Common use of Encumbrances Clause in Contracts

Encumbrances. (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto.

Encumbrances. The Real Estate Company shall not create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its assets or property, including, without limitation, the Collateral, other than, subject to the terms and provisions of the applicable Mortgage, the following (“Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- subject to the extent such liens terms and security interests on the Collateral are held for the benefit provisions of the holders of the Senior Secured Notes or the Senior Secured Note Trusteeapplicable Mortgage, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Real Estate Company shall, if appropriate under GAAP, have set aside on its books and records adequate reserves, provided, that such contest does not have a material adverse effect on the ability of the Borrower to pay any of the Liabilities, or the priority or value of the Agent’s Lien in the Collateral; (b) deposits under workmen’s compensation, unemployment insurance, social security and other similar laws; (c) Liens in favor of the Agent for the benefit of Lenders; (d) subject to the terms and provisions of the applicable Mortgage, liens imposed by law, such as mechanics’, materialmen’s, landlord’s, warehousemen’s, carriers’ and other similar liens, securing obligations incurred in the ordinary course of business that are not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate appropriate reserves have been set aside on its books; established; (ce) nonleases with precautionary UCC filings (including, but not limited to, equipment leases); (f) customary rights of set-consensual statutory liens off, revocation, refund or chargeback under deposit agreements or under the Uniform Commercial Code or common law of banks or other financial institutions where the Borrower maintain deposits (other than liens securing the payment of taxesdeposits intended as cash collateral) arising in the ordinary course of Borrower's or Guarantor's business business; (including carriers', warehousemen's, materialmen's g) judgment and mechanics' liensattachment liens not giving rise to an Event of Default; and (h) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationIndebtedness permitted by Section 9.2(a)(iii) below. Strawberry Fields LP shall not create, unemployment insurance and other types incur, assume or suffer to exist any Lien of social security benefits consistent with any nature whatsoever on any Collateral related to the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tendersFacility or Real Estate Company, bidsincluding on any direct or indirect equity interest in any Real Estate Company, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoPermitted Liens.

Encumbrances. Borrower shall not, and Borrower shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets other than the following: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations in each case bonds in the ordinary course Ordinary Course of business consistent with the current practices Business; (c) any Liens (if any) in favor of Borrower and Guarantor as of the date hereofLender; providedor (d) carriers’, -------- thatwarehousemen’s, in connection with any performance bonds issued by a surety mechanics’, materialmen’s, repairmen’s or other ---- person, like Liens arising in the issuer Ordinary Course of such bond Business; or (d) a Nonrecourse Lien. Borrower shall have waived in writing not permit the filing of any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of naming Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provideddebtor, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured except for financing statements filed with respect to Liens expressly permitted by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoAgreement.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.14 and disclosed in Exhibit 6A under Section 6.4, Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of Borrower’s assets (including without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under generally accepted accounting principles, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor past due; (but c) liens securing appeal bonds securing judgments not in connection with, or as part of, excess of $1,000,000; (d) liens and security interests in favor of U.S. Bank; (e) liens securing the financing thereof) from time to time interests of Broker in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; any Margin Account; (gf) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property Borrower’s real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of U.S. Bank and which do not interfere not, in any material respect with U.S. Bank’s sole determination: (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by Borrower; and (hg) purchase money security interests in Equipment securing amounts relating to such items of equipment as are specifically consented to by U.S. Bank (including Capital Leases) and provided that no such purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests shall extend to or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any cover other property of Borrower other than the Equipment or real estate items of equipment so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto).

Encumbrances. Borrower shall not create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its assets or property, including, without limitation, the Collateral, other than the following (“Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which Borrower shall, if appropriate under GAAP, have set aside on its books and records adequate reserves, provided, that such contest does not have a material adverse effect on the ability of Borrower to pay any of the Liabilities, or the priority or value of Administrative Agent’s Lien in the Collateral (other than with respect to other Permitted Liens provided for herein); (b) deposits under workmen’s compensation, unemployment insurance, social security, leases and other similar laws; (c) Liens in favor of Administrative Agent (for the ratable benefit of Lenders and Administrative Agent); (d) liens imposed by law, such as mechanics’, materialmen’s, landlord’s, warehousemen’s, carriers’ and other similar liens, securing obligations incurred in the ordinary course of business that are not past due for more than ten (10) calendar days, that are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate appropriate reserves have been set aside on its books; established or that are not yet due and payable; (ce) non-consensual statutory liens (other than liens securing the payment which arise by operation of taxes) arising law in the ordinary course of Borrower's or Guarantor's business (including carriers'business, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such other then liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk arise by operation of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereofEnvironmental Laws; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, building codes, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other similar restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; real Property; (hg) purchase money security interests upon or in Equipment (including Capital Leases) and any property acquired or held by Borrower in the ordinary course of business to secure the purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, price of such property so long as: (i) in no event shall -------- ---- the aggregate indebtedness relating to such purchase money security interests and Capitalized Lease Obligations does not at any one time outstanding exceed Five Hundred Thousand Dollars ($500,000) in the aggregate at any time, (ii) each such lien shall attach only to the property (and the proceeds thereof) to be acquired; (iii) the principal amount of the Indebtedness secured by indebtedness incurred shall not exceed one hundred percent (100%) of the purchase price of the item or items purchased and ( iv) such security interests Lien shall be created within thirty (30) days of the acquisition of the related asset; (h) any Liens set forth on Schedule 9.1 and any renewal or mortgages incurred in refinancing of the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent indebtedness for which such liens were granted provided that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply indebtedness with respect to any property of Borrower other than renewal or refinancing is not increased and the Equipment or real estate so acquired, and (iii) liens with respect to such indebtedness do not extend beyond the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beCollateral listed thereon; and (i) security interests Liens consisting of judgment liens that are inferior in right to the Liens of Lender hereunder and liens in existence on the date hereof which are set forth on Schedule 7.4 heretowith respect to judgments that do not constitute an Event of Default under Section 10(e) hereof; or (j) any escrow arrangements (whether involving cash, stock or other Property) pursuant to any Acquisition Agreement.

Encumbrances. Create or allow any Encumbrances to be on or otherwise affect any of its property or assets except: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderBank; (b) liens securing the payment of Encumbrances for taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued assessments and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof governmental charges incurred in the ordinary course of business which are not yet due and payable or which are being properly contested in good faith by lawful and appropriate proceedings; (c) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation or to participate in any fund in connection with workers' workmen's compensation, unemployment insurance and or other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofobligations; (ed) Good faith pledges and or deposits made in the ordinary course of cash by Borrower after the date hereof business to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), ) or leases or to secure statutory obligations and or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (e) Liens of mechanics, materialmen, warehousemen, carriers or other similar liens, securing obligations in each case incurred in the ordinary course of business consistent with the current practices of Borrower that are not yet due and Guarantor as of the date hereof; provided, -------- that, payable or are being contested in connection with any performance bonds issued good faith by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form appropriate and substance satisfactory to Lenderlawful proceedings; (f) liens arising from Encumbrances securing Indebtedness permitted under Section 7.2 (b), provided that (i) operating leases and the precautionary UCC financing statement filings in respect thereof no other covenants of this Agreement are thereby violated and (ii) no equipment or other materials which are not owned by Borrower or Guarantor located on than the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofequipment so acquired secures such Indebtedness; (g) zoning restrictionsEncumbrances, easementsif any, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions otherwise expressly permitted by the Security Agreement or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto;Mortgage; and (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred Encumbrances disclosed in the fiscal year of Borrower ending December 31Financial Statements, 2001 exceed $2,000,000and any subsequent interim financial statements which have been delivered to the Bank prior to the Closing Date, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 7.3 attached hereto.

