-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M70b7hnC+bFcBZw5y9XAgwhs/S6hX3JPU/20hqf5P3gRpJZHTOpmDT5uKdF0hHZs mgBxOVM/GvGRpKkrjiJn5A== 0000057201-96-000030.txt : 19960904 0000057201-96-000030.hdr.sgml : 19960904 ACCESSION NUMBER: 0000057201-96-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960720 FILED AS OF DATE: 19960903 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIANA CORP CENTRAL INDEX KEY: 0000057201 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 362448698 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05486 FILM NUMBER: 96625291 BUSINESS ADDRESS: STREET 1: 8200 W BROWN DEER ROAD CITY: MILWAUKEE STATE: WI ZIP: 53223-1706 BUSINESS PHONE: 4143550037 FORMER COMPANY: FORMER CONFORMED NAME: FH INDUSTRIES CORP DATE OF NAME CHANGE: 19850814 FORMER COMPANY: FORMER CONFORMED NAME: SCOT LAD FOODS INC DATE OF NAME CHANGE: 19841202 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended July 20, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-5486 THE DIANA CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2448698 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 355-0037 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No At August 15, 1996, the registrant had issued and outstanding an aggregate of 5,028,590 shares of its common stock. Part I - Financial Information Item 1. Financial Statements The Diana Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in Thousands)
July 20, March 30, 1996 1996 ----------- ---------- (Unaudited) Assets Current assets Cash and cash equivalents $ 11,686 $ 6,254 Marketable securities 1,414 1,215 Receivables 21,163 16,171 Inventories 12,373 12,337 Other current assets 974 1,009 ------ ------ Total current assets 47,610 36,986 Property and equipment 4,440 4,158 Intangible assets 9,521 11,585 Other assets 3,293 804 ------ ------ $ 64,864 $ 53,533 ====== ====== Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 12,523 $ 13,707 Accrued liabilities 2,442 2,514 Revolving lines of credit 9,256 7,038 Current portion of long-term debt 405 444 ------ ------ Total current liabilities 24,626 23,703 Long-term debt 3,468 3,562 Other liabilities 1,615 1,582 Commitments and contingencies Shareholders' equity Preferred stock - $.01 par value --- --- Common stock - $1 par value 5,756 5,526 Additional paid-in capital 72,086 59,456 Accumulated deficit (36,099) (34,776) Unrealized loss on marketable securities (677) (876) Treasury stock (5,911) (4,644) ------ ------ Total shareholders' equity 35,155 24,686 $ 64,864 $ 53,533 ====== ======
See notes to condensed consolidated financial statements. 1 The Diana Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In Thousands, Except Per Share Amounts)
16 Weeks Ended July 20, July 22, 1996 1995 ---------- ---------- Net sales $ 87,217 $ 81,553 Other income 207 135 ------ ------ 87,424 81,688 Cost of sales 83,180 78,931 Selling and administrative expenses 5,273 2,751 ------ ------ Operating earnings (loss) (1,029) 6 Interest expense (396) (335) Minority interest 103 --- Equity in loss of unconsolidated subsidiaries --- (72) ------ ------ Net loss $ (1,322) $ (401) ====== ====== Loss per common share $ (.27) $ (.10) ====== ====== Weighted average number of common shares outstanding 4,976 4,111 ====== ======
See notes to condensed consolidated financial statements. 2 The Diana Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands)
16 Weeks Ended July 20, July 22, 1996 1995 ---------- ---------- Operating Activities: Net loss $(1,322) $ (401) Reconciliation of net loss to net cash provided by operating activities: Depreciation and amortization 513 364 Minority interest (103) --- Equity in loss of unconsolidated subsidiaries --- 72 Other (275) (31) Changes in operating assets and liabilities (3,751) 1,609 ------ ------ Net cash provided (used) by operating activities (4,938) 1,613 Investing activities: Increase in promissory note (5,000) --- Additions to property and equipment (544) (147) Purchases of marketable securities --- (161) Sales of marketable securities --- 4,200 Other --- (3) ------ ------ Net cash provided (used) by investing activities (5,544) 3,889 Financing activities: Changes in revolving lines of credit 2,218 (2,184) Payments on long-term debt (133) (87) Common stock issued 13,918 --- Cash dividend payment by subsidiary to minority shareholders (89) --- ------ ------ Net cash provided (used) by financing activities 15,914 (2,271) ------ ------ Increase in cash and cash equivalents 5,432 3,231 Cash and cash equivalents at the beginning of the period 6,254 2,440 ------ ------ Cash and cash equivalents at the end of the period $11,686 $ 5,671 ====== ====== Non-cash transaction: Acquisition of common stock held by minority shareholder $ 2,325 $ ---
See notes to condensed consolidated financial statements. 3 The Diana Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements July 20, 1996 (Unaudited) NOTE 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the sixteen weeks ended July 20, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ended March 29, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended March 30, 1996. The computation of loss per common share is based on the weighted average common shares outstanding and dilutive common stock equivalents (stock options). NOTE 2 - Sattel Communications ("Sattel") On May 3, 1996, the Company and Sattel Technologies, Inc. ("STI") entered into a Supplemental Agreement to amend the Exchange Agreement entered into on January 16, 1996, whereby, among other things, the Company increased its ownership interest in Sattel from 50% to 80%. STI conveyed to the Company an additional 15% of Sattel and 50,000 shares of the Company's common stock (previously acquired by STI on January 16, 1996) in exchange for being released from the obligation to pay for certain product development and STI's proportionate share of a $10 million capital contribution to Sattel. In May 1996, the Company contributed $10 million to Sattel pursuant to the Supplemental Agreement. These transactions resulted in a net reduction of approximately $1,825,000 of intangible assets which originated from the January 16, 1996 transaction. In addition, in fiscal 1997 Sattel granted equity participation interests to certain employees of the Company. The Company's effective ownership of Sattel remains at approximately 80% after the grant of these interests. STI's effective ownership interest in Sattel was reduced to approximately 4% as a result of all of these transactions. In June 1996, Concentric Network Corporation ("CNC") executed a Promissory Note for $5,000,000 in favor of Sattel. In August 1996, the Promissory Note and accrued interest receivable were converted into 3,729,110 shares of CNC Series D Preferred Stock. In August 1996, Sattel entered into an agreement with a third party to sell 1,838,235 shares of its CNC Series D Preferred Stock for $2.5 million. This transaction is anticipated to close in September 1996. NOTE 3 - Shareholders' Equity In April 1996, the Company raised approximately $14 million, after commissions and expenses, through the sale of 430,000 shares of common stock. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations In fiscal 1996, the Company acquired an 80% ownership interest in Valley and increased its ownership interest in Sattel from 50% to 80%. The results of operations of Valley were included in the consolidated group beginning in December 1995 and Sattel beginning in January 1996 (see Notes 1 and 2 to the fiscal 1996 Consolidated Financial Statements). The following is a summary of sales by segment (see Note 14 to the Fiscal 1996 Consolidated Financial Statements) for the first quarter of fiscal 1997 and 1996, including sales by significant product line for the meat and seafood segment (in thousands): 1997 1996 Telecommunications equipment $ 7,550 $ 6,266 Network installation and service 3,804 --- Beef 33,666 36,056 Pork 15,258 16,500 Other 26,939 22,731 ------ ------ Meat and seafood total 75,863 75,287 ------ ------ $87,217 $81,553 ====== ====== For the sixteen weeks ended July 20, 1996, net sales increased $5,664,000 or 6.9% over fiscal 1996 first quarter net sales. Sales of the telecommunications equipment segment increased $1,284,000 or 20.5% from fiscal 1996 first quarter net sales primarily due to the inclusion of Sattel in the Consolidated Financial Statements. Sattel's commercial sales during the first quarter of fiscal 1997 were $841,000. Sales of the network installation and service segment are all attributable to Valley. Sales of the meat and seafood segment consist of sales made by APC. APC's overall volume (based on tonnage) during this period decreased by .2% and net sales increased $576,000 or .8% over fiscal 1996 first quarter net sales. Other income increased $72,000 or 53.3% from the same period in fiscal 1996. The increase is primarily attributable to an increase in interest income resulting from increased cash and cash equivalent levels due to the sale of 600,000 shares of common stock by the Company in March and April 1996. For the sixteen weeks ended July 20, 1996, gross profit increased $1,415,000 or 54.0% from the same period in fiscal 1996. On a consolidated basis, gross profit as a percentage of net sales was 4.6% in the first quarter of fiscal 1997 as compared to 3.2% in the first quarter of fiscal 1996. The increase in gross profit and the gross profit percentage is primarily attributable to the inclusion of Sattel and Valley in the Consolidated Financial Statements in fiscal 1997. 5 For the sixteen weeks ended July 20, 1996, selling and administrative expenses increased $2,522,000 or 91.7% from the same period in fiscal 1996. Selling and administrative expenses as a percentage of net sales were 6.1% for the sixteen weeks ended July 20, 1996 as compared to 3.4% from the same period in fiscal 1996. Selling and administrative expenses have increased primarily because of the inclusion of Sattel and Valley in the Consolidated Financial Statements in fiscal 1997. For the sixteen weeks ended July 20, 1996, interest expense increased $61,000 or 18.2% over the same period in fiscal 1996. The increase in interest expense is primarily due to an increase in borrowings that were made in connection with the acquisition of Valley. Minority interest for the sixteen weeks ended July 20, 1996, consists of Sattel Technologies Inc.'s proportionate share of Sattel's first quarter loss partially offset by Valley's minority shareholder's proportionate share of Valley's first quarter earnings. The change in equity in loss of unconsolidated subsidiaries is primarily due to the change in the accounting of Sattel from the equity method of accounting to consolidation accounting as a result of the increase in the Company's ownership in Sattel from 50% to 80% in January 1996. The increase in the Company's net loss for the first quarter of fiscal 1997 as compared to the same period of time in fiscal 1996 is primarily due to the following: a loss incurred by Sattel primarily due to start-up costs incurred for the development of its business; a reduction in C&L's earnings which have been adversely impacted by the competitor company established in 1995 by several of C&L's former employees; and an increase in APC's loss in fiscal 1997 as compared to fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company recorded cash outflow from operating activities of $4,938,000 during the first quarter of fiscal 1997 as compared to cash flow of $1,613,000 in fiscal 1996. The decrease in cash flow is primarily attributable to an increase in the net loss and less cash provided by the net change in working capital items. The increase in receivables is primarily attributable to increased trade accounts receivable at C&L and APC. C&L's receivables have increased primarily due to an increase in its sales. APC's receivables have increased due to an increase in accounts receivable from a large customer resulting from late payments. This customer has substantially eliminated its past due receivables during August 1996. In addition, the Company has classified $2,500,000 of the promissory note receivable from CNC within receivables (see discussion below). The decrease in intangible assets is primarily attributable to the transaction discussed in Note 2 to the Condensed Consolidated Financial Statements. 6 In the first quarter of fiscal 1997, the Company had $544,000 of capital expenditures of which $349,000 were made collectively by C&L, Valley and APC. The Loan and Security Agreements for C&L, Valley and APC include covenants that restrict capital expenditures. In fiscal 1997, capital expenditures made by C&L, Valley and APC will be limited to $1,100,000 because of covenants in their Loan and Security Agreements that restrict capital expenditures. C&L has a Loan and Security Agreement ("C&L Revolver") with a lender providing a revolving line of credit through January 1999 of up to $6,000,000, with interest at the prime rate or LIBOR plus 2.25%. In addition, there is an unused line fee of .25%. Borrowings under the C&L Revolver are restricted based on defined percentages of eligible accounts receivable and inventories. The amount of borrowings and availability under the C&L Revolver at July 20, 1996 was $3,043,000 and $1,954,000, respectively. C&L's Revolver provides for the following financial covenants during fiscal 1997: minimum tangible net worth of $2,000,000; minimum cumulative income from operations, calculated on a quarterly basis of $115,000, $446,000, $730,000 and $1,174,000, respectively; a current ratio of 1:1 and a maximum ratio of total liabilities to equity of 6:1. C&L has met its financial covenants during fiscal 1997. Valley has a Loan and Security Agreement ("Valley Revolver") with a lender providing a revolving line of credit through March 1999 of up to $2,500,000 with interest at the prime rate or LIBOR plus 2.25%. In addition, there is an unused line fee of .25%. Borrowings under the Valley Revolver are restricted based on defined percentages of eligible accounts receivable and inventories. The amount of borrowings and availability under the Valley Revolver at July 20, 1996 was $648,000 and $1,653,000, respectively. APC's credit facility provides a revolving line of credit of up to $9,500,000 with interest at the prime rate plus 2% through November 1997. A $2 million letter of credit facility is included within the total credit facility. At July 20, 1996, APC borrowed $5,565,000 and had letters of credit of $2,000,000 issued on its behalf. At July 20, 1996, APC had available unused borrowing capacity of $686,000. APC's revolving line of credit has the following financial covenants for fiscal 1997: minimum tangible net worth of $3,900,000 through March 28, 1997 and $4,400,000 on March 29, 1997, a net loss of not greater than $40,000 and net cash flow on a rolling 13-period basis (measured at the end of each four week period) ranging from $385,000 to $500,000. APC violated a financial covenant requiring net cash flow of $400,000, $385,000 and $405,000 for the 52 week periods ended June 22, 1996, July 20, 1996, and August 17, 1996, respectfully. The lender has not waived these violations. APC and the lender are presently in discussions regarding this matter. In addition, APC has received a commitment, subject to certain conditions, from a new lender to refinance its revolving line of credit. The proposed credit facility provides for a revolving line of credit of up to $10,000,000 with certain terms anticipated to be more favorable than the present credit facility. The new credit facility is anticipated to close around September 30, 1996. 7 In May 1996, the Company contributed an additional $10 million to Sattel. In June 1996, CNC executed a Promissory Note for $5,000,000 in favor of Sattel. In August 1996, the Promissory Note and accrued interest receivable were converted into 3,726,110 shares of CNC Series D Preferred Stock. In August 1996, Sattel entered into an agreement with a third party to sell 1,838,235 shares of its CNC Series D Preferred Stock for $2.5 million. This transaction is anticipated to close in September 1996. At July 20, 1996, the Company classified $2,500,000 of the Promissory Note within receivables and the balance in other assets. In the fourth quarter of fiscal 1996 and in the first quarter of fiscal 1997, the Company raised approximately $17.4 million, after commissions and expenses, through the sale of 600,000 shares of Common Stock. The Company believes that it has adequate resources to meet its liquidity needs for fiscal 1997. On a long term basis, financing for the Company's operations, including working capital requirements for Sattel and capital expenditures, will come from cash generated from operations, the sale of additional equity or other securities, additional bank borrowings and other sources of capital, if available. The Company has filed a registration statement for shelf registration of up to 500,000 shares of common stock, which may be sold in fiscal 1997 if conditions warrant. The Company is investigating how it can be restructured in order to maximize shareholder value. Management is currently looking at several alternative approaches, based on separating operating units by industry type into independent publicly traded companies. Management has retained the services of Hambrecht & Quist, LLC, an investment banking firm, to assist them with this effort. In August 1996, all negotiations and agreements with third parties concerning the sale of APC were terminated. 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a) Exhibits: 3.1 - By-Laws of Registrant as amended. 4.1 - Loan and Security Agreement by and between Valley Communications, Inc. and Sanwa Business Credit Corporation dated March 14, 1996. 10.1 - Agreement dated November 17, 1995 between Valley Communications, Inc. and Communications Workers of America Local 9412. 10.2 - Letter dated September 3, 1996 from Sanwa Business Credit Corporation to The Diana Corporation 27 - Financial Data Schedule b) Reports on Form 8-K: (1) Form 8-K/A (Amendment No. 1) on April 1, 1996 to amend the Form 8-K filed on January 31, 1996; Item 7. Financial Statements and Exhibits. The financial statements included in this filing were the audited financial statements of Sattel Communications Company for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995, Unaudited Pro Forma Condensed Consolidated Balance Sheet of The Diana Corporation at January 6, 1996 and Unaudited Pro Forma Condensed Consolidated Statements of Operations of The Diana Corporation for the 52 weeks ended April 1, 1995 and the 40 weeks ended January 6, 1996. (2) Form 8-K/A (Amendment No. 2) on July 12, 1996 to amend the Form 8-K filed on December 5, 1996; Item 7. Financial Statements and Exhibits. The financial statements included in this filing were the audited financial statements of Valley Communications, Inc. for the years ended October 31, 1992, 1993, 1994 and for the ten months ended August 31, 1995, the Pro Forma Condensed Consolidated Balance Sheet of The Diana Corporation at October 14, 1995 and the Pro Forma Condensed Consolidated Statements of Operations of The Diana Corporation for the 52 weeks ended April 1, 1995 and the 28 weeks ended October 14, 1995. (3) Form 8-K/A (Amendment No. 2) on July 15, 1996 to amend the Form 8-K filed on January 31, 1996; Item 7. Financial Statements and Exhibits. There were no financial statements included in this filing. (4) Form 8-K/A (Amendment No. 3) on August 14, 1996 to amend the Form 8-K filed on January 31, 1996; Item 7. Financial Statements and Exhibits. The financial statements included in this filing were the audited financial statements of Sattel Communications Company for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995, Unaudited Pro Forma Condensed Consolidated Balance Sheet of The Diana Corporation at January 6, 1996 and Unaudited Pro Forma Condensed Consolidated Statements of Operations of The Diana Corporation for the 52 weeks ended April 1, 1995 and the 40 weeks ended January 6, 1996. 9 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE DIANA CORPORATION By:/s/ Richard Y. Fisher Richard Y. Fisher Chairman of the Board and President (Principal Executive Officer) By:/s/ R. Scott Miswald R. Scott Miswald Vice President, Treasurer and Secretary (Principal Financial and Accounting Officer) DATE: September 3, 1996 EX-3.1 2 BY LAWS OF THE DIANA CORPORATION ARTICLE I Offices SECTION 1. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II Meetings of Stockholders SECTION 1. PLACE OF MEETINGS. Meetings of stockholders for any purpose may be held at such place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETING. The board of directors may fix the date, time and place of the annual meeting of stockholders, but if no such date, time and place is fixed by the board of directors for any calendar year, the annual meeting for such calendar year, commencing with the year 1980, shall be held at the executive offices of the corporation on the fourth Tuesday in June if not a legal holiday, and if a legal holiday, then on the next business day following at 10:00 a.m., local time. At each annual meeting the stockholders shall elect directors and transact such other business as may properly be brought before the meeting. (Amended January 22, 1980) SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless prescribed by statute, may be called by the Chairman of the Board, the Secretary, or the Board of Directors. (Amended April 11, 1988) SECTION 4. WRITTEN NOTICE. Written notice of the annual meeting and each special meeting of stockholders stating the place, date and hour of the meeting, and in the case of a special meeting stating the purpose or purposes for which the special meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Whenever the language of a proposed resolution is included in a written notice of a meeting of stockholders the resolution may be adopted at such meeting with such clarifying or other amendments as do not enlarge its original purpose without 1 further notice to stockholders not present in person or by proxy at such meeting. SECTION 5. LIMITATION ON BUSINESS TRANSACTED. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 6. VOTING LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 7. QUORUM. The holders of issued and outstanding stock entitled to cast a majority of the total number of votes which may be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by statute or by the Certificate of Incorporation. Treasury shares shall not be counted in determining the total number of outstanding shares for voting purposes at any given time. If, however, such quorum shall not be so present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be so present or represented. At such adjourned meetings at which a quorum shall be present in person or represented by proxy, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 8. MAJORITY CONTROL. When a quorum is present at any meeting, the vote of the holders of stock having a majority of the voting power present in person or represented by proxy at such meeting shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. 2 SECTION 9. VOTING POWER. Every stockholder of record, except a holder of stock which has been called for redemption and with respect to which an irrevocable deposit of funds has been made, shall have the right, at every stockholders' meeting, to such a vote for every share, and to such a fraction of a vote with respect to every fractional share, of stock of the corporation registered in his name on the books of the corporation as may be provided in the Certificate of Incorporation, and to one vote for every share, and to a fraction of a vote equal to every fractional share, of stock of the corporation registered in his name on the books of the corporation if no express provision for voting rights is made in the Certificate of Incorporation. Treasury stock shall not be voted, directly or indirectly, at any meeting of stockholders or be counted in connection with the expression of consent or dissent to corporate action in writing without a meeting. SECTION 10. PROXIES. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the stockholder or by his duly authorized attorney in fact and filed with the Secretary of the corporation. A proxy, unless coupled with an interest sufficient in law to support an irrevocable power and stated to be irrevocable, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the Secretary of the corporation. No unrevoked proxy shall be valid after three years from the date of its execution, unless a longer time is expressly provided therein. A proxy shall not be revoked by the death of incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the corporation. SECTION 11. ACTION WITHOUT A MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent of stockholders shall be given to those stockholders who have not consented thereto in writing. 3 ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS AND NUMBER The business and affairs of the Company shall be managed by its Board of Directors. The directors shall be divided into 3 classes; the term of office of the directors of the 1st class to expire at the Annual Meeting of Shareholders to be held in 1988; that of the 2nd class to expire at the Annual Meeting of Shareholders to be held in 1989; and that of the 3rd class to expire at the Annual Meeting of Shareholders to be held in 1990. At each annual meeting starting in 1988, the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to hold office until the 3rd succeeding annual meeting. The number of directors of the Company shall be seven (Amended September 27, 1991). This number of directors may be changed only by the affirmative vote of (i) the holders of at lease 75% of the shares of the corporation entitled to vote on such change, or (ii) a majority of the directors in office at the time of the vote. When the number of directors is changed, any increase or decrease in directorships shall be apportioned among the classes so as to make all classes as nearly equal in number as possible. (Amended April 11, 1988) SECTION 2. VACANCIES A director may be removed from office only for cause, and only by affirmative vote of a majority of the shares entitled to vote for the election of such director, taken at a meeting of shareholders called for that purpose. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal or has been adjudged by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his duty to the Company in a matter of substantial importance to the Company, and such adjudication is no longer subject to direct appeal. A director may resign at any time by filing his written resignation with the Secretary of the Company. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled until the expiration of the term of that class of directors in which the vacancy exists by the affirmative vote of a majority of the directors then in office, though less than a quorum of the Board of Directors. All nominations for election to the Board of Directors, including any nomination to fill a vacancy (whether created by an increase in the number of directors, a resignation of a Director, 4 or otherwise) other than those made by the remaining directors then in office, must be made at a meeting of stockholders called for the election of directors. (Amended April 11, 1988) SECTION 3. [BLANK] (AMENDED APRIL 11, 1988) Meetings of the Board of Directors SECTION 4. PLACE OF MEETINGS. The board of directors may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 5. ANNUAL MEETING. The first meeting of each newly elected board of directors shall be held in the same place as the annual meeting of stockholders immediately following such meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 6. REGULAR MEETINGS WITHOUT NOTICE. Regular meetings of the board of directors may be held without notice at such date, time and place as shall from time to time be determined by resolution of the board. SECTION 7. SPECIAL MEETINGS. Special meetings of the board of directors may be called by the Chief Executive Officer or the Secretary, and shall be called by the Chief Executive Officer or the Secretary upon the written request of any two or more directors. Notice of the date, time and place of such meetings shall be served upon or telephoned to each director at least 24 hours, or mailed (postage prepaid) or telegraphed, cable or telexed (charges prepaid) to each director at his address as shown on the books of the corporation at least 48 hours prior to the time of the meeting. SECTION 8. QUORUM. At all meetings of the board a majority of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting 5 from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws: (a) Unanimous Consent. