and
other similar fees, and all Taxes and other expenses related to such filings,
registrations and recordings will be or have been paid in full.

 

5.1.13      Insurance Certificate.

 

Lender shall have
received an insurance certificate in accordance with the provisions of Section 6.1.8
(Insurance).

 

5.1.14      Stock
Certificates and Stock Powers of Corporate Guarantor.

 

Lender shall have
received (a) shares representing one hundred percent (100%) of the
ownership of Corporate Guarantor delivered by Borrower and (b) fully
executed irrevocable stock powers from Borrower.

 

5.1.15      Termination
of Existing Liens.

 

Lender shall have
received a payoff letter from United Bank and written authorization to terminate
any and all Liens of United Bank.

 

35

 

Section 5.2             Conditions to all Extensions of Credit.

 

The making of all
advances under the Revolving Loan and the issuance of all Letters of Credit is
subject to the fulfillment of the following conditions precedent in a manner
satisfactory in form and substance to Lender and its counsel in their
reasonable discretion:

 

5.2.1        Default.

 

There shall exist no
Event of Default or Default hereunder.

 

5.2.2        Representations and Warranties.

 

The representations and
warranties of Borrower contained among the provisions of this Agreement shall
be true and with the same effect as though such representations and warranties
had been made at the time of the making of, and of the request for, each
advance under the Revolving Loan or the issuance of each Letter of Credit,
except that the representations and warranties which relate to financial
statements which are referred to in Section 4.1.11 (Financial Condition),
shall also be deemed to cover financial statements furnished from time to time
to Lender pursuant to Section 6.1.1 (Financial Statements).

 

ARTICLE VI 

COVENANTS OF BORROWER

 

Section 6.1             Affirmative Covenants.

 

So long as any of the
Obligations (or any the Commitments therefor) shall be outstanding hereunder,
Borrower agrees with Lender as follows:

 

6.1.1        Financial Statements.

 

Borrower shall furnish to
Lender:

 

(a)           Annual Statements and Certificates.  As soon as available, but in no event more
than ninety (90) days after the close of each fiscal year of Borrower, (i) a
copy of the annual audited financial statement in reasonable detail
satisfactory to Lender relating to Borrower and its Subsidiaries, prepared in
accordance with GAAP and examined and certified by independent certified public
accountants satisfactory to Lender in its reasonable discretion, which
financial statement shall include a consolidated balance sheet of Borrower and
its Subsidiaries as of the end of such fiscal year and consolidated statements
of income, cash flows and changes in shareholders equity of Borrower and its
Subsidiaries for such fiscal year, (ii) a Compliance Certificate, in
substantially the form attached to this Agreement as EXHIBIT B, as may
be amended by Lender from time to time, containing a detailed computation of
each financial covenant in this Agreement which is applicable for the period
reported, a certification that no change has occurred to the information
contained in the Collateral Disclosure List (except as set forth in a schedule
attached to the certification), each prepared by a Responsible Officer of
Borrower in a format acceptable to Lender and (iii) to the extent obtained
by and prepared by auditors, a management letter.

 

(b)           Quarterly Statements and Certificates.  As soon as available, but in no event more
than forty five (45) days after the close of Borrower’s first three fiscal
quarters of each fiscal year, consolidated balance sheets of Borrower and its
Subsidiaries as of the close of such period, consolidated income, cash flows
and changes in shareholders equity statements for such period, and a Compliance
Certificate, in substantially the form 

 

36

 

attached to this Agreement as EXHIBIT B,
containing a detailed computation of each financial covenant in this Agreement
which is applicable for the period reported, prepared by a Responsible Officer
of Borrower in a format acceptable to Lender, all as prepared and certified by
a Responsible Officer of Borrower and accompanied by a certificate of that
officer stating whether any event has occurred which constitutes a Default or
an Event of Default hereunder, and, if so, stating the facts with respect
thereto.

 

(c)           Annual Budget and Projections.  Borrower shall furnish to Lender as soon as
available, but in no event later than January 31st of each fiscal year, a
consolidated budget and pro forma financial statements on a quarterly basis for
the following fiscal year.

 

(d)           Additional Reports and Information.  Borrower shall furnish to Lender promptly,
such additional information, reports or statements on Borrower and any
Subsidiary as Lender may from time to time reasonably request.

 

6.1.2        Reports to SEC and to Stockholders.

 

Borrower will furnish to
Lender, promptly upon the filing or making thereof, at least one (l) copy of all reports,
notices and proxy statements sent by Borrower to its stockholders, and of all
regular and other reports filed by Borrower with any securities exchange or
with the Securities and Exchange Commission. 
If any such reports, notices and proxy statements described in Sections
6.1.1 or 6.1.2 are filed with the Securities and Exchange Commission and are
publicly available for review on the EDGAR system, then the filing by the
Borrower of such reports with the Securities and Exchange Commission shall
constitute delivery of such reports to the Lender and shall satisfy the
corresponding requirements of Section 6.1.1 and 6.1.2.

 

6.1.3        Recordkeeping, Rights of Inspection, Field
Examination, Etc.

 

(a)           Borrower shall, and shall cause each of its
Subsidiaries to, maintain (i) a standard system of accounting in
accordance with GAAP, and (ii) proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its properties, business and activities.