Encumbrances. Neither any Credit Party nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance upon any of its properties and assets, or assign or otherwise convey any right to receive income, with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests Encumbrances in favor of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on Administrative Agent under the Collateral are held Security Documents for the ratable benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderLenders; (b) liens securing Encumbrances existing as of the payment date of taxesthis Agreement, either not yet overdue or consented to by the validity of which are being contested Required Lenders and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksSchedule 4.24. attached hereto; (c) non-consensual statutory liens (for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers'same may be postponed, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or is being contested and is otherwise not required to be paid in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to accordance with the commencement provisions of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 7.6. hereof; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges and or deposits of cash by Borrower under worker's compensation, unemployment insurance, social security laws, or Guarantor after the date hereof in the ordinary course of business similar legislation (other than ERISA) or in connection with workersappeal and similar bonds incidental to litigation; mechanics', laborers' compensationand materialmen's and similar liens, unemployment insurance and other types of social security benefits consistent with if the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and other similar obligations in each case that do not in the ordinary course aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) attachments, garnishments and Guarantor as judgment liens not constituting an Event of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to LenderDefault; (f) liens arising from (i) operating in favor of lessors under Capital Leases and sellers under motor vehicles installment sales contracts permitted under Section 8.9. hereof as long as the collateral subject thereto is limited solely to the property that is the subject of such Capital Leases or sales contracts and secures only the amounts owing in respect of such leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofcontracts; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits business; (h) purchase money security interests Encumbrances on property or assets created in Equipment (including Capital Leasesconnection with the refinancing or refunding of Indebtedness referred to in Section 8.1.(b) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, thathowever, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of Indebtedness secured by any such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount Encumbrance shall not be increased as a result of such Indebtedness which may be incurred in the immediately following fiscal year refinancing or refunding and no such Encumbrance shall be increased by extend to property and assets of any such amount, up to a maximum such increase of $2,000,000 as to Indebtedness Credit Party or Subsidiary not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply encumbered prior to any property of Borrower other than the Equipment such refinancing or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may berefunding; and (i) security interests Encumbrances securing Indebtedness for Capital Expenditures to the extent such Indebtedness is permitted under Section 8.1 hereof, provided, that (i) each such Encumbrance is given solely to secure the purchase price of such property, does not extend to any other property and liens in existence on is given at the date hereof which are set forth on Schedule 7.4 heretotime of acquisition of the property, and (ii) the Indebtedness secured thereby does not exceed the lesser of the cost of such property or its fair market value at the time of acquisition.

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("PERMITTED ENCUMBRANCES"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Bank or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderits Affiliates; (b) liens Encumbrances existing as of the date hereof and disclosed in SCHEDULE 6.4 hereto and securing the payment any refinancing of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available Indebtedness PROVIDED that such refinancing is permitted pursuant to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksSection 6.1(b); (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's Encumbrances for purchase money obligations or Guarantor's business (including carriers', warehousemen's, materialmen's Capital Leases permitted pursuant to Section 6.1(d); PROVIDED that such Encumbrances shall not attach to property and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk assets of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to any Subsidiary not purchased with the commencement proceeds of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its bookssuch purchase money obligations; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationliens for taxes, unemployment insurance fees, assessments and other types governmental charges to the extent that payment of social security benefits consistent the same may be postponed or is not required in accordance with the current practices provisions of Borrower and Guarantor as of the date hereof;Section 5.4; and (e) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and other similar obligations in each case that do not in the ordinary course aggregate materially detract from the value of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon its property or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred use thereof in the fiscal year operation of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoits business.

Encumbrances. Each of Borrower and Holdings LP, jointly and severally, covenants and agrees that, so long as Lender shall have any Commitment hereunder, or the Loans or other Liabilities (other than contingent obligations with respect to which no express indemnification claim has been made) shall remain unpaid or unsatisfied, Borrower and Holdings LP shall not directly or indirectly, create, incur, assume or suffer to exist any Lien on any of its assets other than the following (collectively, “Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate Liens in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit favor of Lender; (b) liens securing the payment of Liens for taxes, either assessments, charges or other governmental levies not yet overdue due or as to which the validity period of grace (not to exceed sixty (60) days), if any, related thereto has not expired or which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and proceedings; provided that adequate reserves with respect to which adequate reserves have been set aside thereto are maintained on its booksthe books of the Borrower in conformity with GAAP; (c) non-consensual statutory liens (Liens such as carriers’, warehousemen’s, mechanics’, materialmen’s, landlords’, repairmen’s or other than liens securing the payment of taxes) like Liens arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue for a period of more than forty-five (45) days or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure proceedings; provided that a reserve or other similar proceedings and with respect to which adequate reserves appropriate provision shall have been set aside on its booksmade therefor and the aggregate amount of such Liens is less than $500,000; (d) pledges and or deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' ’ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower legislation (other than any Lien imposed by ERISA) and Guarantor as of the date hereofdeposits securing liability to insurance carriers under insurance or self-insurance arrangements in an aggregate amount not to exceed $3,000,000; (e) pledges and deposits of cash by Borrower after the date hereof Liens on amounts deposited to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory Borrower’s obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety the making or other ---- personentering into of bids, the issuer of such bond shall have waived in writing any rights in or totenders, or other interest in, any leases in the Ordinary Course of Business and not in connection with the Collateral in an agreement, in form and substance satisfactory to Lenderborrowing of money; (f) liens arising from (i) operating leases easements, rights of way, restrictions and other similar encumbrances affecting real property which, in the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which aggregate, are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but substantial in amount, and which do not in connection with, any case materially detract from the value of the property subject thereto or as part of, the financing thereof) from time to time in materially interfere with the ordinary course conduct of the business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofapplicable Person; (g) zoning restrictionsLiens arising in the Ordinary Course of Business by virtue of any contractual, easements, reservations, exceptions, encroachmentsstatutory or common law provision relating to banker’s Liens, rights of way, licenses, covenants set-off or similar rights and remedies covering deposit or securities accounts (including funds or other restrictions assets credited thereto) or encumbrances affecting the use of Real Property which do not interfere in any material respect other funds maintained with the use of such Real Property a depository institution or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecurities intermediary; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; providedany zoning, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests building or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, similar laws or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, rights reserved to or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or vested in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; andGovernmental Authority; (i) security interests restrictions on transfers of securities imposed by applicable Securities Laws; (j) Liens arising out of judgments or awards not resulting in a Default; provided that Borrower shall in good faith be prosecuting an appeal or proceedings for review; (k) any interest or title of a lessor, licensor or sublessor under any lease, license or sublease entered into by Borrower in the Ordinary Course of Business and liens covering only the assets so leased, licensed or subleased; (l) assignments of insurance or condemnation proceeds provided to landlords (or their mortgagees) pursuant to the terms of any lease and Liens or rights reserved in existence on any lease for rent or for compliance with the date hereof which are terms of such lease; (m) those existing Liens set forth on Schedule 7.4 hereto6.1; (n) any liens arising out of or incurred in connection with any of the transactions which are permitted under Section 6.2(j). Neither Borrower nor Holdings LP shall permit the filing of any financing statement naming such Obligor as debtor, except for financing statements filed with respect to Liens expressly permitted by this Agreement.

