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Exhibit 10.37(a)    
    

 
 

FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT    
    

        This First Amendment to Asset Purchase Agreement (the "First Amendment") is entered into effective as of
November 11, 2003, by and among LECG, LLC, a California limited liability company ("Purchaser"), LECG Holding Company, LLC, a California limited
liability company ("Parent"), BLDS, LLC, a Delaware limited liability corporation ("Seller"),
Dr. Bernard R. Siskin, Dr. Leonard A. Cupingood, Dr. David W. Griffin and Dr. Samuel J. Kursh (each a "Selling Member" and collectively
the "Selling Members"). 

 
 

RECITALS    
    

        A.    Purchaser, Parent, Seller and the Selling Members are parties to that certain Asset Purchase Agreement effective as of
August 1, 2003 (the "Asset Purchase Agreement") pursuant to which Purchaser purchased certain operating assets, and assumed certain liabilities and
obligations, of Seller. 

        B.    Pursuant to Section 9.7 of the Asset Purchase Agreement, Purchaser, Seller and the Selling Members covenanted to enter
into a Software License Agreement relating to the Wage and Disparate Impact Auditor Software (the "Software") being developed by the Selling Members
within fourteen (14) days of the Closing Date, as defined in the Asset Purchase Agreement. 

        C.    As of the date hereof, Purchaser, Seller and the Selling Members have not entered into such Software License Agreement and
desire to amend the Asset Purchase Agreement to set forth certain understandings regarding the basic terms of such Software License Agreement, but otherwise to delay the obligation to enter into such
Software License Agreement until such later date as is specified herein. 

        D.    Additionally, pursuant to Section 6.2.7 of the Asset Purchase Agreement, Seller covenanted to deliver to Purchaser as of
the Closing Date of the Asset Purchase Agreement appropriate documentation (the "Assignments") reflecting an assignment to Purchaser of all rights and
obligations (including all leasehold improvements, fixtures and fittings and all easements, rights of way and other appurtenants) under (i) that certain Office Lease dated June 16, 1993 by and between
the Center for Forensic Studies, Ltd. ("CFES") and Walnut Street Holdings LP, as amended by that certain Amendment dated March 29, 2002, for
premises at Suite 1200, 1608 Walnut Street, Philadelphia, PA 19103, and (ii) that certain Sublease by and between CFES and Thomas Conaty for space in Wilmington, Delaware (together, the
"Leases"). 

        E.    As of the date hereof, Seller has not delivered the Assignments to Purchaser due to issues which arose in connection with
the parties assuming certain indemnity obligations with respect to the Leases. 

        F.     To resolve such indemnity issues related to the Assignments and enable the delivery of the Assignments to Purchaser,
Seller and the Selling Members agree to make certain representations and warranties herein regarding liabilities related to the Leases and indemnify Purchaser with respect to the Leases on the terms
and conditions stated herein. 

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AGREEMENT    
    

        In consideration of the mutual covenants, agreements, representations and warranties contained in this First Amendment, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows: 

        1.    Software License Agreement    

        1.1   one hundred twenty (120) days after the date of this First Amendment, Purchaser, Seller and the Selling Members will
enter into a Software License Agreement relating to the Software on terms mutually agreeable to Purchaser, Seller and the Selling Members. 

        1.2   Notwithstanding the foregoing, Purchaser, Seller and the Selling Members hereby agree that the Software License
Agreement, and the scope of the license of the Software to Purchaser thereunder, will be sufficiently broad to approximate ownership of the Software by Purchaser. 

        1.3   Additionally, Purchaser, Seller and the Selling Members anticipate that the Software License Agreement will include terms
consistent with the following understandings: 

        1.3.1    Any
profits realized in relation to the Software will be shared by Purchaser and Seller equally, with such profits to be distributed to Purchaser and Seller on a
50%/50% basis. 

        1.3.2    Seller
will undertake all development obligations in relation to the Software and will assume and be responsible for all costs related to such development. 

        1.3.3    Purchaser
will be primarily responsible for the marketing of the Software and will be responsible for all costs related to such marketing. 

        2.    Lease Assignments.    

        2.1   Seller and the Selling Members jointly and severally represent and warrant to Purchaser that, as of August 1, 2003: (i)
CFES is not in default under either Lease, as provided in each applicable Lease; and (ii) CFES owes no monies to either of the landlords that are parties to the Leases, or to any other party for
amounts due in connection with either of the Leases. 

        2.2   Each of the Selling Members jointly and severally agree that they will indemnify and hold harmless Purchaser and its
affiliates and their respective directors, officers, agents and employees (collectively, the "LECG Indemnified Parties"), from and against any losses,
damages, expenses, claims or proceedings relating to the Leases before August 1, 2003 (individually and collectively, a "Pre-Assignment Liability"). The
Selling Members may collectively elect, at their option, to assume the defense of any claim or proceeding brought against a LECG Indemnified Party relating to a Pre-Assignment Liability. Where the
Selling Members collectively elect to assume such defense, the LECG Indemnified Party shall have the right to employ separate counsel to participate in the defense thereof, at such LECG Indemnified
Party's sole expense, where there is a conflict with the counsel the Selling Members has chosen. At the expense of the Selling Members, Purchaser and the LECG Indemnified
Parties agree to cooperate reasonably in the defense of any such claim or proceeding relating to a Pre-Assignment Liability. 

        2.2.1    In
connection with the foregoing indemnity, each of the Selling Members agree that he will provide prompt written notice to Purchaser upon receipt of any actual notice
of claim, or upon becoming aware of any threatened claim or of any facts or circumstances which may result in any actual or threatened claim, with respect to which Purchaser may seek indemnification
hereunder. 

        2.2.2    The
foregoing indemnity is in addition to any rights either Purchaser or the Selling Members may have at common law or otherwise and shall be binding on and inure to
the 

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benefit
of any successors, assigns, and personal representatives of Purchaser and the Selling Members 

        2.2.3    The
foregoing indemnity is in addition to any indemnification obligations of the Selling Members pursuant to the Asset Purchase Agreement and none of the foregoing
shall be construed to limit such indemnification obligations pursuant to the Asset Purchase Agreement; provided, however, that Section 13.3 of the Asset Purchase Agreement relating to a minimum
"Threshold Amount" of claims prior to which indemnification may be sought under the Asset Purchase Agreement will not apply to the indemnification
obligations of the Selling Members provided in this First Amendment. 

        3.    Notices.    Any notices or other communications required hereunder will be given as provided in Section 15 of
the Asset Purchase Agreement. 

        4.    Successors.    This First Amendment shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that no party may assign its rights or obligations hereunder (directly or indirectly or as a matter of law) without the prior written consent of all of
the other parties. 

        5.    Article and Section Headings.    The Article and section headings used in this First Amendment are for the
convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties. 

        6.    Governing Law; Consent To Service.    This First Amendment shall be governed by and construed in accordance with
the laws of the State of California applicable to agreements made and to be performed therein (without giving effect to the conflict of law provisions of such jurisdiction). The parties agree that
service of process of notice in any such action, suit or proceeding shall be effective if in writing
and sent by certified or registered mail, return receipt requested, postage prepaid, as provided in Section 3 hereof. 

        7.    Entire Agreement.    This First Amendment represents the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior negotiations between the parties and cannot be amended, supplemented or changed without the written consent of each party
hereto. 

        8.    Counterparts.    This First Amendment may be signed in two or more counterparts, each signed by one or more of
the parties hereto so long as each party shall sign at least one counterpart of this Agreement, all of which taken together shall constitute one and the same instrument. The delivery of such
signatures by means of facsimile machine or .pdf file format will be treated in all respects, and will have the same binding legal effects, as original signatures delivered in person or by mail. 

[Signatures appear on next page] 

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        IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their duly authorized representatives as of the
date first above written. 

	LECG, LLC

A California limited liability company	 	LECG HOLDING COMPANY, LLC

A California limited liability company
	

By:	
 	

LECG Holding Company, LLC	
 	

By:	
 	

/s/  MARVIN A. TENENBAUM      

	Its:	 	Sole Member and Manager	 	 	 	 
	

 	
 	

By:	
 	

/s/  MARVIN A. TENENBAUM      
	
 	

Its:	
 	

General Counsel and Secretary

	 	 	Its:	 	General Counsel and Secretary
	 	 	 	 
	

 	
 	

 	
 	

 	
 	

BLDS, LLC

A Delaware limited liability company
	

 	
 	

 	
 	

 	
 	

By:	
 	

/s/  SAMUEL J. KURSH      

	

 	
 	

 	
 	

 	
 	

Its:	
 	

President

	

 	
 	

 	
 	

 	
 	

By:	
 	

/s/  BERNARD R. SISKIN      
 Dr. Bernard R. Siskin
	

 	
 	

 	
 	

 	
 	

By:	
 	

/s/  LEONARD A. CUPINGOOD      
 Dr. Leonard A. Cupingood
	

 	
 	

 	
 	

 	
 	

By:	
 	

/s/  DAVID W. GRIFFIN      
 Dr. David W. Griffin
	

 	
 	

 	
 	

 	
 	

By:	
 	

/s/  SAMUEL J. KURSH      
 Dr. Samuel J. Kursh

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Exhibit 10.37(a)

FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT

RECITALS

AGREEMENTExhibit 10.50

 

Execution Copy

 

SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT

 

This SECOND AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT (this “Amendment”), made and entered into as of
November 12, 2003, is by and among LECG, LLC, a California limited liability
company (the “Borrower”), the banks which are signatories hereto (each
individually, a “Bank,” and collectively, the “Banks”), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as one of the Banks, and as
administrative agent for the Banks (in such capacity, the “Agent”)

 

RECITALS

 

1.             The
Agent, the Banks and the Borrower entered into an Amended and Restated Credit
Agreement dated as of March 31, 2003 as amended by a First Amendment to Amended
and Restated Credit Agreement dated as of August 18, 2003 (as amended, the
“Credit Agreement”).

2.             LECG
Holding Company, LLC (“Holding”), wishes to reorganize into a corporation to be
named LECG Corporation, a Delaware corporation, for the purposes of conducting
an initial public offering, as more particularly described in that certain
Omnibus Plan of Reorganization dated as of November 7, 2003 by and among
Holding, LECG Corporation, TCEP/LECG Funding Corporation, Thoma Cressey Fund
VII, L.P., Thoma Cressey Friends Fund VII, L.P., David J. Teece and David
Kaplan.

3.             As
more particularly described in such Plan of Reorganization, in connection with
such Plan of Reorganization, (a) Holding will be merged with and into TCEP/LECG
Funding Corporation (to be renamed LECG Funding Corporation in connection with
such merger) (“Funding”), with Funding being the surviving corporation, (b)
Funding will become a wholly-owned Subsidiary of  LECG Corporation, (c) LECG Corporation will commit to pay tax and
retained earnings distributions to Holding’s prior common unitholders in the
amounts of approximately $1,000,000 and $14,100,000, respectively and (d) LECG
Corporation will commit to pay redemption payments to the former preferred
unitholders of Holding in the amount of approximately $40,600,000.

4.             The
Borrower has requested that the Banks agree to amend certain provisions of the
Credit Agreement and the Banks have agreed to such amendments, subject to the
terms and conditions set forth in this Amendment.

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby covenant and agree to be bound as follows:

 

Section
1.         Capitalized Terms.  Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement, unless the context shall otherwise
require.

Section
2.         Amendments.  The Credit
Agreement is hereby amended as follows:

2.1          Definitions.   The definitions of “Change of Control,” ”Guaranty” “Parent,” “Security Agreements” and “Security Documents” contained in
Section 1.1 of the Credit Agreement are deleted in their entireties and the
following definitions are inserted in such Section 1.1 in the appropriate
alphabetical order:

“Change of Control”: 
The occurrence, after the Closing Date and without the prior written
consent of the Majority Banks, of: (i) any person or group of persons (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended) obtaining ownership or control in one or more series of transactions
of 50% or more of the Equity Interests or 50% or more of the voting power of
the Parent entitled to vote in the election of members of the Board of
Directors of the Parent, or (ii) the Parent shall cease to own and control,
either directly or indirectly through Funding, one hundred percent (100%) of
the Equity Interests or one hundred percent (100%) of the voting power of the
Borrower entitled to vote in the selection of the Board of Directors of the
Borrower.

“Guaranties”:   The
separate guaranties to be given by the Parent and, after the consummation of
the Non-TCEP Exchange, LECG Funding, in favor of the Agent and the Banks and in
the form prescribed by the Agent, as the same may be amended, restated or
otherwise modified from time to time.

“Initial Public Offering”: 
The initial public offering of common stock in the Parent to be
conducted pursuant to the Registration Statement.