 

(b)           After the occurrence and during the continuance of an
Event of Default, Borrower shall, and shall cause each of its Subsidiaries to,
permit authorized representatives of Lender to visit and inspect the properties
of Borrower and its Subsidiaries, to review, audit, check and inspect the
Collateral at any time with or without notice, to review, audit, check and
inspect Borrower’s and each Subsidiary’s other books of record at any time with
or without notice and to make abstracts and photocopies thereof, and to inspect
and examine the Inventory and to check and test the same as to quality,
quantity, value and condition, and to discuss the affairs, finances and
accounts of Borrower and/or any Subsidiaries, with the officers, directors and
employees of Borrower and/or any Subsidiaries, all at such times during normal
business hours and other reasonable times and as often as Lender may reasonably
request.  Notwithstanding the foregoing,
prior to the occurrence and the continuance of an Event of Default, Lender
shall provide at least five (5) Business Days notice prior to such
reviews, audits, checks and inspections and such reviews, audits, checks and
inspections shall be
conducted no more often than twice in any twelve (12) month period; provided,
however, if there are no outstanding Obligations under the Revolving Loan,
Lender agrees it will not conduct any such 

 

37

 

reviews, audits, checks and inspections during such period,
unless Lender determines in good faith that since the date of the prior review,
check or inspection (i) the security for the outstanding Obligations after
giving effect to such Revolving Loan is inadequate, (ii) there has been a
material adverse change in the financial condition of Borrower or any
Subsidiary, or (iii) a development in the business or affairs of Borrower
or any Subsidiary has occurred which could reasonably be expected to result in
a Material Adverse Effect.

 

(c)           Any and all costs and expenses incurred by, or on
behalf of, Lender in connection with the conduct of the foregoing, including,
without limitation, travel, lodging, meals, and other expenses for each auditor
employed by Lender for inspections of the Collateral and Borrower’s or any
Subsidiary’s operations, shall be part of the Enforcement Costs and shall be
payable to Lender upon demand.  Borrower
acknowledges and agrees that such expenses may include, but shall not be
limited to, any and all out-of-pocket costs and expenses of Lender’s employees
and agents in, and when, traveling to Borrower’s facilities or any facility of
any Subsidiary.

 

6.1.4        Existence.

 

Borrower shall (a) maintain,
and cause each of its Subsidiaries to maintain, its existence in good standing
in the jurisdiction in which it is organized and in each other jurisdiction
where it is required to register or qualify to do business if the failure to do
so in such other jurisdiction could reasonably be expected to have a Material
Adverse Effect and (b) remain a Registered
Organization under the laws of the jurisdiction stated in the Preamble
of this Agreement.

 

6.1.5        Compliance with Laws.

 

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

 

6.1.6        Preservation of Properties.

 

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

 

6.1.7        Line of Business.

 

Borrower will continue to
engage substantially only in the Permitted Businesses.

 

38

 

6.1.8        Insurance.

 

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

 

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

 

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

 

6.1.9        Taxes.

 

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

 

6.1.10      ERISA.

 

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

 

6.1.11      Notification of Events of Default and Adverse
Developments.

 

Borrower shall promptly
notify Lender upon obtaining actual knowledge of the occurrence of:

 

(a)           any Event of Default;

 

(b)           any Default;

 

(c)           any litigation instituted or threatened
against Borrower or its Subsidiaries and of the entry of any judgment or Lien
(other than 

 

39

 

any Permitted Liens) against any of the assets or properties of
Borrower or any Subsidiary where the claims against Borrower or any of its
Subsidiaries exceed One Million Dollars ($1,000,000) and are not covered by
insurance;

 

(d)           any event, development or circumstance
whereby the financial statements furnished hereunder fail in any material
respect to present fairly, in accordance with GAAP, the financial condition and
operational results of Borrower or any of its Subsidiaries;

 

(e)           any judicial, administrative or arbitral
proceeding pending against Borrower or any of its Subsidiaries and any judicial
or administrative proceeding known by Borrower to be threatened against it or
any of its Subsidiaries that, if adversely decided, could reasonably be
expected to have a Material Adverse Effect;

 

(f)            the receipt by Borrower or any of its
Subsidiaries of any notice, claim or demand from any Governmental Authority
which alleges that Borrower or any Subsidiary is in violation of any of the
terms of, or has failed to comply with any applicable Laws regulating its
operation and business, including, but not limited to, the Occupational Safety
and Health Act and the Environmental Protection Act, which could reasonably be
expected to have a Material Adverse Effect; and

 

(g)           any default under any DoD Contract or any
event which if not corrected could reasonably be expected to give rise to a
default under any DoD Contract or a termination for convenience;

 

in each case describing
in detail satisfactory to Lender in its reasonable discretion the nature
thereof and the action Borrower proposes to take with respect thereto.

 

6.1.12      Hazardous Materials; Contamination.

 

Borrower agrees to:

 

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

 

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

 

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

 

40

 

Hazardous Materials Contamination and discharging any Lien which may be
established as a result thereof on any property owned, operated or controlled
by Borrower or for which Borrower is, or is claimed to be, responsible; and

 

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

 

6.1.13      Financial Covenants.

 

(a)           Funded Debt to EBITDA Ratio. 
Borrower will maintain, tested as of the last day of each of the
Borrower’s fiscal quarters for the rolling four (4) quarter period ending
on that date, a ratio of Funded Debt to EBITDA of not more than 1.50 to 1.00.

 

(b)           Fixed Charge Coverage Ratio. 
Borrower will maintain, tested as of the last day of each of the
Borrower’s fiscal quarters for the rolling four (4) quarter period ending
on that date, a Fixed Charge Coverage Ratio of not less than 1.30 to 1.00.

 

Notwithstanding
the foregoing, if at any time any change in GAAP following the Closing Date would affect
the computation of the above financial ratios, and either the Borrower or the
Lender shall so request, then the Lender and Borrower shall negotiate in good
faith to amend such ratios to preserve the original intent thereof in light of
such change in GAAP (subject to the approval of the Lender); provided that,
until so amended, (i) such ratios shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) if reasonably
requested by the Lender, the Borrower shall provide to the Lender financial
statements and other documents setting forth a reconciliation between
calculations of such ratios made before and after giving effect to such change
in GAAP.