Encumbrances. Create, incur, assume or suffer to exist any Lien on any of its assets, including the Collateral, other than the following (collectively, “Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, fees, assessments, or other governmental charges or levies either not yet overdue delinquent or the validity of which is being contested in good faith by appropriate proceedings, and as to which such Obligor shall, if appropriate under GAAP, have set aside on its books and records adequate reserves; (b) deposits under workmen’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the Ordinary Course of Business; (c) the Liens in favor of Bank; (d) Liens which arise by operation of law, other than Liens which arise by operation of Environmental Laws, incurred in the Ordinary Course of Business (for sums not constituting borrowed money) that are not delinquent for a period of more than 30 days or that are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate reserves have been set aside established in accordance with GAAP (if so required); (e) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real Property that do not secure monetary obligations and do not materially impair the use of such Property for its intended purposes or the value thereof; (f) Liens described on its books; Schedule 6.1 hereof, provided that such Liens shall secure only those obligations which they secure on the Closing Date and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (cg) non-consensual statutory liens purchase money security interests on equipment of Borrowers securing Capital Leases or purchase money Debt in each case permitted by Section 6.2(b); and (h) mechanics’, materialmen’s, suppliers’, repairmen’s or other than liens securing the payment of taxes) like Liens arising in the ordinary course Ordinary Course of Borrower's or Guarantor's business Business (including carriers', warehousemen's, materialmen's and mechanics' liensfor sums not constituting borrowed money) to the extent: (i) such liens secure Indebtedness or obligations which that are not overdue delinquent for a period of more than 30 days or (ii) such liens secure Indebtedness relating to claims or liabilities which that are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to for which adequate reserves have been set aside on its books; established in accordance with GAAP (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtednessif so required), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- thatthat the aggregate amount secured by such mechanics’, in connection with any performance bonds issued by a surety materialmen’s, suppliers’, repairmen’s or other ---- person, like Liens shall not exceed $300,000 at any time (the issuer of such bond shall have waived Liens referred to in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; this clause (h) purchase money security interests in Equipment (including Capital Leases) are referred to herein as “Permitted Mechanics Liens”). Such Obligor shall not, and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages Obligor shall not apply permit any of its Subsidiaries to, permit the filing of any financing statement naming such Obligor or any Subsidiary as debtor, except for financing statements filed with respect to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoLiens expressly permitted by this Agreement.

Encumbrances. The Company warrants that it has title to the Collateral purportedly owned by it and that there are no sums owed or claims, liens, security interests or other encumbrances against the Collateral other than as set forth in Exhibit A attached hereto and made a part hereof. The Company will notify Versant of any lien, security interest or other encumbrance against the Collateral securing any obligation of the Company, will defend the Collateral against any claim, lien, security interest or other encumbrance adverse to Versant, except for liens having priority thereover as set forth on Exhibit A, attached hereto and made a part hereof, and will not create, incur, assume, or suffer to exist any lien, security interest or other encumbrances against the Collateral, whether now owned or hereafter acquired, except: (a) liens in favor of Versant and security interests of Collateral Agent, provided, that, -------- ---- to the extent such other liens as are set forth on Exhibit A attached hereto and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendermade a part hereof; (b) liens securing the payment of taxes, either for taxes or assessments or other government charges or levies if not yet overdue due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves have previously been delivered by the Company to Versant; (c) liens imposed by law, such as mechanics’, materialmen’s, landlords’, warehousemen’s, and carriers’ liens, and other similar liens, securing obligations incurred in the ordinary course of business, which are not past due for more than 30 days or the validity of which are being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect to for which adequate appropriate reserves have been set aside on its bookspreviously delivered to Versant; (cd) non-consensual statutory liens liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than liens securing contracts for the payment of taxes) money), leases, public statutory obligations, surety, stay, appeal, indemnity, performance, or other similar bonds, or other similar obligations arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofbusiness; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations judgments and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, liens arising in connection with any performance bonds issued by a surety court proceedings, provided that the execution or other ---- person, the issuer enforcement of such bond shall have waived liens is effectively stayed and the claims secured thereby are being actively contested in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form good faith and substance satisfactory to Lenderby appropriate proceedings; (f) liens arising from (i) operating leases easements, right-of-way restrictions, and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection withsimilar encumbrances which, or as part of, the financing thereof) from time to time in the ordinary aggregate, do not materially interfere with the occupation, use, and enjoyment by the Company of the property or assets encumbered thereby in the normal course of its business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be property subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (g) purchase-money liens on any property hereafter acquired or the assumption of any lien on property existing at the time of such acquisition (and not created in contemplation of such acquisition), or a lien incurred in connection with any conditional sale or other title retention agreement or a capital lease; provided that: (i) security interests any property subject to any of the foregoing is acquired by the Company in the ordinary course of its business and liens in existence the lien on any such property attaches to such asset concurrently or within 90 days after the date hereof which are set forth on Schedule 7.4 heretoacquisition thereof; (ii) the obligation secured by any lien so created, assumed, or existing shall not exceed 100% of the lesser of the cost or the fair market value as of the time of acquisition of the property covered thereby to the Company; and (iii) each such lien shall attach only to the property so acquired and fixed improvements thereon.

Encumbrances. The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of the Borrower, whether owned at the date hereof or hereafter acquired, except for the following ("Permitted Liens"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Liens for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings diligently pursued in such a manner as not to make the property forfeitable; (b) Liens or charges incurred in the ordinary course of the business of the Borrower which were not incurred in connection with the borrowing of money or the obtaining of an advance or credit, and available which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) Liens arising out of judgments or awards against the Borrower with respect to Borrower which it shall concurrently therewith be prosecuting a timely appeal or Guarantor proceeding for review and with respect to which adequate reserves it shall have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment secured a stay of taxes) arising in the ordinary course of Borrower's execution pending such appeal or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksfor review; (d) pledges and or deposits of cash by Borrower to secure obligations under worker's compensation laws or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofsimilar legislation; (e) pledges and good faith deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by lending contracts or leases to which the Borrower is a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderparty; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofLiens; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by provided that such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages Liens shall not apply to any property of Borrower other than that purchased and that such Liens in the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby aggregate shall not exceed the cost $5,000,000.00; (g) deposits to secure public or statutory obligations of the Equipment or real estate so acquired, as Borrower; (h) Liens existing on the case may bedate hereof and disclosed in Schedule 6.2 hereof; (i) Liens issued in connection with Permitted Refinancing Indebtedness; and (ij) security interests and liens Liens issued in existence on the date hereof which are set forth on Schedule 7.4 heretoconnection with Indebtedness permitted pursuant to Section 6.1(g).

Encumbrances. The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of the Borrower, whether owned at the date hereof or hereafter acquired except (“Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Liens for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings diligently pursued in such a manner as not to make the property forfeitable; (b) Liens or charges incidental to the conduct of its business or the ownership of its property and available assets which were not incurred in connection with the borrowing of money or the obtaining of an advance or credit, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) Liens arising out of judgments or awards against the Borrower with respect to Borrower which it shall concurrently therewith be prosecuting a timely appeal or Guarantor proceeding for review and with respect to which adequate reserves it shall have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment secured a stay of taxes) arising in the ordinary course of Borrower's execution pending such appeal or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksfor review; (d) pledges and or deposits of cash by Borrower to secure obligations under worker’s compensation laws or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofsimilar legislation; (e) pledges and good faith deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by lending contracts or leases to which the Borrower is a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderparty; (f) liens arising from (i) operating leases and deposits to secure public or statutory obligations of the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofBorrower; (g) zoning restrictionsLiens securing obligations permitted under Sections 8.1(d), easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoand/or 8.1(f); (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, Liens granted to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beBank hereunder; and (i) security interests and liens in existence on the date hereof which are Liens set forth on in Schedule 7.4 hereto7.6 (but only remaining in effect to the extent set forth in Section 7.6(c) and Section 7.20).