“LECG Funding”:  LECG
Funding Corporation, a Delaware corporation, f/k/a TCEP/LECG Funding Corporation.

“Merger”:  shall have
the meaning given to such term in the Plan of Reorganization.

“Non-TCEP Exchange”: 
shall have the meaning given to such term in the Plan of Reorganization.

“Parent”:  Prior to
the Non-TCEP Exchange, Holding; after the Non-TCEP Exchange, LECG Corporation,
a Delaware corporation.

“Plan of Reorganization”: 
collectively, (a) the Omnibus Plan of Reorganization dated as of
November 7, 2003  by and among Holding,
LECG Corporation, LECG Funding, Thoma Cressey Fund VII, L.P., Thoma Cressey
Friends Fund VII, L.P., David 

 

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J. Teece
and David Kaplan and (b) all other documents and instruments to which the
Parent, the Borrower or any of their Subsidiaries is a party that are attached
as exhibits or schedules to the Omnibus Plan of Reorganization specified in the
forgoing clause (a).

“Registration Statement”: The Form S-1 Registration Statement
Under the Securities Act of 1933 filed by the Parent with the Securities and
Exchange Commission as Registration No. 333-108189, as amended.

“Second Amendment”: 
The Second Amendment to Amended and Restated Credit Agreement, dated as
of November 12, 2003.

“Security Agreements”: 
The separate security agreements to be given by the Parent, the
Borrower, and after the consummation of the Non-TCEP Exchange, by TCEP Funding,
in favor of the Agent for the benefit of the Banks and in the form prescribed
by the Agent, as the same may be amended, restated or otherwise modified from
time to time.

“Security Documents”: 
The Guaranties and the Security Agreements and any other document or
instrument given by any Person to the Agent or the Banks to secure or guaranty
all or any portion of the Obligations.

2.2          Certain Mandatory Prepayments.  Section 2.7(b)(i)  of the Credit Agreement is deleted in its entirety and the
following is substituted in lieu thereof:

(i)            If
at any time a Prepayment Event occurs, the Borrower shall, within 5 Business
Days thereof,  pay to the Agent for the
ratable benefit of the Banks the Net Cash Proceeds realized by such Prepayment
Event, up to (a) in the case of any Prepayment Event other than the Initial
Public Offering, the amount of the Obligations (including any Unpaid Drawings
and the aggregate face amount of all outstanding Letters of Credit) or (b) in
the case of any Prepayment Event constituting the Initial Public Offering, up
to the amount of the outstanding principal and interest upon the Term Loan and
that portion of the outstanding principal balance of the Revolving Loans
exceeding $1,000,000.  This Section 2.7(b)(i) shall not be deemed to authorize any
sale, transfer or other transaction that would otherwise be prohibited by
Article 6.

2.3          Financial
Statements and Reports. 
Sections 5.1(a) and (c) of the Credit Agreement are amended by deleting
the phase “members’” as it appears therein and by substituting the phrase
“shareholders’”.

2.4          TCEP
Reorganization. 
A new Section 5.17 is added to the Credit Agreement to read in its
entirety as follows:

Section 5.17 TCEP Exchange.   Upon the consummation of the Non-TCEP
Exchange, the Borrower shall deliver to the Agent written notice thereof.

 

3

 

On the first Business Day after the tenth (10th) day
following the consummation of the Non-TCEP Exchange, the Borrower shall furnish
to the Agent (a) a copy of the company resolutions of LECG Funding authorizing
the execution, delivery and performance of LECG Funding’s Security Agreement
and Guaranty certified as true and accurate by its Secretary or Assistant
Secretary, along with a certification by such Secretary or Assistant Secretary
(i) certifying as to true and correct copies of the organizational
documents of LECG Funding, (ii) certifying as to true and accurate copies of
the resolutions of the governing body of LECG Funding authorizing the execution
and delivery of the LECG Funding’s Guaranty and Security Agreement and each
other document or instrument to be executed by LECG Funding in connection with
the Second Amendment and (iii) identifying each officer of LECG Funding
authorized to execute the LECG Funding’s Security Agreement and Guaranty and
any other instrument or agreement executed by the LECG Funding in connection
with the Second Amendment, and certifying as to specimens of such officer’s
signature and such officer’s incumbency in such offices as such officer holds,
(b) a Security Agreement, in the form reasonably prescribed by the Agent, duly
executed by LECG Funding, together with the original stock and member interest
certificates and notes specifically pledged to the Agent by such Security
Agreement together with stock or member interest powers and note endorsements
in the form prescribed by the Agent, (c) a Guaranty, in the form reasonably
prescribed by the Agent, duly executed by LECG Funding, (d) good standing
certificates for LECG Funding in the jurisdiction of its organization and for
the Borrower, the Parent and LECG Funding in the jurisdiction where each
entity’s chief executive office is located, each issued a date acceptable to
the Agent, (e) the stock certificate of LECG Funding issued in the name of the
Parent, together with a stock power endorsed in blank, in the form prescribed
by the Agent, and (f) an opinion of counsel to the Borrower, the Parent and
LECG Funding covering matters prescribed by the Agent relating to the Second
Amendment and otherwise in form and substance reasonably acceptable to the
Agent, duly executed by said counsel. 
Further, promptly upon consummation of the Merger, (a) the Borrower
shall furnish written notice thereof to the Agent, and (b) LECG Funding shall
furnish to the Agent the member interest certificate of the Borrower issued in
the name of LECG Funding, together with a member interest power endorsed in
blank, in the form prescribed by the Agent.

 

2.5          Merger.  Section 6.1 of the Credit Agreement is
amended to read as follows:

Section 6.1 Merger.  Neither the Parent nor the Borrower nor any of their Subsidiaries
will merge or consolidate or enter into any analogous reorganization or
transaction with any Person or liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution); provided,
however, that, upon written notice to the Banks and so long as no
Event of Default is continuing (a) any Domestic

 

4

 

 

Subsidiary of the Borrower may be merged with or
liquidated into the Borrower or any wholly-owned Domestic Subsidiary of
the Borrower (if the Borrower or such wholly-owned Domestic Subsidiary is
the surviving corporation), (b) in connection with the Merger, LECG Holding
Company, LLC may be merged with and into LECG Funding as long as LECG Funding
is the surviving corporation,  (c)
following completion of the Merger, LECG Funding may be merged with and into
the Parent so long as the Parent is the surviving corporation and so long as
the Parent has executed and delivered to the Agent amendments to its Security
Agreement in the form reasonably prescribed by the Agent to pledge to the Agent
for the benefit of the Banks all its Equity Interests in the Borrower after
giving effect to such merger, and (d) any wholly-owned Subsidiary of the
Borrower may merge into the Person such wholly-owned Subsidiary was formed to
acquire in connection with a Permitted Acquisition.

 

2.6          Restricted
Payments. 
Section 6.7 of the Credit Agreement is amended be deleting subsections
(c) and (e) thereof and by substituting in lieu thereof the following as
appropriate:

(c)           Restricted
Payments by the Parent made with the Net Cash Proceeds of the Initial Public
Offering (and after the payment to the Agent of the amounts specified in
Section 2.7(b)(i)) to pay its commitments to pay the tax distributions,
retained earnings payouts and redemptions of preferred stock to the former
holders of the Equity Interests in LECG Holding Company, LLC, in each case  in amounts and at times in substantial
compliance with the Plan of Reorganization;

                (e)           cash
distributions to the Parent by the Borrower or any other Subsidiary of the
Borrower.

 

2.7          Accounting
Changes; Organizational Documents; Acquisition Documents.  Section 6.9 of the Credit Agreement amended
by deleting the first parenthetical clause as it appears therein.

2.8          Initial Public
Offering. 
Section 6.10 of the Credit Agreement is deleted in its entirety and the
following is substituted in lieu thereof:

Section 6.10           Initial Public
Offering and Plan of Reorganization.  Neither the Parent nor the Borrower nor any of their Subsidiaries
will (a) amend, modify or change the Registration Statement or the Plan of
Reorganization in any manner that is materially adverse to the interests of the
Banks, (b) if the Borrower determines to consummate the Initial Public Offering,
fail to consummate the Initial Public Offering by December 31, 2003, (c) if the
Borrower determines to consummate the Initial Public Offering, consummate the
Initial Public Offering for Net Cash Proceeds in an amount less than the sum of
the outstanding principal

 

5

 

and
interest of the Term Loan, that portion of the outstanding principal balance of
the Revolving Loans exceeding $1,000,000 and the Restricted Payments described
in Section 6.7(c), (d) fail to distribute the Net Cash Proceeds of the Initial
Public Offering in accordance with the statement of sources and uses of funds
set forth in Schedule 6.10 hereto, (d) materially default under the Plan of
Reorganization, or (e) fail to consummate the transactions specified in the
Plan of Reorganization substantially in accordance therewith.

2.9          Indebtedness.  Section 6.13 of the Credit Agreement is
amended by deleting subsection (l) thereof and by substituting in lieu thereof
the following:

(l)            Commitments
of the Parent to make tax distributions, retained earnings payouts and
redemptions of preferred stock to the former holders of the Equity Interests in
LECG Holding Company, LLC in amounts and at times in substantial compliance
with the Plan of Reorganization.

2.10        Repudiation of
Guaranty. 
Section 7.1(l) of the Credit Agreement is amended to read in its
entirety as follows:

(l)   The Parent or LECG Funding shall repudiate
or purport to revoke its Guaranty or its Security Agreement, or any Guaranty or
any Security Agreement of any Guarantor for any reason  (other than by reason of any merger of LECG
Funding into Parent in the manner permitted by Section 6.1) of shall cease to
be in full force and effect as to the Parent or LECG Funding  or shall be judicially declared null and
void as to the Parent or LECG Funding.

 

Further, Section 7.1(o)
of the Credit Agreement is amended by deleting the semi-colon at the end
thereof and by substituting in lieu thereof a period.

 

2.11        Confidentiality of Information.  Section 9.7 of the Credit Agreement is
amended  by deleting the phrase
“Guaranty” as it appears therein and inserting in lieu thereof the phrase
“Guaranties.”

2.12        Schedule of
Subsidiaries.   
Schedule 4.19 of the Credit Agreement is hereby amended to read as set
forth in Exhibit A hereto, which Exhibit A is hereby made a part of the Credit
Agreement as Schedule 4.19 thereto.

2.13        Schedule of
Sources and Uses of Funds.    A new Schedule 6.10 of the Credit
Agreement is added and shall read as set forth in Exhibit B hereto, which
Exhibit B is hereby made a part of the Credit Agreement as Schedule 6.10
thereto.

Section
3.         Effectiveness of Amendments.  The
amendments contained in this Amendment shall become effective upon delivery by
the Borrower of, and compliance by the Borrower with, the following:

 

6

 

 

3.1          This
Amendment, duly executed by the Borrower.

3.2          A Security
Agreement, in the form of Exhibit C hereto, duly executed by the Parent.

3.3          A Guaranty,
in the form of Exhibit D hereto, duly executed by the Parent.

3.4          A copy of
the company resolutions of the Borrower authorizing the execution, delivery and
performance of this Amendment certified as true and accurate by its Secretary
or Assistant Secretary, along with a certification by such Secretary or
Assistant Secretary (i) certifying that there has been no amendment to the
organizational of the Borrower since true and accurate copies of the same were
delivered to the Agent with a certificate of the Secretary of the Borrower
dated March 31, 2003, or, if any of such documents have been amended, certifying
that true and accurate copies of such documents have been attached thereto,
(ii) certifying as to true and accurate copies of the resolutions of the
governing body of the Borrower authorizing the execution and delivery of this
Amendment and each other document or instrument in connection with this
Amendment (collectively, the “Amendment Documents”) to be executed by the
Borrower (iii) identifying each officer of the Borrower authorized to execute
this Amendment and any other instrument or agreement executed by the Borrower
in connection with this Amendment (collectively, the “Amendment Documents”),
and, if specimens of such officers’ signatures were not previously provided to
the Agent, certifying as to specimens of such officers’ signatures and such officers’
incumbency in such offices as such officers hold.

3.5          A copy of
the corporate resolutions of the Parent authorizing the execution, delivery and
performance of the Parent’s Security Agreement and Guaranty certified as true
and accurate by its Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary (i) certifying as
to true and correct copies of the organizational documents of the Parent, (ii)
certifying as to true and accurate copies of the resolutions of the governing
body of the Parent authorizing the execution and delivery of the Parent’s
Guaranty and Security Agreement and each other document or instrument to be
executed by the Parent in connection with this Amendment and (iii) identifying
each officer of the Parent authorized to execute the Parent’s Security
Agreement and Guaranty and any other instrument or agreement executed by the
Parent in connection with this Amendment, and certifying as to specimens of
such officer’s signature and such officer’s incumbency in such offices as such
officer holds.