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the board or committee. (b) Telephone Conferences. Members of the board of directors or any committee designated by the board, may participate in a meeting of the board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. Committees of the Board of Directors SECTION 10. EXECUTIVE COMMITTEE. The board of directors may, by resolution passed by a majority of the whole board, designate an Executive Committee consisting of the Chief Executive Officer and not less than three other directors which, during intervals between meetings of the board of directors, shall have and may exercise all of the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that the Executive Committee shall have no power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property or assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the By-Laws of the corporation, or to declare a dividend, authorize the issuance of stock or fill vacancies on the board of directors. The board of directors may also designate one or more directors as alternate members of the Executive Committee who may replace any absent or disqualified member at any meeting of the Executive Committee. The board of directors may, at any time, by resolution passed by a majority of the whole board, limit the exercise of the foregoing powers by the Executive Committee, or suspend the operations of the Executive Committee. Three members shall constitute a quorum for the transaction of business. The Chief Executive Officer shall act as chairman of the Executive Committee, shall preside at all meetings of the Executive 6 Committee and shall appoint one person (who need not be a member) to act as secretary at each meeting of the Executive Committee. In the absence of the Chief Executive Officer, or in the event of his disability or refusal to act, such other member of the Executive Committee as the Executive Committee or the board of directors shall designate shall preside at meetings of the Executive Committee. Meetings of the Executive Committee may be called by the Chief Executive Officer or any two members of the Executive Committee. Notice of any meeting of the Executive Committee shall be sufficient if given in the same manner as notice of a special meeting of the board of directors. The Executive Committee shall keep regular minutes of its meetings. The acting secretary of each meeting of the Executive Committee shall furnish to the Secretary of the corporation (when not the same person) a true and correct copy of the proceedings of such meeting and the Secretary of the corporation shall thereupon record such proceedings in the minute book of the corporation. SECTION 11. OTHER COMMITTEES OF DIRECTORS. In addition to the Executive Committee, the board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation, except that the Audit Committee may consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power of authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation, or a revocation of a dissolution, or amending the By-Laws, of the corporation; and, unless the resolution, By-Laws, or Certificate of Incorporation expressly so provide, no such committee shall have power of authority to declare a dividend or to authorize the issuance of stock or to fill vacancies on the board of directors. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless otherwise provided by the board of directors, a majority of the members of any committee appointed by the board of directors pursuant to this Section shall constitute a quorum at any meeting thereof and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of such committee. Any such committee shall, subject to any rules 7 prescribed by the board of directors, prescribe its own rules for calling, giving notice of and holding meetings and its method of procedure at such meetings. (Amended June 23, 1981). SECTION 12. RECORD OF PROCEEDINGS. Each committee shall keep regular written minutes of its meetings and actions taken by it and report the same to the board of directors when required. Directors Fees SECTION 13. FEES. Each director and member of a committee of directors shall be paid such reasonable fee, if any, as shall be fixed by the board of directors for each meeting of the board of directors or committee of directors which he shall attend and may be paid such other compensation for his services as a director or member as may be fixed by the board of directors. No such payment shall preclude any director or member from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV Notices SECTION 1. FORM OF NOTICES. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director, any member of a committee of directors or any stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director, member or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to any director or any member of a committee of directors may also be given by telex, cable or telegram and such notice shall be deemed to be given when delivered to the telegraph company or transmitted by the teletype as the case may be. SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a written waiver thereof, signed by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any regular of special meeting of the stockholders, directors or members of a committee of directors need be specified in the waiver of notice unless so required by the Certificate of Incorporation. Attendance of a person at any meeting shall constitute a waiver of notice of such meeting, except where a person attends a 8 meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. ARTICLE V Officers SECTION 1. NUMBER. The officers of the corporation, except those elected by delegated authority pursuant to Section 3 of this Article, shall be chosen by the board of directors and shall include a Chief Executive Officer, a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer. The board of directors may also choose a Vice Chairman of the Board, a Chief Financial Officer, one or more Executive Vice Presidents, one or more Senior Vice Presidents, a Controller and one or more Assistant Secretaries, Assistant Treasurers and Assistant Controllers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provided. SECTION 2. ELECTION AND TERM OF OFFICE. The board of directors at its first meeting after each annual meeting of stockholders shall choose a Chief Executive Officer and a Chairman of the Board from among the directors, and shall choose a President, one or more Vice Presidents, a Secretary and a Treasurer, none of whom need be a member of the board. The officers of the corporation, except those elected by delegated authority pursuant to Section 3 of this Article, shall be elected annually by the board of directors, and each such officer shall hold his office until his successor shall have been elected and qualified, or until his earlier death, resignation, or removal. SECTION 3. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board of directors may from time to time elect such other officers and appoint such committees, employees or other agents as it shall deem necessary or appropriate, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these By-Laws, or as the board of directors may from time to time determine. The board of directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents. SECTION 4. SALARIES. The salaries of all officers, employees and agents of the corporation who are elected or appointed by the board of directors shall be fixed from time to time by the board of directors or by such officer or committee as may be designated by the board of directors. The salaries or other compensation of any other officers, employees and other agents shall be fixed from time to time by the officer or committee to which the power to elect 9 such officers or to retain or appoint such employees or other agents has been delegated pursuant to Section 3 of this Article. No officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director of the corporation. SECTION 5. RESIGNATIONS. Any officer or agent may resign at any time by giving written notice to the board of directors, or to the Chief Executive Officer or the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. REMOVAL. Any officer, committee, employee or other agent of the corporation may be removed, either for or without cause, by the board of directors or by the officer or committee which elected or appointed such officer, committee or other agent whenever in the judgment of the board or of such officer or committee the best interests of the corporation will be served thereby. SECTION 7. VACANCIES. Any vacancy occurring in any office of the corporation because of death, resignation, removal, disqualification, or any other cause, shall be filled by the board of directors or by the officer or committee to which the power to fill such office has been delegated pursuant to Section 3 of this Article, as the case may be, and if the office is one for which these By-Laws prescribe a term, shall be filled for the unexpired portion of the term. SECTION 8. GENERAL POWERS. All officers of the corporation as between themselves and the corporation, shall, respectively, have such authority and perform such duties in the management of the property and affairs of the corporation as may be determined by resolution of the board of directors, or in the absence of controlling provisions in a resolution of the board of directors, as may be provided in these By-Laws. SECTION 9. EXECUTION OF DOCUMENTS. The Chief Executive Officer, the Chairman of the Board, the Vice Chairman of the Board and the President shall each have the power and authority to sign and execute, in the name of the corporation, bonds, mortgages and other contracts and instruments, under the seal of the corporation or otherwise, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or these By-Laws to some other officer, employee or agent of the corporation. SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the board of directors and stockholders and, in the absence of the President or in the event 10 of his inability or refusal to act, shall perform the duties and exercise the powers of the President. The Chairman of the Board shall also perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 11. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board shall, in the absence of the Chairman of the Board or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Chairman of the Board, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 12. PRESIDENT. The President shall be an executive officer of the corporation and, in the absence of the Vice Chairman of the Board or in the event of his inability or refusal to act, shall perform the duties and exercise the powers of the Vice Chairman of the Board. The President shall also perform such other duties and exercise such other powers as the board of directors may from time to time prescribe. SECTION 13. CHIEF EXECUTIVE OFFICER. Either the Chairman of the Board, the Vice Chairman of the Board or the President may be the Chief Executive Officer of the corporation, and the board of directors shall from time to time designate which of such officers shall be the Chief Executive Officer. The Chief Executive Officer shall have general and active management control of the business of the corporation, shall see that all orders and resolutions of the board of directors are carried into effect and shall have general supervision and direction of all other officers of the corporation. The Chief Executive Officer shall also perform such other duties and have such other powers as the board of directors may from time to time prescribe. In the event of the absence of the Chief Executive Officer or of his inability or refusal to act, the Chairman of the Board or the Vice Chairman of the Board or the President (whoever does not hold the office of Chief Executive Officer), in the order designated by the board of directors, shall perform the duties and exercise the powers of the Chief Executive Officer. SECTION 14. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS. The Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall perform such duties and have such other powers as the board of directors of the Chief Executive Officer may from time to time prescribe. SECTION 15. SECRETARY. The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders, record all the proceedings of all such meetings in a book to be kept for that purpose and shall perform like duties for the standing committees when requested. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other 11 duties and have such other powers as the board of directors or the Chief Executive Officer may from time to time prescribe. He shall have custody of the corporate seal of the corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature of such Assistant Secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. SECTION 16. ASSISTANT SECRETARIES. In the absence of the Secretary or in the event of his inability or refusal to act, the Assistant Secretary (or in the event there be more than one, the Assistant Secretaries in the order designated by the board of directors, or in the absence of any designation, then in the order of their election) shall perform the duties and exercise the powers of the Secretary. The Assistant Secretaries shall also perform such other duties and exercise such other powers as the board of directors or the Chief Executive Officer may from time to time prescribe. SECTION 17. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the corporation shall, under the direction and supervision of the Chief Executive Officer, supervise and manage the financial affairs of the corporation. He shall have direct supervision and direction of all other officers, employees and agents of the corporation who are involved primarily in the conduct of the financial affairs of the corporation. He shall also perform such other duties and have such other powers as the board of directors or the Chief Executive Officer may from time to time prescribe. SECTION 18. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors, the Chief Executive Officer or the Chief Financial Officer. The Treasurer shall render to the Chief Executive Officer, the Chief Financial Officer and the board of directors, at its regular meetings, or otherwise when the board of directors so requests, an account of all his transactions as Treasurer and of the financial condition of the corporation. The Treasurer shall also perform such other duties and have such other powers as the board of directors, the Chief Executive Officer or the Chief Financial Officer may from time to time prescribe. SECTION 19. ASSISTANT TREASURERS. In the absence of the Treasurer or in the event of his inability or refusal to act, the Assistant Treasurer (or in the event there be more than one, the Assistant Treasurers in the order designated by the board of 12 directors, or in the absence of any designation, then in the order of their election) shall exercise the powers and perform the duties of the Treasurer. The Assistant Treasurers shall also perform such other duties and exercise such other powers as the board of directors, the Chief Executive Officer or the Chief Financial Officer may from time to time prescribe. SECTION 20. PERFORMANCE BOND OF TREASURER AND ASSISTANT TREASURERS. If required by the board of directors, the Treasurer and each Assistant Treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. SECTION 21. CONTROLLER. The Controller shall plan and direct corporate accounting and control policies and procedures and shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, the Chief Financial Officer, the Treasurer and the board of directors, at its regular meetings, or otherwise when the board of directors so requests, an account of all his transactions as Controller and of the financial condition of the corporation. SECTION 22. ASSISTANT CONTROLLERS. In the absence of the Controller or in the event of his inability or refusal to act, the Assistant Controller (or in the event there be more than one, the Assistant Controllers in the order designated by the board of directors, or in the absence of any designation, then in the order of their election) shall perform the duties and exercise the powers of the Controller. The Assistant Controllers shall also perform such other duties and have such other powers as the board of directors, the Chief Executive Officer and the Chief Financial Officer may from time to time prescribe. ARTICLE VI Certificate of Stock SECTION 1. CERTIFICATES. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by the Chairman of the Board, the Vice Chairman of the Board, the President or an Executive, Senior or other Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by such holder in the corporation. 13 SECTION 2. CLASSES OF STOCK - DESIGNATION. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other rights, if any, of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 3. FACSIMILE SIGNATURES. When a certificate is countersigned (1) by a transfer agent other than the corporation or its employees, or (2) by a registrar other than the corporation or its employees, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 4. TRANSFER OF STOCK. The transfer of shares of stock and certificates representing shares of stock shall be governed by Article 8 of the Uniform Commercial Code as adopted and in effect in the State of Delaware. Whenever any transfer of shares of stock shall be made for collateral security, and not absolutely, if the transferor and transferee request the corporation to do so when the certificates representing the shares are presented for transfer, the fact that the transfer is being made for collateral security shall be expressed in the entry for transfer. SECTION 5. LOST, STOLEN, OR DESTROYED CERTIFICATES. The corporation shall issue a new stock certificate in the place of any certificate previously issued when the holder of record of the certificate: (a) Claim. Makes proof in affidavit form that it has been lost, destroyed, or wrongfully taken; 14 (b) Timely Request. Requests the issuance of a new certificate before the corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) Bond. Gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the corporation may direct, to indemnify the corporation, its transfer agents and registrars against any claim that may be made on account of the alleged loss, destruction, or theft or the certificate; and (d) Other Requirements. Satisfies any other reasonable requirements imposed by the corporation. When a certificate has been lost, apparently destroyed, or wrongfully taken and the holder of record fails to notify the corporation within a reasonable time after he has notice of it, and the corporation registers a transfer of the shares represented by such certificate before receiving such notification, the holder of record is precluded from making any claim against the corporation for the transfer or for a new certificate. SECTION 6. FIXING RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of stock to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 15 ARTICLE VII General Provisions SECTION 1. FISCAL YEAR. Each fiscal year of the corporation shall end on the Saturday nearest to March 31st of each year. (Amended January 22, 1980) SECTION 2. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 3. AMENDMENTS. These By-Laws may be altered or repealed at any meeting of the stockholders or of the Board of Directors without a meeting as respectively provided in Section 11 of Article II and Section 9 or Article III; provided, however, that Article II, Section 3, and Article III, Sections 1 and 2, and Article VII, Section 3 may be amended or repealed only by an affirmative vote of not less than seventy-five percent (75%) of the shares present or represented at an Annual or Special Meeting of the Stockholders at which a quorum is in attendance. (Amended April 11, 1988) ARTICLE VIII SECTION 1. MISCELLANEOUS. Unless otherwise ordered by the board of directors, the Chief Executive Officer, the Chairman of the Board, the Vice Chairman of the Board, the President, any Executive, Senior or other Vice President, or the Secretary, in person or by proxy or proxies appointed by any of them, shall have full power and authority on behalf of the corporation to vote, act and consent with respect to any shares of stock issued by other corporations which the corporation may own or as to which the corporation otherwise has the right to vote, act or consent. ARTICLE IX Indemnification SECTION 1. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was serving as a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), 16 judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The corporation shall indemnify any person who becomes a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was serving as a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except in such cases as involve gross negligence or willful misconduct in the performance of his duties. SECTION 3. Expenses incurred by a director, officer, employee or agent of the corporation in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors upon receipt of an undertaking by or on behalf of such person to repay such amounts unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as provided in these By-Laws. SECTION 4. The indemnification provided by these By-Laws shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 5. The corporation may purchase and maintain insurance on behalf of any person who is or was a director or 17 officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and any resulting expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to so indemnify him under the provisions of these By-Laws. (Amended August 1, 1982) ARTICLE X Indemnification Saving Clause and Retroactivity SECTION 1. The invalidity or unenforceability of any provision in Article IX, in whole or in part, shall not affect the validity or enforceability of the affected provision to the full extent permitted by law to be enforceable, nor of the remaining provisions of that Article IX. SECTION 2. The indemnification provided in Article IX shall be retroactive in application ab initio of the corporation. (Amended August 1, 1982) EX-4.1 3 LOAN AND SECURITY AGREEMENT BY AND BETWEEN SANWA BUSINESS CREDIT CORPORATION AND VALLEY COMMUNICATIONS, INC. TABLE OF CONTENTS Page 1. DEFINITIONS.................................................1 1.1 "Accounts"............................................1 1.2 "Account Debtor"......................................1 1.3 "Accounts Report".....................................1 1.4 "Accumulated Funding Deficiency"......................1 1.5 "Affiliate"...........................................1 1.6 "Ancillary Agreements"................................2 1.7 "Billings in Excess of Cost and Earnings..............2 1.8 "Borrower's Knowledge"................................2 1.9 "Business Day"........................................2 1.10 "Capital Leases"......................................2 1.11 "Charges".............................................2 1.12 "Closing".............................................2 1.13 "Code"................................................2 1.14 "Collateral"..........................................3 1.15 "Collateral Availability".............................3 1.16 "Contract Year".......................................3 1.17 "Costs and Earnings in Excess of Billings.............3 1.18 "Current Assets"......................................3 1.19 "Current Liabilities".................................3 1.20 "Default".............................................3 1.21 "Default Rate"........................................3 1.22 "Depository Bank".....................................3 1.23 "Designated Rate".....................................3 1.24 "Eligible Accounts"...................................3 1.25 "Eligible Inventory"..................................3 1.26 "Employee Benefit Plan"...............................4 1.27 "Environmental Laws"..................................4 1.28 "Environmental Lien"..................................4 1.29 "Equipment"...........................................4 1.30 "ERISA"...............................................4 1.31 "Event of Default"....................................4 1.32 "Excess Interest".....................................4 1.33 "Financials"..........................................4 1.34 "General Intangibles".................................4 1.35 "Hazardous Materials".................................5 1.36 "Indebtedness"........................................5 1.37 "Interest Period".....................................5 -i- 1.38 "Interest Rate Determination Date"....................5 1.39 "Inventory"...........................................5 1.40 "Inventory Report"....................................5 1.41 "Liabilities".........................................6 1.42 "LIBOR Rate"..........................................6 1.43 "LIBOR Rate Revolving Loan"...........................6 1.44 "Maximum Amount"......................................6 1.45 "Multiemployer Plan"..................................6 1.46 "Participant".........................................6 1.47 "PBGC"................................................6 1.48 "Permitted Liens".....................................7 1.49 "Person"..............................................7 1.50 "Plan Administrator"..................................7 1.51 "Plan Sponsor"........................................7 1.52 "Pre-Tax Net Income"..................................7 1.53 "Prime Rate"..........................................7 1.54 "Prime Rate Revolving Loan"...........................7 1.55 "Prohibited Transaction"..............................7 1.56 "Reportable Event"....................................7 1.57 "Revolving Loan"......................................7 1.58 "Revolving Loan Account"..............................8 1.59 "Security Documents"..................................8 1.60 "Special Collateral"..................................8 1.61 "Special Deposit Account".............................8 1.62 "Stock"...............................................8 1.63 "Tangible Net Worth"..................................8 1.64 "Telerate Screen".....................................8 1.65 "Term"................................................8 1.66 "Total Facility"......................................8 1.67 "Unused Facility Fee".................................8 1.68 Accounting Terms......................................8 1.69 Other Terms...........................................8 2. LOANS: GENERAL TERMS.......................................9 2.1 Total Facility.........................................9 2.2 Advances to Borrower Constitute One Loan...............9 2.3 Interest Rate..........................................9 2.4 Term of Agreement; Liquidated Damages.................13 2.5 Unused Facility Fee...................................14 2.6 Closing Fee...........................................14 2.7 Special Provisions Governing LIBOR Rate Revolving Loan..................................................14 -ii- 2.8 Purpose...............................................16 3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY......................16 3.1 Eligible Accounts.....................................16 3.2 Eligible Inventory....................................18 4. PAYMENTS...................................................18 4.1 Revolving Loan Account; Method of Making Payments.....18 4.2 Payment Terms.........................................19 4.3 Collection of Accounts and Payments...................19 4.4 Application of Payments and Collections...............20 4.5 Statements............................................20 5. COLLATERAL: GENERAL TERMS.................................20 5.1 Security Interest.....................................20 5.2 Disclosure of Security Interest.......................21 5.3 Special Collateral....................................21 5.4 Further Assurances....................................21 5.5 Inspection............................................21 5.6 Location of Collateral................................21 5.7 Lender's Payment of Claims Asserted Against Borrower..22 6. COLLATERAL: ACCOUNTS......................................22 6.1 Verification of Accounts..............................22 