 

6.1.14      Landlord’s Waivers.

 

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

 

6.1.15      Listing of Securities.

 

Borrower
shall take all action necessary to continue the listing and trading of its
common shares on the Nasdaq Stock Market, and will comply in all respects with
the Borrower’s reporting, filing and other obligations under the bylaws or rules of
such exchange or market to ensure the continued eligibility for trading of its
shares thereon  In the event that within
thirty (30) days of any such de-listing from such exchange, Borrower will
either (a) cause its common shares to be relisted for trading on the
Nasdaq Stock Market or other nationally recognized market or (b) amend the
warranties, representations and covenants in this Agreement, to more regulate
and monitor more closely the Borrower’s conduct and obligations to the Lender,
which amendment must be satisfactory to the Lender in all material respects.

 

41

 

6.1.16      Government Accounts.

 

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

 

6.1.17      Maintenance of the Collateral.

 

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

 

6.1.18      Defense of Title and Further Assurances.

 

At its expense, Borrower
will defend the title to the Collateral (and any part thereof), and will,
except as otherwise set forth in this Section 6.1.18 or Section 6.1.22,
immediately execute, acknowledge and deliver any renewal, affidavit, deed,
assignment, security agreement, certificate or other document which Lender may
require in order to perfect, preserve, maintain, continue, protect and/or
extend the Lien granted to Lender under this Agreement or under any of the
other Financing Documents and the first priority of that Lien, subject only to
the Permitted Liens.  Borrower hereby
authorizes the filing of any financing statement or continuation statement
required under the Uniform Commercial Code. 
Borrower will take any and all steps and observe such formalities as
Lender may require, in order to create and maintain a valid Lien upon, pledge
of, or paramount security interest in, the Collateral, subject to the Permitted
Liens.  Borrower shall pay to Lender on
demand all taxes, costs and expenses incurred by Lender in connection with the
preparation, execution, recording and filing of any such document or
instrument.  To the extent that the
proceeds of any of the Accounts or Receivables of Borrower are expected to
become subject to the control of, or in the possession of, a party other than
Borrower or Lender, Borrower shall cause all such parties to execute and
deliver security documents or other documents as requested by Lender and as may
be necessary to evidence and/or perfect the security interest of Lender in
those proceeds.  Borrower hereby
irrevocably appoints Lender as Borrower’s attorney-in-fact, with power of
substitution, in the name of Lender or in the name of Borrower or otherwise,
for the use and benefit of Lender, but at the cost and expense of Borrower and
without notice to Borrower, to execute and deliver any and all of the
instruments and other documents and take any action which Lender may require
pursuant the foregoing provisions of this Section 6.1.18.

 

6.1.19      Business Names; Locations.

 

Borrower will notify and
cause each of its Subsidiaries to notify Lender not less than thirty (30) days
prior to (a) any change in the name under which Borrower or the applicable
Subsidiary conducts its business, (b) any change of the location of the
chief executive office of Borrower or the

 

42

 

 

applicable
Subsidiary, and (c) the opening of any new place of business or the
closing of any existing place of business, and (d) any change in the
location of the places where the Collateral, or any part thereof, or the books
and records, or any part thereof, are kept other than as permitted by Section 6.2.14.

 

6.1.20                  Use of Premises and Equipment.

 

Borrower agrees that
until the Obligations are fully paid and all of the Commitments and the Letters
of Credit have been terminated or have expired, during the occurrence and
continuance of an Event of Default, Lender shall have, and is hereby granted, a
right of ingress and egress to the places where the Collateral is located, and
may proceed over and through any of Borrower’s owned or leased property.

 

6.1.21                  Protection of Collateral.

 

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

 

6.1.22                  Principal Depository.

 

Borrower shall
maintain its primary depository and operating accounts and cash management
relationship with Lender until the Obligations have been satisfied in full;
provided, however, Borrower may maintain petty cash and other deposit accounts
containing no more than One Million Dollars ($1,000,000) in the aggregate at
any time with banks or financial institutions other than Lender.  For each such deposit account that Borrower at any
time maintains, Borrower shall upon Lender’s request cause the applicable bank
or financial institution where such deposit account is maintained to execute
and deliver a control agreement or other appropriate instrument to perfect
Lender’s Lien in such deposit account, which control agreement may not be
terminated without the prior written consent of Lender.  Notwithstanding the foregoing, Borrower is
not permitted to maintain any accounts other than deposit accounts referenced
above with any bank or financial institution other than Lender, or maintain any investment or securities
accounts, unless, if requested by Lender, Lender has received a control
agreement or other appropriate instrument to perfect Lender’s Lien in each such
account.  Each of Borrower’s deposit and operating
accounts and investment or security accounts existing as of the Closing Date
are listed on Schedule 6.1.22. 
Borrower will provide Lender with five (5) days prior written notice before
establishing any deposit
or operating account or any investment or security account at or with any bank or financial
institution other than Lender.

 

43

 

Section 6.2                                      Negative Covenants.

 

So long as any of the
Obligations or the Commitments shall be outstanding hereunder, Borrower agrees
with Lender as follows:

 

6.2.1                        Capital Structure, Merger, Acquisition or
Sale of Assets.

 

Borrower will not (i) enter
into any merger or consolidation or amalgamation, windup or dissolve itself (or
suffer any liquidation or dissolution) or acquire all or substantially all the
assets of any Person (other than in connection with a Permitted Acquisition),
or (ii) sell, lease or otherwise dispose of any of its assets (except
Inventory disposed of in the ordinary course of business) having an aggregate
value in excess of One Million Dollars ($1,000,000).  Any consent of Lender to the disposition of
any assets, other than as permitted by this Section 6.2.1, may be
conditioned on a specified use of the proceeds of disposition.  Notwithstanding the foregoing, so long as an
Event of Default has not occurred and is continuing, (i) Borrower may
merge with any other Person (including, without limitation, any of its
Subsidiaries) so long as after giving effect to such merger, Borrower is the
surviving entity and (ii) any Subsidiary of Borrower may merge or
consolidate with or into, or convey, transfer, lease or otherwise dispose of
all or substantially all of its property and assets to, any Guarantor.