Encumbrances. The Borrower shall not, nor shall permit any other member of the Borrower Affiliated Group to, create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets (including, without limitation, any of its intellectual property) (“Encumbrances”), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following (“Permitted Encumbrances”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderLender under any Security Document; (b) liens Encumbrances existing on the date of this Agreement and disclosed in Exhibit C hereto securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksIndebtedness described therein; (c) non-consensual statutory liens (Liens for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required to be paid in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) pledges Landlords’ and deposits lessors’ liens arising by statute, so long as the obligations of cash by the Borrower or Guarantor after other member of the date hereof Borrower Affiliated Group under the applicable lease are not overdue, or liens in the ordinary course respect of business pledges or deposits under workmen’s compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with workers' compensationappeal and similar bonds incidental to litigation; mechanics’, unemployment insurance laborers’, carriers’, warehousemans’, materialmen’s and other types of social security benefits consistent with similar liens, if the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; (e) Judgment liens that shall not have been in existence for a period longer than 15 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 15 days after the expiration of such stay; (f) Easements, rights of way, restrictions, minor defects or irregularities in title and other similar charges or Encumbrances relating to real property and not interfering in a material way with the ordinary conduct of its business; (g) Encumbrances securing the purchase price of capital assets (including rights of lessors under capital leases) to the extent such purchase is permitted hereunder, provided, however, that (A) each such Encumbrance is given solely to secure the purchase price of, or the lease obligations relating to, such property, does not extend to any other property and is given at the time of the acquisition of the property, and (B) the Indebtedness secured thereby does not exceed the lesser of the cost of such property or its fair market value at the time such security interest attaches, and in each case any event, such Indebtedness does not exceed $500,000 in the aggregate outstanding at any time; (h) Any interest of title of a lessor under, and Encumbrances arising from, Uniform Commercial Code financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to equipment leases permitted by this Agreement; (i) Normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; (j) Encumbrances of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection; and (k) Rights of service or indemnity payment setoffs customarily required in software license agreements; and (l) Any exception included in a title insurance policy approved by the Lender. In addition, the Borrower shall not, nor shall the Borrower permit any other member of the Borrower Affiliated Group to, enter into or permit to exist any arrangement or agreement which directly or indirectly prohibits the Borrower or any such other member of the Borrower Affiliated Group from creating or incurring any Encumbrance in favor of the Lender under the Loan Documents other than (i) customary anti-assignment provisions in Leases or license agreements entered into by the Borrower or such other member of the Borrower Affiliated Group in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedbusiness, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) agreements governing any purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests liens or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount capital lease obligations otherwise permitted under in this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoAgreement.

Encumbrances. Neither Borrower nor any of their Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance of any kind upon or with respect to any of their property or assets, or assign or otherwise convey any right to receive income, including the sale or discount of Receivables with or without recourse, except the following (“Permitted Encumbrances”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Parties to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in Exhibit C hereto; (c) liens securing for taxes, fees, assessments and other governmental charges to the extent that payment of taxesthe same may be postponed or is not required in accordance with the provisions of Section 5.4; (d) landlords’ and lessors’ liens in respect of rent not in default or liens in respect of pledges or deposits under workmen’s compensation, either unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics’, warehouseman’s, laborers’ and materialmen’s and similar liens, if the obligations secured by such liens are not yet overdue then delinquent or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than faith; liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of either Borrower’s or a Subsidiary’s business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments that are fully covered by insurance, and Guarantor as shall not have been in existence for a period longer than ten (10) days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than ten (10) days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderstay; (f) liens arising from (i) operating leases easements, rights of way, restrictions and the precautionary UCC financing statement filings other similar charges or Encumbrances relating to real property and not interfering in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in a material way with the ordinary course conduct of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofBorrowers’ business; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights restrictions under federal and state securities laws regarding the transfer or issuance of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecurities; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; providedliens constituting a renewal, that, extension or replacement of any Permitted Encumbrance; (i) sales permitted under Section 7.4(c) hereof, provided that no purchaser or other Person involved in no event such transactions shall -------- ---- receive or retain any Encumbrance on Collateral; (j) Encumbrances securing Indebtedness permitted pursuant to Section 7.1(i); provided that such Encumbrances shall be subordinated to the Encumbrances described in Section 7.3(a) on terms and conditions reasonably satisfactory to the Agent; or (k) Encumbrances not otherwise permitted by this Section 7.3 that do not encumber any Collateral contained in the Borrowing Base, so long as the aggregate outstanding principal amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness obligations secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto$5,000,000 at any time.

Encumbrances. The Borrower shall not, nor shall it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its Property, including, without limitation, the Collateral, other than the following "Permitted Liens": (ai) liens and security interests of Collateral Agent, provided, that, -------- ---- Liens (other than Liens relating to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes Environmental Laws or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (bERISA) liens securing the payment of taxes, either Charges not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued due and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or payable; (ii) such liens secure Indebtedness relating to claims pledges or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness), borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations bonds in each case the ordinary course of business; (iii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or other similar Liens imposed by law, which are incurred in the ordinary course of business consistent with for sums not more than 30 days delinquent; (iv) the current practices of Borrower and Guarantor as Liens in favor of the date hereofAgent, for the benefit of the Lenders; provided(v) purchase money Liens (including capitalized leases and other forms of installment purchase financing) granted to the Person financing a purchase of Equipment that constitutes a Capital Expenditure permitted by subsection 8.8 so long as the Lien granted is limited to the specific Equipment so acquired, -------- thatthe debt secured by the Lien is not more than the lesser of the acquisition cost or the fair market value of the specific item of Equipment on which the Lien is granted and the transaction does not violate any other provision of this Agreement (notification of such purchase money Lien to be provided to the Agent and each Lender within ten (10) days of acquisition of such Equipment); (vi) Liens permitted in accordance with subsection 7.4(a); (vii) other Liens on Real Estate, which do not, in connection with any performance bonds issued by a surety or other ---- personthe Agent's reasonable determination, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fa) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- same is held by the aggregate amount of the Indebtedness secured by Borrower or such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, Subsidiary and (iiivii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence Liens existing on the date hereof which are set forth Closing Date and disclosed on Schedule 7.4 heretoExhibit 8.1.

Encumbrances. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, statutory deemed trust, charge, hypothec or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except: (a) the security interests, liens and security interests hypothecs of Collateral Agent, provided, that, -------- ---- to the extent such liens Agent for itself and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderParties; (b) liens securing the payment of taxes, assessments or other governmental charges or levies either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower such Borrower, or Guarantor or Subsidiary, as the case may be, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien and with respect to which adequate reserves have been set aside on its booksbooks in accordance with GAAP; (c) non-consensual statutory liens (other than liens arising under ERISA or securing the payment of taxes) arising in the ordinary course of such Borrower's ’s, Guarantor’s or Guarantor's Subsidiary’s business (including that do not secure Indebtedness for borrowed money, such as carriers'’, warehousemen's’s, materialmen's ’s, landlords’, workmen’s suppliers’, repairmen’s and mechanics' ’ liens) , to the extent: (i) such liens secure Indebtedness or obligations which are do not overdue or in the aggregate materially detract from the value of the property of Borrowers and Guarantors taken as a whole and do not materially impair the use thereof in the operation of Borrowers and Guarantors taken as a whole, and (ii) such liens secure Indebtedness relating to claims or liabilities which are (A) not overdue or (B) are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or (C) being contested in good faith by appropriate proceedings diligently pursued and available to Borrower such Borrower, Guarantor or Guarantorsuch Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings, which proceedings (or orders entered in connection with such proceeding) have the effect of preventing the forfeiture or sale of the property subject to any such lien and with respect to which adequate reserves have been set aside on its booksbooks in accordance with GAAP; (d) reservations in the original grant of a Real Property or letters patent from the Crown as well as, zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of such Borrower, Guarantor or such Subsidiary as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property to secure Indebtedness permitted under Section 9.9(b) hereof; (f) pledges and deposits of cash by any Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' ’ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofbenefits; (eg) pledges and deposits of cash or letters of credit by any Borrower or Guarantor after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations obligations, surety, stay, customs and other similar obligations appeal bonds, and liability for premiums to insurance carriers, in each case in the ordinary course of business consistent with the current practices of such Borrower and or Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to LenderAgent; (fh) liens arising from (i) operating leases and the precautionary UCC or PPSA, as applicable, financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by any Borrower or Guarantor located on the premises of such Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of such Borrower and or Guarantor in effect on the date hereof and the precautionary UCC or PPSA, as applicable, financing statement filings in respect thereof; (gi) zoning restrictionsjudgments and other similar liens arising in connection with court proceedings that do not constitute an Event of Default; provided, easementsthat, reservations(i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, exceptions(ii) adequate reserves or other appropriate provision, encroachmentsif any, as are required by GAAP have been made therefor, (iii) a stay of enforcement of any such liens is in effect and (iv) Agent may establish a Reserve with respect thereto; (j) statutory or common law liens or rights of waysetoff of depository banks with respect to funds of any Borrower, licensesGuarantor or Subsidiary at such banks to secure fees and charges in connection with returned items or the standard fees and charges of such banks in connection with the deposit accounts maintained by such Borrower, covenants and Guarantor or Subsidiary at such banks (but not any other restrictions Indebtedness or encumbrances affecting the use obligations); (k) leases or subleases of Real Property which granted by any Borrower or Guarantor in the ordinary course of business and consistent with past practice to any Person so long as any such leases or subleases are subordinate in all respects to the security interests and liens granted to Agent and Secured Parties and do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses business of such Borrower as presently conducted thereon or Guarantor or materially impair the value or marketability of the Real Property which may be subject thereto; (hl) purchase money liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by any Borrower or Guarantor in the ordinary course of business in accordance with the past practices of such Borrower or Guarantor; (m) liens securing Indebtedness permitted under Section 9.9; (n) the security interests and liens pursuant to and in Equipment (including Capital Leases) and purchase money mortgages accordance with the terms of the Faunus Factoring Documents as in effect on real estate (including improvements thereto) arising after the date hereof and subject to the terms of the Faunus Intercreditor Agreement as in effect on the date hereof to secure the Indebtedness permitted under Section 9.9(k) hereof; provided, that, (i) the Faunus Intercreditor Agreement shall remain in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred full force and effect and enforceable in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beaccordance with its terms; and (io) the security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto8.4 to the Information Certificate.