6.2 Assignments, Records and Accounts Report..............22 6.3 Notice Regarding Disputed Accounts....................23 6.4 Sale or Encumbrance of Accounts.......................23 7. COLLATERAL: INVENTORY.....................................23 7.1 Sale of Inventory.....................................23 7.2 Safekeeping of Inventory; Inventory Covenants.........23 7.3 Records and Schedules of Inventory....................23 7.4 Returned and Repossessed Inventory....................23 7.5 Evidence of Ownership of Inventory....................24 8. COLLATERAL: EQUIPMENT.....................................24 -iii- 8.1 Maintenance of the Equipment..........................24 8.2 Evidence of Ownership of Equipment....................24 8.3 Proceeds of the Equipment.............................24 9. WARRANTIES AND REPRESENTATIONS.............................25 9.1 General Warranties and Representations................25 9.2 Account Warranties and Representations................28 9.3 Inventory Warranties and Representations..............29 9.4 ERISA Warranties and Representations..................29 9.5 Automatic Warranty and Representation and Reaffirmation of Warranties and Representations.......31 9.6 Survival of Warranties and Representations............31 10. COVENANTS AND CONTINUING AGREEMENTS.......................32 10.1 Affirmative Covenants...............................32 10.2 Negative Covenants..................................36 10.3 Contesting Charges..................................39 10.4 Payment of Charges..................................39 10.5 Insurance; Payment of Premiums......................39 10.6 Survival of Obligations Upon Termination of Agreement...........................................40 11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...................40 11.1 Event of Default; Default...........................40 11.2 Acceleration of the Liabilities.....................43 11.3 Remedies............................................43 11.4 Notice..............................................44 12. CONDITIONS PRECEDENT TO DISBURSEMENT......................44 12.1 Conditions Precedent................................44 12.2 Lender Satisfaction.................................45 12.3 Additional Funding Requirements.....................45 13. MISCELLANEOUS.............................................46 13.1 Appointment of Lender as Borrower's Lawful Attorney-In Fact....................................46 13.2 Modification of Agreement; Sale of Interest.........47 13.3 Attorneys' Fees and Expenses; Lender's Out-of- Pocket Expenses.....................................47 13.4 Indemnification.....................................48 -iv- 13.5 Waiver by Lender....................................48 13.6 Severability........................................48 13.7 Parties; Entire Agreement...........................48 13.8 Conflict of Term....................................49 13.9 Waiver by Borrower..................................49 13.10 Waiver and Governing Law............................49 13.11 Notice..............................................50 13.12 Release of Claims...................................51 13.13 Representation by Counsel...........................51 13.14 Counterparts........................................51 13.15 LENDER'S WAIVER OF JURY.............................52 13.16 Section Titles, Etc.................................52 -v- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the 14th day of March, 1996, by and between SANWA BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender") and VALLEY COMMUNICATIONS, INC., a California corporation ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower desires to borrow funds and obtain other financial accommodations from Lender, and Lender is willing to make certain loans and provide other financial accommodations to Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any loans or extension of credit heretofore, now or hereafter made to or for the benefit of Borrower by Lender, the parties hereto hereby agree as follows: I. DEFINITIONS When used herein, the following terms shall have the following meanings: 1.1 "Accounts" shall mean all accounts, contract rights, chattel paper, instruments and documents, whether now owned or hereafter acquired by Borrower. 1.2 "Account Debtor" shall mean any Person who is or who may become obligated to Borrower under, with respect to, or on account of an Account. 1.3 "Accounts Report" shall mean a report delivered to Lender by Borrower, as required by Section 6.2, consisting of a trial balance of all Accounts of Borrower existing as of the date of such Accounts Report, specifying for each Account Debtor obligated on the Accounts, such Account Debtor's name, address and outstanding balance. 1.4 "Accumulated Funding Deficiency" shall have the meaning assigned to that term in Section 302 of ERISA. 1.5 "Affiliate" shall mean any and all Persons which, in the sole and absolute judgment of Lender, directly or indirectly, own or control, are controlled by or are under common control with Borrower, and any and all Persons from whom, in the sole and absolute judgment of Lender, Borrower has not or is not likely to exhibit independence of decision or action. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power 1 to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 1.6 "Ancillary Agreements" shall mean all Security Documents and agreements, instruments and documents, including without limitation, notes, guaranties, mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, subordination agreements, trust account agreements and all other written matter whether heretofore, now, or hereafter executed by or on behalf of Borrower or any other Person or delivered to Lender or any Participant with respect to this Agreement. 1.7 "Billings in Excess of Cost and Earnings" is a liability on Borrower's balance sheet and shall mean all of the Borrower's billings to its Account Debtors which are in excess of the Borrower's revenues recognized with respect to such Account Debtors. 1.8 "Borrower's Knowledge" or words of such import shall mean all knowledge, including, actual knowledge and knowledge of matters which any reasonable person in such position knew or should have known, of the respective officers, directors and managers of Borrower. 1.9 "Business Day" shall mean (a) for all purposes other than as specified in clause (b), any day, other than a Saturday or Sunday, on which the main lobby of the Depository Bank and Lender are open for business with the general public, and (b) with respect to all notices, determinations, findings and payments in connection with the LIBOR Rate, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in dollar deposits in the applicable interbank LIBOR market. 1.10 "Capital Leases" shall mean any lease of personal property of any Person, as lessee, which, in accordance with generally accepted accounting principles, is accounted for as a capital lease on the balance sheet of such Person. 1.11 "Charges" shall mean all national, federal, state, county, city, municipal, or other governmental (including, without limitation, the Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Liabilities, (iii) Borrower's employees, payroll, income or gross receipts, (iv) Borrower's ownership or use of any of its assets, or (v) any other aspect of Borrower's business. 1.12 "Closing" shall mean the date on which this Agreement is executed by both Borrower and Lender. 1.13 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2 1.14 "Collateral" shall mean all of the property and interests in property described in Section 5.1 and all other property and interests in property which shall, from time to time, secure any part of the Liabilities. 1.15 "Collateral Availability" shall have the meaning ascribed to it in Section 2.1. 1.16 "Contract Year" shall mean initially, that period of time commencing on the Closing and one day prior to the anniversary of the Closing, and thereafter each period of one (1) year commencing on the date after the last day of the immediately preceding Contract Year and any one (1) day prior to the anniversary of such date. 1.17 "Costs and Earnings in Excess of Billings" is an asset on Borrower's balance sheet and shall mean revenues recognized in excess of amounts billed. 1.18 "Current Assets" shall mean the aggregate net book value of the current assets of Borrower as determined in accordance with generally accepted accounting principles, excluding any accounts owing to Borrower from any Affiliate. 1.19 "Current Liabilities" shall mean the aggregate amount of all liabilities of Borrower, including the indebtedness evidenced by the Revolving Loan and those liabilities which would be classified as current liabilities under generally accepted accounting principles. 1.20 "Default" shall mean the occurrence or existence of any one or more of the events described in Section 11.1. 1.21 "Default Rate" shall mean a rate per annum equal to two hundred (200) basis points in excess of the interest rate then in effect for the respective Liabilities. 1.22 "Depository Bank" shall mean the banking institution which is referred to in Section 4.3 and which shall be the signatory to the Special Deposit Agreement which is attached hereto as Exhibit A. 1.23 "Designated Rate" shall mean, with respect to (a) Prime Rate Revolving Loan, the Prime Rate, and (b) the LIBOR Rate Revolving Loan, the LIBOR Rate. 1.24 "Eligible Accounts" shall mean those Accounts included in an Accounts Report which, as of the date of such Accounts Report and at all times thereafter, (i) satisfy the requirements for eligibility as described in Section 3.1, (ii) do not violate the negative covenants and other provisions of this Agreement and do satisfy the affirmative covenants, warranties and other provisions of this Agreement and (iii) Lender, in its sole and absolute credit judgment and in the exercise of good faith, deems to be Eligible Accounts. 1.25 "Eligible Inventory" shall mean those items of Inventory included in an Inventory Report which, as of the date of such Inventory Report and at all times thereafter, 3 (i) satisfy the requirements for eligibility as described in Section 3.2, (ii) do not violate the negative covenants and other provisions of this Agreement and do satisfy the affirmative covenants, warranties and other provisions of this Agreement and (iii) Lender, in its sole and absolute credit judgment and in the exercise of good faith, deems to be Eligible Inventory. 1.26 "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of ERISA Section 3(3) maintained, sponsored or contributed to by the Borrower or any ERISA Affiliate. 1.27 "Environmental Laws" shall mean the Resource Conservation and Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and Liability Act, any so- called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or any other federal state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. 1.28 "Environmental Lien" shall mean a lien in favor of any governmental entity for (i) any liability under any Environmental Laws, or (ii) damages arising from or costs incurred by such governmental entity in response to a release of a Hazardous Material into the environment. 1.29 "Equipment" shall mean all Borrower's now owned and hereafter acquired equipment and fixtures, including without limitation, furniture, machinery, vehicles and trade fixtures, together with any and all accessories, parts and appurtenances thereto, substitutions therefor and replacements thereof. 1.30 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.31 "Event of Default" shall mean any event or condition which, with the passage of time or the giving of notice or both, would constitute a Default. 1.32 "Excess Interest" shall mean have the meaning ascribed to it in Section 2.3(C)(ii). 1.33 "Financials" shall mean those financial statements of Borrower attached hereto as Exhibit B or delivered to Lender pursuant to Section 10.1. 1.34 "General Intangibles" shall mean all choses in action, general intangibles, causes of action and all other intangible personal property of Borrower of every kind and nature (other than Accounts) now owned or hereafter acquired by Borrower. Without in any way limiting the generality of the foregoing, General Intangibles specifically includes, without limitation, all corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, and tax refund claims owned by Borrower and all letters of 4 credit, guarantee claims, security interests or other security held by or granted to Borrower to secure payment by an Account Debtor of any Accounts. 1.35 "Hazardous Materials" shall mean any hazardous substance or pollutant or contaminant defined as such in (or for the purposes of) any Environmental Law and shall include, but not be limited to, petroleum, any radioactive material, and asbestos in any form or condition. 1.36 "Indebtedness" shall mean all of Borrower's liabilities, obligations and indebtedness to any Person of any and every kind and nature, whether primary, secondary, direct, indirect, absolute, contingent, fixed, or otherwise, heretofore, now or hereafter owing, due, or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under written or oral agreement, by operation of law, or otherwise. Without in any way limiting the generality of the foregoing, Indebtedness specifically includes (i) the Liabilities, (ii) all obligations or liabilities of any Person that are secured by any lien, claim, encumbrance, or security interest upon property owned by Borrower, even though Borrower has not assumed or become liable for the payment thereof, (iii) all obligations or liabilities created or arising under any lease of real or personal property, or conditional sale or other title retention agreement with respect to property used or acquired by Borrower, even though the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property, (iv) all obligations and liabilities in respect of unfunded vested benefits under any Employee Benefit Plan or in respect of withdrawal liabilities incurred under ERISA by the Borrower or any ERISA Affiliate to any Multiemployer Plan and (v) deferred taxes. 1.37 "Interest Period" means any actual period applicable to a LIBOR Rate Revolving Loan as determined pursuant to Section 2.3(D). 1.38 "Interest Rate Determination Date" means each date for calculating the LIBOR Rate for purposes of determining the interest rate applicable to any LIBOR Rate Revolving Loan made pursuant to Section 2.3. The Interest Rate Determination Date shall be the second Business Day prior to the first day of an Interest Period for a LIBOR Rate Revolving Loan. 1.39 "Inventory" shall mean all goods, inventory, merchandise and other personal property including, without limitation, goods in transit, wherever located and whether now owned or hereafter acquired by Borrower which is or may at any time be held for sale or lease, furnished under any contract of service or held as raw materials, work in process, supplies or materials used or consumed in Borrower's business, and all such property the sale or other disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by Borrower. 1.40 "Inventory Report" shall mean a report delivered to Lender by Borrower, as required by Section 7.3, consisting of a detailed listing of all Inventory as of the date of such Inventory Report describing the kind, type, quality, quantity, location and the lower of cost (computed on the basis of an average cost flow assumption) or market value of such Inventory. 5 1.41 "Liabilities" shall mean all of Borrower's liabilities, obligations and indebtedness to Lender of any and every kind and nature, whether primary, secondary, direct, absolute, contingent, fixed, or otherwise (including, without limitation, interest, charges, expenses, attorneys' fees and other sums chargeable to Borrower by Lender, future advances made to or for the benefit of Borrower and obligations of performance), whether arising under this Agreement, under any of the Ancillary Agreements or acquired by Lender from any other source, whether heretofore, now or hereafter owing, arising, due, or payable from Borrower to Lender, however evidenced, created, incurred, acquired or owing and however arising, whether under written or oral agreement, operation of law, or otherwise. 1.42 "LIBOR Rate" shall mean, for each Interest Period, a rate of interest equal to the sum of: a. the rate of interest determined by the Lender at which deposits in U.S. Dollars for the relevant Interest Period are offered based on information presented on the Telerate Screen as of 11:00 A.M. (London time) on the applicable Interest Rate Determination Date; provided, that if more than one (1) offered rate appears on the Telerate Screen in respect of such Interest Period, the arithmetic mean of all such rates (as determined by the Lender) will be the rate used; provided, further, that if Telerate ceases to provide LIBOR quotations, such rate shall be the average rate of interest determined by the Lender at which deposits in U.S. Dollars are offered for the relevant Interest Period by The Sanwa Bank, Limited (or its successor) to banks in London interbank markets as of 11:00 A.M. (London time) on the applicable Interest Rate Determination Date, plus b. two hundred and twenty-five (225) basis points. 1.43 "LIBOR Rate Revolving Loan" shall mean the Revolving Loan, to the extent that it bears interest at the LIBOR Rate. 1.44 "Maximum Amount" shall mean an amount equal to Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000). 1.45 "Multiemployer Plan" shall mean any plan described in Section 4001(a)(3) of ERISA to which contributions are or have been made by the Borrower or any ERISA Affiliate. 1.46 "Participant" shall mean any Person, now or at any time or times hereafter, participating with Lender in the loans made by Lender to Borrower pursuant to this Agreement and the Ancillary Agreements. 1.47 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any governmental body succeeding to its functions. 6 1.48 "Permitted Liens" shall mean those liens scheduled on Exhibit G to this Agreement. 1.49 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party, or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.50 "Plan Administrator" shall have the meaning assigned to it in Section 3(16)(A) of ERISA. 1.51 "Plan Sponsor" shall have the meaning assigned to it in Section 3(16)(B) of ERISA. 1.52 "Pre-Tax Net Income" shall mean, for any period, with respect to any Person, the gross revenues of such Person, less all operating and non-operating expenses (including, without limitation, interest expenses and all fees and commissions) of such Person for such period, derived in the ordinary course of its business, including all charges of a proper character (excluding, however, current and deferred taxes on income and provisions for taxes on income but including current additions to bad debt and other reserves), all determined on a basis consistent with prior years." 1.53 "Prime Rate" shall mean the highest "prime rate" of interest quoted, from time to time, by The Wall Street Journal as the base rate on corporate loans at large United States money center commercial banks, provided, however, that in the event that The Wall Street Journal ceases quoting a "prime rate" of the type described, Prime Rate shall mean the highest per annum rate of interest quoted as the "Bank Prime Loan" rate for "This week" in Statistical Release H.15(519) published from time to time by the Board of Governors of the Federal Reserve System. 1.54 "Prime Rate Revolving Loan" shall mean the Revolving Loan, to the extent that it bears interest at the Prime Rate. 1.55 "Prohibited Transaction" shall mean a transaction that is prohibited under Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or ERISA Section 408. 1.56 "Reportable Event" shall mean (a) an event described in Sections 4043(b), 4068(a) or 4063(a) of ERISA or in the regulations thereunder, (b) receipt of a notice of withdrawal liability with respect to a Multiemployer Plan pursuant to Section 4202 of ERISA, (c) an event requiring the Borrower or any ERISA Affiliate to provide security for an Employee Benefit Plan under Code Section 401(a)(29), and (d) any failure to make payment required under Code Section 412(m). 1.57 "Revolving Loan" shall have the meaning ascribed to it in Section 2.1. 7 1.58 "Revolving Loan Account" shall have the meaning ascribed to it in Section 4.1. 1.59 "Security Documents" shall mean this Agreement and all other agreements, instruments, documents, financing statements, warehouse receipts, bills of lading, notices of assignment, schedules, assignments, mortgages and other written matter necessary or requested by Lender to create perfect and maintain perfected Lender's security interest in the Collateral. 1.60 "Special Collateral" shall have the meaning ascribed to it in Section 5.3. 1.61 "Special Deposit Account" shall have the meaning ascribed to it in Section 4.3. 1.62 "Stock" shall mean all shares, options, interests, participations or other equivalents (however designated) of or in a corporation, whether voting or non-voting, including, without limitation, common stock, warrants, 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. 1.63 "Tangible Net Worth" shall mean, as of any particular date, calculated on an unconsolidated basis the difference between (a) Borrower's total assets as shown on the balance sheet of Borrower, but excluding therefrom all values attributable to goodwill, non-competition agreements, patents, copyrights, trade- marks, licenses, prepaid expenses, Capital Leases, other General Intangibles and Accounts due from Affiliates and (b) Borrower's total liabilities and deferred charges shown on such balance sheet, including as liability all guarantees of the indebtedness of Affiliates. 1.64 "Telerate Screen" means the display designated as Screen 3750 on the Telerate System or such other screen on the Telerate System as shall display the London interbank offered rates for deposits in U.S. dollars quoted by selected banks. 1.65 "Term" shall have the meaning ascribed to it in Section 2.4. 1.66 "Total Facility" shall have the meaning ascribed to it in Section 2.1. 1.67 "Unused Facility Fee" shall have the meaning set forth in Section 2.5 herein. 1.68 Accounting Terms. Any accounting terms used in this Agreement which are not specifically defined shall have the meanings customarily given them in accordance with generally accepted accounting principles. 1.69 Other Terms. All other terms contained in this Agreement which are not otherwise defined in this Agreement shall, unless the context indicates otherwise, have the 8 meanings provided for by the Uniform Commercial Code of the State of Illinois to the extent the same are used or defined therein. 2. LOANS: GENERAL TERMS 2.1 Total Facility. Lender may, in its sole and absolute discretion, and in the exercise of good faith, make available for Borrower's use from time to time during the term of this Agreement, upon Borrower's request therefor, certain loans and other financial accommodations in an aggregate amount (except in Lender's sole and absolute discretion) not to exceed Two Million Five Hundred Thousand and No/100ths Dollars ($2,500,000.00) (the "Total Facility"). The Total Facility shall be subject to all of the terms and conditions of this Agreement and shall comprise a revolving line of credit consisting of advances against Eligible Accounts and Eligible Inventory (the "Revolving Loan") in an aggregate principal amount not to exceed, at any time outstanding, the lesser of (i) $2,500,000.00 or (ii) the outstanding amount of Collateral Availability. As used in this Agreement, "Collateral Availability" shall mean, as of any date of determination, an amount equal to the sum of (i) up to eighty percent (80%) of the net amount (after deduction of such reserves as Lender deems proper and necessary in the exercise of good faith) of Eligible Accounts plus (ii) up to fifty percent (50%) of the aggregate value of Eligible Inventory (determined on the basis of the lower of an average cost or market value, net of such reserves as Lender deems proper and necessary in the exercise of good faith), provided that Collateral Availability as to Eligible Inventory of Borrower shall not at any time exceed in the aggregate Five Hundred Thousand and No/100ths Dollars ($500,000.00). It is expressly understood and agreed by Borrower that nothing contained in this Agreement shall, at any time, require Lender to make loans or other extensions of credit to Borrower and the making and amount of such loans or other extensions of credit to Borrower under this Agreement shall at all times be in Lender's sole and absolute discretion in the exercise of good faith. Lender may, in the exercise of such discretion in the exercise of good faith, at any time and from time to time, increase or decrease the advance percentages to be applied to Eligible Accounts and Eligible Inventory which are contained in this Section 2.1. In the event such percentages are decreased, such decrease shall become effective immediately for the purpose of calculating the amount which Lender may be willing to advance, or allow to remain outstanding, against Eligible Accounts and Eligible Inventory. 2.2 Advances to Borrower Constitute One Loan. All loans and advances by Lender to Borrower under this Agreement and the Ancillary Agreements shall constitute one loan to Borrower and all indebtedness and obligations of Borrower to Lender under this Agreement and the Ancillary Agreements shall constitute one general obligation of Borrower secured by the Collateral of Borrower. 