3.6          Good
standing certificates for the Borrower and Parent in the jurisdiction of its
organization, issued at a date acceptable to the Agent.

3.7          UCC searches
for the Parent and LECG Funding from the State of Delaware, issued as of a date
acceptable to the Agent.

 

7

 

 

3.8          On the first
Business Day following the tenth (10th) day after the Non-TCEP Exchange, ACORD
27 certificates of insurance with respect to each of the businesses and real
properties of the Parent and LECG Funding in such amounts and with such
carriers as shall be reasonably acceptable to the Agent.

3.9          The Agent
shall have received a certificate of the Secretary of the Parent certifying
that a true and accurate copy of the Plan of Reorganization has been attached
thereto and such document has not been amended or otherwise modified and
remains in full force and effect.

3.10        The Borrower
shall have satisfied such other conditions as specified by the Agent, including
payment of all unpaid legal fees and expenses incurred by the Agent through the
date of this Amendment in connection with the Credit Agreement, the Security
Documents and the Amendment Documents.

Section
4.         Return of Certificates. 
Promptly after receiving notice of the consummation of the Merger, the
Agent shall deliver to Funding the member interest certificate of the Borrower
issued in the name of Holding and previously pledged by Holding to the Agent,
together with the corresponding member interest power.

Section
5.         [Reserved]

Section
6.         Representations, Warranties, Authority, No
Adverse Claim.

6.1          Reassertion of Representations and
Warranties, No Default.  The Borrower
hereby represents that on and as of the date hereof and after giving effect to
this Amendment (a) all of the representations and warranties contained in
the Credit Agreement are true, correct and complete in all respects as of the
date hereof as though made on and as of such date, except for changes permitted
by the terms of the Credit Agreement as amended by this Amendment, (b) the
facts stated in the Recitals 2 and 3 hereof are true and correct, and (c) there
will exist no Default or Event of Default under the Credit Agreement as amended
by this Amendment on such date which has not been waived by the Banks.

6.2          Authority, No Conflict, No Consent Required. The Borrower
represents and warrants that the Borrower has the power and legal right and
authority to enter into the Amendment Documents and has duly authorized as
appropriate the execution and delivery of the Amendment Documents and other
agreements and documents executed and delivered by the Borrower in connection
herewith or therewith by proper company action, and none of the Amendment
Documents nor the agreements contained herein or therein contravenes or constitutes
a default under any agreement, instrument or indenture to which the Borrower is
a party or a signatory or a provision of the Borrower’s articles of
organization, Bylaws or any other agreement or requirement of law, or result in
the imposition of any Lien on any of its property under any agreement binding
on or applicable to the Borrower or any of its property except, if any, in
favor of the Agent and 

 

8

 

the Banks.  The Borrower represents and warrants that no consent, approval or
authorization of or registration or declaration with any Person, including but
not limited to any governmental authority, is required in connection with the
execution and delivery by the Borrower of the Amendment Documents or other
agreements and documents executed and delivered by the Borrower in connection
therewith or the performance of obligations of the Borrower therein described,
except for those which the Borrower has made, obtained or provided and as to
which the Borrower has delivered certified copies of documents evidencing each
such action to the Agent and the Banks.

6.3          No Adverse Claim. The Borrower
warrants, acknowledges and agrees that no events have been taken place and no
circumstances exist at the date hereof which would give the Borrower a basis to
assert a defense, offset or counterclaim to any claim of the Agent or the Banks
with respect to the Obligations.

Section
7.         Affirmation of Credit Agreement, Further References, Affirmation of
Security Interest.  The Agent,
each Bank and the Borrower each acknowledge and affirm that the Credit
Agreement, as hereby amended, is hereby ratified and confirmed in all respects
and all terms, conditions and provisions of the Credit Agreement, except as
amended by this Amendment, shall remain unmodified and in full force and
effect.  All references in any document
or instrument to the Credit Agreement are hereby amended and shall refer to the
Credit Agreement as amended by this Amendment.   The Borrower confirms to the Agent and the Banks that the
Obligations are and continue to be secured by the security interest granted by
the Borrower in favor of the Agent and the Banks under the Security Agreements,
and all of the terms, conditions, provisions, agreements, requirements,
promises, obligations, duties, covenants and representations of the Borrower
under such documents and any and all other documents and agreements entered
into with respect to the obligations under the Credit Agreement are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.

Section
8.         Merger and Integration, Superseding Effect. 
This Amendment, from and after the date hereof, embodies the entire
agreement and understanding between the parties hereto and supersedes and has
merged into this Amendment all prior oral and written agreements on the same
subjects by and between the parties hereto with the effect that this Amendment,
shall control with respect to the specific subjects hereof and thereof.

Section
9.         Severability.  Whenever
possible, each provision of this Amendment and the other Amendment Documents
and any other statement, instrument or transaction contemplated hereby or
thereby or relating hereto or thereto shall be interpreted in such manner as to
be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment, the other Amendment
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be held to be prohibited,
invalid or unenforceable under the applicable law, such provision shall be
ineffective in such jurisdiction only to the extent of such prohibition,
invalidity or unenforceability, without invalidating or rendering unenforceable
the remainder of such 

 

9

 

provision
or the remaining provisions of this Amendment, the other Amendment Documents or
any other statement, instrument or transaction contemplated hereby or thereby
or relating hereto or thereto in such jurisdiction, or affecting the
effectiveness, validity or enforceability of such provision in any other
jurisdiction.

Section
10.       Successors.  The Amendment Documents shall be binding
upon the Borrower, the Agent and the Banks and their respective successors and
assigns, and shall inure to the benefit of the Borrower, the Agent and the
Banks and the successors and assigns of the Agent and the Banks.

Section
11.       Legal Expenses.  As provided
in Section 9.2 of the Credit Agreement, the Borrower agrees to reimburse the
Agent, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorney’ fees and legal expenses of Dorsey & Whitney
LLP, counsel for the Agent) incurred in connection with the Credit Agreement,
including in connection with the negotiation, preparation and execution of the
Amendment Documents and all other documents negotiated, prepared and executed
in connection with the Amendment Documents, and in enforcing the obligations of
the Borrower under the Amendment Documents, and to pay and save the Agent and
the Banks harmless from all liability for, any stamp or other taxes which may
be payable with respect to the execution or delivery of the Amendment
Documents, which obligations of the Borrower shall survive any termination of
the Credit Agreement.

Section
12.       Headings.  The headings
of various sections of this Amendment have been inserted for reference only and
shall not be deemed to be a part of this Amendment.

Section
13.       Counterparts.  The
Amendment Documents may be executed in several counterparts as deemed necessary
or convenient, each of which, when so executed, shall be deemed an original,
provided that all such counterparts shall be regarded as one and the same
document, and either party to the Amendment Documents may execute any such
agreement by executing a counterpart of such agreement.

Section 14.       Governing Law.  THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

[Remainder of page is
intentionally left blank.]

 

 

10

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

 

	
  BORROWER:

  	
   

  	
  LECG, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ J. GEOFFREY COLTON

  
	
   

  	
   

  	
   

  	
  J. Geoffrey Colton

  
	
   

  	
   

  	
  Title:

  	
  Director of Finance

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  U.S. BANK NATIONAL
  ASSOCIATION,

  
	
   

  	
   

  	
  In its individual
  corporate capacity and as Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ ROBERT A. ROSATI

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LASALLE BANK NATIONAL
  ASSOCIATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ PATRICK J. O'TOOLE

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

 

 

S-1

 

EXHIBIT A TO SECOND
AMENDMENT

TO CREDIT AGREEMENT

 

Schedule 4.19

 

Corporate Structure of
Parent Borrower and Subsidiaries

 

 

 

 

 

 

2

EXHIBIT B TO SECOND
AMENDMENT

TO CREDIT AGREEMENT

 

Schedule 6.10

 

Sources and Uses of Funds
for IPO Proceeds

 

Estimated Receipts and
Disbursements In Connection With LECG's IPO

 

 

	
   

  	
   

  	
   

  	
   

  
	
  Net Proceeds:

  	
   

  	
   

  	
   

  
	
  Estimated proceeds from IPO

  	
  (1)

  	
   

  	
  $100,005,000 

  
	
  Underwriters’ discount

  	
   

  	
   

  	
  (7,000,350)

  
	
  less costs of offering

  	
  (1a)

  	
   

  	
  (1,200,000)

  
	
  Net amount available

  	
   

  	
   

  	
  91,804,650 

  
	
   

  	
   

  	
   

  	
   

  
	
  Disbursements:

  	
   

  	
   

  	
   

  
	
  Preferred redemption:

  	
   

  	
   

  	
   

  
	
  Thoma Cressey

  	
   

  	
   

  	
  19,776,984

  
	
  Others

  	
   

  	
   

  	
  20,935,636

  
	
  Total preferred redemption

  	
  (2)

  	
   

  	
  40,712,619

  
	
   

  	
   

  	
   

  	
   

  
	
  Repayment of debt

  	
  (2a)

  	
   

  	
  23,558,500 

  
	
   

  	
   

  	
   

  	
   

  
	
  Previously taxed but undistributed (PTBU):

  	
   

  	
   

  	
   

  
	
  Initial estimated payment

  	
  (3)

  	
   

  	
   

  
	
  Thoma Cressey

  	
   

  	
   

  	
  4,290,416 

  
	
  Others

  	
   

  	
   

  	
  6,833,307 

  
	
  Total initial payment

  	
   

  	
   

  	
  11,123,723 

  
	
  Remaining estimate

  	
  (4)

  	
   

  	
  2,976,277 

  
	
  Total estimated PTBU

  	
   

  	
   

  	
  14,100,000 

  
	
   

  	
   

  	
   

  	
   

  
	
  Remaining estimated tax
  distribution

  	
  (5)

  	
   

  	
  1,000,000 

  
	
   

  	
   

  	
   

  	
   

  
	
  Estimated total disbursements

  	
   

  	
   

  	
  79,371,119 

  
	
  Estimated net proceeds after disbursements

  	
   

  	
   

  	
  $12,433,531 

  

 

(1)  Assumes no change to offering or sale of
sale of overallotment.

 

(1a)  Estimate per the S-1. Final amounts will
likely be higher than estimated.

 

(2) To be paid within 5 business days following the availability of
funds.  Based on accrued

dividends
through and including November 13, 2003.

 

(2a)  To be paid within 5 business days following
the availability of funds.  Based on the

outstanding balances in the
revolver and term loan as of November 12, 2003.  Includes an estimate

for
accrued interest through repayment date.

 

(3)  To be paid within 5 business days following
the availability of funds.  Based on
taxable

income less cash
distributions through 12/31/02. 
Represents approximately 80% of the estimated

previously
taxed but undistributed.

 

(4)  To be paid upon determination of the final taxable income per the
return due March 15, 2004.

 

(5) Estimate of the tax
distribution associated with final taxable income.  The amount will be

determined
upon the finalization of taxable income.

 

3

EXHIBIT C TO SECOND
AMENDMENT

TO CREDIT AGREEMENT

 

Form of Security
Agreement

 

 

4

 

 

Execution Copy

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of November 12,
2003, is made and given by LECG CORPORATION, a corporation organized under the
laws of the State of Delaware (the “Grantor”), to U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as administrative agent for the
banks (the “Banks”) from time to time party to the Credit Agreement defined
below (the “Secured Party”).

RECITALS

A.            LECG, LLC (the “Borrower”), the
Secured Party, the Banks and LaSalle Bank National Association, as
documentation agent for the Banks have entered into an Amended and Restated Credit
Agreement dated as of March 31, 2003 (as the same has been and may hereafter be
amended, supplemented, extended, restated, or otherwise modified from time to
time, the “Credit Agreement”) pursuant to which the Banks have agreed to extend
to the Borrower certain credit accommodations consisting of certain revolving
loans and term loans.

B.            The
Grantor has made and given to the Secured Party and the Banks its Guaranty
dated concurrently herewith (as amended, restated or otherwise modified from
time to time, the “Guaranty”) whereunder, among other things, the Guarantor has
absolutely and unconditionally guarantied all of the Borrower’s obligations
under the Credit Agreement.

C.            It is a condition precedent to the
obligation of the Banks to continue credit accommodations pursuant to the terms
of the Credit Agreement that this Agreement be executed and delivered by the
Grantor.

D.            The Grantor finds it advantageous,
desirable and in its best interests to comply with the requirement that it
execute and deliver this Security Agreement to the Secured Party.