 

6.2.2                        Subsidiaries.

 

Other than in connection
with a Permitted Acquisition, Borrower will not create any Subsidiaries other
than the Subsidiaries identified on the Collateral Disclosure List.  Notwithstanding the foregoing, so long as an
Event of Default has not occurred and is continuing, Borrower may create a
Subsidiary provided promptly after the creation of each such Subsidiary,
Borrower shall pledge to Lender, shares or membership interests representing
one hundred percent (100%) of the voting and non voting ownership interests of
such Subsidiary, such Subsidiary shall become a guarantor of the Credit
Facilities, and shall grant to Lender a Lien in all of its assets, which assets
shall be not be encumbered by any Lien in favor of any other Person (in each
case, to the extent such Subsidiary is permitted to do so by its contractual obligations
and requirements of law); provided, however, to the extent such Subsidiary is a
Foreign Subsidiary, in lieu of such Foreign Subsidiary granting to Lender a
Lien in all of its assets and guarantying the Obligations, if at any time
either (a) such Foreign Subsidiary’s GMV is at least ten percent (10%) of
the GMV of the Borrower and its Subsidiaries, taken as a whole, over the
previous four (4) fiscal quarters or (b) such Foreign Subsidiary’s
EBITDA is at least ten percent (10%) of the consolidated EBITDA of the Borrower
and its Subsidiaries, taken as a whole, over the previous four (4) fiscal
quarters, then Borrower shall grant, pledge and assign to Lender shares or
membership interests representing sixty-six percent (66%) of the voting and
non-voting ownership interests of such Foreign Subsidiary.

 

6.2.3                        Purchase or Redemption of Securities,
Dividend Restrictions.

 

Borrower will not
purchase, redeem or otherwise acquire any shares of its capital stock or
warrants now or hereafter outstanding, declare or pay any dividends thereon
(other than stock dividends), apply any of its property or assets to the
purchase, redemption or other retirement of, set apart any sum for the payment
of any dividends on, or for the purchase, redemption, or other retirement of,
make any distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of Borrower, or any warrants, permit any
Subsidiary to purchase or acquire any shares of any class of capital stock of,
or warrants issued 

 

44

 

by, Borrower, make any distribution to stockholders or set aside any
funds for any such purpose, and not prepay any Indebtedness for Borrowed Money
under Sections 6.2.4(d) and (e), purchase or redeem any Indebtedness for
Borrowed Money other than the Obligations. 
Notwithstanding the foregoing, Borrower may repurchase its common stock on the
open market and the stock of employees, directors or consultants pursuant to
any stock repurchase agreement or similar agreement in effect as of the Closing
Date and approved by Borrower’s board of directors, so long as (i) a
Default or an Event of Default does not exist at the time of any such
repurchase and would not exist after giving effect thereto on a pro forma
basis, and (ii) no Revolving Loan is outstanding at such time or after
giving effect thereto.

 

6.2.4                        Indebtedness.

 

Borrower will not, and
will not permit any Subsidiary to, create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money, or permit any Subsidiary to do so, except:

 

(a)           the Obligations;

 

(b)           current accounts payable arising in the
ordinary course, including without limitation, Indebtedness arising in
connection with the use of any corporate credit cards to finance trade payables;

 

(c)           Indebtedness secured by Permitted Liens;

 

(d)           in addition to all Indebtedness otherwise
permitted under this Section, unsecured Indebtedness not exceeding One Million
Dollars ($1,000,000) in the aggregate outstanding at any time;

 

(e)           Subordinated Indebtedness; and

 

(f)            Indebtedness of Borrower existing on the
date hereof and reflected on the financial statements furnished pursuant to Section 4.1.11
(Financial Condition).

 

6.2.5                        Investments, Loans and Other
Transactions.

 

Except in connection with
any Permitted Acquisitions and as otherwise provided in this Agreement,
Borrower will not, and will not permit any of its Subsidiaries to, (a) make,
assume, acquire or continue to hold any investment in any real property (unless
used in connection with its business and treated as a Fixed or Capital Asset of
Borrower or the Subsidiary) or any Person, whether by stock purchase, capital
contribution, acquisition of indebtedness of such Person or otherwise
(including, without limitation, investments in any joint venture or
partnership), (b) guaranty or otherwise become contingently liable for the
Indebtedness or obligations of any Person, or (c) make any loans or
advances, or otherwise extend credit to any Person, except:

 

(a)           any advance to an officer or employee of
Borrower or any Subsidiary for travel, relocation or other business expenses in
the ordinary course of business, provided that the aggregate amount of all such
advances by Borrower and its Subsidiaries (taken as a whole) outstanding at any
time shall not exceed One Million Dollars ($1,000,000);

 

45

 

(b)           loans, advances, or extensions of credit
to any Guarantor;

 

(c)           loans, advances, or extensions of credit
to Foreign Subsidiaries, provided that the aggregate amount of all such loans,
advances, or extensions of credit made by Borrower to its Foreign Subsidiaries
in any fiscal year of Borrower in an aggregate amount not to exceed Three
Million Dollars ($3,000,000) and during the term of this Agreement in an aggregate
amount not to exceed Eight Million Dollars ($8,000,000), provided, that at all
times that any loans, advances or other extensions of credit are outstanding to
any Foreign Subsidiary, such Foreign Subsidiary shall not have any Indebtedness
which is secured by a Lien on any of its assets, other than in connection with
any Capital Leases, in an aggregate amount not to exceed Five Hundred Thousand
Dollars ($500,000);

 

(d)           the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;

 

(e)           any investment in Cash Equivalents, which
are pledged to Lender as collateral and security for the Obligations; and

 

(f)            trade credit extended to customers in the
ordinary course of business; and

 

(g)           investments, guaranties, loans, advances,
or extensions of credit existing as of the Closing Date and as disclosed to
Lender.

 

6.2.6                        Stock of Subsidiaries.

 

Borrower will not sell or
otherwise dispose of any shares of capital stock of any Subsidiary (except in
connection with a merger or consolidation of a Wholly Owned Subsidiary into
Borrower or another Wholly Owned Subsidiary or with the dissolution of any
Subsidiary) or permit any Subsidiary to issue any additional shares of its
capital stock except pro  rata to its stockholders.