2.3 Interest Rate. (A) (i) So long as no Default has occurred and is continuing, the Borrower shall pay to the Lender interest on the outstanding principal balance of the Revolving Loan at the 9 applicable Designated Rate; provided, however, that upon the occurrence and during the continuation of any Default, Lender may at its option, raise the interest rate charged on the Liabilities to the Default Rate with respect to the Liabilities from the date of the occurrence of the Event of Default until the earlier of (1) the Event of Default is cured or waived by Lender or (2) the Liabilities are paid in full. The applicable basis for determining the rate of interest with respect to the Revolving Loan shall be selected by the Borrower initially at the time a request for an advance is given pursuant to Section 12.3(J). The basis for determining the interest rate with respect to the Revolving Loan may be changed from time to time by Borrower pursuant to subsection 2.3(E). (ii) Interest on the Revolving Loan shall be computed by multiplying the closing daily balance of the Revolving Loan as reflected in the Borrower's Revolving Loan Account for each day during the preceding month by the interest rate determined to be applicable hereunder on each such day. (iii) Interest and all fees hereunder (other than prepayment fees) shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest on the Revolving Loan, the date of funding of the Revolving Loan or the first day of an Interest Period applicable to such Revolving Loan if it is a LIBOR Rate Revolving Loan, or with respect to a Prime Rate Revolving Loan being converted from a LIBOR Rate Revolving Loan, the date of conversion of such LIBOR Rate Revolving Loan to such Prime Rate Revolving Loan, shall be included and the date of payment of such Revolving Loan or the expiration date of an Interest Period applicable to such Revolving Loan if it is a LIBOR Rate Revolving Loan, or with respect to a Prime Rate Revolving Loan being converted to a LIBOR Rate Revolving Loan, the date of conversion of such Prime Rate Revolving Loan to such LIBOR Rate Revolving Loan, shall be excluded; provided, that if a Revolving Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Revolving Loan. (B) Following the occurrence of a Default, the Borrower shall pay to the Lender interest from the date of such Default to and including the date of cure of such Default on the outstanding principal balance of the Liabilities at the Default Rate applicable to such Liabilities; provided, however, that in the case of LIBOR Rate Revolving Loan, upon the expiration of the Interest Period in effect at the time any Default shall have occurred and be continuing, such LIBOR Rate Revolving Loan shall become Prime Rate Revolving Loan and thereafter bear interest at the Default Rate applicable to Prime Rate Revolving Loan. (C) (i) Interest shall be due at the Designated Rate as provided herein, after as well as before demand, default and judgment, notwithstanding any judgment rate of interest provided for in any statute. If any interest payment or other charge or fee payable hereunder exceeds the maximum amount then permitted by applicable law, then to the extent permitted by law and subject to the provisions of subparagraph (ii) below, the Borrower shall be obligated to pay the maximum amount then permitted by applicable law and the Borrower shall continue to pay the maximum amount from time to time permitted by applicable law until all such interest 10 payments and other charges and fees otherwise due hereunder (in the absence of such restraint imposed by applicable law) have been paid in full. (ii) It is the intention of the Lender and the Borrower to comply with the laws of the State of Illinois, and notwithstanding any provision to the contrary contained herein or in the other Ancillary Agreements, the Borrower shall not be required to pay and the Lender shall not be permitted to collect any amount in excess of the maximum amount of interest permitted by law ("Excess Interest"). If any Excess Interest is provided for or determined to have been provided for by a court of competent jurisdiction in this Agreement or in any of the other Ancillary Agreements, then in such event: (a) the provisions of this subparagraph shall govern and control; (b) neither the Borrower nor any guarantor or endorser shall be obligated to pay any Excess Interest; (c) any Excess Interest that the Lender may have received hereunder shall be, at the Lender's option (1) applied as a credit against the outstanding principal balance of the Liabilities or accrued and unpaid interest (not to exceed the maximum amount permitted by law), (2) refunded to the payor thereof, or (3) any combination of the foregoing; and (d) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed under applicable law, and this Agreement and the other Ancillary Agreements shall be deemed to have been, and shall be, reformed and modified to reflect such reduction. (D) In connection with each LIBOR Rate Revolving Loan, the Borrower shall elect an interest period (each an "Interest Period") to be applicable to such Revolving Loan, which Interest Period shall be either a 30, 60 or 90 day period; provided, that: (i) the initial Interest Period for any Revolving Loan shall commence on the date of funding of such Revolving Loan; (ii) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the immediately preceding Interest Period expires (Borrower and Lender agree that this subsection does not obligate Borrower to pay interest twice for the same days' funds); (iii) if an Interest Period otherwise would expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if such next succeeding Business Day falls in a new calendar month, then such Interest Period shall expire on the immediately preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to paragraph (v) below, end on the last Business Day of a calendar month; (v) no Interest Period shall extend beyond the last day of the Term; 11 (vi) no Interest Period may extend beyond a date on which the Borrower is required to make a required payment or prepayment of principal of the Revolving Loan; and (vii) there shall be no more than two (2) Interest Periods relating to LIBOR Rate Revolving Loans outstanding at any time. (E) Subject to the provisions of subsection 2.3(D), the Borrower shall have the option to: (i) convert at any time all or any part of the outstanding Prime Rate Revolving Loan equal to Two Hundred Thousand and No/100ths Dollars ($200,000) and integral multiples of One Hundred Thousand and No/100ths Dollars ($100,000) in excess of that amount from Prime Rate Revolving Loan to LIBOR Rate Revolving Loan or to convert LIBOR Rate Revolving Loan in amounts equal to Two Hundred Thousand and No/100ths Dollars ($200,000) and integral multiples of One Hundred Thousand and No/100ths Dollars ($100,000) in excess of that amount from LIBOR Rate Revolving Loan to Prime Rate Revolving Loan; or (ii) upon the expiration of any Interest Period applicable to a LIBOR Rate Revolving Loan, to continue all, or any portion of such Revolving Loan equal to any multiple of One Hundred Thousand and No/100ths Dollars ($100,000) in excess of or below that amount (but in no event less than Two Hundred Thousand and No/100ths ($200,000)) as a LIBOR Rate Revolving Loan and the succeeding Interest Period(s) of such continued LIBOR Rate Revolving Loan shall commence on the last day of the Interest Period of the LIBOR Rate Revolving Loan to be continued; provided, that LIBOR Rate Revolving Loan may only be converted into Prime Rate Revolving Loan on the expiration date of an Interest Period applicable thereto; provided, further, that no outstanding Revolving Loan may be continued as, or be converted into, a LIBOR Rate Revolving Loan when any Default with respect to the payment of money or any Event of Default has occurred and is continuing. (F) Subject to the provisions of subsection 2.3(E): (i) the Borrower shall deliver a Notice of Conversion/Continuation to the Lender no later than 1:00 P.M. (Chicago, Illinois time) at least two (2) Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall certify: (1) the proposed conversion/continuation date (which shall be a Business Day); (2) the amount of the Revolving Loan to be converted/continued; (3) the nature of the proposed conversion/ continuation; (4) in the case of a conversion to, or a continuation of, a LIBOR Rate Revolving Loan, the requested Interest Period; and (5) in the case of a conversion to, or a continuation of, a LIBOR Rate Revolving Loan, that no Default or Event of 12 Default has occurred and is continuing or would result from the proposed conversion/continuation. In lieu of delivering the above-described Notice of Conversion/Continuation, the Borrower may give the Lender telephonic notice by the required time of any proposed conversion/continuation under subsection 2.3(E); provided, that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Lender on or before the proposed conversion/continuation date. If on any day a Revolving Loan is outstanding with respect to which notice has not been delivered to the Lender in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for that day that Revolving Loan shall be deemed to be a Prime Rate Revolving Loan. (ii) The Lender shall not incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Lender believes in good faith to have been given by or at the direction of an officer of Borrower or for otherwise acting in good faith under this subsection 2.3(F) and, upon conversion/continuation by the Lender in accordance with this Agreement pursuant to any telephonic notice, the Borrower shall have effected such conversion or continuation, as the case may be, hereunder. (iii) A Notice of Conversion/Continuation for conversion to, or continuation of, a LIBOR Rate Revolving Loan (or telephonic notice in lieu thereof) shall be irrevocable once given, and the Borrower shall be bound to convert or continue in accordance therewith. G. Subject to the provisions of Section 2.3, each LIBOR Rate Revolving Loan requested must equal at least Two Hundred Thousand and No/100ths Dollars ($200,000) and may only be in additional integral multiples of One Hundred Thousand and No/100ths Dollars ($100,000). 2.4 Term of Agreement; Liquidated Damages. This Agreement shall be in effect until the three year anniversary of the Closing (the "Term"). This Agreement may also be terminated by Lender upon the occurrence of a Default as provided in Section 11. Upon the effective date of termination, all of the Liabilities of Borrower shall become immediately due and payable without notice or demand. Notwithstanding any termination, until all of the Liabilities of Borrower shall have been fully paid and satisfied, Lender shall be entitled to retain its security interest in the Collateral, Borrower shall continue to remit collections of Accounts and proceeds of Collateral as provided in this Agreement, and Lender shall retain all of its rights and remedies under this Agreement. If, during the Term, this Agreement is terminated by Borrower other than as permitted in this Section 2.4, Borrower shall pay to Lender, for loss of the bargain and not as a penalty, as liquidated damages and compensation for the costs of being prepared to make funds available to Borrower under this Agreement, an amount (the "Prepayment Fee") equal to three percent (3%) of the Maximum Amount for any prepayment made during the first Contract Year; two percent (2%) of the Maximum Amount for any prepayment made during the second Contract 13 Year; and one percent (1%) of the Maximum Amount for any prepayment made in the third Contract Year. 2.5 Unused Facility Fee. As an additional charge for Lender's agreement to extend credit to the Borrower under the terms hereof, Borrower shall pay Lender an Unused Facility Fee in the amount of one-quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Loan for all monthly periods after the Closing, payable monthly in arrears on the last day of each such month during the Term, commencing on March 31, 1996, and in each and every consecutive month thereafter. 2.6 Closing Fee. Borrower shall pay the Lender a non-refundable Closing Fee in an amount equal to Twelve Thousand Five Hundred and No/100ths Dollars ($12,500) to be paid at Closing. 2.7 Special Provisions Governing LIBOR Rate Revolving Loan. Notwithstanding any other provision of this Agreement, the following provisions shall govern with respect to LIBOR Rate Revolving Loan as to the matters covered: (A) As soon as practicable after 1:00 p.m. (Chicago, Illinois time) on each Interest Rate Determination Date, the Lender shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Revolving Loan for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower. (B) If on any Interest Rate Determination Date the Lender shall have determined (which determination shall be final and conclusive and binding upon the Borrower) that: (i) by reason of any changes arising after the date of this Agreement affecting the LIBOR market or affecting the position of the Lender in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the LIBOR Rate with respect to the LIBOR Rate Revolving Loan as to which an interest rate determination is then being made; or (ii) by reason of (a) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof and including the introduction of any new law or governmental rule, regulation or order) or (b) other circumstances affecting the Lender or the LIBOR market or the position of the Lender in such market (such as for example, but not limited to, official reserve requirements required by Regulation D to the extent not given effect in the LIBOR Rate), the LIBOR Rate shall not represent the effective pricing to the Lender for dollar deposits of comparable amounts for the relevant period; 14 then, and in any such event, the Lender shall, promptly after being notified of a borrowing, conversion or continuation, give notice (by telephone confirmed in writing) to the Borrower of such determination. Thereafter, the Borrower shall pay to the Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Lender in its reasonable credit judgment shall determine) as shall be required to cause the Lender to receive interest with respect to the LIBOR Rate Revolving Loan for the Interest Period following that Interest Rate Determination Date at a rate per annum equal to two (2%) percent per annum in excess of the effective pricing to the Lender for dollar deposits to make or maintain the LIBOR Rate Revolving Loan. A certificate as to additional amounts owed the Lender, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the Borrower shall, absent manifest error, be final and conclusive and binding upon the Borrower. (C) If on any date the Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon the Borrower) that the making or continuation of any LIBOR Rate Revolving Loan has become unlawful or impossible by compliance by the Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, and in any such event, the Lender shall promptly give notice (by telephone confirmed in writing) to the Borrower of that determination. The obligation of the Lender to make or maintain such LIBOR Rate Revolving Loan during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the Borrower shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this subsection is made or, earlier, when required by law, repay or prepay such LIBOR Rate Revolving Loan, together with all interest accrued thereon. (D) The Borrower shall compensate the Lender, upon written request by the Lender (which request shall set forth in reasonable detail the basis for requesting such amounts and which shall, absent manifest error, be conclusive and binding upon the Borrower), for all reasonable losses, expenses and liabilities (including, without limitation, any loss (including interest paid) sustained by the Lender in connection with the re-employment of such funds) the Lender may sustain: (1) if for any reason (other than a default by the Lender or the failure of a borrowing to occur due to the occurrence of any event described in subsection 2.7(C)) a borrowing of any LIBOR Rate Revolving Loan does not occur on a date specified therefor in a request for an advance, a Notice of Conversion/Continuation or a telephonic request for borrowing or conversion/continuation or a successive Interest Period does not commence after notice therefor is given pursuant to subsection 2.3(E); or (2) as a consequence of any other default by the Borrower to repay any LIBOR Rate Revolving Loan when required by the terms of this Agreement; provided, that during the period while any such amounts have not been paid, the Lender shall reserve an equal amount from amounts otherwise available to be borrowed under the Revolving Loan. The provisions of this subsection 2.7(D) shall survive the termination of this Agreement, the repayment of the Revolving Loan and the discharge of the Borrower's other obligations hereunder. 15 (E) The Lender may make, carry or transfer any LIBOR Rate Revolving Loan at, to, or for the account of, any of its branch offices or the office of an affiliate of the Lender. (F) Calculation of all amounts payable to the Lender under Section 2.7 shall be made as though the Lender had actually funded the relevant LIBOR Rate Revolving Loan through the purchase of a LIBOR deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Rate Revolving Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office to a domestic office in the United States of America; provided, however, that the Lender may fund each of the LIBOR Rate Revolving Loan in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under Section 2.7. 2.8 Purpose. The purpose of the Revolving Loan is to provide Borrower with (i) working capital financing; (ii) the funds necessary to pay off Borrower's existing working capital and term loans made by Commercial Bank of Fremont; and (iii) the funds necessary to repay the $750,000 loan from C&L Communications, Inc. 3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY 3.1 Eligible Accounts. Upon Borrower's delivery to Lender of an Accounts Report, Lender shall determine, in its sole and absolute discretion and in the exercise of good faith, which individual Accounts listed thereon are Eligible Accounts. In making this determination, Lender will consider the following requirements: (A) If the individual Account arises from the sale of goods, such goods have been shipped or delivered on open account and on an absolute sale basis and not on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return agreement and no material part of such goods has been returned (other than returns described in Section 7.4), repossessed, rejected, lost or damaged; (B) The individual Account is not evidenced by chattel paper or an instrument of any kind; (C) The Account Debtor obligated on such individual Account is not insolvent or the subject of any bankruptcy or in- solvency proceeding of any kind and Lender is satisfied with the creditworthiness of such Account Debtor; (D) If the individual Account is owing from an Account Debtor located outside the United States, such Account Debtor has furnished the Borrower with an irrevocable letter of credit which has been issued or confirmed by a financial institution acceptable to Lender, is in form and substance acceptable to Lender, has been pledged to Lender, and is payable in United States dollars in an amount not less than the face value of the individual Account; 16 (E) The individual Account is a valid, legally enforceable obligation of the relevant Account Debtor and such Account Debtor has not asserted any offset, counterclaim or defense denying liability thereunder; provided, however, that if such offset, counterclaim or defense has been asserted, such Account shall be ineligible only to the extent of such asserted offset, counterclaim or defense; (F) The individual Account is subject to and covered by Lender's perfected security interest and is not subject to any other lien, claim, encumbrance or security interest, except for the Permitted Liens; (G) The individual Account is evidenced by an invoice or other documentation in form acceptable to Lender; (H) The individual Account has not remained unpaid for a period exceeding ninety (90) days after the related invoice date; (I) Accounts owing by a single Account Debtor or its Affiliate (whether or not such Affiliate is known by Borrower to be an Affiliate of such Account Debtor), including currently scheduled Accounts, if fifty percent (50%) or more of the balance owing by such Account Debtor and its Affiliates, in the aggregate, upon Accounts remain ineligible by reason of the criteria set forth in clause (H) above; (J) The individual Account is not owing from the United States of America or any department, agency or instrumentality thereof, unless, however, there has been compliance, as determined in Lender's reasonable credit judgment, and at the sole cost and expense of Borrower, with the Federal Assignment of Claims Act of 1940, as amended; (K) Accounts with respect to which the Account Debtor is a director, officer, employee or agent of Borrower, or is a subsidiary or an Affiliate; (L) Each of the warranties and representations set forth in Section 9.2 has been reaffirmed with respect to such individual Account at the time that the most recent Accounts Report was delivered to Lender; (M) The individual Account is one against which Lender is legally permitted to make loans and advances; (N) That portion of any Account which represents Billing in Excess of Costs and Earnings; (O) Each Account is evidenced by an invoice which is supported by a fully signed contract or any other appropriate documentation, as determined by Lender in its reasonable credit judgment; 17 (P) That portion of any Account which represents retainage in excess of any reserve for retainage then in place (to be initially established by Lender in the amount of $30,000 and which shall be subject to periodic adjustments as Lender shall, from time to time, deem necessary; provided, however, that such reserve shall never be less than $30,000); (Q) If the Account Debtor is located in the State of New Jersey, all Accounts of such Account Debtor unless Borrower has filed a Notice of Business Activities Report with the New Jersey Division of Taxation for the then current year; and (R) If the Account Debtor is located in the State of Minnesota, all Accounts of such Account Debtor unless Borrower has filed a Business Activity Report with the Minnesota Department of Revenue. 3.2 Eligible Inventory. Upon Borrower's delivery to Lender of an Inventory Report, Lender shall determine, in its sole and absolute discretion and in the exercise of good faith, which items of Inventory listed thereon are Eligible Inventory. In making this determination, Lender will consider the following requirements: (A) The item of Inventory is in good condition, meets all standards imposed by any governmental agency, or department or division thereof, having regulatory authority over such goods, their use or sale and is either currently useable or currently saleable in the ordinary course of Borrower's (who owns such Inventory) business and is not otherwise unacceptable to Lender due to age, type, category or quantity; (B) The item of Inventory is located at one of the locations listed on Exhibit C attached hereto, is subject to and covered by Lender's perfected security interest and is not subject to any other lien, claim, encumbrance or security interest, except for the Permitted Liens; (C) The item of Inventory has not remained on hand for more than three hundred sixty (360) days; (D) The item of Inventory has not been consigned, sold or leased to any Person; (E) Each of the warranties and representations set forth in Section 9.3 has been reaffirmed with respect to such items of Inventory at the date that the most recent Inventory Report was delivered to Lender; and (F) The item of Inventory was not purchased by Borrower in or as part of a "bulk" transfer or sale of assets unless Borrower, and the seller of such item, have complied with all applicable bulk sales or bulk transfer laws. 4. PAYMENTS 18 4.1 Revolving Loan Account; Method of Making Payments. Lender shall maintain a loan account (the "Revolving Loan Account") on its books in which shall be recorded (i) all loans and advances made by Lender to Borrower pursuant to this Agreement, (ii) all payments made by Borrower on all such loans and advances and (iii) all other appropriate debits and credits as provided in this Agreement, including, without limitation, all fees, charges, expenses and interest. All entries in the Revolving Loan Account shall be made in accordance with Lender's customary accounting practices as in effect from time to time. Unless otherwise agreed to in writing from time to time hereafter, all payments which Borrower is required to make to Lender under this Agreement or under any of the Ancillary Agreements shall be made by appropriate debits to the Revolving Loan Account. Lender may, in its sole and absolute discretion, elect to bill Borrower for such amounts in which case the amount shall be immediately due and payable with interest thereon at the rate set forth at the Prime Rate. 4.2 Payment Terms. All of the Liabilities shall be payable to Lender at the address set forth in Section 13.11. The Liabilities of Borrower will be repayable as follows: (i) interest shall be payable on the first day of each month (for the immediately preceding month) out of the first collections received with respect to any proceeds of Collateral, (ii) fees, costs, expenses and similar charges shall be payable as and when provided for in this Agreement or the Ancillary Agreements and (iii) the principal balance of the Liabilities shall be payable from collections received with respect to any proceeds of Collateral as such proceeds are received; provided, however, that if at any time the outstanding principal balance of the Revolving Loan to Borrower exceeds the Collateral Availability of Borrower or the outstanding principal balance of all of the Liabilities exceeds the Total Facility, the Borrower, shall immediately pay to Lender such amount as is necessary to eliminate such excess. Nothing contained in this Section 4.2 shall authorize Borrower to sell, lease or otherwise dispose of any Collateral other than as expressly set forth in Sections 6.4, 7.1 and 8.3. 4.3 Collection of Accounts and Payments. Borrower has established a special account (the "Special Deposit Account") in Borrower's name with Sanwa Bank California ("Depository Bank") to which Borrower will immediately deposit all remittances and proceeds of the Collateral in the identical form in which such payment was made, whether by cash or check. The Depository Bank shall acknowledge and agree, in a manner satisfactory to Lender, that all payments made to such special account are the sole and exclusive property of Lender, that Depository Bank has no right of setoff against the funds in such special and that Depository Bank will wire, or otherwise transfer immediately available funds in a manner satisfactory to Lender, funds deposited in such special account to Lender on a daily basis as soon as such funds are collected. Borrower hereby agrees that all payments made to such special account or otherwise received by Lender, whether on the Accounts or as proceeds of other Collateral or otherwise, will be the sole and exclusive property of Lender and will be applied on account of the Liabilities. Lender will credit (conditional upon final collection) all payments received through the special account to the Revolving Loan Account on the Business Day that Lender is in receipt of good funds. Upon the occurrence and during the continuance of an Event of Default or Default, Borrower and any Affiliates, shareholders, directors, officers, employees, agents of Borrower and all Persons acting for or in concert with Borrower shall, acting as trustee for Lender, receive, as 19 the sole and exclusive property of Lender, any monies, checks, notes, drafts or any other payments relating to or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to Lender, at Lender's address set forth in Section 13.11 or deposit such items in the special account at the Depository Bank. Borrower agrees to pay to Lender any and all fees, costs and expenses (if any) which Lender incurs in connection with opening and maintaining the special account and depositing for collection by Lender any check or item of payment received or delivered to Depository Bank or Lender on account of the Liabilities and Borrower further agrees to reimburse Lender for any claims asserted by Depository Bank in connection with its Special Deposit Account or any returned or uncollected checks received by Depository Bank for deposit in the Special Deposit Account. 4.4 Application of Payments and Collections. Borrower irrevocably waives the right to direct the application of payments and collections received by Lender from or on behalf of Borrower, and Borrower agrees that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections against the Liabilities in such manner as Lender may deem appropriate, notwithstanding any entry by Lender upon any of its books and records. To the extent that Borrower makes a payment or payments to Lender or Lender receives any payment or proceeds of the Collateral for Borrower's benefit, which payment(s) or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or proceeds received, the Liabilities of the Borrower, as the case may be, or part thereof intended to be satisfied shall be revived and shall continue in full force and effect, as if such payments or proceeds had not been received by Lender. 4.5 Statements. All advances to Borrower, and all other debits and credits provided for in this Agreement, shall be evidenced by entries made by Lender in its internal data control systems showing the date, amount and reason for each such debit or credit. Until such time as Lender shall have rendered to Borrower written statements of account as provided herein, the balance in the Revolving Loan Account, as set forth on Lender's most recent statement, shall be rebuttably presumptive evidence of the amounts due and owing to Lender by Borrower. Not less than ten (10) days after the final day of each calendar month, Lender shall render to Borrower a statement setting forth the balance of the Revolving Loan Account, including principal, interest, expenses and fees. Each such statement shall be subject to subsequent adjustment by Lender and Lender's right to reapply payments in accordance with Section 4.4, but shall, absent manifest errors or omissions, be presumed correct and binding upon Borrower and shall constitute an account stated unless, within thirty (30) days after receipt of any statement from Lender, Borrower, shall deliver to Lender written objection thereto specifying the error or errors, if any, contained in such statement. 