NOW, THEREFORE, in consideration of the premises and
in order to induce the Banks to enter into the Credit Agreement and to extend
credit accommodations to the Borrower thereunder, the Grantor hereby agrees
with the Secured Party for itself and for the Banks’ benefit as follows:

Section 1.               Defined
Terms.

1(a)         As
used in this Agreement, the following terms shall have the meanings indicated:

“Account” means a right to payment of a
monetary obligation, whether or not earned by performance, (i) for property
that has been or is to be sold, leased, licensed, assigned, or otherwise
disposed of, (ii) for services rendered or to be rendered, (iii) for a policy
of insurance issued or to be issued, (iv) for a secondary obligation incurred
or to be incurred, (v) for energy provided or to be provided, (vi) for the use
or hire of a vessel under a charter or other contract, (vii) arising out of the
use of a credit or charge card or information contained on or for use with the
card, or (viii) as winnings in a lottery or 

 

other game of chance
operated, sponsored, licensed or authorized by a State or governmental unit of
a State, or person licensed or authorized to operate the game by a State or
governmental unit of a State.  The term
includes health-care insurance receivables.

“Account Debtor” shall mean a Person who is
obligated on or under any Account, Chattel Paper, Instrument or General
Intangible.

“Borrower” shall have the meaning given to such
term in Recital A hereof.

“Chattel Paper” shall mean a record or records
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, a
security interest in specific goods and license of software used in the goods,
a lease of specific goods, or a lease of specific goods and license of software
used in the goods.

“Collateral” shall mean all property and rights
in property now owned or hereafter at any time acquired by the Grantor in or
upon which a Security Interest is granted to the Secured Party by the Grantor
under this Agreement.

“Control” shall have the meaning given to such
term in Section 8-106 of the Uniform Commercial Code in effect in the State of
Minnesota as of the date of this Agreement.

“Deposit Account” shall mean any demand, time,
savings and passbook, or similar accounts maintained with any bank.

“Document” shall mean a document of title or a
warehouse receipt.

“Equipment” 
shall mean all machinery, equipment, motor vehicles, furniture,
furnishings and fixtures, including all accessions, accessories and attachments
thereto, and any guaranties, warranties, indemnities and other agreements of
manufacturers, vendors and others with respect to such Equipment.

“Equity Interests” shall mean all shares,
interests, participation or other equivalents, however designated, of or in a
corporation, a limited liability company, a general partnership, a limited
liability partnership or a limited partnership, whether or not voting,
including but not limited to common stock, member interests, warrants,
partnership interests, preferred stock, convertible debentures, and all
agreements, instruments and documents convertible, in whole or in part, into
any one or more or all of the foregoing.

“Event of Default” shall have the meaning given
to such term in Section 21 hereof.

“Financing Statement” shall have the meaning
given to such term in Section 4 hereof.

 

2

 

“Foreign Subsidiary” shall mean any corporation
that is a foreign  corporation, as
defined in Section 7701(a)(5) of the Internal Revenue Code of 1986, more than
50 percent of (i) the total combined voting power of all classes of stock of
such corporation entitled to vote, or (ii) the total value of the stock of such
corporation, is directly or indirectly owned by the Borrower.

“Fixtures” shall mean goods that have
become  so related to particular real
property that an interest in them arises under real property law.

“General Intangibles” shall mean any personal
property (other than goods, Accounts, Chattel Paper, Deposit Accounts,
Documents, Instruments, Investment Property, Letter of Credit Rights and money)
including things in action, contract rights, payment intangibles, software,
corporate and other business records, limited liability company interests,
partnership interests, inventions, designs, patents, patent applications,
service marks, trademarks, tradenames, trade secrets, internet domain names,
engineering drawings, good will, registrations, copyrights, licenses,
franchises, customer lists, tax refund claims, royalties, licensing and product
rights, rights to the retrieval from third parties of electronically processed
and recorded data and all rights to payment resulting from an order of any
court.

“Guaranty” shall have the meaning given to such
term in Recital B hereof.

“Initial Pledged Collateral” shall mean the
Pledged Equity Interests and the Pledged Debt.

“Instrument” shall mean a negotiable instrument
or any other writing which evidences a right to the payment of a monetary
obligation and is not itself a security agreement or lease and is of a type
which is transferred in the ordinary course of business by delivery with any
necessary endorsement or assignment.

“Inventory” shall mean goods, other than farm
products, which are leased by a person as lessor, are held by a person for sale
or lease or to be furnished under a contract of service, are furnished by a
person under a contract of service, or consist of raw materials, work in process,
or materials used or consumed in a business or incorporated or consumed in the
production of any of the foregoing and supplies, in each case wherever the same
shall be located, whether in transit, on consignment, in retail outlets,
warehouses, terminals or otherwise, and all property the sale, lease or other
disposition of which has given rise to an Account and which has been returned
to the Grantor or repossessed by the Grantor or stopped in transit.

“Investment Property” shall mean a security,
whether certificated or uncertificated, a security entitlement, a securities
account and all financial assets therein, a commodity contract or a commodity
account.

“Letter of Credit Right” shall mean a right to
payment or performance under a letter of credit, whether or not the beneficiary
has demanded or is at the time entitled to demand payment or performance.

 

3

 

“Lien” shall mean any security interest,
mortgage, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device (including the interest of the lessors under
capitalized leases), in, of or on any assets or properties of the Person
referred to.

“Obligations” shall mean (a) all indebtedness,
liabilities and obligations of the Grantor to the Banks or the Secured Party of
every kind, nature or description under the Guaranty, (b) all liabilities of
the Grantor under this Agreement, and (c) in all of the foregoing cases whether
due or to become due, and whether now existing or hereafter arising or
incurred.

“Person” shall mean any individual,
corporation, partnership, limited partnership, limited liability company, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.

“Pledged Collateral”  shall mean collectively (a) the Initial Pledged Collateral and
the certificates and instruments representing the Initial Pledged Collateral,
and all dividends, interest, principal, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of the Initial Pledged Collateral, (b) all
additional shares of stock, member interests, partnership interests and debt of
any issuer of or obligor upon the Initial Pledged Collateral from time to time
acquired by the Grantor in any manner, and the certificates and instruments
representing such additional shares, member interest, partnership interests and
debt, and all dividends, interest, principal, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, member interests,
partnership interests and debt, and (c) any and all collateral security now or
hereafter securing all or any items of the Pledged Debt or securing all or any
items of any additional debt described in clause (c) above (including after-acquired
security), and agreements granting such security (the “Related Collateral”),
and all rights, remedies, powers and privileges of the Grantor under all of the
foregoing.

“Pledged Debt” shall mean the indebtedness
described in Schedule I hereto and issued by the obligors named therein.

“Pledged Equity Interests” shall mean the
Equity Interests, if any, described in Schedule I hereto issued by the
corporations, limited liability companies and partnerships named therein,
including (a) the Grantor’s capital account, if any, relating to the issuers of
such Equity Interests, (b) the entire economic and voting interest of the
Grantor as a shareholder, member of partner, as applicable in the issuers of
such Equity Interest and (c) the Grantor’s interest in the organizational documents
of the issuers of such Equity Interests.

“Related Collateral” shall have the meaning
given to such term in the definition of “Pledged Collateral” herein.

 

4

 

“Securities Account” shall have the meaning
given to such term in Section 8-501 the Uniform Commercial Code in effect in
the State of Minnesota as of the date of this Agreement.

“Security Interest” shall have the meaning
given such term in Section 2 hereof.

1(b)         All
other terms used in this Agreement which are not specifically defined herein
shall have the meaning assigned to such terms in Article 9 of the Uniform
Commercial Code as adopted in the State of Minnesota.

1(c)         Unless
the context of this Agreement otherwise clearly requires, references to the
plural include the singular, the singular, the plural and “or” has the
inclusive meaning represented by the phrase “and/or.”  The words “include,” “includes” and “including” shall be deemed
to be followed by the phrase “without limitation.”  The words “hereof,” “herein,” “hereunder” and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement.  References
to Sections are references to Sections in this Security Agreement unless
otherwise provided.

Section 2.               Grant
of Security Interest.  As security
for the payment and performance of all of the Obligations, the Grantor hereby
grants to the Secured Party for itself and for the benefit of the Banks a
security interest (the “Security Interest”) in all of the Grantor’s right,
title, and interest in and to the following, whether now or hereafter owned,
existing, arising or acquired and wherever located:

2(a)         All
Accounts.

2(b)         All
Chattel Paper.

2(c)         All
Deposit Accounts

2(d)         All
Documents.

2(e)         All
Equipment.

2(f)          All
Fixtures.

2(g)         All
General Intangibles.

2(h)         All
Instruments.

2(i)          All
Inventory.

2(j)          All
Investment Property.

2(k)         All
Letter of Credit Rights.

2(l)          All
Pledged Collateral.

 

5

 

2(k)         To
the extent not otherwise included in the foregoing, all other rights to the
payment of money, including rents and other sums payable to the Grantor under
leases, rental agreements and other Chattel Paper; all books, correspondence,
credit files, records, invoices, bills of lading, and other documents relating
to any of the foregoing, including, without limitation, all tapes, cards,
disks, computer software, computer runs, and other papers and documents in the
possession or control of the Grantor or any computer bureau from time to time
acting for the Grantor; all rights in, to and under all policies insuring the
life of any officer, director, stockholder, manager, member or employee of the
Grantor, the proceeds of which are payable to the Grantor; all accessions and
additions to, parts and appurtenances of, substitutions for and replacements of
any of the foregoing; and all proceeds (including insurance proceeds) and
products thereof.

Notwithstanding
anything herein to the contrary, in no event shall the Security Interest attach
to, or the terms “Collateral” or “Pledged Collateral” be deemed to include, any
of the outstanding Equity Interests in a Foreign Subsidiary (a) in excess of
65% of the voting power of all classes of Equity Interests of such Foreign
Subsidiary entitled to vote in the election of directors or other similar body
of such Foreign Subsidiary or (b) to the extent that the pledge thereof is
prohibited by the laws of the jurisdiction of such Foreign Subsidiary’s
organization.

Section 3.               Grantor
Remains Liable.  Anything herein to
the contrary notwithstanding, (a) the Grantor shall remain liable under the
Accounts, Chattel Paper, General Intangibles and other items included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Party of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under the
Accounts and any items included in the Collateral, and (c) the Secured Party
shall have no obligation or liability under Accounts, Chattel Paper, General
Intangibles and other items included in the Collateral by reason of this
Agreement, nor shall the Secured Party be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.

Section 4.               Title
to Collateral.  The Grantor has (or
will have at the time it acquires rights in Collateral hereafter acquired or
arising) and will maintain so long as the Security Interest may remain
outstanding, title to each item of Collateral (including the proceeds and
products thereof), free and clear of all Liens except the Security Interest and
except Liens permitted by the Credit Agreement.  The Grantor will not license any Collateral.  The Grantor will defend the Collateral
against all claims or demands of all Persons (other than the Secured Party and
Persons holding Liens permitted by the Credit Agreement) claiming the
Collateral or any interest therein.  As
of the date of execution of this Security Agreement, no effective financing
statement or other similar document used to perfect and preserve a security
interest under the laws of any jurisdiction (a “Financing Statement”) covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed (a) in favor of the Secured Party relating to this
Agreement, or (b) to perfect Liens permitted by the Credit Agreement.

Section 5.               Disposition
of Collateral.  The Grantor will not
sell, lease or otherwise dispose of, or discount or factor with or without
recourse, any Collateral, except sales of items of 

 

6

 

Inventory in the ordinary course of business and except as otherwise
permitted by the Credit Agreement.

Section 6.               Delivery
of Pledged Collateral.  All
certificates and instruments representing or evidencing the Pledged Collateral
shall be delivered to the Secured Party contemporaneously with the execution of
this Agreement, but only to the extent that such certificates and instruments
exist.  All certificates and instruments
representing or evidencing Pledged Collateral received by the Grantor after the
execution of this Agreement shall be delivered to the Secured Party promptly
upon the Grantor’s receipt thereof.  All
such certificates and instruments shall be held by or on behalf of the Secured
Party pursuant hereto and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to the Secured Party.  The Secured Party shall have the right at
any time, whether before or after an Event of Default, to cause any or all of
the Pledged Equity Interests to be transferred of record into the name of the
Secured Party or its nominee (but subject to the rights of the Grantor under
Section 8) and to exchange certificates representing or evidencing Pledged
Equity Interests for certificates of smaller or larger denominations.