 

6.2.7                        Subordinated Indebtedness.

 

Borrower will not, and
will not permit any Subsidiary to make:

 

(a)           any payment of principal of, or interest
on, any of the Subordinated Indebtedness, if a Default or an Event of Default
then exists hereunder or would result from such payment;

 

(b)           any payment of the principal or interest
due on the Subordinated Indebtedness as a result of acceleration thereunder;

 

(c)           any amendment or modification of or
supplement to the documents evidencing or securing the Subordinated
Indebtedness; or

 

(d)           payment of principal or interest on the
Subordinated Indebtedness other than when due (without giving effect to any
acceleration of maturity.

 

46

 

6.2.8        Liens;
Confessed Judgment.

 

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

 

6.2.9                        Transactions with Affiliates.

 

Borrower and its
Subsidiaries will not enter into or participate in any transaction with any
Affiliate or, except in the ordinary course of business, with the officers,
directors, employees and other representatives of Borrower and/or any
Subsidiary.

 

6.2.10                  Other Businesses.

 

Borrower and its
Subsidiaries will not engage directly or indirectly in any business other than
a Permitted Business.

 

6.2.11                  ERISA Compliance.

 

Neither Borrower nor any
Commonly Controlled Entity shall:  (a) engage
in or permit any “prohibited transaction” (as defined in ERISA); (b) cause
any “accumulated funding deficiency” as defined in ERISA and/or the Internal
Revenue Code; (c) terminate any pension plan in a manner which could
result in the imposition of a lien on the property of Borrower pursuant to
ERISA; (d) terminate or consent to the termination of any Multi-employer
Plan; or (e) incur a complete or partial withdrawal with respect to any
Multi-employer Plan.

 

6.2.12                  Prohibition on Hazardous Materials.

 

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

 

6.2.13                  Method of Accounting; Fiscal Year.

 

Borrower will not:

 

(a)           change the method of accounting employed
in the preparation of any financial statements furnished to Lender under the
provisions of Section 6.1.1 (Financial Statements), unless required to
conform to GAAP and on the condition that Borrower’s accountants shall furnish
such information as Lender may request to reconcile the changes with Borrower’s
prior financial statements.

 

47

 

(b)           change its fiscal year from a year ending
on September 30th.

 

6.2.14                  Transfer of Collateral.

 

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

 

6.2.15                  Sale and Leaseback.

 

Neither Borrower nor the
Subsidiaries will directly or indirectly enter into any arrangement to sell or
transfer all or any substantial part of its fixed assets and thereupon or
within one (1) year thereafter rent or lease the assets so
sold or transferred.

 

6.2.16                  DoD Contracts.

 

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

 

6.2.17                  Disposition of Collateral.

 

Except
in the ordinary course of its business, Borrower will not sell, discount, allow
credits or allowances, transfer, assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of the Collateral, except, prior to an
Event of Default, dispositions expressly permitted elsewhere in this Agreement,
the sale of Inventory in the ordinary course of business.

 

ARTICLE VII 

DEFAULT AND RIGHTS AND REMEDIES

 

Section 7.1                                      Events of Default.

 

The occurrence of any one
or more of the following events shall constitute an “Event of Default” under
the provisions of this Agreement:

 

7.1.1                        Failure to Pay.

 

The failure of Borrower
to pay any of the Obligations within three (3) Business Days of the date
when due and payable in accordance with the provisions of this Agreement, the
Revolving Credit Note and/or any of the other Financing Documents.

 

7.1.2                        Breach of Representations and Warranties.

 

Any representation or
warranty made in this Agreement or in any report, statement, schedule,
certificate, opinion (including any opinion of counsel for Borrower), financial
statement or other document furnished in connection with this Agreement, any of
the 

 

48

 

other Financing
Documents, or the Obligations, shall prove to have been false or misleading
when made (or, if applicable, when reaffirmed) in any material respect.

 

7.1.3                        Failure to Comply with Covenants.

 

The failure of Borrower
to perform, observe or comply with any covenant, condition or agreement
contained in Sections 6.1.1, 6.1.4, 6.1.8, 6.1.9, 6.1.11, 6.1.12, 6.1.13,
6.1.15 or 6.1.22 hereof or in Section 6.2 hereof.

 

7.1.4                        Other Defaults.

 

The failure of Borrower
to perform, observe or comply with any covenant, condition or agreement
contained in this Agreement other than those set forth in Sections 7.1.1, 7.1.2
or 7.1.3, which default shall remain un-remedied for thirty (30) days after
written notice thereof to the Borrower by the Lender.

 

7.1.5                        Default Under Other Financing Documents
or Obligations.

 

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

 

7.1.6                        Receiver; Bankruptcy.

 

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

 

7.1.7                        Involuntary Bankruptcy, etc.

 

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

 

49

 

material portion
of Borrower’s or any Subsidiary’s business or the use or disposition of a
material portion of Borrower’s or any Subsidiary’s assets, and such order,
judgment or decree continues unstayed and in effect for a period of thirty (30)
days from the date entered.

 

7.1.8                        Judgment.

 

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

 

7.1.9                        Execution; Attachment.

 

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

 

7.1.10                  Default Under Other Borrowings.

 

Default shall be made by
Borrower or any Subsidiary with respect to any Indebtedness for Borrowed Money
of Borrower (other than the Revolving Loan), other than unsecured Indebtedness
of up to One Million Dollars ($1,000,000), if the default is a failure to pay
at maturity or if the effect of such default is to accelerate the maturity of
such Indebtedness for Borrowed Money or to permit the holder or obligee thereof
or other party thereto to cause such Indebtedness for Borrowed Money to become
due prior to its stated maturity.