Encumbrances. The Borrower will not create, incur, assume or permit to exist any mortgage, pledge, lien or encumbrance on any of its properties or assets (now owned or hereafter acquired), nor acquire or agree to acquire property or assets under any conditional sale agreement or title retention contract, except that the foregoing restrictions shall not apply to: (a) liens of vendors, carriers, warehousemen, mechanics, laborers and security interests materialmen arising by law in the ordinary course of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral business for sums not yet due or which are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate being diligently contested in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendergood faith; (b) liens securing the payment of taxes, either for taxes not yet overdue due or the validity of which are being diligently contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksproceedings; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising pledges or deposits in the ordinary course of Borrowerconnection with or to secure workmen's or Guarantor's business (including carriers'compensation, warehousemen'sunemployment insurance, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure pensions or other similar proceedings and with respect to which adequate reserves have been set aside on its booksemployee benefits; (d) pledges and deposits of cash liens required by Borrower this Agreement or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as any of the date hereofSecurity Instruments; (e) pledges statutory liens and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety easements or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens servitudes arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices minor irregularities of title which do not materially impair the ownership or use of the property subject thereto for the purposes for which such property is owned and held by the Borrower or limit or restrict Lender's remedies hereunder; (f) liens incurred in the ordinary course of business, not on any of the collateral, to secure performance of tenders, statutory obligations, leases and Guarantor contracts (other than for borrowed money) entered into in effect the ordinary course of business or to secure obligations on the date hereof and the precautionary UCC financing statement filings in respect thereofappeal bonds; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions judgments in existence less than 30 days after the entry thereof or encumbrances affecting the use of Real Property with respect to which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto;execution has been properly stayed; and (h) purchase money security interests liens securing the Obligations under the Loan Documents as those terms are defined in Equipment the Master Credit Support Agreement. As to the liens and encumbrances permitted pursuant to paragraphs (including Capital Leasesa) and purchase money mortgages on real estate (including improvements theretob) arising after above, Borrower's right to contest diligently in good faith by appropriate proceedings is conditioned upon the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount Borrower setting up appropriate reserves under generally accepted accounting principles and upon stay of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 levy and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoexecution thereon.

Encumbrances. No Borrower shall, nor shall it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its Property, including, without limitation, the Collateral, other than the following "Permitted Liens": (ai) liens and security interests of Collateral Agent, provided, that, -------- ---- Liens (other than Liens relating to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes Environmental Laws or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (bERISA) liens securing the payment of taxes, either Charges not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued due and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or payable; (ii) such liens secure Indebtedness relating to claims pledges or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, old age pensions, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness), borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations bonds in each case the ordinary course of business; (iii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or other similar Liens imposed by law, which are incurred in the ordinary course of business consistent with for sums not more than 30 days delinquent; (iv) the current practices of Borrower and Guarantor as Liens in favor of the date Agent, for the benefit of the Lenders; (v) purchase money Liens (including capitalized leases and other forms of installment purchase financing) granted to the Person financing a purchase of Equipment so long as the Lien granted is limited to the specific Equipment so acquired, the debt secured by the Lien is not more than the lesser of the acquisition cost or the fair market value of the specific item of Equipment on which the Lien is granted, the aggregate amount of Indebtedness secured by such Liens as a result of purchases shall not exceed One Million Dollars ($1,000,000) at any time during the term hereof, and the transaction does not violate any other provision of this Agreement (notification of such purchase money Lien to be provided to the Agent and each Lender within ten (10) days of acquisition of such Equipment); provided(vi) Liens permitted in accordance with SUBSECTION 7.4(A); (vii) other Liens on Real Estate, -------- thatwhich do not, in connection with any performance bonds issued by a surety or other ---- personthe Agent's sole determination, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fa) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by a Borrower or such Subsidiary, (hviii) purchase money security interests in Equipment Liens existing on the Closing Date and disclosed on EXHIBIT 8.1 and (including Capital Leasesix) and purchase money mortgages on real estate for a period not to exceed five (including improvements thereto5) arising Business Days after the date hereof; providedClosing Date, that, (i) Liens with respect the cash collateral in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred $988,040.48 pledged to Fleet Business Credit Corporation to secure its obligations to Bank of America with respect to (A) irrevocable standby letter of credit number 7400947 dated December 23, 1998 issued by Borrower Bank of America to ▇▇ ▇▇▇▇▇, L.P., as beneficiary, in any fiscal year is less than the amount otherwise permitted under this Section, the face amount of such Indebtedness which may be incurred $748,218.62 and (B) irrevocable standby letter of credit number C7338575 dated November 3, 1997 issued by Bank of America to Letrak SBN Associates, as beneficiary, in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase face amount of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto150,000.

Encumbrances. No Borrower shall, nor shall it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its Property, including, without limitation, the Collateral, other than the following "Permitted Liens": (ai) liens and security interests of Collateral Agent, provided, that, -------- ---- Liens (other than Liens relating to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes Environmental Laws or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (bERISA) liens securing the payment of taxes, either Charges not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued due and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or payable; (ii) such liens secure Indebtedness relating to claims pledges or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, old age pensions, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness), borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations bonds in each case the ordinary course of business; (iii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or other similar Liens imposed by law, which are incurred in the ordinary course of business consistent with for sums not more than 30 days delinquent; (iv) the current practices of Borrower and Guarantor as Liens in favor of the date Agent, for the benefit of the Lenders; (v) purchase money Liens (including capitalized leases and other forms of installment purchase financing) granted to the Person financing a purchase of Equipment so long as the Lien granted is limited to the specific Equipment so acquired, the debt secured by the Lien is not more than the lesser of the acquisition cost or the fair market value of the specific item of Equipment on which the Lien is granted, the aggregate amount of Indebtedness secured by such Liens as a result of purchases shall not exceed One Million Dollars ($1,000,000) at any time during the term hereof, and the transaction does not violate any other provision of this Agreement (notification of such purchase money Lien to be provided to the Agent and each Lender within ten (10) days of acquisition of such Equipment); provided(vi) Liens permitted in accordance with subsection 7.4(a); (vii) other Liens on Real Estate, -------- thatwhich do not, in connection with any performance bonds issued by a surety or other ---- personthe Agent's sole determination, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fa) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, thatsame is held by a Borrower or such Subsidiary, (ivii) a pledge of cash or Cash Equivalents in no event shall -------- ---- the aggregate amount of $150,000 to secure the Indebtedness secured by such security interests or mortgages incurred in the fiscal year Chase Letter of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, Credit and (iiiviii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence Liens existing on the date hereof which are set forth Closing Date and disclosed on Schedule 7.4 heretoExhibit 8.1.