Section 7.               Certain
Warranties and Covenants.  The
Grantor makes the following warranties and covenants:

(a)            The
Pledged Equity Interests have been duly authorized and validly issued by the
issuer thereof and are fully paid and non-assessable.  The Pledged Debt has been duly authorized,
issued and delivered and is the legal, valid and binding obligation of the
obligors thereof, and is not in default. 
The certificates and instruments, as applicable, representing the
Pledged Collateral are genuine.  Except
as may be provided by the law of the jurisdiction in which a Foreign Subsidiary
is organized, the Pledged Collateral is not subject to any offset or similar
right or claim of the issuers thereof.

(b)           The
Pledged Equity Interests constitute the percentage of the issued and
outstanding ownership interests of the respective issuers thereof indicated on
Schedule I (if any such percentage is so indicated).

(c)           The
Pledged Debt constitutes all of the outstanding indebtedness for money borrowed
or for the deferred purchase price of property (other than accounts payable on
ordinary trade terms) of the respective obligors thereof owed to the Grantor
and is outstanding in the principal amount indicated on Schedule I.

(d)           The
Grantor shall not forgive, cancel, subordinate, compromise, modify, amend or
extend the time for payment of, or waive any default under, any of the Pledged
Debt, or modify or amend, or waive any default under any agreement with respect
to the Related Collateral, or consent to or acquiesce in any of the foregoing,
without in each case the prior written consent of the Secured Party.

(e)           None of
the Pledged Collateral (i) shall be deposited in, credited to or otherwise
subject to any Securities Account, except a Securities Account subject to the 

 

7

 

Control of the Secured Party, or (ii) shall be subject to
the Control or any Person other than the Bank.

(f)            The
Grantor will (i) cause each issuer of the Pledged Equity Interests that it
controls not to issue any Equity Interests in addition to or in substitution
for the Pledged Shares issued by such issuer, except to the Grantor, and (ii)
pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional Equity Interests of each issuer of the Pledged
Equity Interests that are issued to the Grantor.

Section 8.               Voting
Rights; Dividends; Distributions, Etc.

(a)           Subject
to paragraph (d) of this Section 8, the Grantor shall be entitled to exercise
or refrain from exercising any and all voting and other consensual rights
pertaining to the Pledged Equity Interests or any part thereof for any purpose
not inconsistent with the terms of this Agreement or the Credit Agreement;
provided, however, that the Grantor shall not exercise or refrain from
exercising any such right if such action could reasonably be expected to have a
material adverse effect on the value of the Pledged Collateral or any material
part thereof.

(b)           Subject
to paragraph (e) of this Section 8, the Grantor shall be entitled to receive,
retain, and use in any manner not prohibited by the Credit Agreement any and
all principal, interest, dividends and other distributions paid in respect of
the Pledged Collateral; provided, however, that any and all

i.                                          principal, interest, dividends and other
distributions paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral,

ii.                                       dividends and other distributions paid or
payable in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution or in connection with a reduction
of capital, capital surplus or paid-in-surplus, and

iii.                                    cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or in exchange
for, any Pledged Collateral (other than the Pledged Debt),

shall be, and shall be
forthwith delivered to the Secured Party to hold as, Pledged Collateral and
shall, if received by the Grantor, be received in trust for the benefit of the
Secured Party, be segregated from the other property or funds of the Grantor,
and be forthwith delivered to the Secured Party as Pledged Collateral in the
same form as so received (with any necessary indorsement or assignment).  The Grantor shall, upon request by the
Secured Party, promptly execute all such documents and do all such acts as may
be necessary or desirable to give effect to the provisions of this Section
8(b).

 

8

 

(c)           The
Secured Party shall execute and deliver (or cause to be executed and delivered)
to the Grantor all such proxies and other instruments as the Grantor may
reasonably request for the purpose of enabling the Grantor to exercise the
voting and other rights that it is entitled to exercise pursuant to Section
8(a) hereof and to receive the principal, interest, dividends and other
distributions it is authorized to receive and retain pursuant to Section 8(b)
hereof.

(d)           Upon the
occurrence and during the continuance of any Event of Default, the Secured
Party shall have the right in its sole discretion, and the Grantor shall
execute and deliver all such proxies and other instruments as may be necessary
or appropriate to give effect to such right, to terminate all rights of the
Grantor to exercise or refrain from exercising the voting and other consensual
rights it would otherwise be entitled to exercise pursuant to Section 8(a)
hereof, and all such rights shall thereupon become vested in the Secured Party
who shall thereupon have the sole right to exercise or refrain from exercising
such voting and other consensual rights; provided, however, that the Secured
Party shall not be deemed to possess or have control over any voting rights
with respect to any Pledged Collateral unless and until the Secured Party has
given written notice to the Grantor that any further exercise of such voting
rights by the Grantor is prohibited and that the Secured Party and/or its
assigns will henceforth exercise such voting rights; and provided, further,
that neither the registration of any item of Pledged Collateral in the Secured
Party’s name nor the exercise of any voting rights with respect thereto shall
be deemed to constitute a retention by the Secured Party of any such Collateral
in satisfaction of the Obligations or any part thereof.

(e)           Upon the
occurrence and during the continuance of any Event of Default:

i.                                          all rights of the Grantor to receive the
principal, interest, dividends and other distributions that it would otherwise
be authorized to receive and retain pursuant to Section 8(b) hereof shall
cease, and all such rights shall thereupon become vested in the Secured Party
who shall thereupon have the sole right to receive and hold such property as
Pledged Collateral, and

ii.                                       all payments of principal, interest,
dividends and other distributions that are received by the Grantor contrary to
the provisions of paragraph (i) of this Section 8(e) shall be received in trust
for the benefit of the Secured Party, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Secured Party as Pledged
Collateral in the same form as so received (with any necessary indorsement).

Section 9.               Names,
Offices, Locations, Jurisdiction of Organization.  The Grantor’s legal name (as set forth in its constituent
documents filed with the appropriate governmental official or agency) is as set
forth in the opening paragraph hereof. 
The jurisdiction of organization of the Grantor is the state of
indicated in the Preamble hereof and the organizational number of the Grantor
is indicated on the signature page hereof. 
The Grantor will from time to time at the request of the Secured Party
provide the Secured Party with current good standing 

 

9

 

certificates and/or state-certified constituent documents from the
appropriate governmental officials.  The
chief place of business and chief executive office of Grantor are located at
its address set forth on the signature page hereof.  The Grantor will not relocate any item of Collateral into any
jurisdiction in which an additional Financing Statement would be required to be
filed to maintain the Secured Party’s perfection in such Collateral.  The Grantor will not change its name, the
location of its chief place of business and chief executive office or its
corporate structure (including without limitation, its jurisdiction of
organization) unless the Secured Party has been given at least 30 days prior
written notice thereof and the Grantor has executed and delivered to the
Secured Party such Financing Statements and other instruments required or
appropriate to continue the perfection of the Security Interest.

Section 10.             Rights
to Payment.  Except as the Grantor
may otherwise advise the Secured Party in writing, each Account, Chattel Paper,
Document, General Intangible and Instrument constituting or evidencing
Collateral is (or, in the case of all future Collateral, will be when arising
or issued) the valid, genuine and legally enforceable obligation of the Account
Debtor or other obligor named therein or in the Grantor’s records pertaining
thereto as being obligated to pay or perform such obligation.  Without the Secured Party’s prior written
consent, the Grantor will not agree to any modifications, amendments,
subordinations, cancellations or terminations of the obligations of any such Account
Debtors or other obligors except in the ordinary course of business.   The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder.

Section 11.             Further
Assurances; Attorney-in-Fact.

(a)           The
Grantor agrees that from time to time, at its expense, it will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or that the Secured Party may reasonably request, in
order to perfect and protect the Security Interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its
rights and remedies hereunder with respect to any Collateral (but any failure
to request or assure that the Grantor execute and deliver such instrument or
documents or to take such action shall not affect or impair the validity,
sufficiency or enforceability of this Agreement and the Security Interest,
regardless of whether any such item was or was not executed and delivered or
action taken in a similar context or on a prior occasion).  Without limiting the generality of the
foregoing, the Grantor will, promptly and from time to time at the request of
the Secured Party:  (i) execute and file
such Financing Statements or continuation statements in respect thereof, or
amendments thereto, and such other instruments or notices (including fixture
filings with any necessary legal descriptions as to any goods included in the
Collateral which the Secured Party determines might be deemed to be fixtures,
and instruments and notices with respect to vehicle titles), as may be
necessary or desirable, or as the Secured Party may request, in order to
perfect, preserve, and enhance the Security Interest granted or purported to be
granted hereby; (ii) obtain from any bailee holding any item of Collateral an
acknowledgement, in form satisfactory to the Secured Party that such bailee
holds such collateral for the benefit of the Secured Party; (iii) obtain from
any securities intermediary, or other party holding any item of Collateral,
control agreements in form satisfactory to the Secured Party (iv) and deliver
and pledge to the Secured Party, all 

 

10

 

Instruments and Documents, duly indorsed or accompanied by
duly executed instruments of transfer or assignment, with full recourse to the
Grantor, all in form and substance satisfactory to the Secured Party; (v)
obtain waivers, in form satisfactory to the Secured Party, of any claim to any
Collateral from any landlords or mortgagees of any property where any Inventory
or Equipment is located.

(b)           The
Grantor hereby authorizes the Secured Party to file one or more Financing
Statements or continuation statements in respect thereof, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Grantor where permitted by law.  The
Grantor irrevocably waives any right to notice of any such filing.  A photocopy or other reproduction of this
Agreement or any Financing Statement covering the Collateral or any part
thereof shall be sufficient as a Financing Statement where permitted by law.

(c)           The
Grantor will furnish to the Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail and in form and substance reasonably
satisfactory to the Secured Party.

(d)           In
furtherance, and not in limitation, of the other rights, powers and remedies
granted to the Secured Party in this Agreement, the Grantor hereby appoints the
Secured Party the Grantor’s attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor or otherwise, from time to time
in the Secured Party’s good faith discretion, to take any action (including the
right to collect on any Collateral) and to execute any instrument that the
Secured Party may reasonably believe is necessary or advisable to accomplish
the purposes of this Agreement, in a manner consistent with the terms hereof.

Section 12.             Taxes
and Claims.  The Grantor will
promptly pay all taxes and other governmental charges levied or assessed upon
or against any Collateral or upon or against the creation, perfection or
continuance of the Security Interest, as well as all other claims of any kind
(including claims for labor, material and supplies) against or with respect to
the Collateral, except to the extent (a) such taxes, charges or claims are
being contested in good faith by appropriate proceedings, (b) such proceedings
do not involve any material danger of the sale, forfeiture or loss of any of
the Collateral or any interest therein and (c) such taxes, charges or claims
are adequately reserved against on the Grantor’s books in accordance with
generally accepted accounting principles.

Section 13.             Books
and Records.  The Grantor will keep
and maintain at its own cost and expense satisfactory and complete records of
the Collateral, including a record of all payments received and credits granted
with respect to all Accounts, Chattel Paper and other items included in the
Collateral.

Section 14.             Inspection,
Reports, Verifications.  The Grantor
will at all reasonable times permit the Secured Party or its representatives to
examine or inspect any Collateral, any evidence of Collateral and the Grantor’s
books and records concerning the Collateral, wherever located. The Grantor will
from time to time when requested by the Secured Party furnish to the 

 

11

 

Secured Party a report on its Accounts, Chattel Paper, General
Intangibles and Instruments, naming the Account Debtors or other obligors
thereon, the amount due and the aging thereof. 
Upon the occurrence and during the continuation of an Event of Default,
the Secured Party or its designee is authorized to contact Account Debtors and
other Persons obligated on any such Collateral from time to time to verify the
existence, amount and/or terms of such Collateral.

Section 15.             Notice
of Loss.  The Grantor will promptly
notify the Secured Party of any loss of or material damage to any material item
of Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.

Section 16.             Insurance.  The Grantor will keep the Inventory and
Equipment insured against “all risks” for the full replacement cost thereof
subject to a deductible, and with an insurance company or companies,
satisfactory to the Secured Party, the policies to protect the Secured Party as
its interests may appear, with such policies or certificates with respect
thereto to be delivered to the Secured Party at its request.  Each such policy or the certificate with
respect thereto shall provide that such policy shall not be canceled or allowed
to lapse unless at least 30 days prior written notice is given to the Secured
Party.

Section 17.             Lawful
Use; Fair Labor Standards Act. The Grantor will use and keep the Collateral,
and will require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance.  All Inventory of the Grantor
as of the date of this Agreement that was produced by the Grantor or with
respect to which the Grantor performed any manufacturing  or assembly process was produced by the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards Act,
and all Inventory produced, manufactured or assembled by the Grantor after the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.