5. COLLATERAL: GENERAL TERMS 20 5.1 Security Interest. To secure the prompt payment to Lender of the Liabilities, Borrower hereby grants to Lender a continuing security interest in and to all of the following property and interest in property of or in which Borrower has an interest, whether now owned or existing or hereafter acquired or arising and wherever located: (i) all Accounts, Inventory, Equipment, contract rights, General Intangibles, tax refunds, chattel paper, instruments, letters of credit, documents and documents of title; (ii) all of Borrower's deposit accounts (general or special) with and credits and other claims against Depository Bank or Lender, or any other financial institutions with which Borrower maintains deposits; (iii) all of Borrower's now owned or hereafter acquired monies, and any and all other property of Borrower now or hereafter coming into the actual possession, custody or control of Lender or any agent or affiliate of Lender in any way or for any purpose (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise); (iv) all insurance proceeds of or relating to any of the foregoing; (v) all of Borrower's books and records relating to any of the foregoing; and (vi) all accessions and additions to, substitutions for, and replacements, products and proceeds of any of the foregoing. 5.2 Disclosure of Security Interest. Borrower shall make appropriate entries upon its financial statements and books and records disclosing Lender's security interest in the Collateral. 5.3 Special Collateral. Immediately upon Borrower's receipt of any Collateral that is evidenced or secured by an agreement, chattel paper, letter of credit, instrument or document, including, without limitation, promissory notes, documents of title and warehouse receipts (the "Special Collateral"), Borrower shall deliver the original thereof to Lender or to such agent of Lender as Lender shall designate, together with appropriate endorsements, the documents required to draw thereunder (as may be relevant to letters of credit) or other specific evidence (in form and substance acceptable to Lender) of assignment thereof to Lender. 5.4 Further Assurances. At Lender's request, Borrower shall, from time to time, (i) execute and deliver to Lender all Security Documents that Lender may reasonably request, in form and substance acceptable to Lender, and pay the costs of any recording or filing of the same and (ii) take such other actions as Lender may request in order to fully effect the purposes of this Agreement and to protect Lender's interest in the Collateral. Upon the occurrence of any Default, Borrower hereby irrevocably makes, constitutes and appoints Lender (and all Persons designated by Lender for that purpose) as Borrower's true and lawful attorney and agent-in-fact to sign the name of Borrower on any of the Security Documents and to deliver any of the Security Documents to such Persons as Lender, in its sole discretion, may elect. Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 5.5 Inspection. Lender (by any of its officers, employees or agents) shall have the right, at any time or times during Borrower's usual business hours, but in no event less than every ninety (90) days, without prior notice, to inspect the Collateral, all records related thereto (and to make extracts from such records) and the premises upon which any of the Collateral is 21 located, to discuss Borrower's affairs and finances with any Person and to verify the amount, quality, value and condition of, or any other matter relating to, the Collateral. 5.6 Location of Collateral. Borrower's chief executive office, principal place of business and all other offices and locations of the Collateral and books and records related thereto (including, without limitation, computer programs, printouts and other computer materials and records concerning the Collateral) are set forth on Exhibit C attached hereto. Borrower shall not remove its books and records or the Collateral from any such locations (except for removal of items of Inventory upon its sale in accordance with the terms of this Agreement) and shall not open any new offices or relocate any of its books and records or the Collateral except within the continental United States of America with at least thirty (30) days' prior notice thereof to Lender. Upon the opening of any new offices which are leased or the relocation of Borrower to a new office which is leased locations, Borrower shall cause the landlord of such location to execute and deliver to Lender a landlord's waiver in form and substance satisfactory to Lender within thirty (30) days after the opening of such new office or relocation from an existing office. 5.7 Lender's Payment of Claims Asserted Against Borrower. Upon and during the continuation of an Event of Default, Lender may, but shall not be obligated to, at any time or times hereafter, in its sole discretion, and without waiving any Default or waiving or releasing any obligation, liability or duty of Borrower under this Agreement or the Ancillary Agreements, pay, acquire or accept an assignment of any security interest, lien, claim or other encumbrance asserted by any Person against the Collateral. All sums paid by Lender under this Section 5.7, including all costs, fees (including without limitation reasonable attorney's and paralegals' fees and court costs), expenses and other charges relating thereto, shall be payable by Borrower to Lender on demand and shall be additional Liabilities secured by the Collateral. 6. COLLATERAL: ACCOUNTS 6.1 Verification of Accounts. Any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in Lender's or in Borrower's name or in the name of a firm of independent certified public accountants acceptable to Lender, to verify the validity, amount or any other matters relating to any Accounts by mail, telephone, telegraph or otherwise. 6.2 Assignments, Records and Accounts Report. Borrower shall keep accurate and complete records of its Accounts and not less frequently than weekly, Borrower shall deliver to Lender an Accounts Report and formal written assignments of all Accounts, together with copies of the invoices related thereto (collectively, the "Accounts Documents"); provided, however, after and during the continuance an Event of Default or Default, Borrower shall deliver to Lender the Accounts Documents as frequently as Lender shall require, but not less frequently than twice weekly. Borrower shall also deliver to Lender, upon demand, the original copy of all documents, including, without limitation, repayment histories, present status reports and shipment reports, relating to the Accounts included in any Accounts Report and such other matters and information relating to the status of then existing Accounts as Lender shall reasonably request. 22 Borrower shall further deliver to Lender once per month, and after and during the continuance of an Event of Default or Default, as frequently as Lender shall require, but not less frequently than once per month, an aged Accounts Report of Borrower setting forth the aging of all Accounts as well as the Account Debtor's name, address and outstanding balance. 6.3 Notice Regarding Disputed Accounts. Borrower shall give Lender prompt notice of any Accounts in excess of $50,000 which are in dispute between any Account Debtor and Borrower. Each Accounts Report shall identify all disputed Accounts and disclose with respect thereto, in reasonable detail, the reason for the dispute, all claims related thereto and the amount in controversy. 6.4 Sale or Encumbrance of Accounts. Borrower shall not, without the prior written consent of Lender, sell, transfer, grant a security interest in or otherwise dispose of or encumber any of its Accounts to any Person other than Lender, except for the Permitted Liens. 7. COLLATERAL: INVENTORY 7.1 Sale of Inventory. Unless a Default occurs and is continuing, Borrower may sell Inventory in the ordinary course of its business (which does not include a transfer in partial or total satisfaction of Indebtedness, sales in bulk, sales on consignment or sales on an approval or sale or return basis). All proceeds of such sales shall be part of the Collateral and remitted to the Special Deposit Account. Borrower shall not rent, lease or otherwise transfer or dispose of any of the Inventory without Lender's prior written consent, except as set forth in this Section 7.1. 7.2 Safekeeping of Inventory; Inventory Covenants. Borrower shall maintain its Inventory in good and saleable condition at all times. Lender shall not be responsible for (i) the safekeeping of the Inventory; (ii) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause; (iii) any diminution in the value of Inventory or (iv) any act or default of any carrier, warehouseman, bailee or forwarding agency or any other Person in any way dealing with or handling the Inventory. All risk of loss, damage, distribution or diminution in value of the Inventory shall be borne by Borrower. 7.3 Records and Schedules of Inventory. Borrower shall keep correct and accurate daily records on an average cost basis, itemizing and describing the kind, type, quality and quantity of Inventory, Borrower's cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto and Inventory then on consignment (if any, provided that Lender's prior written consent to such consignment must be obtained), and shall furnish to Lender (i) daily copies of the working papers related thereto; and (ii) monthly a current Inventory Report, based on an average cost assumption. A physical count of the Inventory shall be conducted no less often than annually and a report based on such count of the Inventory shall promptly thereafter be provided to Lender together with such supporting information including, without limitation, invoices relating to Borrower's purchase of goods listed in said report, as Lender shall, in its sole discretion, request. 23 7.4 Returned and Repossessed Inventory. If at any time prior to the occurrence of a Default, any Account Debtor returns any of the Inventory to Borrower, Borrower shall promptly determine the reason for such return and, if Borrower accepts such return, issue a credit memorandum (with a copy to be immediately sent to Lender) in the appropriate amount to such Account Debtor; provided, however, that Borrower shall not, without the prior consent of Lender, accept on any single day, returned Inventory the sale price of which was in excess of $50,000 in the aggregate. After the occurrence and during the continuation of a Default, Borrower shall hold all returned Inventory in trust for Lender, shall segregate all returned Inventory from all other property of Borrower or in Borrower's possession and shall conspicuously label such returned Inventory as the property of Lender. Borrower shall, in all cases, immediately notify Lender of the return of any Inventory, specifying the reason for such return and the location and condition of the returned Inventory. 7.5 Evidence of Ownership of Inventory. Borrower shall, upon Lender's request, deliver to Lender all evidence of ownership of the Inventory. 8. COLLATERAL: EQUIPMENT 8.1 Maintenance of the Equipment. Borrower shall keep and maintain the Equipment in good operating condition and repair, except for ordinary wear and tear, and shall make all necessary replacements thereof so that the value, utility and operating efficiency thereof shall at all times be maintained and preserved and shall promptly inform Lender of any additions to or deletions from the Equipment. Borrower shall not permit any such items to become affixed to real estate in such manner that such items of Equipment will become a fixture or an accession to other personal property. 8.2 Evidence of Ownership of Equipment. Borrower shall, upon Lender's request, deliver to Lender all evidence of ownership of the Equipment (including, without limitation, bills of sale, certificates of title and applications for title). 8.3 Proceeds of the Equipment. Borrower shall not sell, transfer, lease, grant a security interest in or otherwise dispose of or encumber the Equipment or any part thereof to any Person other than Lender; provided, however, that in any fiscal year of Borrower, Borrower may sell or otherwise dispose of Equipment with an aggregate net book value not to exceed $25,000. In the event any Equipment is sold, transferred or otherwise disposed of as permitted in this Section 8.3, Borrower shall promptly notify Lender of such fact and deliver all of the cash proceeds of such sale, transfer or disposition to Lender, which proceeds shall be applied to the repayment of the Liabilities; provided, however, that with Lender's prior consent Borrower may use the proceeds of such sale, transfer or disposition to finance the purchase of replacement Equipment. Borrower shall deliver to Lender written evidence of the use of the proceeds for such purchase. All replacement Equipment purchased by Borrower shall be free and clear of all liens, claims, security interests and other encumbrances, except for the security interest granted to Lender, purchase money security interests consented to in writing by Lender, and the Permitted Liens. 24 9. WARRANTIES AND REPRESENTATIONS 9.1 General Warranties and Representations. Borrower warrants and represents that: (A) Borrower is a corporation duly organized and validly existing and in good standing under the laws of the state of its incorporation, and is qualified or licensed as a foreign corporation to do business in all other countries, states and provinces in which the laws thereof require Borrower to be so qualified or licensed and where failure to qualify would have a material adverse affect on Borrower's business or the Collateral; (B) Borrower has used, during the five (5) year period preceding the date of this Agreement, and does not intend to use, any other corporate or fictitious name, except as disclosed in Exhibit D attached hereto or as hereinafter disclosed in writing; (C) Borrower has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and the Ancillary Agreements; (D) The execution, delivery and performance by Borrower of this Agreement and the Ancillary Agreements shall not, by their execution or performance, the lapse of time, the giving of notice or otherwise, constitute a violation of any applicable law, rule, regulation, judgment, order or decree or a breach of any provision contained in Borrower's charter documents or by-laws or contained in any agreement, instrument, indenture or other document to which Borrower is now a party or by which it is bound, except where such breach will not have a material adverse effect on Borrower's business or the Collateral; (E) Borrower's use of the proceeds of any advances made by Lender are, and will continue to be, legal and proper corporate uses (duly authorized by its board of directors, in accordance with any applicable law, rule or regulation) and such uses are consistent with all applicable laws, rules and regulations, as in effect as of the date hereof; (F) Borrower has, and is current and in good standing with respect to, all governmental approvals, permits, certificates, inspections, consents and franchises necessary to conduct and to continue to conduct its present and intended business as heretofore conducted by it and to own or lease and operate its properties as now owned or leased and operated by it; (G) None of said approvals, permits, certificates, consents or franchises contains any term, provision, condition or limitation more burdensome than such as are generally applicable to Persons engaged in the same or similar business as Borrower; (H) Borrower now has capital sufficient to carry on its business and transactions and all businesses and transactions in which it is about to engage and is now solvent and able to pay its debts as they mature and Borrower now owns property the fair saleable value of which is greater than the amount required to pay Borrower's debts; 25 (I) Except as disclosed on Exhibit E attached hereto and in the Financials or as hereinafter disclosed in writing, Borrower has no litigation pending, or to the best of its knowledge, threatened, and no Indebtedness (except for the Indebtedness shown on Exhibit I or as hereinafter disclosed in writing and trade payable arising in the ordinary course of its business since the dates reflected in the Financials) and has not guaranteed the obligations of any other Person; (J) Borrower (i) is not a party to any contract or agreement or subject to any charge, restriction, judgment, decree or order materially and adversely affecting its business, property, assets, operations or condition, financial or other, and is not a party to any labor dispute; and (ii) there are no lockouts, strikes or walkouts relating to any labor contracts and no such contract is scheduled to expire during the Term; except as to (i) and (ii) as are disclosed on Exhibit F attached hereto or as hereinafter disclosed to Lender in writing; (K) Borrower has good, indefeasible and merchantable title to and ownership of its Collateral, free and clear of all liens, claims, security interests and other encumbrances, except those of Lender and those, if any, described on Exhibit G attached hereto; (L) To the best of its knowledge, Borrower is not in violation of any applicable statute, rule, regulation or ordinance of any governmental entity, including, without limitation, the United States of America, any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof, in any respect materially and adversely affecting the Collateral or Borrower's business, property, assets, operations or condition, financial or other; (M) Borrower is not in default under any indenture, loan agreement, mortgage, lease, trust deed, deed of trust or other similar agreement relating to the borrowing of monies to which it is a party or by which it is bound; (N) The Financials fairly present the assets, liabilities and financial condition and results of operations of Borrower and such other Persons described therein as of the dates thereof; there are no omissions or other facts or circumstances which are or may be material and there has been no material and adverse change in the assets, liabilities or financial or other condition of Borrower since the date of the Financials; there exist no equity or long term investments in or outstanding advances to any Person not reflected in the Financials; there are no actions or proceedings which are pending or, to the best of Borrower's knowledge, threatened, against Borrower or any other Person which might result in any material adverse change in Borrower's financial condition or materially and adversely affect Borrower's operations, its assets or the Collateral; (O) Borrower has not received any notice to the effect that it is not in full compliance with any of the requirements of ERISA and the regulations promulgated thereunder and, to the best of Borrower's knowledge, there exists no event described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and 4043(b)(3) thereof ("Reportable Event"); 26 (P) Borrower has filed all federal, state and local tax returns and other reports, or has been included in consolidated returns or reports filed by an Affiliate, which Borrower is required by law, rule or regulation to file and all Charges that are due and payable have been paid; (Q) The execution and delivery of this Agreement or any of the Ancillary Agreements by Borrower does do not directly or indirectly violate or result in any violation of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation, Regulation U, G, T or X of the Board of Governors of the Federal Reserve System (12 CFR 221, 207, 220 and 224, respectively) and Borrower does not own or intend to purchase or carry any "margin security," as defined in such Regulations; (R) Exhibit J contains a true and complete list of all trademarks, brand-names, copyrights, patents, patent application in which Borrower has an interest; and (S) (i) the operations of Borrower, any other obligor and each of Borrower's subsidiaries, if any, comply in all material respects with all applicable Environmental Laws; (ii) none of the operations of Borrower, any other obligor or any Subsidiary are subject to any judicial or administrative proceeding alleging the violation of any Environmental laws; (iii) none of the operations of Borrower, any other obligor or any subsidiary are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Material into the environment; (iv) none of Borrower, any other obligor or any Subsidiary has filed any notice under any federal or state law indicating past or present treatment, storage or disposal of a Hazardous Material or reporting a spill or release of a Hazardous Material into the environment; and (v) none of Borrower, any other obligor or any Subsidiary has any known material contingent liability in connection with any release of any Hazardous Material into the environment. The materiality standard used in this Section 9.1(S) shall be exceeded if the facts giving rise to a breach or breaches of the representations or warranties contained herein might result in liability in excess of $50,000 in the aggregate. Borrower hereby indemnifies Lender, its successors and assignees, and agrees to hold Lender harmless from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever (including, without limitation, court costs and attorneys' fees) which at any time or from time to time may be paid, incurred or suffered by, or asserted against, Lender for, with respect to, or as a direct or indirect result of the violation by Borrower, of the Environmental Laws or any laws or regulations relating to Hazardous Material, treatment, storage, disposal, generation and transportation, air, water and noise pollution, soil or ground or water contamination, the handling, storage or release into the environmental of Hazardous Materials; or with respect to, or as a direct or indirect result of the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from, properties utilized by Borrower, any other obligor or any of Borrower's subsidiaries in the conduct of their respective business into or upon any land, the atmosphere, or any watercourse, body of water or wetlands, of any Hazardous Material (including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under the Environmental Laws); and the 27 provisions of and undertakings and indemnification set out in this Section 9.1(S) shall survive the satisfaction and payment of the Liabilities and the termination of this Agreement. 9.2 Account Warranties and Representations. Borrower warrants and represents that Lender may rely, in determining which Accounts listed on any Accounts Report submitted by Borrower are Eligible Accounts, without independent investigation, on all statements, warranties and representations made by Borrower on or with respect to any such Accounts Report and, unless otherwise indicated in writing by Borrower, that: (A) Such Accounts are genuine, are in all respects what they purport to be, are not reduced to a judgment and, if evidenced by any instrument, item of chattel paper, agreement, contract or documents, are evidenced by only one executed original instrument, item of chattel paper, agreement, contract, or document, which original has been endorsed and delivered to Lender; (B) Such Accounts represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in any documents related thereto; (C) Except for credits issued to any Account Debtor in the ordinary course of Borrower's business for Inventory returned pursuant to Section 7.4, the amounts shown on the Accounts Report, and all invoices and statements delivered to Lender with respect to any Account, are actually and absolutely owing to Borrower and are not contingent for any reason; (D) To the best of Borrower's knowledge, except as may be disclosed on such Accounts Report, there are no setoffs, counterclaims or disputes existing or asserted with respect to any Accounts included on an Accounts Report, and Borrower has not made any agreement with any Account Debtor for any deduction from such Account, except for discounts or allowances allowed by Borrower in the ordinary course of its business, which discounts and allowances have been disclosed to Lender and are reflected in the calculation of the invoice related to such Account; (E) To the best of Borrower's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforcement of any of the Accounts or tend to reduce the amount payable thereunder from the amount of the invoice shown on any Accounts Report, and on all contracts, invoices and statements delivered to Lender with respect thereto; (F) To the best of Borrower's knowledge, all Account Debtors are solvent and had the capacity to contract at the time any contract or other document giving rise to or evidencing the Accounts was executed; (G) The goods, the sale of which gave rise to the Accounts, are not, and were not at the time of the sale thereof, subject to any lien, claim, security interest or other encumbrance, except those of Lender, and those removed or terminated prior to the date hereof, and the Permitted Liens; 28 (H) Borrower has no knowledge of any fact or circumstance which would impair the validity or collectibility of any of the Accounts; (I) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor which might result in any material adverse change in its financial or other condition; and (J) The Accounts have not been pledged or sold to any other Person or otherwise encumbered and the Borrower is the owner of the Accounts free of all liens and encumbrances except those of Lender and except for the Permitted Liens. 9.3 Inventory Warranties and Representations. Borrower warrants and represents that Lender may rely, in determining which items of Inventory listed on any Inventory Report submitted by Borrower are Eligible Inventory, without independent investigation, on all statements, warranties and representations made by Borrower on or with respect to any such Inventory Report and, unless otherwise indicated in writing by Borrower, that: (A) All Inventory is located on premises listed on Exhibit C or is Inventory which is in transit and is so identified on the relevant Inventory Report; (B) The Inventory is not subject to any lien, claim, security interest or other encumbrance whatsoever, except for the security interest of Lender hereunder and except for the Permitted Liens; (C) Except as specified on Exhibit C, no Inventory is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman or similar party without Lender's prior written consent and, if Lender gives such consent, Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to Lender, in form and substance acceptable to Lender, warehouse receipts therefor in Lender's name; and (D) Borrower is the owner of all of the Inventory purported to be owned by Borrower free and clear of all liens and encumbrances, except for the Permitted Liens, and none of the Inventory has been leased, rented, transferred or sold, either on consignment, on a sale or return basis, on approval, or otherwise. 