Encumbrances. None of the Loan Parties shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance of any kind, including the lien or retained security title of a conditional vendor upon or with respect to any of their property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) liens securing Encumbrances existing as of the payment date of taxesthis Agreement and disclosed in Exhibit C to this Agreement, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its bookssecures Indebtedness permitted under Section 7.1(b); (c) non-consensual statutory liens (other than liens Encumbrances securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) Indebtedness for Capital Expenditures to the extent: extent such Indebtedness is permitted by Section 7.1(e), provided that (i) each such liens Encumbrance is given solely to secure Indebtedness or obligations which are the purchase price of such property, does not overdue or extend to any other property and is given contemporaneously with the acquisition of the property, and (ii) the Indebtedness secured thereby does not exceed the lesser of the cost of such liens secure Indebtedness relating to claims property or liabilities which are fully insured and being defended its fair market value at the sole cost and expense and at the sole risk time of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksacquisition; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationliens for taxes, unemployment insurance fees, assessments and other types governmental charges to the extent that payment of social security benefits consistent the same may be postponed or is not required in accordance with the current practices provisions of Borrower and Guarantor as of the date hereofSection 5.4; (e) landlords' and lessors' liens with respect to rent not in default or liens with respect to pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', warehouseman's, laborers' and materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Loan Party's business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderits business; (f) judgment liens arising from securing judgments that (i) operating leases and the precautionary UCC financing statement filings in respect thereof are fully covered by insurance, and (ii) equipment or other materials which are shall not owned by Borrower or Guarantor located on have been in existence for a period longer than 10 days after the premises creation of Borrower or Guarantor (but not in connection withthis Agreement or, or as part ofif a stay of execution shall have been obtained, for a period longer than 10 days after the financing thereof) from time to time in the ordinary course expiration of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofsuch stay; (g) zoning restrictions, rights of lessors under capital leases to the extent such capital leases are permitted under this Agreement; (h) easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beBorrower's business; and (i) security interests and liens constituting a renewal, extension or replacement of any Permitted Encumbrance other than those Permitted Encumbrances described in existence on the date hereof which are set forth on Schedule 7.4 heretoSection 7.3(f).

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.13 and disclosed in Exhibit 6A under Section 6.4, Borrower and its consolidated subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of their assets other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on past due; (c) liens securing the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct interests of the businesses of Borrower as presently conducted thereon broker with respect to any Margin Account; (d) liens on or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- cash or other deposits up to the aggregate amount of $20,000,000 securing the Indebtedness secured by such security interests or mortgages incurred in of the fiscal year issuers of Borrower ending December 31letters of credit; and (e) any other liens, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any encumbrances on property of Borrower and its consolidated subsidiaries other than Inventory, Accounts, General Intangibles (including contract rights) or the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretodirect proceeds thereof.

Encumbrances. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security interest, mortgage, hypothec, pledge, lien, hypothecation, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and liens, security interests and charges of Collateral Agent, provided, that, -------- ---- Lender with respect to the extent such liens assets of each Borrower and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject Guarantor and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendertheir respective Subsidiaries; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by any Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower Borrowers and Guarantor Guarantors as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses business of such Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (hf) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate Real Property (including improvements thereto) arising after the date hereof; provided, that, (i) hereof in no event shall -------- ---- the aggregate amount for all Borrowers and Guarantors not to exceed the US Dollar Equivalent of the Indebtedness secured by such security interests or mortgages incurred in the US$1,000,000 during each fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 so long as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall do not apply to any property of such Borrower or Guarantor other than the Equipment or real estate Real Property so acquired, and (iii) the Indebtedness secured thereby shall does not exceed the cost of the Equipment or real estate Real Property so acquired, as the case may be; and; (ig) the security interests and liens upon any assets of Automatic Safety Mexico and Automotive Safety Czech to secure Indebtedness of such Person permitted under Section 9.9(d) hereof; (h) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 8.4 hereto; (i) liens and security interests of Existing Agent for the benefit of itself and Existing Lenders to secure Indebtedness of Borrowers to Existing Lenders permitted under Section 9.9(g) and the guaranties of such Indebtedness permitted under Section 9.10(o); provided, that such liens and security interests shall be subject to the Intercreditor Agreement; and (j) liens and security interests of Bank of America, N.A. on cash of Automotive International in an amount not to exceed $694,134 held as of the date hereof in a bank account at Bank of America, N.A. to secure reimbursement obligations in respect of the Existing Letters of Credit.