Section 18.             Action
by the Secured Party.  If the
Grantor at any time fails to perform or observe any of the foregoing
agreements, the Secured Party shall have (and the Grantor hereby grants to the
Secured Party) the right, power and authority (but not the duty) to perform or
observe such agreement on behalf and in the name, place and stead of the
Grantor (or, at the Secured Party’s option, in the Secured Party’s name) and to
take any and all other actions which the Secured Party may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of Liens, the procurement and maintenance of
insurance, the execution of assignments, security agreements and Financing
Statements, and the indorsement of instruments); and the Grantor shall
thereupon pay to the Secured Party on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys’ fees and legal
expenses) incurred by the Secured Party in connection with or as a result of
the performance or observance of such agreements or the taking of such action
by the Secured Party, together with interest thereon from the date expended or
incurred at the highest lawful rate then applicable to any of the Obligations,
and all such monies expended, costs and expenses and interest thereon shall be
part of the Obligations secured by the Security Interest.

 

12

 

Section 19.             Insurance
Claims.  As additional security for
the payment and performance of the Obligations, the Grantor hereby assigns to the
Secured Party for itself and the Banks’ benefit any and all monies (including
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of the Grantor with respect to, any and all
policies of insurance now or at any time hereafter covering the Collateral or
any evidence thereof or any business records or valuable papers pertaining
thereto.  At any time, whether before or
after the occurrence of any Event of Default, the Secured Party may (but need
not), in the Secured Party’s name or in Grantor’s name, execute and deliver
proofs of claim, receive all such monies, indorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.  Notwithstanding any of the foregoing, so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to Equipment or Inventory provided that such
proceeds are applied to the cost of replacement Equipment or Inventory.

Section 20.             The
Secured Party’s Duties.  The powers
conferred on the Secured Party hereunder are solely to protect its and the
Banks’ interest in the Collateral and shall not impose any duty upon it or any
Bank to exercise any such powers.  The
Secured Party shall be deemed to have exercised reasonable care in the
safekeeping of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to the safekeeping which the Secured Party
accords its own property of like kind. 
Except for the safekeeping of any Collateral in its possession and the
accounting for monies and for other properties actually received by it
hereunder, neither Secured Party nor any Bank shall have any duty, as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not any Bank or the Secured Party has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any Persons or any other rights pertaining to any
Collateral.  The Secured Party will take
action in the nature of exchanges, conversions, redemptions, tenders and the
like requested in writing by the Grantor with respect to the Collateral in the
Secured Party’s possession if the Secured Party in its reasonable judgment
determines that such action will not impair the Security Interest or the value
of the Collateral, but a failure of the Secured Party to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care
with respect to the taking of any necessary steps to preserve rights against
any Persons or any other rights pertaining to any Collateral.

Section 21.             Default.  Each of the following occurrences shall
constitute an Event of Default under this Agreement:  (a) the Grantor shall fail to observe or perform any covenant or
agreement applicable to the Grantor set forth in Sections 4, 5, 9, 10, 12, 16
or 17 of this Agreement; (b) the Grantor shall fail to observe or perform any
other covenant or agreement of the Grantor contained herein which continues for
20 days after the date the Secured Party gives notices of such failure to the
Grantor; (c) any representation or warranty made by the Grantor in this
Agreement or any schedule, exhibit, supplement or attachment hereto or in any
financial statements, or reports or certificates heretofore or at any time
hereafter submitted by or on behalf of the Grantor to the Secured Party shall
prove to have been false or materially misleading when made; or (d) any Event
of Default shall occur under the Credit Agreement.

Section 22.             Remedies
on Default.  Upon the occurrence of
an Event of Default and at any time thereafter:

 

13

 

(a)           The
Secured Party may exercise and enforce any and all rights and remedies
available upon default to a secured party under Article 9 of the Uniform
Commercial Code as adopted in the State of Minnesota.

(b)           The
Secured Party shall have the right to enter upon and into and take possession
of all or such part or parts of the properties of the Grantor, including lands,
plants, buildings, Equipment, Inventory and other property as may be necessary
or appropriate in the judgment of the Secured Party to permit or enable the
Secured Party to manufacture, produce, process, store or sell or complete the
manufacture, production, processing, storing or sale of all or any part of the
Collateral, as the Secured Party may elect, and to use and operate said
properties for said purposes and for such length of time as the Secured Party
may deem necessary or appropriate for said purposes without the payment of any
compensation to Grantor therefor.  The
Secured Party may require the Grantor to, and the Grantor hereby agrees that it
will, at its expense and upon request of the Secured Party forthwith, assemble
all or part of the Collateral as directed by the Secured Party and make it
available to the Secured Party at a place or places to be designated by the
Secured Party.  The Secured Party may
give any entitlement orders deemed appropriate by it with respect to the
Investment Property and Pledged Collateral.

(c)           Any
disposal of Collateral may be in one or more parcels at public or private sale,
at any of the Secured Party’s offices or elsewhere, at any exchange, broker’s
board or at any of the Agent’s offices or elsewhere, for cash, on credit, or
for future delivery and upon such other terms as the Secured Party may
reasonably believe are commercially reasonable.  The Secured Party shall not be obligated to dispose of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made at
the time and place fixed therefor, and such disposition may, without further
notice, be made at the time and place to which it was so adjourned.

(d)           The
Secured Party is hereby granted a license or other right to use, without
charge, all of the Grantor’s property, including, without limitation, all of
the Grantor’s labels, trademarks, copyrights, patents and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale and selling any Collateral, and
the Grantor’s rights under all licenses and all franchise agreements shall
inure to the Secured Party’s benefit until the Obligations are paid in full.

(e)           If
notice to the Grantor of any intended disposition of Collateral or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given in the manner specified for the
giving of notice in Section 28 hereof at least ten calendar days prior to
the date of intended disposition or other action, and the Secured Party may
exercise or enforce any and all other rights or remedies available by law or
agreement against the Collateral, against the Grantor, or against any other
Person or property.  The Secured Party
(i) may dispose of the Collateral in its then present condition or following
such preparation and processing as the Secured Party deems commercially
reasonable, (ii) shall have no duty to prepare or process the Collateral prior
to sale, (iii) may disclaim warranties of title, possession, quiet enjoyment
and the like, and (iv) may comply with any applicable state or federal law
requirements in 

 

14

 

connection with a disposition of the Collateral and none of
the foregoing actions shall be deemed to adversely affect the commercial
reasonableness of the disposition of the Collateral.

Section 23.             Remedies
as to Certain Rights to Payment. 
Upon the occurrence of an Event of Default and at any time thereafter
the Secured Party may notify any Account Debtor or other Person obligated on
any Accounts or other Collateral that the same have been assigned or
transferred to the Secured Party and that the same should be performed as
requested by, or paid directly to, the Secured Party, as the case may be.  The Grantor shall join in giving such
notice, if the Secured Party so requests. 
The Secured Party may, in the Secured Party’s name or in the Grantor’s
name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such Collateral or grant
any extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligation of any such Account Debtor or
other Person.  If any payments on any
such Collateral are received by the Grantor after an Event of Default has
occurred, such payments shall be held in trust by the Grantor as the property
of the Secured Party and shall not be commingled with any funds or property of
the Grantor and shall be forthwith remitted to the Secured Party for
application on the Obligations.

Section 24.             Application
of Proceeds.  All cash proceeds
received by the Secured Party in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral may, in the discretion
of the Secured Party, be held by the Secured Party as collateral for, or then
or at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation, any
expenses of the Secured Party payable pursuant to Section 25 hereof).

Section 25.             Costs
and Expenses; Indemnity.  The
Grantor will pay or reimburse the Secured Party on demand for all out-of-pocket
expenses (including in each case all filing and recording fees and taxes and
all reasonable fees and expenses of counsel and of any experts and agents)
incurred by the Secured Party in connection with the creation, perfection,
protection, satisfaction, foreclosure or enforcement of the Security Interest
and the preparation, administration, continuance, amendment or enforcement of
this Agreement, and all such costs and expenses shall be part of the
Obligations secured by the Security Interest. 
The Grantor shall indemnify and hold each Bank and the Secured Party
harmless from and against any and all claims, losses and liabilities (including
reasonable attorneys’ fees) growing out of or resulting from this Agreement and
the Security Interest hereby created (including enforcement of this Agreement)
or the Secured Party’s actions pursuant hereto, except claims, losses or
liabilities resulting from the Secured Party’s or such Bank’s gross negligence
or willful misconduct as determined by a final judgment of a court of competent
jurisdiction.  Any liability of the
Grantor to indemnify and hold each Bank and the Secured Party harmless pursuant
to the preceding sentence shall be part of the Obligations secured by the
Security Interest.  The obligations of
the Grantor under this Section shall survive any termination of this Agreement.

Section 26.             Waiver
of Certain Claims.  The Grantor
acknowledges that because of present or future circumstances, a question may
arise under the Securities Act of 1933, as from time to time amended (the
“Securities Act”), with respect to any disposition of the Pledged Collateral
and Investment Property permitted hereunder. 
The Grantor understands that 

 

15

 

compliance with the Securities Act may very strictly limit the course
of conduct of the Secured Party if the Secured Party were to attempt to dispose
of all or any portion of the Pledged Collateral and Investment Property and may
also limit the extent to which or the manner in which any subsequent transferee
of the Pledged Collateral and Investment Property or any portion thereof may
dispose of the same.  There may be other
legal restrictions or limitations affecting the Secured Party in any attempt to
dispose of all or any portion of the Pledged Collateral and Investment Property
under the applicable Blue Sky or other securities laws or similar laws
analogous in purpose or effect.  The
Secured Party may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Pledged Collateral and Investment Property for their own
account for investment only and not to engage in a distribution or resale
thereof.  The Grantor agrees that the
Secured Party shall not incur any liability, and any liability of the Grantor
for any deficiency shall not be impaired, as a result of the sale of the
Pledged Collateral and Investment Property or any portion thereof at any such
private sale in a manner that the Secured Party reasonably believes is
commercially reasonable (within the meaning of Section 9-627 of the Uniform
Commercial Code).  The Grantor hereby
waives any claims against the Secured Party arising by reason of the fact that
the price at which the Pledged Collateral and Investment Property may have been
sold at such sale was less than the price that might have been obtained at a
public sale or was less than the aggregate amount of the Obligations, even if
the Secured Party shall accept the first offer received and does not offer any
portion of the Pledged Collateral and Investment Property to more than one
possible purchaser.  The Grantor further
agrees that the Secured Party has no obligation to delay sale of any Pledged
Collateral and Investment Property for the period of time necessary to permit
the issuer of such Pledged Collateral and Investment Property to qualify or
register such Pledged Collateral and Investment Property for public sale under
the Securities Act, applicable Blue Sky laws and other applicable state and
federal securities laws, even if said issuer would agree to do so.  Without limiting the generality of the
foregoing, the provisions of this Section would apply if, for example, the
Secured Party were to place all or any portion of the Pledged Collateral and
Investment Property for private placement by an investment banking firm, or if
such investment banking firm purchased all or any portion of the Pledged
Collateral and Investment Property for its own account, or if the Secured Party
placed all or any portion of the Pledged Collateral and Investment Property
privately with a purchaser or purchasers.

Section 27.             Waivers;
Remedies; Marshalling.  This
Agreement can be waived, modified, amended, terminated or discharged, and the
Security Interest can be released, only explicitly in a writing signed by the
Secured Party.  A waiver so signed shall
be effective only in the specific instance and for the specific purpose
given.  Mere delay or failure to act
shall not preclude the exercise or enforcement of any rights and remedies
available to the Secured Party.  All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singly in any order or sequence, or concurrently, at the Secured
Party’s option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other.  The Grantor hereby waives all
requirements of law, if any, relating to the marshalling of assets which would
be applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.

Section 28.             Notices.  Any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent
by manual delivery, facsimile 

 

16

 

transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing.  All periods of
notice shall be measured from the date of delivery thereof if manually
delivered, from the date of sending thereof if sent by facsimile transmission,
from the first business day after the date of sending if sent by overnight
courier, or from four days after the date of mailing if mailed.

Section 29.             Grantor
Acknowledgments.  The Grantor hereby
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) no Bank nor the Secured Party has
any fiduciary relationship to the Grantor, the relationship being solely that
of debtor and creditor, and (c) no joint venture exists between the Grantor and
any Bank or the Secured Party.