9.4 ERISA Warranties and Representations. Borrower warrants and represents that: (A) Exhibit K hereto describes the Employee Benefit Plans to which Borrower may have obligations; (B) Each Employee Benefit Plan of Borrower or any of its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code, except where the failure to so comply would not have a material (in the reasonable opinion of 29 the Lender) adverse effect on the financial condition or results or operations of Borrower, and each such Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified (or, consistent with Section 1140 of the Tax Reform Act of 1986, will be submitted to the Internal Revenue Service for such a determination within the applicable remedial amendment period), and each trust related to any such Employee Benefit Plan has been determined to be exempt from federal income tax under Section 501(a) of the Code; (C) Except as set forth in Exhibit K, neither Borrower nor any of its ERISA Affiliates maintains or contributes to any Employee Benefit Plan with an actuarial present value of projected benefit obligations that exceeds the fair market value of the net assets available for such benefits, calculated on the basis of the actuarial assumptions specified in the most recent actuarial valuation for such Employee Benefit Plan, and no such Employee Benefit Plan provides for subsidized early retirement benefits that, in the event of a reduction in force or plant closing, would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; (D) Except as set forth on Exhibit K, neither Borrower nor any of its ERISA Affiliates maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA that provides benefits to employees after termination of employment other than as required by Section 601 of ERISA; (E) Neither Borrower nor any of its ERISA Affiliates has breached in any material respect any of the responsibilities, obligations, or duties imposed on it by ERISA or the regulations promulgated thereunder with respect to any Employee Benefit Plan, which breach would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; (F) Neither Borrower nor any ERISA Affiliate has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan, where such failure or complete or partial withdrawal would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; (G) At the date hereof, the aggregate potential withdrawal liability, as determined in accordance with Title IV of ERISA, of Borrower and any ERISA Affiliates with respect to all Employee Benefit Plans that are Multiemployer Plans does not exceed $250,000 and, to the best of Borrower's and its ERISA Affiliates' knowledge, no Multiemployer Plan is in reorganization or insolvent within the meaning of Section 4241 or 4245 of ERISA; (H) Neither Borrower nor any ERISA Affiliate has failed to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or other payment; 30 (I) Neither Borrower nor any ERISA Affiliate is required to provide security to an Employee Benefit Plan under Section 401(a)(29) of the Code due to an Employee Benefit Plan amendment that results in an increase in current liability for the plan year; (J) No liability to the PBGC has been, or is expected by Borrower or any ERISA Affiliate to be, incurred by Borrower or any ERISA Affiliate, which liability would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower, and there are no premium payments that have become due and which are unpaid; (K) No events have occurred in connection with any Employee Benefit Plan that might constitute grounds for the termination of any such Employee Benefit Plan by the PBGC or for the appointment by any United States District Court of a trustee to administer any such Employee Benefit Plan; (L) Except as set forth in Exhibit K, no Reportable Event has, in the case of any Employee Benefit Plan maintained by Borrower or an ERISA Affiliate other than a Multiemployer Plan, occurred and is continuing, or to the best of Borrower's knowledge, has occurred and is continuing in the case of any such Employee Benefit Plan that is a Multiemployer Plan; (M) No Employee Benefit Plan maintained by the Borrower or an ERISA Affiliate had an Accumulated Funding Deficiency, whether or not waived, as of the last day of the most recent fiscal year of such Employee Benefit Plan or, in the case of any Multiemployer Plan, as of the most recent fiscal year of such Multiemployer Plan for which the annual reports of such Multiemployer Plan's actuaries and auditors have been received; and (N) Neither Borrower nor any ERISA Affiliate has engaged in a Prohibited Transaction prior to the date hereof, which Prohibited Transaction would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower, and the execution, delivery, and carrying out of this Agreement will not involve any non-exempt Prohibited Transactions (within the meaning of Part 4 of Subtitle B of Title I of ERISA) or any transaction in connection with which a tax could be imposed pursuant to Section 4975 of the Code. 9.5 Automatic Warranty and Representation and Reaffirmation of Warranties and Representations. Each request for an advance made by Borrower pursuant to this Agreement or the Ancillary Agreements shall constitute (i) an automatic warranty and representation by Borrower to Lender that there does not then exist a Default or an Event of Default and (ii) a reaffirmation as of the date of said request of all of the warranties and representations of Borrower contained in this Agreement and in the Ancillary Agreements. 9.6 Survival of Warranties and Representations. Borrower covenants, warrants and represents to Lender that all representations and warranties of Borrower contained in this 31 Agreement and the Ancillary Agreements shall be true at the time of Borrower's execution of this Agreement and the Ancillary Agreements, and shall survive the execution, delivery and acceptance hereof and thereof by the parties thereto and the closing of the transactions described herein and therein or related hereto or thereto. Borrower and Lender expressly agree that any misrepresentation or breach of any representation or warranty whatsoever contained in this Agreement or in any of the Ancillary Agreements shall be deemed material. 10. COVENANTS AND CONTINUING AGREEMENTS 10.1 Affirmative Covenants. Borrower covenants that it shall: (A) At all times during the Term, maintain a ratio of total liabilities to Tangible Net Worth of not more than 4.0:1.0; (ii) Tangible Net Worth at least equal to $1,350,000, to be adjusted for any dividends paid to or for the benefit of the holder or holders of Borrower's Stock, as permitted by Section 10.2(C); (iii) a ratio of Current Assets to Current Liabilities of not less than 1.1:1.0; and (iv) Pre-Tax Net Income of not less than $350,000 at the end of each fiscal year of Borrower or such pro rata share thereof; all as determined for each of the foregoing financial covenants in accordance with generally accepted accounting principles consistently applied; (B) Pay to Lender, on demand, any and all fees, costs or expenses which Lender or any Participant pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender or any Participant, of proceeds of loans made by Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Lender or any Participant, of any check or item of payment received or delivered to Lender or any Participant on account of the Liabilities; (C) At its sole cost and expense, keep and maintain the Collateral insured for its full insurable value against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks ordinarily insured against by other owners or users of such properties in similar businesses and notify Lender promptly of any event or occurrence causing a material loss or decline in value of the Collateral and the estimated (or actual, if available) amount of such loss or decline; (D) Promptly upon Borrower's learning thereof, notify Lender of (i) any material delay in Borrower's performance of any of its obligations to any Account Debtor and of any assertion of any claims, offsets, defenses or counterclaims by any Account Debtor and of any allowances or credits granted (including all credits issued for returned or repossessed Inventory) or other monies advanced by Borrower to any Account Debtor and (ii) all material adverse information relating to the financial or other condition of any Account Debtor; (E) Keep books of account and prepare financial statements and furnish to Lender the following (all of the foregoing and following to be kept and prepared in accordance with generally accepted accounting principles applied on a basis consistent with the Financials, unless Borrower's independent certified public accountants concur in any changes therein and such 32 changes are disclosed to Lender and are consistent with then generally accepted accounting principles): (i) as soon as available, but not later than one hundred twenty (120) days after the close of each fiscal year of Borrower, financial statements of Borrower (including a balance sheet, statement of cash flows and profit and loss statement with supporting footnotes) as at the end of such year and for the year then ended all in reasonable detail as requested by Lender and examined by a firm of independent certified public accountants of recognized national standing selected by Borrower and containing the unqualified opinion of such independent certified public accountants with respect to the financial statements; (ii) as soon as available, but no later than thirty (30) days after the end of each month, an unaudited financial statement of Borrower on an unconsolidated basis (including a statement of profit and loss and of surplus for the month then ended, statement of cash flows and a balance sheet as at the end of such month) as at the end of the portion of Borrower's fiscal year then elapsed, all in reasonable detail as requested by Lender and certified by Borrower's principal financial officer as prepared in accordance with generally accepted accounting principles and fairly presenting the financial position and results of operations of Borrower for such period; provided, however, that Borrower and Lender agree that the financial statements for periods other than the fiscal year to date ended June, September, December and March may deviate from generally accepted accounting principles due solely to Borrower not calculating Costs and Earnings in Excess of Billings and Billings in Excess of Costs and Earnings monthly; (iii) as soon as available, but not later than sixty (60) days before the beginning of each fiscal year, Borrower's balance sheet, profit and loss statement and cash flow projection, prepared on a month by month basis, for such fiscal year, together with appropriate supporting documents reasonably acceptable to Lender; provided, however, that Borrower shall not be required to deliver the financial projections set forth in this subsection (iii) for the calendar year ended March 31, 1997 until May 15, 1996; (iv) as soon as available, but no later than thirty (30) days after the close of business on the last day of each month from and after the date hereof, a monthly report and certificate thereto signed by the Borrower's Chief Financial Officer, which monthly report shall include, as of the last business day of the preceding month a detailed aged trial balance of all existing Accounts, including the invoice dates thereof and which Accounts remain unpaid thirty (30), sixty (60), ninety (90) and one hundred twenty (120) days from such invoice date and listing the names of all applicable Account Debtors; and 33 (v) such other data and information (financial and other) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral, Borrower's financial condition or results of its operations, or the financial condition of any Person who is a guarantor of any of the Liabilities; (F) Notify Lender promptly upon, but in no event later than, five (5) days after Borrower's learning thereof, that any Eligible Account or Eligible Inventory has ceased to be an Eligible Account or Eligible Inventory, respectively, and the reason(s) for such ineligibility; (G) Notify Lender, promptly upon Borrower's learning of (i) any litigation affecting Borrower, whether or not the claim is considered by Borrower to be covered by insurance; and (ii) the institution of any suit or administrative proceeding which may materially and adversely affect the operations, financial condition or business of Borrower or which may affect Lender's security interest in the Collateral; (H) Provide Lender with copies of all agreements between Borrower and any warehouse at which Inventory may, from time to time, be kept and all leases or similar agreements between Borrower and any Person, whether Borrower is lessor or lessee thereunder; (I) Maintain product liability insurance in an amount customary for the business conducted by Borrower; (J) As to the following ERISA reports: (i) As soon as possible, and in any event within ten (10) Business Days, after Borrower knows or has reason to know that, regarding any Employee Benefit Plan with respect to the Borrower or an ERISA Affiliate, a Prohibited Transaction or a Reportable Event has occurred (whether or not the requirement for notice of such Reportable Event has been waived by the PBGC), deliver to the Lender a certificate of a responsible officer of Borrower setting forth the details of such Prohibited Transaction or Reportable Event, the action that Borrower proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor, or PBGC; (ii) Upon request of the Lender made from time to time, deliver to the Lender a copy of the most recent actuarial report, funding waiver, and annual report received with respect to any Employee Benefit Plan maintained by Borrower or an ERISA Affiliate; and (iii) Upon reasonable request of the Lender made from time to time, deliver to the Lender a copy of any Employee Benefit Plan maintained by Borrower or any ERISA Affiliates; and 34 (iv) As soon as possible, and in any event within ten (10) Business Days, after it knows or has reason to know that any of the following have occurred with respect to any Employee Benefit Plan maintained by or contributed to Borrower or an ERISA Affiliate, deliver to the Lender a certificate of a responsible officer of Borrower setting forth the details of the events described in (a) through (l) and the action that the Borrower or any ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice or filing from the PBGC or other agency of the United States government with respect to such of the events described in (a) through (l): (a) any Employee Benefit Plan has been terminated; (b) the Plan Sponsor intends to terminate any Employee Benefit Plan; (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate any Employee Benefit Plan or to appoint a trustee to administer such Employee Benefit Plan, or the Borrower or any ERISA Affiliate receives a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (d) Borrower or any ERISA Affiliate withdraws from any Employee Benefit Plan, or notice of any withdrawal liability is received by Borrower or any ERISA Affiliate; (e) any Employee Benefit Plan has received an unfavorable determination letter from the Internal Revenue Service regarding the qualification of the Employee Benefit Plan under Section 401(a) of the Code; (f) the Borrower or any ERISA Affiliate fails to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment or has applied for a waiver of the minimum funding standard under Section 412 of the Code; (g) the imposition of any tax under Code Section 4980B(a) or the assessment by the Secretary of Labor of a civil penalty under Section 502(c) of ERISA; (h) there is a partial or complete withdrawal (as described in ERISA Section 4203 or 4205) by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (i) the Borrower or any ERISA Affiliate is in "default" (as defined in ERISA Section 4219(c)(5)) with respect to payments to a Multiemployer Plan required by reason of its complete or partial withdrawal from such Employee Benefit Plan; (j) a Multiemployer Plan is in "reorganization" or "insolvent" (as described in Title IV of ERISA) or such Multiemployer Plan intends to terminate or has terminated under Section 4041A of ERISA; (k) the institution of a proceeding by a fiduciary of a Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA; or (l) the Borrower or any ERISA Affiliate has increased benefits under any existing Employee Benefit Plan or commenced contributions to an Employee Benefit Plan to which Borrower or any ERISA Affiliate was not previously contributing. For purposes of this Section, the Borrower shall be deemed (i) to have knowledge of all facts known by the Plan Administrator of any Employee Benefit Plan of which Borrower is the Plan Sponsor or in which Borrower participates or to which Borrower contributes, and (ii) to have knowledge of all facts known by the Plan Administrator of any Employee Benefit Plan of which any ERISA Affiliate is the Plan Sponsor or in which any ERISA Affiliate participates or to which any ERISA Affiliate contributes and which facts could lead to an event or condition that could have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; 35 (K) Give written notice to Lender immediately upon receipt of any notice that (i) the operations of Borrower, any other obligor or any Subsidiary are not in full compliance with requirements of applicable Environmental Laws; (ii) Borrower, any other obligor or any Subsidiary is subject to any Federal or state investigation evaluating whether any remedial action is needed to respond to the release of any Hazardous Material into the environment; or (iii) any properties or assets of Borrower, any other obligor or any Subsidiary are subject to any Environmental Lien; (L) Without limiting the generality of any of Borrower's other covenants and agreements, the operations of Borrower, any other obligor and each of Borrower's Subsidiaries shall at all times comply in all material respects with all applicable Environmental Laws. The materiality standard used in this Section 10.1(L) shall be exceeded if the facts giving rise to a breach or breaches of the covenant contained herein might result in liability in excess of $50,000 in the aggregate, whether or not such liability may be covered by insurance; (M) As soon as available but not later than thirty (30) days after the end of each calendar quarter, delivery to Lender a summary report certified by the Borrower's Chief Financial Officer detailing all Billings in Excess of Cost and Earnings; and (N) Within thirty (30) days after the end of each fiscal month of Borrower, deliver to Lender a Covenant Compliance Certificate, in the form of Exhibit L attached hereto executed by an officer of Borrower attesting to the items set forth in such Certificate. 10.2 Negative Covenants. Borrower covenants that it shall not: (A) Merge or consolidate with or acquire any Person, or otherwise acquire all or substantially all of the assets or properties of any other Person without the prior written consent of Lender, which may withheld in Lender's sole and absolute discretion; (B) Other than in the ordinary course of business, make any investment in the securities of any Person; (C) Declare or pay dividends upon any of Borrower's Stock or make any distribution of Borrower's property or assets to any Person, including, without limitation, any Affiliate, officer or employee of Borrower; provided that, as long as at the time of any proposed payment of a dividend, no Default or Event of Default has occurred and is continuing or would be created by the making of such payment, Borrower may declare and pay dividends upon Borrower's Stock so long as (i) Borrower's Tangible Net Worth is not less than $1,350,000 at the time of and immediately following the payment of such dividend; and (ii) that immediately after the payment of such dividend Borrower has Collateral Availability of $125,000 or more, which Collateral Availability shall be calculated in accordance with Section 2.1 hereinbefore and shall be further reduced by (i) all accounts payable balances in excess of sixty (60) days past due and (ii) all Charges which are due and owing. Moreover, Borrower may issue stock dividends upon its Stock so long as the same is in accordance with all applicable laws; (D) Permit the annual salary and all other direct and indirect remuneration to Borrower's officers to exceed $180,000 individually or $690,000 in the aggregate, or permit the 36 payment of any management fee to an Affiliate; provided, however, that Borrower may pay a management fee to C&L Acquisition not to exceed $100,000 per fiscal year of Borrower; (E) Redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's Stock, or make any material change in Borrower's capital structure or in any of its business objectives, purposes and operations which might in any way adversely affect the repayment of Liabilities; (F) Enter into, or be a party to, any transaction with any Affiliate, director, officer or stockholder of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms which are fully disclosed to Lender (except that transactions between Borrower and Sattel Communications, L.L.C. or C&L Communications, Inc. in the ordinary course of Borrower's business need not be disclosed to Lender outside of Borrower's reporting requirements set forth herein) and are no less favorable to Borrower than Borrower would obtain in a comparable arm's-length transaction with a Person not an Affiliate, director, officer or stockholder of Borrower; (G) Enter into any transaction which materially and adversely affects the Collateral or Borrower's ability to repay the Indebtedness or permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, except for credits given for Inventory returned pursuant to Section 7.4; (H) Guarantee or otherwise, in any way, become liable with respect to the obligations or liabilities of any Person, except by endorsement of instruments or items of payment for deposit to the general account of Borrower or for delivery to Lender on account of the Liabilities; (I) Except as otherwise permitted hereunder make deposits to or withdrawals from any of its deposit accounts for the benefit of any Affiliate; (J) Except as otherwise expressly permitted herein or in the Ancillary Agreements, pledge, mortgage, grant a security interest in, encumber, assign, sell, lease or otherwise dispose of or transfer, whether by sale, merger, consolidation, liquidation, dissolution, or otherwise, any of Borrower's assets; (K) Incur any Indebtedness for borrowed money other than the indebtedness scheduled on Exhibit I attached hereto and the Liabilities, except for Indebtedness which is unsecured and is to Persons who execute and deliver to Lender (in form and substance acceptable to Lender and its counsel) subordination agreements subordinating their claims against Borrower to the payment of the Liabilities; (L) Make capital expenditures in any fiscal year which, in the aggregate, exceed $250,000.00 in any fiscal year; 37 (M) Permit any Accounts owing to Borrower from any Affiliate to be payable on terms which would not allow Borrower to demand payment upon the occurrence of a default or permit the aggregate amount of all Accounts owing from its Affiliates at any time to exceed $10,000 outside of the ordinary course of Borrower's business unless a Default has occurred in which case Borrower shall not permit any Accounts to be owing from its Affiliates; or (N) Do any of the following: (i) Establish, maintain, and operate any Employee Benefit Plan that is not in compliance in all material respects with the provisions of ERISA, the Code, and all other applicable laws, and the regulations and interpretations thereunder, except where the failure to so comply would not have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of the Borrower; (ii) Allow to exist any Accumulated Funding Deficiency with respect to any Employee Benefit Plan; (iii) Terminate any Employee Benefit Plan, or withdraw or effect a partial withdrawal from any Multiemployer Plan, if such termination, withdrawal, or partial withdrawal would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; (iv) Fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan; (v) Fail to make any required installment or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment; (vi) Amend any Employee Benefit Plan so as to result in an increase in current liability for the plan year such that Borrower or any ERISA Affiliate is required to provide security to such Employee Benefit Plan under Section 401(a)(29) of the Code; (vii) Enter into any Prohibited Transaction involving any Employee Benefit Plan, which Prohibited Transaction would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; (viii) Permit the occurrence of any Reportable Event, or any other event or condition, which would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower; or 38 (ix) Allow or permit to exist with respect to any Employee Benefit Plan any other event or condition known or which reasonably should be known to Borrower and which would have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower. (O) Make any loans, advances or extensions of credit to any Person, including, without limitation, any Affiliate, officer or employee of Borrower; 10.3 Contesting Charges. Notwithstanding anything to the contrary herein, Borrower may dispute any Charges without prior payment thereof, even if such non-payment may cause a lien to attach to Borrower's assets, provided that Borrower shall give Lender prompt notice of such dispute and shall be diligently contesting the same in good faith and by an appropriate proceeding and there is no danger of a loss or forfeiture of any of the Collateral and provided further that, if the same are potentially or actually in excess of $25,000 in the aggregate for Borrower at any time hereafter, Borrower shall give Lender such additional collateral and assurances as Lender, in its sole discretion, deems necessary under the circumstances, immediately upon demand by Lender. 10.4 Payment of Charges. Subject to the provisions of Section 10.3, Borrower shall pay promptly when due all of the Charges. In the event Borrower, at any time or times hereafter, shall fail to pay the Charges or to promptly obtain the satisfaction of such Charges, Borrower shall promptly so notify Lender thereof and Lender may, without waiving or releasing any obligation or liability of Borrower hereunder or any Default, in its sole discretion, at any time or times thereafter, make such payment or any part thereof (but shall not be obligated so to do), or obtain such satisfaction and take any other action with respect thereto which Lender deems advisable. All sums so paid by Lender and any expenses, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable by Borrower to Lender upon demand and shall be additional Liabilities. 10.5 Insurance; Payment of Premiums. All policies of insurance on the Collateral or otherwise required hereunder shall be in form and amount satisfactory to Lender and with insurers reasonably recognized as adequate by Lender. Borrower shall deliver to Lender the original (or a certified copy) of each policy of insurance and evidence of payment of all premiums therefor and shall deliver renewals of all such policies to Lender at least thirty (30) days prior to their expiration dates. Such policies of insurance shall contain an endorsement, in form and substance acceptable to Lender, showing all losses payable to Lender to the extent of the Liabilities outstanding at the time of the payment. Such endorsement shall provide that the insurance companies will give Lender at least thirty (30) days' prior notice before any such policy shall be altered or cancelled and that no act or default of Borrower or any other person shall affect the right of Lender to recover under such policy in case of loss or damage. Borrower hereby directs all insurers under such policies to pay all proceeds payable thereunder directly to Lender. Upon the occurrence and during the continuation of a Default or Event of Default, Borrower irrevocably makes, constitutes and appoints Lender (and all officers, employees or agents designated by Lender) as Borrower's true and lawful attorney and agent-in-fact for the purpose of making, settling and adjusting claims under such policies (provided that Lender shall consult 39 with Borrower prior to finally making, settling or adjusting claims under such policies), endorsing the name of Borrower in writing or by stamp on any check, draft, instrument or other item of payment for the proceeds of such policies and for making all determinations and decisions with respect to such policies. If Borrower shall fail to obtain or maintain any of the policies required by this Section 10.5 or to pay any premium relating thereto, then Lender, without waiving or releasing any obligation or default by Borrower hereunder, may (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which Lender deems advisable. All sums so disbursed by Lender, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable by Borrower to Lender upon demand and shall be additional Liabilities. 10.6 Survival of Obligations Upon Termination of Agreement. Except as otherwise expressly provided for in this Agreement and in the Ancillary Agreements, no termination or cancellation (regardless of cause or procedure) of this Agreement or the Ancillary Agreements shall in any way affect or impair the powers, obligations, duties, rights, and liabilities of Borrower or Lender in any way or respect relating to any transaction or event occurring prior to such termination or cancellation, the Collateral, or any of the undertakings, agreements, covenants, warranties and representations of Borrower or Lender contained in this Agreement or the Ancillary Agreements. All such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation. 