Encumbrances. Borrower and its Subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except for (collectively, “Permitted Liens”): (a) liens and the security interests and liens of Collateral Agent, provided, that, -------- ---- to Lender and any Bank Product Provider and the extent such liens rights of setoff of Lender and security interests on the Collateral are held any Bank Product Provider provided for the benefit of the holders of the Senior Secured Notes herein or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderunder applicable law; (b) liens securing the payment of taxes, assessments or other governmental charges or levies either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and any of its Subsidiaries as the case may be and with respect to which adequate reserves have been set aside on the books of the Borrower and its booksSubsidiaries to the extent required by GAAP; (c) non-consensual statutory liens (other than liens securing the payment of taxes, including but not limited to carriers’, warehousemen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ liens and other similar liens) arising in the ordinary course of Borrower's business of the Borrower or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) any of its Subsidiaries to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and such Subsidiary in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books to the extent required by GAAP or (ii) such liens secure Indebtedness obligations relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, such Subsidiary in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksbooks to the extent required by GAAP; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrower or any of its Subsidiaries as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) (i) purchase money security interests in Equipment and proceeds thereof (including Capital Leases) to secure Indebtedness permitted under Section 9.9(b) and (ii) purchase money security interests (including Capital Leases) in the distribution center (or any of its constituent parts), as applicable, or proceeds thereof to secure Indebtedness permitted under Section 9.9(b) hereof, in each case so long as such security interests are limited to the Equipment or the distribution center (or any of its constituent parts), as applicable, acquired with such Indebtedness, or proceeds thereof and the Indebtedness secured thereby does not exceed the cost of the Equipment or the distribution center (or any of its constituent parts), as applicable, so acquired; (f) pledges and deposits of cash by Borrower or Guarantor any of its Subsidiaries after the date hereof in the ordinary course of business in connection with workers' ’ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor or such Subsidiary as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fg) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor its Subsidiaries located on the premises of Borrower or Guarantor its Subsidiaries (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof or any of its Subsidiaries and the precautionary UCC financing statement filings in respect thereof; (gh) zoning restrictions, easements, reservations, exceptions, encroachments, liens or rights of waysetoff against credit balances of Borrower or any of its Subsidiaries with Credit Card Issuers or Credit Card Processors or amounts owing by such Credit Card Issuers or Credit Card Processors to Borrower or such Subsidiary in the ordinary course of business, licensesbut not liens on or rights of setoff against any other property or assets of Borrower or such Subsidiary, covenants pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure the obligations of Borrower or such Subsidiary to the Credit Card Issuers or Credit Card Processors as a result of fees and chargebacks; (i) statutory or common law liens or rights of setoff of depository banks with respect to funds of Borrower or any of its Subsidiaries at such banks to secure fees and charges in connection with returned items or the standard fees and charges of such banks in connection with the deposit accounts maintained by Borrower or such Subsidiary at such banks (but not any other Indebtedness or obligations); (j) deposits of cash with the owner or lessor of premises leased and operated by Borrower or any of its Subsidiaries in the ordinary course of the business of Borrower or such Subsidiary to secure the performance by Borrower or such Subsidiary of its obligations under the terms of the lease for such premises; (k) judgments and other restrictions or encumbrances affecting the use of Real Property which similar liens arising in connection with court proceedings that do not constitute an Event of Default, provided, that, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other appropriate provision, if any, as are required by GAAP have been made therefor, and (iii) a stay of enforcement of any such liens is in effect; (l) the security interests and liens set forth in the Information Certificate and any security interests and liens granted as a replacement or substitute therefor; provided that any such replacement or substitute security interest or lien (i) does not secure an aggregate amount of Indebtedness or other obligations, if any, greater than that secured on the date hereof and (ii) does not encumber any property other than the property subject thereto on the date hereof; (m) liens (i) incurred in the ordinary course of business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, government contracts, trade contracts, performance and return of money bonds and other similar obligations (in each case, exclusive of obligations for the payment of Indebtedness for borrowed money) or (ii) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers; (n) liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business of the Borrower or such Subsidiary in accordance with the past practices of the Borrower or such Subsidiary; (o) liens on property rented to, or leased by, the Borrower or any of its Subsidiaries pursuant to a Sale and Leaseback Transaction and proceeds thereof; provided that (i) such Sale and Leaseback Transaction is permitted by Section 9.23, (ii) such liens do not encumber any other property of the Borrower or any of its Subsidiaries, and (iii) such Liens secure only the Attributable Indebtedness incurred in connection with such Sale and Leaseback Transaction; (p) licenses or sublicenses of Intellectual Property granted by the Borrower or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Borrower or any of its Subsidiaries; (q) leases, subleases, licenses and sublicenses of the properties of Borrower or any of its Subsidiaries, in each case entered into in the ordinary course of the business of the Borrower of such Subsidiary so long as such leases, subleases, licenses and sublicenses do not (i) individually or in the aggregate, interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value business of the Real Property which may be subject theretoBorrower or any of its Subsidiaries or (ii) secure any Indebtedness; (hr) purchase money security interests liens of a collecting bank arising in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount ordinary course of business under Section 4-208 of the Indebtedness secured by such security interests or mortgages incurred Uniform Commercial Code as in effect in the fiscal year State of New York or any similar section under any applicable UCC, covering only the items being collected upon; (s) liens encumbering the underlying fee interest of any Real Property for which Borrower ending December 31, 2001 exceed $2,000,000, or any of its Subsidiaries has only a leasehold or subleasehold interest in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or Real Property; (t) all matters set forth in any fiscal year thereafter exceed $1,000,000, provided, that, lease that is a leasehold interest included as Real Property (but only to the extent that Borrower or any of its Subsidiaries only has a leasehold or subleasehold interest in the amount Real Property); (u) liens on property of a person existing at the time such person is acquired or merged with or into or consolidated with the Borrower or any of its Subsidiaries to the extent permitted hereunder; provided that such liens (i) do not extend to property not subject to such liens at the time of such acquisition, merger or consolidation (other than improvements thereon), (ii) are no more favorable to the lienholders than such existing liens; and (iii) are not created in anticipation or contemplation of such acquisition, merger or consolidation; (v) [intentionally left blank]; (w) liens securing Indebtedness incurred by Borrower in any fiscal year is less than the amount a non-Loan Party pursuant to Section 9.9(p); (x) liens not otherwise permitted under this Section, the amount of such Indebtedness which may be incurred Section 9.8 securing obligations that do not in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of aggregate exceed $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in 3,000,000 at any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may betime outstanding; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto.

Encumbrances. The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of the Borrower, whether owned at the date hereof or hereafter acquired except: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Liens for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings diligently pursued in such a manner as not to make the property forfeitable; (b) Liens or charges incidental to the conduct of its business or the ownership of its property and available assets which were not incurred in connection with the borrowing of money or the obtaining of an advance or credit, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) Liens arising out of judgments or awards against the Borrower with respect to Borrower which it shall concurrently therewith be prosecuting a timely appeal or Guarantor proceeding for review and with respect to which adequate reserves it shall have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment secured a stay of taxes) arising in the ordinary course of Borrower's execution pending such appeal or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksfor review; (d) pledges and or deposits of cash by Borrower to secure obligations under worker’s compensation laws or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofsimilar legislation; (e) pledges and good faith deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by lending contracts or leases to which the Borrower is a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderparty; (f) liens arising from deposits to secure public or statutory obligations of the Borrower; (ig) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect Liens existing on the date hereof and disclosed on the precautionary UCC financing statement filings financial statements referred to in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoSection 9.7; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise Liens securing obligations permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (iiSection 8.1(f) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beand/or Section 8.1(g); and (i) security interests Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and liens other similar Liens, in existence each case securing obligations that are not overdue by more than thirty (30) days or are being reasonably and in good faith contested by Borrower by appropriate proceedings, with adequate reserves being set aside by Borrower on its books.” (j) Liens granted to the date hereof which are set forth on Schedule 7.4 heretoBank hereunder.

Encumbrances. The Borrower shall not, and shall not permit any other member of the Borrower Affiliated Group to, create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor (by way of consignment or otherwise) upon or with respect to any of its property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders of the Senior Secured Notes Administrative Agent or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderBanks under any Security Document; (b) liens securing Encumbrances existing on the payment date of taxes, either not yet overdue or the validity of which are being contested this Agreement and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksExhibit C hereto; (c) non-consensual statutory liens (Liens for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) pledges Possessory liens in favor of brokers and deposits dealers arising in connection with the acquisition or disposition of cash by Borrower or Guarantor after Investments owned as of the date hereof and Qualified Investments, provided that such liens (a) attach only to such Investments and (b) secure only obligations incurred in the ordinary course of business and arising in connection with workers' compensation, unemployment insurance the acquisition or disposition of such Investments and other types of social security benefits consistent not any obligation in connection with the current practices of Borrower and Guarantor as of the date hereofmargin financing; (e) Landlords' and lessors' liens in respect of rent not in default, or liens in respect of pledges or deposits under worker's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', laborers', carriers', warehousemans', materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney); and statutory obligations, statutory obligations surety and appeal bonds, performance bonds and other similar obligations in each case of a like nature incidental to the conduct of its business and that do not in the ordinary course aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderits business; (f) Judgment liens arising from (i) operating leases and that shall not have been in existence for a period longer than 45 days after the precautionary UCC financing statement filings in respect creation thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on or, if a stay of execution shall have been obtained, for a period longer than 45 days after the premises expiration of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofsuch stay; (g) zoning restrictions, easements, reservations, exceptions, encroachmentsEasements, rights of way, zoning restrictions, licenses, covenants and other restrictions or encumbrances affecting on the use of Real Property which property or minor imperfections in title thereto which, in the aggregate, do not interfere in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits business; (h) purchase money security Security interests and liens securing Indebtedness of the Borrower Affiliated Group permitted by Section 6.1(c) in Equipment an amount not to exceed $65,000,000 in the aggregate outstanding at any time in addition to those Encumbrances permitted under subsection (including Capital Leasesa) and purchase money mortgages on real estate through (including improvements theretof) arising after the date hereof; of this Section, provided, thathowever, that (A) each such Encumbrance is given solely to secure the purchase price of, or the lease obligations relating to, such asset, does not extend to any other property, and is given at the time or within 30 days of the acquisition of such asset, and (B) the Indebtedness secured thereby does not exceed the lesser of the cost of such asset or its fair market value at the time such security interest attaches; and provided, further, that the Indebtedness secured pursuant to this clause (h), together with any Indebtedness secured pursuant to clause (j) below, does not at any time exceed $65,000,000; (i) Security interests in no event shall -------- ---- the aggregate amount favor of the Indebtedness secured by issuer of any documentary letters of credit for the account of the Borrower covering only the following: (i) any documentation presented in connection with a drawing under such security interests or mortgages incurred in the fiscal year letter of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereaftercredit, (ii) all goods which are described in such security interests and mortgages shall not apply to documents or any property such letter of Borrower other than the Equipment or real estate so acquiredcredit, and (iii) the proceeds thereof; (j) Encumbrances upon real property or other fixed assets acquired after the date hereof (by purchase, construction or otherwise) by the Borrower or any other member of the Borrower Affiliated Group, each of which Encumbrance was created solely for the purpose of securing Indebtedness permitted under Section 6.1(c) and representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such property or asset; provided that (i) no such Encumbrance shall extend to cover any property or asset of the Borrower or such member of the Borrower Affiliated Group other than the property or asset so acquired and improvements thereon, (ii) the principal amount of Indebtedness secured thereby by any such Encumbrance shall not exceed 100% of the lesser of the cost of such asset or its fair market value (as determined in good faith by a senior financial officer of the Equipment Borrower) of such property or real estate so acquiredasset at the time it was acquired (by purchase, as construction or otherwise), and (iii) the case may besecurity interest is given at the time or within 60 days of the construction or acquisition of such property or asset; and provided, further, that the Indebtedness secured pursuant to this clause (j), together with any Indebtedness secured pursuant to clause (h) above, does not at any time exceed $65,000,000; (k) Encumbrances in connection with any sale-leasebacks permitted by Section 6.2; provided that no such Encumbrance shall extend to cover any property or asset of the Borrower or such member of the Borrower Affiliated Group other than the lease entered into in connection with any such sale-leaseback; and (il) security interests Any extension, renewal or replacement of the foregoing; provided that the Encumbrances permitted by this paragraph (l) shall not extend to or cover any additional Indebtedness or property (other than a substitution of like property). In addition, the Borrower shall not, nor shall the Borrower permit any other member of the Borrower Affiliated Group or any of its other Subsidiaries to, enter into or permit to exist any arrangement or agreement which directly or indirectly prohibits the Borrower or any such other member of the Borrower Affiliated Group or Subsidiary from creating or incurring any Encumbrance in favor of the Administrative Agent for the benefit of the Banks and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoAdministrative Agent under the Loan Documents.