Section 30.             Continuing
Security Interest; Assignments under Credit Agreement.  This Agreement shall (a) create a continuing
security interest in the Collateral and shall remain in full force and effect
until payment in full of the Obligations and the expiration of the obligations,
if any, of the Banks to extend credit accommodations to the Borrower, (b) be
binding upon the Grantor, its successors and assigns, and (c) inure to the
benefit of, and be enforceable by, the Secured Party and its successors,
transferees, and assigns.  Without
limiting the generality of the foregoing clause (c), the Secured Party may
assign or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement to any other Persons to the extent and in the manner
provided in the Credit Agreement and may similarly transfer all or any portion
of its rights under this Security Agreement to such Persons.

Section 31.             Termination
of Security Interest.  Upon payment
in full of the Obligations and the expiration of any obligation of the Banks to
extend credit accommodations to the Borrower, the Security Interest granted
hereby shall terminate.  Upon any such
termination, the Secured Party will return to the Grantor such of the
Collateral then in the possession of the Secured Party as shall not have been
sold or otherwise applied pursuant to the terms hereof and execute and deliver
to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.  Any
reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, any Bank or the Secured
Party.  As used in this Section,
“Grantor” includes any assigns of Grantor, any Person holding a subordinate
security interest in any of the Collateral or whoever else may be lawfully
entitled to any part of the Collateral.

Section 32.             Governing Law and Construction.  THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
MINNESOTA.  Whenever possible, each
provision of this Agreement and any other statement, instrument or transaction
contemplated hereby or relating hereto shall be interpreted in such manner as
to be effective and valid under 

 

17

 

such applicable law, but, if any provision of this Agreement or any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be held to be prohibited or invalid under such applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.

Section 33.            Consent to Jurisdiction.  AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN
COUNTY; AND THE GRANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT THE GRANTOR COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.

Section 34.            Waiver of Notice and Hearing.  THE GRANTOR HEREBY WAIVES ALL RIGHTS TO A
JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE SECURED PARTY OF ITS
RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS
RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING.  THE GRANTOR ACKNOWLEDGES THAT
IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND
THIS AGREEMENT.

Section 35.            Waiver of Jury Trial.  EACH OF THE GRANTOR AND THE SECURED PARTY, BY ITS ACCEPTANCE OF
THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

Section 36.             Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument.

Section 37.             General.  All representations and warranties contained
in this Agreement or in any other agreement between the Grantor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations.  The Grantor waives notice of the acceptance of this Agreement by
the Secured Party.  Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.

 

18

 

[The remainder of this
page was intentionally left blank.]

 

19

 

IN WITNESS WHEREOF, the Grantor has caused this
Security Agreement to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.

LECG CORPORATION

 

By                                                                                           

 

Title                                                                                        

 

Organizational No._________________

 

Address for Grantor:

2000 Powell Street, Suite 600

Emeryville, CA 94608

Attention: John C. Burke

 

With a copy of Notices to:

 

LECG

33 West Monroe Street, Suite 1850

Chicago, IL 60603

Attn.: Marvin A. Tenenbaum, General Counsel

 

Address for the Secured Party:

800 Nicollet Mall - - BC-MN-H03Q

Minneapolis, Minnesota 55402

Attention: Robert Rosati

 

S-1

 

SCHEDULE I

PLEDGED STOCK

Issuer:  LECG
Funding Corporation

Percentage Ownership: 
100%

Certificate No.:

Type of Interests: 
Common stock

PLEDGED MEMBER INTERESTS

None

PLEDGED PARTNERSHIP INTERESTS

None

PLEDGED DEBT

None

 

S-1

 

 

EXHIBIT D TO SECOND
AMENDMENT

TO CREDIT AGREEMENT

 

Form of Guaranty

 

 

2

 

Execution Copy

 

GUARANTY

THIS GUARANTY (“Guaranty”), dated as of November 12,
2003, is made and given by LECG CORPORATION, a corporation organized under the
laws of the State of Delaware (the “Guarantor”), in favor of the lenders (the
“Banks”) from time to time party to the Credit Agreement defined below and U.S.
BANK NATIONAL ASSOCIATION, a national banking association, as administrative
agent for the Banks (in such capacity, the “Agent”).

 

RECITALS

A.            LECG,
LLC (the “Borrower”), the Agent, the Banks and LaSalle Bank National
Association, as documentation agent for the Banks, have entered into an Amended
and Restated Credit Agreement dated March 31, 2003 (as the same has been and
may hereafter be amended, restated, or otherwise modified from time to time,
the “Credit Agreement”) pursuant to which the Agent and the Banks have extended
certain credit accommodations to the Borrower.

 

B.            It
is a condition precedent to the obligation of the Agent and the Banks to
continue credit accommodations pursuant to the terms of the Credit Agreement
that this Guaranty be executed and delivered by the Guarantor.

 

C.            The
Guarantor expects to derive benefits from the continuation of credit
accommodations to the Borrower by the Agent and the Banks and finds it
advantageous, desirable and in its their best interests to execute and deliver
this Guaranty to the Agent.

 

NOW, THEREFORE, in consideration of the credit
accommodations to be extended to the Borrower and for other good and valuable
consideration, the Guarantor hereby covenants and agrees with the Agent as
follows:

 

Section 1.          Defined
Terms.  As used in this Guaranty,
the following terms shall have the meaning indicated:

 

“Agent” shall have the meaning indicated in the
opening paragraph hereof.

 

“Banks” shall have the meaning indicated in the
Credit Agreement.

 

“Borrower” shall have the meaning indicated in
Recital A.

 

“Credit Agreement” shall have the meaning
indicated in Recital A.

 

“Guarantor” shall have the meaning indicated in
the opening paragraph hereof.

 

“Loan Documents” shall have the meaning
indicated in the Credit Agreement.

 

“Obligations” shall mean all indebtedness,
liabilities and obligations of the Borrower to the Agent or the Banks of every
kind, nature or description under the Credit Agreement, including the
Borrower’s obligation on any promissory note or notes under the 

 

Credit Agreement and any
note or notes hereafter issued in substitution or replacement thereof, in all
cases whether due or to become due, and whether now existing or hereafter
arising or incurred.

 

“Person” shall mean any individual,
corporation, partnership, limited partnership, limited liability company, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.

 

Section 2.          The
Guaranty.  Subject always to the
following Section, the Guarantor hereby absolutely and unconditionally
guarantees to the Agent and the Banks the payment when due (whether at a stated
maturity or earlier by reason of acceleration or otherwise) and performance of
the Obligations.

Section 3.          Limitation;
Insolvency Laws.  As used in this
Section: (a) the term “Applicable Insolvency Laws” means the laws of the United
States of America or of any State, province, nation or other governmental unit
relating to bankruptcy, reorganization, arrangement, adjustment of debts,
relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances
or other similar laws (including, without limitation, 11 U.S.C. §547, §548,
§550 and other “avoidance” provisions of Title 11 of the United Stated Code) as
applicable in any proceeding in which the validity and/or enforceability of
this Guaranty or any Specified Lien is in issue; and (b) “Specified Lien” means
any security interest, mortgage, lien or encumbrance securing this Guaranty, in
whole or in part.  Notwithstanding any
other provision of this Guaranty, if, in any proceeding, a court of competent
jurisdiction determines that this Guaranty or any Specified Lien would, but for
the operation of this Section, be subject to avoidance and/or recovery or be
unenforceable by reason of Applicable Insolvency Laws, this Guaranty and each
such Specified Lien shall be valid and enforceable only to the maximum extent
that would not cause this Guaranty or such Specified Lien to be subject to
avoidance, recovery or unenforceability. 
To the extent that any payment to, or realization by, the Agent and the
Banks on the guaranteed Obligations exceeds the limitations of this Section and
is otherwise subject to avoidance and recovery in any such proceeding, the
amount subject to avoidance shall in all events be limited to the amount by
which such actual payment or realization exceeds such limitation, and this
Guaranty as limited shall in all events remain in full force and effect and be
fully enforceable against the Guarantor. 
This Section is intended solely to reserve the rights of the Agent and
the Banks hereunder against the Guarantor in such proceeding to the maximum
extent permitted by Applicable Insolvency Laws and neither the Guarantor, the
Borrower, any other guarantor of the Obligations nor any Person shall have any
right, claim or defense under this Section that would not otherwise be
available under Applicable Insolvency Laws in such proceeding.

Section 4.          Continuing
Guaranty.  This Guaranty is an
absolute, unconditional and continuing guaranty of payment and performance of
the Obligations, and the obligations of the Guarantor hereunder shall not be
released, in whole or in part, by any action or thing which might, but for this
provision of this Guaranty, be deemed a legal or equitable discharge of a
surety or guarantor, other than irrevocable payment and performance in full of
the Obligations.  No notice of the
Obligations to which this Guaranty may apply, or of any renewal or extension
thereof need be given to the Guarantor and none of the foregoing acts shall
release the Guarantor 

 

2

 

from
liability hereunder.  The Guarantor
hereby expressly waives (a) demand of payment, presentment, protest, notice of
dishonor, nonpayment or nonperformance on any and all forms of the Obligations;
(b) notice of acceptance of this Guaranty and notice of any liability to which
it may apply; (c) all other notices and demands of any kind and description
relating to the Obligations now or hereafter provided for by any agreement,
statute, law, rule or regulation; and (d) any and all defenses of the Borrower
pertaining to the Obligations except for the defense of discharge by payment.  The Guarantor shall not be exonerated with
respect to the Guarantor’s liabilities under this Guaranty by any act or thing
except irrevocable payment and performance of the Obligations, it being the
purpose and intent of this Guaranty that the Obligations constitute the direct
and primary obligations of the Guarantor and that the covenants, agreements and
all obligations of the Guarantor hereunder be absolute, unconditional and
irrevocable.  The Guarantor shall be and
remain liable for any deficiency remaining after foreclosure of any mortgage,
deed of trust or security agreement securing all or any part of the
Obligations, whether or not the liability of the Borrower or any other Person
for such deficiency is discharged pursuant to statute, judicial decision or
otherwise.  The acceptance of this
Guaranty by the Agent is not intended and does not release any liability
previously existing of any guarantor or surety of any indebtedness of the
Borrower to the Agent and the Banks.

Section 5.          Other
Transactions.  The Agent and the Banks
are expressly authorized (a) to exchange, surrender or release with or without
consideration any or all collateral and security which may at any time be
placed with any of them by the Borrower or by any other Person, or to forward
or deliver any or all such collateral and security directly to the Borrower for
collection and remittance or for credit, or to collect the same in any other
manner without notice to the Guarantor; and (b) to amend, modify, extend or
supplement the Credit Agreement, any note or other instrument evidencing the
Obligations or any part thereof and any other agreement with respect to the
Obligations, waive compliance by the Borrower or any other Person with the
respective terms thereof and settle or compromise any of the Obligations
without notice to the Guarantor and without in any manner affecting the
absolute liabilities of the Guarantor hereunder.  No invalidity, irregularity or unenforceability of all or any
part of the Obligations or of any security therefor or other recourse with
respect thereto shall affect, impair or be a defense to this Guaranty.  The liabilities of the Guarantor hereunder
shall not be affected or impaired by any failure, delay, neglect or omission on
the part of the Agent or the Banks to realize upon any of the Obligations of
the Borrower to the Agent or the Banks, or upon any collateral or security for
any or all of the Obligations, nor by the taking by the Agent or any Bank of
(or the failure to take) any other guaranty or guaranties to secure the Obligations,
nor by the taking by the Agent or any Bank of (or the failure to take or the
failure to perfect its security interest in or other lien on) collateral or
security of any kind.  No act or
omission of the Agent or any Bank, whether or not such action or failure to act
varies or increases the risk of, or affects the rights or remedies of the
Guarantor, shall affect or impair the obligations of the Guarantor
hereunder.  The Guarantor acknowledges
that this Guaranty is in effect and binding without reference to whether this
Guaranty is signed by any other Person or Persons, that possession of this
Guaranty by the Agent shall be conclusive evidence of due delivery hereof by
the Guarantor and that this Guaranty shall continue in full force and effect,
both as to the Obligations then existing and/or thereafter created,
notwithstanding the release of or extension of time to any other guarantor of
the Obligations or any part thereof.

 

3

 

Section 6.          Actions
Not Required.  The Guarantor hereby
waives any and all right to cause a marshalling of the assets of the Borrower
or any other action by any court or other governmental body with respect
thereto or to cause the Agent or any Bank to proceed against any security for the
Obligations or any other recourse which the Agent or any Bank may have with
respect thereto and further waives any and all requirements that the Agent or
any Bank institute any action or proceeding at law or in equity, or obtain any
judgment, against the Borrower or any other Person, or with respect to any
collateral security for the Obligations, as a condition precedent to making
demand on or bringing an action or obtaining and/or enforcing a judgment
against, the Guarantor upon this Guaranty. 
The Guarantor further acknowledges that time is of the essence with
respect to the Guarantor’s obligations under this Guaranty.  Any remedy or right hereby granted which
shall be found to be unenforceable as to any Person or under any circumstance,
for any reason, shall in no way limit or prevent the enforcement of such remedy
or right as to any other Person or circumstance, nor shall such
unenforceability limit or prevent enforcement of any other remedy or right
hereby granted.