 

7.1.11                  Challenge to Agreements.

 

Borrower or any
Subsidiary shall challenge the validity and binding effect of any provision of
any of the Financing Documents or shall state its intention to make such a
challenge of any of the Financing Documents or any of the Financing Documents
shall for any reason (except to the extent permitted by its express terms)
cease to be effective or to create a valid and perfected first priority Lien
(except for Permitted Liens) on, or security interest in, any of the Collateral
purported to be covered thereby.

 

7.1.12                  Material Adverse Change.

 

Lender in its sole, but
reasonable discretion, determines that a material adverse change has occurred
in the financial condition of Borrower. 
Notwithstanding the foregoing, the non-renewal, termination of, or
default under, a Major Contract by Borrower shall not constitute a material
adverse change if at the time of such non-renewal, termination, or default and
after giving effect thereto, Borrower would have been in compliance with the
financial covenants set forth in Section 6.1.13 (Financial Covenants) of
this Agreement for the immediately preceding four (4) fiscal quarters had
such Major Contract not been included in the calculation of such financial
covenants during such period.

 

7.1.13                  Change in Ownership.

 

Any Change in Control of
the Borrower.

 

50

 

7.1.14                  Debarment or Suspension.

 

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

 

7.1.15                  Liquidation, Termination or Dissolution.

 

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

 

7.1.16                  Swap Default.

 

An event occurs which
gives Lender the right or option to terminate (except as such right or option
may arise in the ordinary course of business provided such right or option is
not a default under such Swap Contract) any Swap Contract which is secured by
the Collateral.

 

Section 7.2                                      Remedies.

 

Upon the occurrence of
any Event of Default, Lender may, in the exercise of its sole and absolute
discretion from time to time, at any time thereafter exercise any one or more
of the following rights, powers or remedies:

 

7.2.1                        Acceleration.

 

Lender may declare any or
all of the Obligations to be immediately due and payable, notwithstanding
anything contained in this Agreement or in any of the other Financing Documents
to the contrary, without presentment, demand, protest, notice of protest or of
dishonor, or other notice of any kind, all of which Borrower hereby waives.

 

7.2.2                        Further Advances.

 

Lender may from time to
time without notice to Borrower suspend, terminate or limit any further
advances, loans or other extensions of credit under the Commitments, under this
Agreement and/or under any of the other Financing Documents.  Further, upon the occurrence of an Event of
Default or Default specified in Section 7.1.6 (Receiver; Bankruptcy) or Section 7.1.7
(Involuntary Bankruptcy, etc.), the Revolving Credit Commitment and any
agreement in any of the Financing Documents to provide additional credit and/or
to issue Letters of Credit shall immediately and automatically terminate and
the unpaid principal amount of the Revolving Credit Note (with accrued interest
thereon) and all other Obligations then outstanding, shall immediately become
due and payable without further action of any kind and without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by Borrower.

 

7.2.3                        Uniform Commercial Code.

 

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

 

51

 

Any written notice of the
sale, disposition or other intended action by Lender with respect to the
Collateral which is sent by regular mail, postage prepaid, to Borrower at the
address set forth in Section 8.1 (Notices), or such other address of
Borrower which may from time to time be shown on Lender’s records, at least ten
(10) days prior to such sale, disposition or other action, shall
constitute commercially reasonable notice to Borrower.  Lender may alternatively or additionally give
such notice in any other commercially reasonable manner.  Nothing in this Agreement shall require
Lender to give any notice not required by applicable Laws.

 

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

 

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

 

7.2.4                        Specific Rights With Regard to
Collateral.

 

In addition to all other
rights and remedies provided hereunder or as shall exist at law or in equity
from time to time, Lender may (but shall be under no obligation to), without
notice to Borrower, and Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, with power of substitution, in the name of Lender and/or in
the name of Borrower or otherwise, for the use and benefit of Lender, but at
the cost and expense of Borrower and without notice to Borrower:

 

(a)           request any Account Debtor obligated on
any of the Accounts to make payments thereon directly to Lender, with Lender
taking control of the Proceeds thereof;

 

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

 

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

 

(d)           copy, transcribe, or remove from any
place of business of Borrower or any Subsidiary all books, records, ledger
sheets,

 

52

 

 

correspondence, invoices and documents, relating to or evidencing any
of the Collateral or without cost or expense to Lender, make such use of
Borrower’s or any Subsidiary’s place(s) of business as may be reasonably
necessary to administer, control and collect the Collateral;

 

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

 

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

 

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

 

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

 

(i)            endorse or sign the name of Borrower upon
any Items of Payment, certificates of title, Instruments, Investment Property,
stock powers, documents, documents of title, financing statements, assignments,
notices, or other writing relating to or part of the Collateral and on any
proof of claim in bankruptcy against an Account Debtor;

 

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

 

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

 

7.2.5                        Application of Proceeds.

 

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

 

7.2.6                        Performance by Lender.

 

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

 

53

 

be deemed part of
the Enforcement Costs, shall be paid by Borrower to Lender on demand, and shall
constitute and become a part of the Obligations.

 

7.2.7                        Other Remedies.

 

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

 

ARTICLE VIII 

MISCELLANEOUS

 

Section 8.1                                      Notices.

 

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

 

Borrower:                                                                                            Liquidity Services, Inc.

1920 L St. NW, 6th Floor

Washington, DC 20036

Attention:  James M. Rallo, CFO and Treasurer

 

with a copy to:                                                                 Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

Attention:  Aaron F. Adams

 

Lender:                                                                                                        Bank of America, N.A.

1101 Wootton Parkway, 4th Floor

Rockville, Maryland 
20852

Attention: 
Michael J. Radcliffe, SVP

 

with a copy to:                                                                 Troutman Sanders LLP

1660 International Drive, Suite 600

McLean, Virginia 22102

Attention: 
Richard Pollak, Esquire

 

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

 

54

 

Section 8.2                                      Amendments; Waivers.

 

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

 

Without implying any
limitation on the foregoing:

 

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

 

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

 

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

 

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

 

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

 

Section 8.3                                      Cumulative Remedies.