11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 11.1 Event of Default; Default. The occurrence of any one or more of the following events shall constitute an Event of Default which, if not cured within the applicable grace period or waived in writing by Lender, shall constitute a Default: (A) Borrower fails to pay any part of the Liabilities when due and payable or declared due and payable or is in default in the payment of any of the Indebtedness; (B) Borrower or any Affiliate or guarantor of the Liabilities fails or neglects to perform, keep or observe any other term, provision, condition or covenant contained in this Agreement or in the Ancillary Agreements, which is required to be performed, kept or observed by Borrower or such Affiliate or guarantor and the same is not cured to Lender's satisfaction within twenty (20) days after Lender gives Borrower notice identifying such default; provided, however, that breach of any of the provisions, conditions or covenants contained in Sections 9.1(H), 9.1(N), 9.2(J), 10.1(A) and 10.2 shall without notice or time to cure be a Default; (C) Borrower shall default under any agreement, document or instrument, other than this Agreement or any of the Ancillary Agreements, now or hereafter existing, to which Borrower is a party; (D) Any statement, warranty, representation, report, financial statement, or certificate made or delivered by Borrower, or any of its officers, employees or agents, to Lender is not true and correct in any material respect; 40 (E) There shall occur any material uninsured damage to or loss, theft, or destruction of any of the Collateral; (F) The Collateral or any of Borrower's other assets are attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; an application is made by any Person other than Borrower for the appointment of a receiver, trustee, or custodian for any of the Collateral or any of Borrower's other assets and the same is not dismissed within sixty (60) days after the application therefor; (G) An application is made by Borrower for the appointment of a receiver, trustee or custodian for any of the Collateral or any of Borrower's other assets; a petition under any section or chapter of the Bankruptcy Code or any similar law or regulation is filed by or against Borrower or any guarantor of the Liabilities and, if filed against Borrower or any guarantor, is not dismissed within sixty (60) days after filing; Borrower makes an assignment for the benefit of its creditors or any case or proceeding is filed by or against Borrower for its dissolution, liquidation, or termination; Borrower ceases to conduct its business as now conducted or is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs; (H) Except as permitted in Section 10.3, a notice of lien, levy or assessment is filed of record with respect to all or any substantial portion of Borrower's assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency including, without limitation, the Pension Benefit Guaranty Corporation, or any taxes or debts owing to any of the foregoing becomes a lien or encumbrance upon the Collateral or any of Borrower's other assets and such lien or encumbrance is not released within thirty (30) days after its creation; (I) Judgment(s) is or are rendered against Borrower in the aggregate in excess of $50,000 and Borrower fails within twenty (20) days after the entry thereof to pay such judgment, or fails to commence appropriate proceedings to appeal such judgment(s) within the applicable appeal period or, after such appeal is filed, Borrower fails to diligently prosecute such appeal or such appeal is denied; (J) Borrower becomes insolvent or fails generally to pay its debts as they become due; (K) Any individual who is liable for the payment of any of the Liabilities, either primarily or secondarily (as a guarantor or an accommodation party ) shall die or become incompetent; (L) Any Person who is a guarantor, surety or endorser of all or any part of the Liabilities shall withdraw or terminate his, her or its guaranty, or if any guaranty of any of the Liabilities ceases to be effective for any reason; or (M) As to the following ERISA reports: 41 (i) As soon as possible, and in any event within ten (10) Business Days, after Borrower knows or has reason to know that, regarding any Employee Benefit Plan with respect to the Borrower or an ERISA Affiliate, a Prohibited Transaction or a Reportable Event has occurred (whether or not the requirement for notice of such Reportable Event has been waived by the PBGC), deliver to the Lender a certificate of a responsible officer of Borrower setting forth the details of such Prohibited Transaction or Reportable Event, the action that Borrower proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor, or PBGC; (ii) Upon request of the Lender made from time to time, deliver to the Lender a copy of the most recent actuarial report, funding waiver, and annual report received with respect to any Employee Benefit Plan maintained by Borrower or an ERISA Affiliate; and (iii) Upon reasonable request of the Lender made from time to time, deliver to the Lender a copy of any Employee Benefit Plan maintained by Borrower or any ERISA Affiliates; and (iv) As soon as possible, and in any event within ten (10) Business Days, after it knows or has reason to know that any of the following have occurred with respect to any Employee Benefit Plan maintained by or contributed to Borrower or an ERISA Affiliate, deliver to the Lender a certificate of a responsible officer of Borrower setting forth the details of the events described in (a) through (l) and the action that the Borrower or any ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice or filing from the PBGC or other agency of the United States government with respect to such of the events described in (a) through (l): (a) any Employee Benefit Plan has been terminated; (b) the Plan Sponsor intends to terminate any Employee Benefit Plan; (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate any Employee Benefit Plan or to appoint a trustee to administer such Employee Benefit Plan, or the Borrower or any ERISA Affiliate receives a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (d) Borrower or any ERISA Affiliate withdraws from any Employee Benefit Plan, or notice of any withdrawal liability is received by Borrower or any ERISA Affiliate; (e) any Employee Benefit Plan has received an unfavorable determination letter from the Internal Revenue Service regarding the qualification of the Employee Benefit Plan under Section 401(a) of the Code; (f) the Borrower or any ERISA Affiliate fails to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment or has applied for a waiver of the minimum funding standard under Section 412 of the Code; (g) the imposition of any tax under Code Section 4980B(a) or the assessment by the Secretary of Labor of a civil penalty under Section 502(c) of ERISA; (h) there is a partial or complete withdrawal (as described in ERISA Section 4203 or 4205) by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (i) the 42 Borrower or any ERISA Affiliate is in "default" (as defined in ERISA Section 4219(c)(5)) with respect to payments to a Multiemployer Plan required by reason of its complete or partial withdrawal from such Employee Benefit Plan; (j) a Multiemployer Plan is in "reorganization" or "insolvent" (as described in Title IV of ERISA) or such Multiemployer Plan intends to terminate or has terminated under Section 4041A of ERISA; (k) the institution of a proceeding by a fiduciary of a Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA; or (l) the Borrower or any ERISA Affiliate has increased benefits under any existing Employee Benefit Plan or commenced contributions to an Employee Benefit Plan to which Borrower or any ERISA Affiliate was not previously contributing. For purposes of this Section, the Borrower shall be deemed (i) to have knowledge of all facts known by the Plan Administrator of any Employee Benefit Plan of which Borrower is the Plan Sponsor or in which Borrower participates or to which Borrower contributes, and (ii) to have knowledge of all facts known by the Plan Administrator of any Employee Benefit Plan of which any ERISA Affiliate is the Plan Sponsor or in which any ERISA Affiliate participates or to which any ERISA Affiliate contributes and which facts could lead to an event or condition that could have a material (in the reasonable opinion of the Lender) adverse effect on the financial condition or results or operations of Borrower. 11.2 Acceleration of the Liabilities. Upon and after the occurrence of a Default, all of the Liabilities of Borrower may, at the option of Lender and without demand, notice, or legal process of any kind, be declared, and immediately shall become, due and payable. 11.3 Remedies. Upon and after the occurrence of a Default, which is not waived or cured during any applicable grace or cure period, Lender shall have all of the following rights and remedies: (A) All of the rights and remedies of a secured party under the Illinois Uniform Commercial Code or other applicable law, all of which rights and remedies shall be cumulative, and non-exclusive, to the extent permitted by law, and in addition to any other rights and remedies contained in this Agreement and in any of the Ancillary Agreements; (B) The right to (i) peacefully enter upon the premises of Borrower or any other place or places where the Collateral is located and kept, without any obligation to pay rent to Borrower or any other person, through self-help and without judicial process or first obtaining a final judgment or giving Borrower notice and opportunity for a hearing on the validity of Lender's claim, and remove the Collateral from such premises and places to the premises of Lender or any agent of Lender, for such time as Lender may require to collect or liquidate the Collateral, and/or (ii) require Borrower to assemble and deliver the Collateral to Lender at a place to be designated by Lender; (C) The right to (i) open Borrower's mail and collect any and all amounts due from Account Debtors, (ii) notify Account Debtors that the Accounts have been assigned to Lender and that Lender has a security interest therein and (iii) direct such Account Debtors to make all 43 payments due from them upon the Accounts, including the Special Collateral, directly to Lender or to a lock box designated by Lender. Lender shall promptly furnish Borrower with a copy of any such notice sent, and Borrower hereby agrees that any such notice, in Lender's sole discretion, may be sent on Lender's stationery, in which event, Borrower shall, upon demand, co-sign such notice with Lender; and (D) The right to sell, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as provided in Section 11.4, in lots or in bulk, for cash or on credit, all as Lender, in its sole discretion, may deem advisable. At any such sale or sales of the Collateral, the Collateral need not be in view of those present and attending the sale, nor at the same location at which the sale is being conducted. Lender shall have the right to conduct such sales on Borrower's premises or elsewhere and shall have the right to use Borrower's premises without charge for such sales for such time or times as Lender may see fit. Lender is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit but Lender shall have no obligations thereunder. Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may setoff the amount of such price against the Liabilities. The proceeds realized from the sale of any Collateral shall be applied first to the reasonable costs, expenses and attorneys' and paralegal fees and expenses incurred by Lender for collection and for acquisition, completion, protection, removal, storage, sale and delivery of the Collateral; second to interest due upon any of the Liabilities; and third to the principal of the Liabilities Lender shall account to Borrower for any surplus. If any deficiency shall arise, Borrower shall remain liable to Lender therefor. 11.4 Notice. Borrower agrees that any notice required to be given by Lender of a sale, lease, other disposition of any of the Collateral or any other intended action by Lender, which is personally delivered to Borrower or which is deposited in the United States mail, postage prepaid and duly addressed to Borrower at the address set forth in Section 13.11, at least ten (10) days prior to any such public sale, lease or other disposition or other action being taken, or the time after which any private sale of the Collateral is to be held, shall constitute commercially reasonable and fair notice thereof to Borrower. 12. CONDITIONS PRECEDENT TO DISBURSEMENT. 12.1 Conditions Precedent. The obligation of Lender to make the loans to Borrower pursuant to the Total Facility is subject to the condition precedent that, in addition to satisfaction of the conditions set forth in Sections 12.2 and 12.3 hereof, Lender shall have received, prior to the first disbursement of the proceeds of any of the loans hereunder, the 44 documents set forth on the Closing Checklist, a copy of which is attached hereto as Exhibit H, duly executed in the form and substance satisfactory to Lender; 12.2 Lender Satisfaction. The obligation of Lender to make the loans pursuant to the Total Facility to Borrower is subject to the further condition precedent that all proceedings taken in connection with the transaction contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory in form and substance to Lender and its counsel. 12.3 Additional Funding Requirements. In addition to the foregoing, prior to Lender making of any and all loans hereunder, all of the following shall have been satisfied in a manner satisfactory to Lender: (A) No change in the condition or operations, financial or otherwise, of Borrower shall have occurred which change, in the reasonable credit judgment of Lender, may have a material adverse effect on Borrower or on any of the Collateral; (B) No litigation shall be outstanding or have been instituted or threatened which Lender determines to be material against Borrower or any of the Collateral; (C) All of the representations and warranties of Borrower set forth in this Agreement and each of the other Agreements to which Borrower is a party shall be true and correct on the date of the contemplated loan to the same extent as originally made on such date; (D) No Event of Default or Default shall exist or be continuing; (E) Lender shall be satisfied that the transactions contemplated by this Agreement are in compliance with all applicable laws, regulations, orders, and contractual obligations deemed relevant by Lender; (F) Lender's continuing due diligence review with respect to Borrower, including, without limitation, investigations and reviews of Borrower's condition (financial or otherwise), business, operations, results of operations, assets, prospects, litigation and environmental matters, and field review of the Collateral by Lender's representatives, shall continue to be satisfactory to Lender as of the Closing Date; (G) Lender's liens and security interests securing the Liabilities shall have been duly created and perfected and be of first priority, except as otherwise expressly permitted by this Agreement; (H) The corporate, capital and legal structure, as well as the ownership and the organizational documents, of Borrower shall be satisfactory to Lender in all respects; and (I) Borrower shall have Collateral Availability of not less than $125,000 at Closing after Borrower's first draw on the credit facility; 45 (J) Lender shall have received a valid, properly perfected Collateral Assignment to Lender of the $3,400,000 Promissory Note from C&L Communications, Inc. to C&L Acquisition Corporation, all in form and substance acceptable to Lender; and (K) The Lender shall have received, on or prior to 1:00 P.M. (Chicago, Illinois time) no later than the day a Prime Rate Revolving Loan is to be made and at least two (2) Business Days prior to the day a LIBOR Rate Revolving Loan is to be made, (i) a telephonic request (which telephonic request, in the case of LIBOR Rate Revolving Loan, shall be promptly confirmed in writing) from the Borrower for an advance in a specific amount, and (ii) a current daily certificate identifying the current Borrowing Base and all other documents required to have been delivered to the Lender hereunder prior to such date. In the case of LIBOR Rate Revolving Loan, advances may be made with respect to the Revolving Loan no more than twice each week and only in minimum amounts of Two Hundred Thousand and No/100ths Dollars ($200,000) or integral multiples of One Hundred Thousand and No/100ths Dollars ($100,000) in excess thereof. Each request for an advance for a Prime Rate Revolving Loan or a LIBOR Rate Revolving Loan shall specify: (1) the proposed date of funding (which shall be a Business Day); (2) the amount and type of advance requested; (3) that the aggregate amount of the Revolving Loan (including the advance then noticed) will not exceed the unused loan availability; (4) whether such advance shall consist of a Prime Rate Revolving Loan or a LIBOR Rate Revolving Loan; and (5) if such advance, or a portion thereof is a LIBOR Rate Revolving Loan, the amount thereof and the initial Interest Period therefor. 13. MISCELLANEOUS 13.1 Appointment of Lender as Borrower's Lawful Attorney- In Fact. Borrower irrevocably designates, makes, constitutes and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney and agent in-fact and Lender, or Lender's agent, may, without notice to Borrower: (A) At any time hereafter, endorse by writing or stamp Borrower's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which come into the possession of Lender or under Lender's control and deposit the same to the account of Lender for application to the Liabilities; (B) At any time after the occurrence of a Default, which is not waived or cured during any applicable grace or cure period, in Borrower's or Lender's name: (i) demand payment of the Collateral; (ii) enforce payment of the Collateral, by legal proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies with respect to the collection of the Collateral; (iv) settle, compromise, extend or renew the Accounts and the Special Collateral; (v) settle, adjust or compromise any legal proceedings brought to collect the Collateral; (vi) if permitted by applicable law, sell or assign the Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable; (vii) satisfy and release the Accounts and Special Collateral; (viii) take control, in any manner, of any item of payment or proceeds referred to in Section 4.3; (ix) prepare, file and sign Borrower's name on any proof of claim in Bankruptcy or similar document against any Account Debtor; (x) prepare, file and sign Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Collateral; (xi) do 46 all acts and things necessary, in Lender's sole discretion, to fulfill Borrower's obligations under this Agreement; (xii) endorse by writing or stamp the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Collateral; and (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Collateral to which Borrower has access; and (C) Upon and after the occurrence of a Default, which is not waived or cured during any applicable grace or cure period, notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender and receive, open and dispose of all mail addressed to Borrower. 13.2 Modification of Agreement; Sale of Interest. This Agreement and the Ancillary Agreements may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender. Borrower may not sell, assign or transfer this Agreement or the Ancillary Agreements or any portion hereof or thereof, including, without limitation, Borrower's right, title, interest, remedies, powers, or duties hereunder or thereunder. Borrower hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement or the Ancillary Agreements or of any portion hereof or thereof, including, without limitation, Lender's right, title, interest, remedies, powers, or duties hereunder or thereunder. 13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket Expenses. If, at any time or times, whether prior or subsequent to the date hereof and regardless of the existence of a Default or an Event of Default, Lender incurs legal or other costs and expenses or employs counsel, accountants or other professionals for advice or other representation or services in connection with: (A) The preparation, negotiation and execution of this Agreement, all Ancillary Agreements, any amendment of or modification of this Agreement or the Ancillary Agreements or any sale or attempted sale of any interest herein to a Participant; (B) Any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement, the Ancillary Agreements or Borrower's affairs; (C) Any attempt to enforce any rights of Lender or any Participant against Borrower or any other Person which may be obligated to Lender or such Participant by virtue of this Agreement or the Ancillary Agreements, including, without limitation, the Account Debtors; (D) Any attempt to inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any of the Collateral; or (E) Any inspection, verification, protection, collection, sale, liquidation or other disposition of any of the Collateral, including without limitation, Lender's periodic or special audits of Borrower's books and records; 47 then, in any such event, the reasonable attorneys' and paralegals' fees and expenses arising from such services and all reasonably incurred expenses, costs, charges and other fees of or paid by Lender in any way or respect arising in connection with or relating to any of the events or actions described in this Section 13.3 shall be payable by Borrower to Lender upon demand and shall be additional Liabilities. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include accountants' fees, costs and expenses; court costs, fees and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of all such services. 13.4 Indemnification. Borrower further agrees to indemnify and save harmless Lender, any Participants and each of their respective officers, directors, employees, agents, attorneys- in-fact and Affiliates from and against any and all actions, causes of action, suits, losses, liabilities and damages and expenses (including, without limitation, attorneys' fees) in connection therewith (herein called the "Indemnified Liabilities") incurred by Lender, any Participants or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates as a result of, or arising out of or relating to any of the transactions contemplated hereby or by the other Security Documents, except for any Indemnified Liabilities arising on account of the gross negligence or willful misconduct of the Person seeking indemnity under this Section 13.3; provided, however, that, if and to the extent such agreement to indemnify may be unenforceable for any reason, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which shall be permissible under applicable law. The agreements in this Section 13.3 shall survive the payment of the Liabilities. 13.5 Waiver by Lender. Lender's failure, at any time or times hereafter, to require strict performance by Borrower of any provision of this Agreement or of any Ancillary Agreement shall not constitute a waiver, or affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of a Default under this Agreement or any Ancillary Agreement shall not suspend, waive or affect any other Default under this Agreement or the Ancillary Agreements, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or the Ancillary Agreements and no Default under this Agreement or the Ancillary Agreements shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing signed by an officer of Lender and directed to Borrower specifying such suspension or waiver. 13.6 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 13.7 Parties; Entire Agreement. This Agreement and the Ancillary Agreements shall be binding upon and inure to the benefit of the respective successors and assigns of Borrower 48 and Lender. Borrower's successors and assigns shall include, without limitation, a trustee, receiver or debtor-in-possession of or for Borrower. Nothing contained in this Section 13.7 shall be deemed to modify Section 13.2. Except as provided in Section 13.8, this Agreement is the complete statement of the agreement by and between Borrower and Lender and supersedes all prior negotiations, understandings and representations between them with respect to the subject matter of this Agreement. 13.8 Conflict of Term. The provisions of the Ancillary Agreements are incorporated in this Agreement by this reference. Except as otherwise provided in this Agreement and except as otherwise provided in the Ancillary Agreement, by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any Ancillary Agreement, the provision contained in this Agreement shall govern and control. 13.9 Waiver by Borrower. Except as otherwise provided for in this Agreement, Borrower waives (i) presentment, demand and protest, notice of protest, notice of presentment, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable and hereby ratifies and confirms whatever Lender may do in this regard; (ii) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender's remedies; and (iii) the benefit of all valuation, appraisement, extension and exemption laws. Borrower acknowledges that it has been advised by its own counsel with respect to this Agreement and the transactions evidenced by this Agreement. 13.10 Waiver and Governing Law. THE LOANS EVIDENCED HEREBY HAVE BEEN MADE, AND THIS AGREEMENT HAS BEEN DELIVERED, AT CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS. BORROWER (i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; (ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS 49 IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. BORROWER WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.11. SHOULD BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. 13.11 Notice. Except as otherwise provided herein, any notice required hereunder shall be in writing and shall be deemed to have been validly served, given or delivered upon deposit in the United States certified or registered mails, with proper postage prepaid, addressed to the party to be notified as follows: (a) If to Lender, at: Sanwa Business Credit Corporation One South Wacker Drive Chicago, Illinois 60606 Attn: First Vice President Asset Based Lending Division, Commercial Financial Services Group with a copy to: Sachnoff & Weaver, Ltd. 30 South Wacker Drive Suite 2900 Chicago, Illinois 60606 Attn: Richard G. Smolev 50 (b) If to Borrower, at: Valley Communications, Inc. 4026 Clipper Court Fremont, California 94538 Attn: Henry P. Mutz, Jr. with a copy to: Richard Y. Fisher The Diana Corporation 8200 West Brown Deer Road Suite 200 Milwaukee, Wisconsin 53223 and Godfrey & Kahn, S.C. 780 North Water Street Milwaukee, Wisconsin 53202 Attn: Kenneth Hunt or to such other address as each party may designate for itself by like notice. 13.12 Release of Claims. Borrower releases Lender from any and all causes of action or claims which Borrower may now or hereafter have for any asserted loss or damage to Borrower claimed to be caused by or arising from: (a) any failure of Lender to protect, enforce or collect in whole or in part any of the Collateral; (b) Lender's notification to any Account Debtor of Lender's security interests in the Accounts and Special Collateral; (c) Lender's directing any Account Debtor to pay any sums owing to Borrower directly to Lender; and (d) any other act or omission to act on the part of Lender, its officers, agents or employees, except for gross negligence or willful misconduct. 13.13 Representation by Counsel. Borrower hereby represents that it has been represented by competent counsel of its choice in the negotiation and execution of this Agreement and the Ancillary Agreements; that it has read and fully understood the terms hereof and intends to be bound hereby. This Agreement has been thoroughly reviewed by counsel for Borrower and in the event of an ambiguity or conflict in the terms hereof, there shall be no presumption against Lender as the drafter hereof. 13.14 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same instrument. 51 13.15 LENDER'S WAIVER OF JURY. LENDER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION TO ENFORCE OR PROSECUTE ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT. 13.16 Section Titles, Etc. The section titles and table of contents, if any, contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. All references herein to Sections, paragraphs, clauses and other subdivisions refer to the corresponding Sections, paragraphs, clauses and other subdivisions of this Agreement; and the words "herein," "hereof," "hereby," "hereto," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph, clause or subdivision hereof. All Exhibits which are referred to herein or attached hereto are hereby incorporated by reference. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year specified at the beginning hereof. BORROWER: VALLEY COMMUNICATIONS, INC. By: Its: LENDER: SANWA BUSINESS CREDIT CORPORATION By: Its: Attachments: Exhibit A, B, C, D, E, F, G, H, I, J, K and L 52 EX-10.1 4 1995 AGREEMENT BETWEEN VALLEY COMMUNICATIONS, INC. & COMMUNICATIONS WORKERS OF AMERICA LOCAL 9412 TABLE OF CONTENTS Article 1 - Recognition/Scope of Work Page 1 Article 2 - Management Rights Page 1 Article 3 - Union Security Page 1-2 Article 4 - Payroll Deduction of Union Dues Page 2-3 Article 5 - Performance of Bargaining Unit Work Page 3 Article 6 - Responsible Union Company Relationship Page 3 Article 7 - Hiring/Probationary Period Page 3-4 Article 8 - Seniority Page 4 Article 9 - Wages and Job Classification Page 4-5 Article 10 - Hours, Overtime, and Premium Pay Page 3 Article 11 - Vacations Page 6 Article 12 - Holidays Page 6 Article 13 - Callout, Standby, and Report Page 7 Article 14 - Expense Allowance (Travel/Per Dium) Page 7 Article 15 - Discipline Page 8 Article 16 - Grievance and Arbitration Page 8-9 Article 17 - Medical, and other Insurance Benefits Page 9 Article 18 - Union Representation Page 9 Article 19 - Absences (Military/Sick/ Jury Duty) Page 10-11 Article 20 - No Strike Page 11 Article 21 - Federal and State Laws Page 11 TABLE OF CONTENTS CONTINUED Article 22 - Discharges, Suspensions, and Demotions for Cause Page 11 Article 23 - Transfers Page 12 Article 24 - Right of Employees to Union Representation Page 12 Article 25 - Miscellaneous Page 12-13 Article 26 - Duration of Agreement Page 14 Appendix A - Job Classifications Page 15 Appendix B - Wage Schedule Page 16 Appendix C - Payroll Deduction of Union Dues Page 17 Appendix D - Monthly Dues Report Page 18 Appendix E - Medical and Other Benefits Page 19 ARTICLE 1 RECOGNITION Section 1. The Company hereby recognizes the Union as the exclusive collective bargaining representative for the purpose of collective bargaining with respect to rates of pay, wages and hours of employment. Section 2. No new job classifications will be created without approval from the Union. Section 3. SCOPE OF WORK: The work covered by this Agreement shall include all work involving the installation and maintenance of the following systems: Voice and Data, Access Control, Audio/Video, CATV, Fire Alarm, Life Safety Support, Master Clock, Radio systems, RF/Microwave, Security/CCTV, Sound/Paging, Telemetry and any other low voltage signal or transmission system. This includes both copper and fiber optic communications in support of the above. The Scope of work also includes any raceway or conduit incidental to the installation of these systems. ARTICLE 2 MANAGEMENT RIGHTS The management of the Company and the direction of the work force are vested exclusively in the Company and shall not in any way be abridged except as specific restrictions are set forth in this agreement. ARTICLE 3 UNION SECURITY Section 1. It shall be a condition of employment that all employees of the company covered by this Agreement who are members of the Union in good standing on the effective date of this Agreement shall remain members in good standing, and those who are not members on the effective date of this agreement, not later than the 30th day following the effective date of this agreement become and remain members in good standing in the Union. It shall also be a condition of employment that all employees covered by this Agreement and hired on or after its effective date shall, not later than the 30th day following the beginning of such employment, become and remain members in good standing in the Union. 1 Section 2. This Article shall apply in those states where the laws permits the Union to enter into this type of Union Security agreement. If during the term of the contract the Union shall become duly authorized under the laws of any other state to enter into this type of Union Security agreement, the effective date of this Article as to employees in such state shall be the date upon which the Company receives proper written evidence from the Union that it is fully qualified to enter into such as agreement in such state. EXCEPTION: Special expertise with prior consultation with Union. ARTICLE 4 PAYROLL DEDUCTION OF UNION DUES Section 1. A. The company agrees that, upon receipt of an individual written request in form, (see Appendix C) approved by the Company and signed by an employee covered by this agreement, it will deduct monthly from such employee's wages the amount of Union dues and initiation fees specified in such request and forward the full amount thus deducted to the Secretary-Treasurer of Union or his authorized agent as directed. The request may be revoked by the employee at any time upon his written request to the company and such request should be directed to appropriate Company representative. The Secretary-Treasurer of the Union can also revoke the dues authorization of any employee upon the Secretary- Treasurer's written request to the Company's appropriate representative. B. In general, dues deductions will be made in designated pay periods in the current month for properly executed dues deductions authorizations received by the appropriate company representative on or before the 25th day of the preceding month. However, the Company assumes no responsibility either to the employee or to the Union for nay failure to make or for any errors made in making such deductions, but will make such efforts as is deems appropriate in correcting an such errors or omissions. Section 2. The Company will, each month, furnish the Union information detailed on Appendix D, for the preceding month of all employees in the bargaining unit. Section 3. An employee's authorization shall be automatically canceled upon termination of employment. An employees authorization shall be suspended upon leave of absence in excess of thirty (30) calendar days. The employees authorization shall be reinstated after return form a leave of absence. 2 Section 4. Any change in the amount of monthly Union dues will be certified to the Company by the Secretary-Treasurer of the Communications Worker of America. A certification which changes the dues shall become effective the first day of the fiscal month following the date the company receives such certification. ARTICLE 5 PERFORMANCE OF BARGAINING UNIT WORK The Company agrees that Company personnel who are not included in the bargaining unit should not do work assigned to employees within the bargaining unit, except in case where management personnel are needed for quality control and/or for training purposes, or in emergencies caused by acts of God. ARTICLE 6 RESPONSIBLE UNION - COMPANY RELATIONSHIP The Company and the Union recognize that it is in the best interest of both parties, the employee, and the public that all dealings between them continue to be characterized by mutual responsibility and respect. To insure that this relationship continues and improves, the Company and the Union and their respective representatives at all levels will apply the terms of this contract fairly in accord with its intent and meaning and consistent with the Union's status as exclusive bargaining representative of all employees covered by this contract. Each party shall bring to the attention of all employees in the units covered by this contract, including new hires, their purpose to conduct themselves in a spirit of responsibility and respect and the measures they have agreed upon to insure adherence to this purpose. ARTICLE 7 HIRING Section 1. New employees of the Company shall be considered probationary until they have completed six (6) months continuous service with the Company, during which time such employee shall work under the conditions, and receive not less than the minimum applicable rates of pay, established in this agreement. If any time during the probationary period the Company should deem any such employee unqualified in any way, the Company may discharge such employee and grievances shall not be presented in connection with the discharge or layoff of a probationary employee. 3 Section 2. The Company has the right to utilize personnel not in the bargaining unit with engineering or special technical skill as required to meet installation, repair, or service requirements. Section 3. When new employees are hired, the Company shall notify the Union, in writing, within five (5) working days of the date of hire of said employees, of their official job classification and rate of pay. ARTICLE 8 SENIORITY Section 1. Seniority is defined as length of continuous service with the Company from the date of hire or rehire following a break in continuous service. Section 2. Where equally qualified, seniority shall determine the selection of vacation and transfers. Section 3. Seniority shall be a consideration for training and promotions. Section 4. If a reduction in force is necessary, employees shall be laid off by inverse order of seniority, by classification. Section 5. A break in seniority shall occur only in case of a voluntary quit by an employee, a discharge for just cause, failure to return to work after a leave of absence has expired, or failure to return to work after a recall from layoff. ARTICLE 9 JOB CLASSIFICATIONS AND WAGES Job classification and descriptions shall be as set forth in Appendix "A" of this agreement, attached hereto, as an effective part of this agreement. Wages for employees shall be as set forth in Appendix "B" of this agreement, attached hereto, as an effective part of this agreement. 4 Communication Technicians maybe responsible for overseeing work on various jobs in addition to performing bargaining unit work. In addition to their normal hourly rate of pay, these Communications Technicians when acting as Project Managers when supervising 10 or more people on a job shall receive a pay differential of one dollar twenty five ($1.25) per hour. New employees shall be slotted into Job Classification Level Structure at the time of hire, previous related experience being considered, and shall progress in accordance with wage schedule. Employees who demonstrate exceptional performance can be considered for more rapid advancement by the employer. Hourly employees will not be permitted to contract for any work or job of a similar to their regular employment with the company. ARTICLE 10 HOURS, OVERTIME, AND PREMIUM PAY The normal workday shall consist of eight (8) consecutive hours of work or ten (10) consecutive hours of work, exclusive of a one-half hour lunch period, upon mutual agreement of the parties involved. The normal work week shall consist of five eight-hour days or four ten- hours days, Monday through Saturday, of forty hours duration. An evening or night shift shall be any shift commencing after 1:00 p.m. and shall be compensated with an additional (10) percent premium for all hours worked. All work on Sunday shall be paid at the rate of double-time of the regular hourly pay. In addition to the holiday pay as outlined ARTICLE 12, all work on any holiday indicated in this agreement shall be paid at the rate of double- time the regular hourly rate of pay. All work in excess of the normal workday or work week shall be paid at time and one-half the regular hourly rate. NOTE: Prior authorization for any overtime must be obtained from Company Manager. 5 ARTICLE 11 VACATIONS Full-time employees shall accrue vacation at the following rates: (a) Employees shall accrue one week of vacation on a pro-rata basis during the first year of employment. (3.33 hours per month) (b) During years two through five, employees shall accrue two weeks of vacation on a pro-rata basis each year. (6.67 hours per month) (c) During years six through ten, employees will accrue vacation at the rate of three weeks vacation on a pro-rata basis each year. (10 hours per month) (d) During years eleven and after, employees will accrue vacation at the rate of four week's vacation on a pro-rata basis each year. (13.33 hours per month) (e) The amount of pay for each full week of vacation shall be authorized weekly rate for five days of duty. (f) Vacations maybe scheduled anytime during that calendar year, and must be coordinated and approved by the Company. (g) Vacations are not to be accumulate from year to year without management approval. ARTICLE 12 HOLIDAYS The following holidays are authorized and shall be observed: President's Day Thanksgiving Day Memorial Day Day after Thanksgiving Independence Day Christmas Day Labor Day New Year's Day Authorized holidays falling on Sunday shall be observed on the following Monday. Authorized holidays falling on Saturday shall be observed on the preceding Friday. (a) An employee must work his last regularly scheduled workday before a holiday in order to receive pay for the holiday unless Company has approved such absence. (b) An employee must work the next scheduled workday after a holiday in order to receive pay for holiday unless Company has approved such absence. (c) Any employee who otherwise meets the requirements of this Article, and taking their vacation in a week in which a holiday falls, shall receive an extra day of vacation at the employee's option. 6 ARTICLE 13 CALLOUT, STANDBY AND REPORT PAY An employee who reports for work at the regular starting time of his shift and has not been advised by the company prior to reporting not to report shall be guaranteed at least two (2) hours of work or paid a minimum of two (2) hours pay at the regular rate of pay, together with any overtime or premium pay where such employee is entitled to such overtime or premium pay. Provision shall not apply if an employee is unavailable for reassignment. An employee who has clocked out and who has left the premises of the Company after completion of his regularly scheduled working hours and who is recalled for emergency work shall be paid not less that two (2) hours pay at the rate of time and one-half the normal hourly rate for such callout. ARTICLE 14 EXPENSE ALLOWANCE No traveling time or transportation shall be paid before or after working hours to employees. The Company shall reimburse the employee for the use of his automobile in the following ways: (a) .30 cents per mile for each mile driven by the employee on Company business while working. (b) Toll charges for bridges, tunnels, ferries, and toll highways which must be traveled in the course of the above travel. (c) Reasonable parking charges. Per Dium When an employee is temporarily assigned to a work location other than his regular assigned location and the Company determines the employee's absence from home overnight is required, the company agrees to: (a) Furnish a maximum allowance of sixty five dollars ($65) per day per employee to cover the cost of lodging, meals, and other expenses. OR (b) Provide lodging at direct Company expense and furnish the employee thirty dollars ($30) for meals and other expenses. 7 (c) In either case above, all transportation costs, including toll fees would be paid. Employees working on ships twelve (12) hours will be entitled to a meal allowance of $10. ARTICLE 15 DISCIPLINE The Company shall have the right to discipline, suspend or discharge employees for just cause. In the event any such discipline, suspension, or discharge occurs and the Union believes any such action to be unjustified, the matter shall then be considered as a grievance and shall be handled in accordance with Article 16. ARTICLE 16 GRIEVANCE AND ARBITRATION In the event any difference should arise between the Company and the Union or any employee covered by this Agreement as to the meaning and application of the provisions of this Agreement, or if any local problem of any kind arises, there shall be no suspension of work on account of such difference and an earnest effort shall be made by both parties to this Agreement to settle such differences using the steps of the grievance procedure outlined below: Step 1. A grievance shall be first presented orally by the employee concerned to the immediate supervisor directly involved within seven (7) working days of the occurrence of the event which caused the grievance. An employee is entitled to have Union representation in any discussion between the employee and representatives of the Company. Step 2. If the grievance is not settled orally at Step 1, it shall be reduced to writing and presented by the Union to the General Manager within (20) working days. A meeting shall be held with the Union and the General Manager to attempt to resolve the grievance within ten (10) total working days. Within (5) working days following this meeting management shall present its position on the grievance in writing and submit the same to the Union. Step 3. If no settlement has been reached at the second step, the Union may, within ten (10) working days of the receipt of the Company's written position, notify the Company of intent to refer the grievance to arbitration. 8 If the Company and the Union cannot agree upon the person to act as an impartial arbitrator, the Federal Mediation and Conciliation Service shall be requested to submit a list of five (5) arbitrators. The company and the Union shall alternately strike two (2) names. The right to strike first shall be determined by lot or as otherwise agreed by the parties. After each party has exercised the right to strike two names, the one remaining person on the list shall be designated as the impartial arbitrator. The authority of the arbitrator shall be limited to determining only questions involving the interpretation or application of an expressed provision of this Agreement and all other matters are excluded from arbitration. The arbitrator shall have no authority to add to, subtract from or to change any of the terms of the Agreement, to change any existing wage rate, to establish a new wage rate, or to attempt to interpret or apply in any manner whatsoever any alleged implied obligations as against either the Company or the Union. The decision of the arbitrator shall be final and binding on each of the parties, and they will abide thereby subject to such laws as may apply. The fee charged by the arbitrator shall be borne equally by the Company and Union. Any issue or dispute not presented or carried forward by either party in a timely manner as specified in this Article and Agreement within the limits called for in this Article shall be considered settled in favor of the party that presents the last written answer in the timely manner provided in this Article. The time limits set forth in this Article may be extended by mutual consent of the parties in writing. ARTICLE 17 MEDICAL AND OTHER INSURANCE BENEFITS Hospitals, physician and any and all other insurance benefits and coverage shall be as agreed upon the union and the Company in a separate Letter of Understanding. Such letter shall carry the full and effective force as an integral part of this general agreement. See APPENDIX E. ARTICLE 18 UNION REPRESENTATION Section 1. Employees designated by the Union will be granted the necessary time off to carry out the business of the union. Such time off shall be without pay but shall be considered as time worked for the purpose of determining seniority, wage increases and other benefits. 9 Section 2. No Union representative shall suffer a loss in pay while attending any joint Union- Company meeting or for reasonable travel time to and from such meetings. It is understood that such joint meeting and travel time is considered work time. ARTICLE 19 ABSENCES Section 1. Any employee ordered to military duty shall be granted a leave of absence, without pay, for such period of time as may be required such duty. Upon his return from such service, if he is eligible for reemployment under the terms of the Universal Military Training and Selective Service Act, he shall be credited for all purposes for all time spent in such military service. If such leave is for a period exceeding two months, his current vacation shall be prorated with credit for any portion of the current vacation year during which be was on the employer's active payroll. For all other purposes under this Agreement his period of service with the armed forces shall be included in determining his seniority as required by law. Section 2. Any employee who is a member of a military reserve component and has a mandatory training obligation shall be granted a maximum of fifteen (15) days leave each calendar year when ordered to short tours of active duty for such purpose. In such event the employer will pay to such employee the difference, if any, between his military pay and base pay which he would have received if he had continued within the services of the employer for such period, not to exceed fifteen (15) days. Such differential pay shall apply to only one fifteen day period in each calendar year. Section 3. Any employee selected for a position with the Union which takes him away from his work with the Company for a period greater than six (6) months shall, upon written request from the Union, receive a leave of absence for the period of his service with the Union. Upon his return the employee shall be reemployed at the same location and in the same position he held prior to beginning his leave of absence, or to a position generally similar to that ii which he was employed at such time with full seniority status, provided such location and position are available. The employee must apply for reinstatement within thirty (30) days after leaving the employ of the Union. The Company has thirty (30) days after application to reinstate the employee. Section 4. Jury Duty Pay: An employee who has completed one (1) year of continuous service and who fails to work his regularly scheduled hours because of jury duty shall 10 receive eight hours pay at his regular basic straight time rate, less jury fees he receives. The employee must give at least forty-eight (48) hours notice to his supervisor of required jury duty service to be eligible for Jury Duty pay. Payment is limited to a maximum of five (5) days in any week and (10) days in any calendar year. To be eligible for payment the employee must submit a written statement from the appropriate public official, listing the dates served and the amount of fees received. Section 5. Paid Sick Leave: Employee will earn two (2) paid sick days per six (6) months of full time employment, four (4) days per year. A maximum of (4) days Sick Leave may be accumulated. ARTICLE 20 NO STRIKE The Union agrees that during the term of this Agreement neither the Union, nor its agents, nor its members will authorize, instigate, aid, condone or engage in a work stoppage, slowdown or strike. The Company agrees that during the same period there shall be no lockouts. The Company further agrees that no employee covered by this Agreement shall be required to cross a picket line in the course of his employment. ARTICLE 21 FEDERAL AND STATE LAWS In the event any Federal or State law conflicts with the provisions of this Agreement, the provision or provisions so affected shall no longer be operative or binding upon the parties, but the remaining portion of the Agreement shall continue in full force and effect. ARTICLE 22 DISCHARGES, SUSPENSIONS, AND DEMOTIONS FOR CAUSE In the event any employee is discharged, suspended, or demoted for cause, the Local Union shall be notified in writing of such action within seven (7) days. If an employee with more than 6 months of service is discharged, suspense, or demoted the Union's claim that the action was without proper reason shall be subject to the grievance and arbitration procedure of this Agreement. 11 ARTICLE 23 TRANSFERS Section 1. Consideration shall be given to the request of an employee for a transfer from one location to another or from one job to another. Where more than one employee applies for a vacancy and other qualifications are substantially equal, seniority shall govern. Section 2. Any employee who desires to be transferred as above described shall notify the company in writing of such desire, the location or job to which he desires to be transferred, his reasons for desiring the transfer and whether he desires to be transferred immediately or at some future date when and if a vacancy occurs. Such notice shall be valid for a period of one (1) year from date of submission. Section 3. Any employee who is required to change his residence at the request of the Company shall be an given an allowance for moving expenses, not to exceed two (2) thousand dollars ($2,000) intra-state. ARTICLE 24 RIGHT OF EMPLOYEES TO UNION REPRESENTATION Any employee is entitled to have Union representation in any discussion between the employee and representatives of the Company in which the employee has reasonable grounds to fear that the interview will adversely affect his continued employment or his working conditions. ARTICLE 25 MISCELLANEOUS There shall be no discrimination of any kind against any member of the union by the company or anyone employed who is a member of the Union, nor shall any employee be discriminated against because of race, color, creed, national origin, age, or sex. The Company and Union agree to abide by all equal opportunity employment requirements of law. Employees shall not be required to work under conditions where their health or safety may be jeopardized. 12 The Union business representatives shall be allowed access to Company premises and employee's work-reporting location to discuss contract and job-related matters with employees. The Company shall recognize and deal with a Union steward appointed by the Union. The steward shall be allowed reasonable time off with pay to handle grievances and attend grievance meetings. The Company shall provide the Union with one bulletin board at its Regional Office location for the exclusive use of the Union. Any provisions of the Agreement may be amended, modified, or supplemented at any time by the mutual consent of the parities hereto, without in any way effecting any of the other provisions of the Agreement. Employees shall furnish hand and other tools as required. The employer shall furnish specialized tools and equipment. Payroll periods will be biweekly Monday through Sunday. Paydays will be the Thursday following close of a payroll period. 13 ARTICLE 26 EFFECTIVE DATE AND DURATION OF AGREEMENT Section 1. This Agreement shall be effective as of September 1, 1995, and shall remain in effect for an initial period of three (3) years and including August 31, 1998, and shall continue in effect thereafter until terminated by written notice given by the Company or by the Union expressly stating its intention to terminate this Agreement, in which case it Terminate sixty (60) days following receipt of such notice. Within thirty (30 days of the receipt of such notice to terminate this Agreement, the Union and the Company shall commence collective bargaining with respect to a new Agreement. Section 2. In additional to the right of the Union to terminate the Agreement as specified above, the Union may, not earlier than sixty (60) days prior to the end of the initial period, request in writing negotiations on modifications or amendments of this Agreement. If such written request is made the parties shall negotiate on modifications and amendments as proposed by the Union, and this Agreement will continue in effect unless replaced by a new or amended Agreement, or until terminated by either unless replaced by a new or amended Agreement or until terminated by either party giving sixty (60) days written notice of termination to the other party. This Agreement is entered into this 17th Day of November of 1995. /s/ H. C. COTNER /s/ HENRY P. MUTZ Union Company /s/ C. COOKIE CAMERON Union /s/ VIRGIL PARKER Union EX-10.2 5 Sanwa Business Credit Corporation One South Wacker Drive Chicago, Illinois 60606 September 3, 1996 Mr. Donald E. Runge, President The Diana Corporation 8200 W. Brown Deer Road, Ste 200 Milwaukee, Wisconsin 53223 FAX (414) 355-0815 Re: Atlanta Provision Company ("Atlanta")/Proposal Letter and Term Sheet dated August 13, 1996 (copies attached, hereinafter referred to collectively as the "Proposal") Dear Mr. Runge: This will confirm our conversation of September 3, 1996. Subject to the terms and conditions set forth in the above Proposal (by reference, incorporated herein and made a part hereof), Sanwa Business Credit Corporation has committed to close on the financing accommodation contemplated therein on or before September 30, 1996. Very truly yours, SANWA BUSINESS CREDIT CORPORATION /s/ George M. Adams First Vice President (312) 853-1369 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE DIANA CORPORATION AS OF AND FOR THE 16 WEEKS ENDED JULY 20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-29-1997 MAR-31-1996 JUL-20-1996 11686 1414 21950 (787) 12373 47610 9771 (5331) 64864 24626 3468 0 0 5756 29399 64864 87217 87424 83180 83180 5273 0 396 (1322) 0 (1322) 0 0 0 (1322) (.27) (.27)
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