Section 7.          Subrogation.  The Guarantor shall not exercise any right
of subrogation until such time as all Obligations shall have been indefeasably
paid in full in cash and all commitments to extend credit terminated.  In the case of the liquidation, winding-up
or bankruptcy of the Borrower (whether voluntary or involuntary) or in the
event that the Borrower shall make an arrangement or composition with its
creditors, the Agent and the Banks shall have the right to rank first for their
full claim and to receive all distributions or other payments with respect
thereto until their claims have been paid in full, and the Guarantor shall
continue to be liable to the Agent and the Banks for any balance of the
Obligations which may be owing to the Agent and/or the Banks by the Borrower.  The Guarantor, to the extent permitted by
law, irrevocably releases and waives any subrogation rights or right of
contribution or indemnity (whether arising by operation of law, contract or
otherwise) it may have against the Borrower if and to the extent any such right
or rights would give rise to a claim under the U.S. Bankruptcy Code that
payments or transfers to the Agent or the Banks with respect to the Obligations
constitute a preference in favor of the Guarantor or a claim under the
Bankruptcy Code that any such preference is recoverable from the Agent or the
Banks.

Section 8.          Application
of Payments.  Any and all payments
upon the Obligations made by the Guarantor or by any other Person, and/or the
proceeds of any or all collateral or security for any of the Obligations, will
be applied by the Agent in accordance with the terms of the Credit Agreement.

Section 9.          Recovery
of Payment.  If any payment received
by the Agent or any Bank and applied to the Obligations is subsequently set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Borrower or any other obligor), the Obligations to which such payment was
applied shall for the purposes of this Guaranty be deemed to have continued in
existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Obligations as fully as if such application had never
been made.  References in this Guaranty
to amounts “irrevocably paid” or to “irrevocable payment” refer to payments
that cannot be set aside, recovered, rescinded or required to be returned for
any reason.

 

4

 

Section 10.        Borrower’s
Financial Condition.  The Guarantor
is familiar with the financial condition of the Borrower, and the Guarantor has
executed and delivered this Guaranty based on the Guarantor’s own judgment and
not in reliance upon any statement or representation of the Agent or any
Bank.  Neither the Agent nor any Bank
shall have any obligation to provide the Guarantor with any advice whatsoever
or to inform the Guarantor at any time of the Agent’s or any Bank’s actions,
evaluations or conclusions on the financial condition or any other matter
concerning the Borrower.

Section 11.        Remedies.  All remedies afforded to the Agent by reason
of this Guaranty are separate and cumulative remedies and it is agreed that no
one of such remedies, whether or not exercised by the Agent, shall be deemed to
be in exclusion of any of the other remedies available to the Agent and no one
of such remedies shall in any way limit or prejudice any other legal or
equitable remedy which the Agent may have hereunder and with respect to the
Obligations.  Mere delay or failure to
act shall not preclude the exercise or enforcement of any rights and remedies
available to the Agent.

Section 12.        Bankruptcy
of the Borrower.  The Guarantor
expressly agrees that the liabilities and obligations of the Guarantor under
this Guaranty shall not in any way be impaired or otherwise affected by the
institution by or against the Borrower or any other Person of any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or any
other similar proceedings for relief under any bankruptcy law or similar law for
the relief of debtors and that any discharge of any of the Obligations pursuant
to any such bankruptcy or similar law or other law shall not diminish,
discharge or otherwise affect in any way the obligations of the Guarantor under
this Guaranty, and that upon the institution of any of the above actions, such
obligations shall be enforceable against the Guarantor.

Section 13.        Costs
and Expenses.  The Guarantor will
pay or reimburse the Agent on demand for all out-of-pocket expenses
(including in each case all reasonable fees and expenses of counsel) incurred
by the Agent arising out of or in connection with the enforcement of this
Guaranty against the Guarantor or arising out of or in connection with any
failure of the Guarantor to fully and timely perform the obligations of the
Guarantor hereunder.

Section 14.        Waivers
and Amendments.  This Guaranty can
be waived, modified, amended, terminated or discharged only explicitly in a
writing signed by the Agent.  A waiver
so signed shall be effective only in the specific instance and for the specific
purpose given.

Section 15.        Notices.  Any notice or other communication to any
party in connection with this Guaranty shall be in writing and shall be sent by
manual delivery, telegram, telex, facsimile transmission, overnight courier or
United States mail (postage prepaid) addressed to such party at the address
specified on the signature page hereof, or at such other address as such party
shall have specified to the other party hereto in writing.  All periods of notice shall be measured from
the date of delivery thereof if manually delivered, from the date of sending
thereof if sent by telegram, telex or facsimile transmission, from the first
business day after the date of sending if sent by overnight courier, or from four
days after the date of mailing if mailed.

 

5

 

Section 16.        Guarantor
Acknowledgements.  The Guarantor
hereby acknowledges that (a) counsel has advised the Guarantor in the
negotiation, execution and delivery of this Guaranty, (b) the Agent and the
Banks have no fiduciary relationship to the Guarantor, the relationship being
solely that of debtor and creditor, and (c) no joint venture exists between the
Guarantor and the Agent or the Banks.

Section 17.        Representations
and Warranties.  The Guarantor
hereby represents and warrants to the Agent for the benefit of the Agent and
the Banks that it is a corporation organized, validly existing and in good
standing under the laws of the State of Delaware and has the power and
authority and the legal right to own and operate its properties and to conduct
the business in which it is currently engaged. 
The Guarantor further represents and warrants to the Agent that:

17(a)       It has the power and authority and the
legal right to execute and deliver, and to perform its obligations under, this
Guaranty and the other Loan Documents to which it is a party and has taken all
necessary action required by its form of organization to authorize such
execution, delivery and performance.

17(b)       This Guaranty and the other Loan
Documents to which it is a party constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors’ rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).

17(c)       The execution, delivery and performance
of this Guaranty and the other Loan Documents to which it is a party will not
(i) violate any provision of any law, statute, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award of any court,
governmental agency or arbitrator presently in effect having applicability to
it, (ii) violate or contravene any provision of its organizational documents,
or (iii) result in a breach of or constitute a default under any indenture,
loan or credit agreement or any other agreement, lease or instrument to which
it is a party or by which it or any of its properties may be bound or result in
the creation of any lien thereunder.  It
is not in default under or in violation of any such law, statute, rule or
regulation, order, writ, judgment, injunction, decree, determination or award
or any such indenture, loan or credit agreement or other agreement, lease or
instrument in any case in which the consequences of such default or violation
could have a material adverse effect on its business, operations, properties,
assets or condition (financial or otherwise).

17(d)       No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on its
part to authorize, or is required in connection with the execution, delivery
and performance of, or the legality, validity, binding effect or enforceability
of, this Guaranty or the other Loan Documents to which it is a party.

17(e)       There are no actions, suits or
proceedings pending or, to its knowledge, threatened against or affecting it or
any of its properties before any court or 

 

6

 

arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to it, would have a material adverse effect on its
business, operations, property or condition (financial or otherwise) or on its
ability to perform its obligations hereunder or under the other Loan Documents
to which it is a party.

17(f)        It expects to derive benefits from the
transactions resulting in the continuation of the Obligations.  The Agent may rely conclusively on the
continuing warranty, hereby made, that it continues to be benefitted by the
Agent’s and the Banks’ extension of credit accommodations to the Borrower and
neither the Agent nor any Bank shall have any duty to inquire into or confirm
the receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Agent without regard to the receipt, nature or value of any
such benefits.

Section 18.        Continuing
Guaranty; Assignments under Credit Agreement.  This  Guaranty shall (a)
remain in full force and effect until irrevocable payment in full of the
Obligations and the expiration of the obligations, if any, of the Agent and the
Banks to extend credit accommodations to the Borrower, (b) be binding upon the
Guarantor, its successors and assigns and (c) inure to the benefit of, and be
enforceable by, the Agent and the Banks and their successors, transferees, and
assigns.  Without limiting the
generality of the foregoing clause (c), the Agent or any Bank may assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement to any other Persons to the extent and in the manner provided
in the Credit Agreement and may similarly transfer all or any portion of its
rights under this Guaranty to such Persons.

Section 19.        Reaffirmation.  The Guarantor agrees that when so requested
by the Agent from time to time it will promptly execute and deliver to the
Agent a written reaffirmation of this Guaranty in such form as the Agent may
require.

Section 20.        Revocation.  Notwithstanding any other provision hereof,
the Guarantor may revoke this Guaranty prospectively as to future transactions
by written notice to that effect actually received by the Agent.  No such revocation shall release, impair or
affect in any manner any liability hereunder with respect to Obligations
created, contracted, assumed or incurred prior to receipt by the Agent of
written notice of revocation, or Obligations created, contracted, assumed or
incurred after receipt of such notice pursuant to any contract entered into by
the Agent prior to receipt of such notice, or any renewals or extensions thereof,
theretofore or thereafter made, or any interest accrued or accruing on such
Obligations, or all other costs, expenses and attorneys’ fees arising from such
Obligations.

Section 21.        Governing Law and Construction.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT
TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.  Whenever possible, each provision of this
Guaranty and any other statement, instrument or transaction contemplated hereby
or relating hereto shall be interpreted in such manner as to be effective and
valid under such applicable law, but, if any provision of this Guaranty or any
other statement, instrument or transaction contemplated hereby or relating 

 

7

 

hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty or any other statement, instrument or
transaction contemplated hereby or relating hereto.

Section 22.        Consent to Jurisdiction.  AT THE OPTION OF THE AGENT, THIS GUARANTY
MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN
HENNEPIN COUNTY, MINNESOTA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND
VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS
NOT CONVENIENT.  IN THE EVENT THE
GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT
OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED
BY THIS GUARANTY, THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.

Section 23.        Waiver
of Jury Trial.  EACH OF THE
GUARANTOR AND THE AGENT, BY ITS ACCEPTANCE OF THIS GUARANTY, IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 24.        Counterparts.  This Guaranty may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument.

Section 25.        General.  All representations and warranties contained
in this Guaranty or in any other agreement between the Guarantor and the Agent
shall survive the execution, delivery and performance of this Guaranty and the
creation and payment of the Obligations. 
Captions in this Guaranty are for reference and convenience only and
shall not affect the interpretation or meaning of any provision of this
Guaranty.  All incorporation by
reference of covenants, terms, definitions or other provisions from other
agreements are incorporated into this Guaranty as if such provisions were fully
set forth herein, and such incorporation shall include all necessary
definitions and related provisions from such other agreements but including
only amendments thereto agreed to by the Agent, and shall survive any
termination of such other agreements until the Obligations have been
indefeasibly paid in full and the commitments of the Banks to advance funds to
the Borrower have been terminated.

Section 26.        Covenants
Under Credit Agreement.  Without
limiting any other term or provision of this Guaranty or any of the Borrower’s
obligations under the Credit Agreement, (a) all of the terms and provisions of
the Credit Agreement that are applicable to or refer to the Parent (the
“Subject Provisions”) of the Credit Agreement are hereby incorporated by
reference into this Guaranty, and (b) the Guarantor shall fully and timely
perform all covenants applicable to or referring to the Guarantor under the
Subject Provisions.

 

8

 

Section 27.        Equity
Contributions.  Without limiting the
generality of Section 27 hereof, within 5 Business Days after the receipt by
the Guarantor of Net Cash Proceeds (as defined in the Credit Agreement) from
any Prepayment Event (as defined in the Credit Agreement), the Parent will
contribute such proceeds to the Borrower for purposes of enabling the Borrower
to make the mandatory prepayments required under Section 2.7(b)(i) of the
Credit Agreement.

 

[Remainder of this page
intentionally left blank.]

 

9

 

IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty as of the date first above written.

GUARANTOR:

LECG
CORPORATION

 

By  _______________________

Title
______________________

Address:

2000 Powell Street, Suite 600

Emeryville, CA  94608

Attention: John C. Burke

 

with a copy to:

 

LECG

33 West Monroe Street, Suite 1850

Chicago, IL  60603

Attention:  Marvin A. Tenenbaum,
General Counsel

 

Address for Agent:

U.S. Bank National Association

800 Nicollet Mall - - BC-MN-H03Q

Minneapolis, Minnesota 55402

Attention: Robert Rosati

 

 

S-1

[Signature Page to LECG
Corporation Guaranty]

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