 

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

 

55

 

(a)           proceed against Borrower with or without
proceeding against any other Person (including, without limitation, any one or
more of the Guarantors) who may be liable (by endorsement, guaranty, indemnity
or otherwise) for all or any part of the Obligations;

 

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

 

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

 

(d)           without reducing or impairing the
obligations of Borrower and without notice thereof:

 

(i)            fail to perfect the Lien in any or all Collateral or
to release any or all the Collateral or to accept substitute Collateral;

 

(ii)           approve the making of advances under the Revolving
Loan under this Agreement;

 

(iii)          waive any provision of this Agreement or the other
Financing Documents;

 

(iv)          exercise or fail to exercise rights of set-off or
other rights; or

 

(e)           accept partial payments or extend from
time to time the maturity of all or any part of the Obligations.

 

Section 8.4                                      Severability.

 

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

 

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

 

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

 

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

 

(d)           if the affected provision or part thereof
does not pertain to repayment of the Obligations, but operates or would
prospectively operate to invalidate this Agreement in whole or in part, then
such provision or part thereof 

 

56

 

only shall be void, and the remainder of this Agreement shall remain
operative and in full force and effect.

 

Section 8.5                                      Assignments by Lender.

 

Lender may, with the
consent of Borrower, assign to any Person (each an “Assignee” and collectively,
the “Assignees”) all or a portion of Lender’s Commitments.  Lender and its Assignee shall notify Borrower
in writing of the date on which the assignment is to be effective (the “Adjustment
Date”).  On or before the Adjustment
Date, Lender, Borrower and the Assignee shall execute and deliver a written
assignment agreement in a form acceptable to Lender, which shall constitute an
amendment to this Agreement to the extent necessary to reflect such
assignment.  Upon the request of the
Assignee following an assignment made in accordance with this Section 8.5,
Borrower shall issue a new Revolving Credit Note to such Assignee reflecting
such assignment, in exchange for the return by the Lender of the existing
Revolving Credit Note.

 

In addition,
notwithstanding the foregoing, Lender may at any time pledge all or any portion
of Lender’s rights under this Agreement, any of the Commitments or any of the
Obligations to a Federal Reserve Bank.

 

Section 8.6                                      Participations by Lender.

 

Lender may at any time
sell to one or more financial institutions participating interests in any of
Lender’s Obligations or Commitments; provided, however, that (a) no such
participation shall relieve Lender from its obligations under this Agreement or
under any of the other Financing Documents to which it is a party, (b) Lender
shall remain solely responsible for the performance of its obligations under
this Agreement and under all of the other Financing Documents to which it is a
party, and (c) Borrower shall continue to deal solely and directly with
Lender in connection with Lender’s rights and obligations under this Agreement
and the other Financing Documents.

 

Section 8.7                                      Disclosure of Information by Lender.

 

In connection with any
sale, transfer, assignment or participation by Lender in accordance with Section 8.5
(Assignments by Lender) or Section 8.6 (Participations by Lender), Lender
shall have the right to disclose to any actual or potential purchaser,
assignee, transferee or participant all financial records, information,
reports, financial statements and documents obtained in connection with this
Agreement and/or any of the other Financing Documents or otherwise; provided
that each such recipient shall have executed a confidentiality agreement
containing substantially the same terms as Section 8.21 hereof.

 

Section 8.8                                      Successors and Assigns.

 

This Agreement and all
other Financing Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns, except that
Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of Lender.

 

Section 8.9                                      Continuing Agreements.

 

All covenants,
agreements, representations and warranties made by Borrower in this Agreement,
in any of the other Financing Documents, and in any certificate delivered
pursuant hereto or thereto shall survive the making by Lender of the Revolving
Loan, the issuance of Letters of Credit and the execution and delivery of the
Revolving Credit Note, shall be binding 

 

57

 

upon Borrower
regardless of how long before or after the date hereof any of the Obligations
were or are incurred, and shall continue in full force and effect so long as
any of the Obligations are outstanding and unpaid.  From time to time upon Lender’s request, and
as a condition of the release of any one or more of the Security Documents,
Borrower and other Persons obligated with respect to the Obligations shall
provide Lender with such acknowledgments and agreements as Lender may require
to the effect that there exists no defenses, rights of setoff or recoupment,
claims, counterclaims, actions or causes of action of any kind or nature
whatsoever against Lender and/or any of its agents and others, or to the extent
there are, the same are waived and released.

 

Section 8.10                                Enforcement Costs.

 

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

 

Section 8.11                                Applicable Law.

 

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

 

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

 

8.11.3      EACH
PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY 

 

58

 

APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT IN ANY COURT REFERRED TO IN SECTION 8.11.2.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.

 

Section 8.12                                Duplicate Originals and Counterparts.

 

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

 

Section 8.13                                Headings.

 

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

 

Section 8.14                                No Agency.

 

Nothing herein contained
shall be construed to constitute Borrower as Lender’s agent for any purpose
whatsoever or to permit Borrower to pledge any of the credit of Lender.  Lender shall not be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause
thereof.  Lender shall not, by anything
herein or in any of the Financing Documents or otherwise, assume any of
Borrower’s obligations under any contract or agreement assigned to Lender, and
Lender shall not be responsible in any way for the performance by Borrower of
any of the terms and conditions thereof.

 

Section 8.15                                Date of Payment.

 

Should the principal of
or interest on the Revolving Credit Note become due and payable on other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and in the case of principal, interest shall be payable thereon at
the rate per annum specified in the Revolving Credit Note during such
extension.

 

Section 8.16                                Entire Agreement.

 

This Agreement and the
other Financing Documents are intended by Lender and Borrower to be a complete,
exclusive and final expression of the agreements contained herein and
therein.  Neither Lender nor Borrower
shall hereafter have any rights under any prior agreements pertaining to the
matters addressed by this Agreement but shall look solely to this Agreement for
definition and determination of all of their respective rights, liabilities and
responsibilities under this Agreement.

 

Section 8.17                                Waiver of Trial by Jury.

 

BORROWER AND LENDER HEREBY
JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH
BORROWER AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY
PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS,
OR (C) THE 

 

59

 

COLLATERAL.  THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY
JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT.

 

This waiver is knowingly,
willingly and voluntarily made by Borrower and Lender, and Borrower and Lender
hereby represent that no representations of fact or opinion have been made by
any individual to induce this waiver of trial by jury or to in any way modify
or nullify its effect.  Borrower and
Lender further represent that they have been represented in the signing of this
Agreement and in the making of this waiver by independent legal counsel,
selected of their own free will, and that they have had the opportunity to
discuss this waiver with counsel.

 

Section 8.18                                Liability of Lender.

 

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

 

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

 

Section 8.19                                Indemnification.

 

Borrower agrees to
indemnify and hold harmless, Lender, Lender’s parent and Affiliates and Lender’s
parent’s and Affiliates’ officers, directors, shareholders, employees and
agents (each an “Indemnified Party,” and collectively, the “Indemnified Parties”),
from and against any and all claims, liabilities, losses, damages, costs and
expenses (whether or not such Indemnified Party is a party to any litigation),
including without limitation, reasonable attorney’s fees and costs and costs of
investigation, document production, attendance at depositions or other
discovery, incurred by any Indemnified Party with respect to, arising out of or
as a consequence of (a) this Agreement or any of the other Financing
Documents, including without limitation, any failure of Borrower to pay when
due (at maturity, by acceleration or otherwise) any principal, interest, fee or
any other amount due under this Agreement or the other Financing Documents, or
any other Event of Default (b) the use by Borrower of any proceeds
advanced hereunder; (c) the transactions contemplated hereunder; or (d) any
claim, demand, action or cause of action being asserted against (i) Borrower
or any of its Affiliates by any other Person, or (ii) any Indemnified
Party by Borrower in connection with the transactions contemplated
hereunder.  Notwithstanding anything
herein or elsewhere to the contrary, Borrower shall not be obligated to
indemnify or hold harmless any Indemnified Party from any liability, loss or
damage resulting from the gross negligence, willful misconduct or unlawful
actions of such Indemnified Party.  Any
amount payable to Lender under this Section will bear interest at the
Post-Default Rate from the due date until paid.

 

60

 

Section 8.20           Electronic
Transmission of Data.

 

Lender and Borrower agree
that certain data related to the Revolving Loan (including confidential
information, documents, applications and reports) may be transmitted
electronically, including transmission over the Internet.  This data may be transmitted to, received
from or circulated among agents and representatives of Borrower and/or Lender
and their Affiliates and other Persons involved with the subject matter of this
Agreement.  Borrower acknowledges and
agrees that (a) there are risks associated with the use of electronic
transmission and that Lender does not control the method of transmittal or
service providers, (b) Lender has no obligation or responsibility
whatsoever and assumes no duty or obligation for the security, receipt or third
party interception of any such transmission, and (c) Borrower will
release, hold harmless and indemnify Lender from any claim, damage or loss,
including that arising in whole or part from Lender’s strict liability or sole,
comparative or contributory negligence (but excluding gross negligence, willful
misconduct or unlawful actions by the Lender), which is related to the
electronic transmission of data.

 

Section 8.21           Confidentiality.

 

Lender agrees to maintain
the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its Affiliates and to its and its
Affiliates’ respective partners, directors, officers, employees, agents,
trustees, advisors and representatives (it being understood that the Persons to
whom such disclosure is made will be informed of the confidential nature of
such Information and instructed to keep such Information confidential), (b) to
the extent requested by any regulatory authority purporting to have
jurisdiction over it (including any self-regulatory authority, such as the
National Association of Insurance Commissioners), (c) to the extent
required by applicable Laws or regulations or by any subpoena or similar legal
process, (d) to any other party hereto, (e) in connection with the
exercise of any remedies hereunder or under any other Financing Document or any
action or proceeding relating to this Agreement or any other Financing Document
or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this
Section, to (i) any assignee of or participant in, or any prospective
assignee of or participant in, any of its rights or obligations under this
Agreement or any Assignee pursuant to Section 8.5 (Assignments by Lender)
or (ii) any actual or prospective counterparty (or its advisors) to any
swap or derivative transaction relating to the Borrower and its obligations, (g) with
the consent of the Borrower or (h) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section or (y) becomes
available to the Lender or its Affiliates on a nonconfidential basis from a
source other than the Borrower.  For
purposes of this Section 8.21, “Information” means all information
received from the Borrower or any Subsidiary relating to the Borrower or any
Subsidiary or any of their respective businesses, other than any such
information that is available to the Lender on a nonconfidential basis prior to
disclosure by the Borrower or any Subsidiary. 
Any Person required to maintain the confidentiality of Information as
provided in this Section shall be required to execute and deliver to the
Borrower a confidentiality agreement containing substantially the same terms as
this Section 8.21.

 

Lender further
acknowledges that (a) the Information may include material non-public information
concerning the Borrower or a Subsidiary, as the case may be, (b) it has
developed compliance procedures regarding the use of material non-public
information and (c) it will handle such material non-public information in
accordance with applicable Law, including United States Federal and state
securities Laws.

 

61

 

REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

 

62

 

IN WITNESS
WHEREOF, each of the parties hereto have executed and delivered this Agreement
as of the day and year first written above.

 

 

	
   

  	
  LIQUIDITY
  SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James M.
  Rallo

  
	
   

  	
  Name: James M.
  Rallo

  
	
   

  	
  Title: Chief
  Financial Officer & Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA,
  N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J.
  Radcliffe

  
	
   

  	
   

  	
  Name: Michael J.
  Radcliffe

  
	
   

  	
   

  	
  Title: Senior
  Vice President

  

 

[Signature Page to
Financing and Security Agreement]

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