Encumbrances. Create, incur, assume or suffer to exist any Lien on any of its property or assets, whether now owned or hereafter owned or acquired, except the following (collectively, “Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Liens for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendertaxes not yet delinquent; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books;Reserved (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksReserved; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, bids or leases, trade contracts (other than for the repayment of Indebtednessborrowed money), statutory obligations obligations, surety, customs, stay and appeal bonds, performance and return of money bonds, government contracts and other similar obligations in each case in the ordinary course of business consistent a like nature; (e) Liens securing Indebtedness permitted by Sections 6.1 hereof, provided that as to Liens securing Indebtedness permitted by Section 6.1(c) only, (i) such Liens shall be created substantially simultaneously with the current practices acquisition of Borrower such fixed or capital asset, (ii) such Liens do not at any time encumber any property other than the property, equipment or improvements financed by such Indebtedness, and Guarantor as (iii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer original purchase price of such bond shall have waived in writing any rights in property, Inventory, equipment or to, or other interest in, any of the Collateral in an agreement, in form improvements and substance satisfactory to Lenderrelated costs and charges imposed by vendors thereof; (f) liens Liens in favor of L▇▇▇▇▇; (g) Liens arising from (i) operating leases and the precautionary UCC financing statement filings in statements regarding operating leases; (h) Any interest of a licensor or sublicensor, with respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time any assets under any license entered into in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on covering only the date hereof and the precautionary UCC financing statement filings in respect thereoflicensed or sublicensed assets; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests Licenses of patents, trademarks and liens other intellectual property rights granted by the Borrower or by any Subsidiary in existence on the date hereof which are ordinary course of business; (j) Other Liens securing Indebtedness not to exceed $150,000; (k) Liens set forth on Schedule 7.4 hereto.6.2(o) hereof; and

Encumbrances. Except as set forth on Schedule 8.1 hereto, or contemplated herein, neither Borrower nor any Subsidiary will create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien or other encumbrance of any nature whatsoever on any of its assets, including, without limitation, the Collateral, other than: (ai) involuntary liens on real property (and security interests not personal property of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes Borrower or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxesany Subsidiary), either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available as to which Borrower or Guarantor and with respect to which adequate reserves such Subsidiary shall, if appropriate under GAAP, have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's books and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or records adequate reserves; (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with business; (iii) the current practices liens and security interests in favor of Borrower and Guarantor as of the date hereofAgent; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fiv) liens arising from which arise by operation of law, other than Environmental Liens; (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (gv) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property real property; (vi) liens securing Purchase Money Secured Financing permitted under Subsection 8.2(iv) hereof; (vii) consignments of goods to Borrower provided such consignment arrangement is permitted by Subsection 3.17; (viii) consignment of goods to any Subsidiary; (ix) liens on assets of P&J securing indebtedness of P&J to American National Bank and Trust Company of Chicago and its successors, not to exceed $2,000,000 in aggregate amount at any time outstanding; and (x) other liens and encumbrances on property which are not in the aggregate in excess of $150,000 or, which do not interfere not, in any material respect with Agent's sole determination, (a) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; (h) purchase money security interests the same is held by Borrower or such Subsidiary. Borrower shall promptly give Lender notice of any liens of a type referred to in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, clause (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, above (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall liens for taxes not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoyet due).

Encumbrances. Except for those liens, security interests and encumbrances described in Part 2 of Exhibit 3A, and those created by this Security Agreement, the Mortgage and the Deed of Trust, Borrower, shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of the Collateral (and, for this purpose, the Company’s “priced as sold” arrangements with respect to its purchases of almonds and walnuts from growers in the ordinary course of business as customarily conducted in the past shall not be considered an assignment or a conveyance of a right to receive income or profits) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's deposits with insurance carriers or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations (including obligations to landlords, warehousemen and mechanics) or surety bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor past due; (but c) liens securing appeal bonds securing judgments not in connection with, or as part of, excess of $1,000,000; (d) liens and security interests in favor of the financing thereofAgent for the ratable benefit of the Secured Parties; (e) from time to time liens securing the interests of Broker in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; any Margin Account; (gf) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property Borrower’s real property, and other liens, security interests and encumbrances on property which do not interfere not, in any material respect with the Agent’s reasonable determination: (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by Borrower; and (hg) purchase money security interests securing amounts not exceeding $1,500,000 in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the during any fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or Borrower; and (h) liens and encumbrances as described as part of the Project (as defined in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoCredit Agreement).

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in the most recent audited financial statements delivered pursuant to Section 7.1(c), and those created by the Collateral Documents, the Company shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of the Company’s assets (and, for this purpose, the Company’s “priced as sold” arrangements with respect to its purchases of almonds and walnuts from growers in the ordinary course of business as customarily conducted in the past shall not be considered an assignment or a conveyance of a right to receive income or profits) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves the Company shall, if appropriate under GAAP, have been set aside on its books; the Company’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's deposits with insurance carriers or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations (including obligations to landlords, warehousemen and mechanics) or surety bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices Company’s business, which are not past due; (c) liens securing appeal bonds securing judgments not in excess of Borrower $1,000,000; (d) liens and Guarantor as of the date hereof; provided, -------- that, security interests in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any favor of the Collateral Agent for the ratable benefit of the holders of the Notes; (e) liens securing the interests of Broker in an agreement, in form and substance satisfactory to Lender; any Margin Account; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property the Company’s real property, and other liens, security interests and encumbrances on property which do not interfere not, in any material respect with the reasonable determination of the Required Holder(s): (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by the Company; (hg) purchase money security interests securing amounts not exceeding $1,500,000 in Equipment the aggregate during any Fiscal Year of the Company; and (including Capital Leasesh) liens and purchase money mortgages on real estate encumbrances as described as part of the Project. Notwithstanding the foregoing, the fact that the Deed of Trust, recorded February 13, 1997 as Instrument No.5458, Book 3562, Page 483 in the Official Records of Merced County, California (including improvements thereto) arising after the date hereof; provided, that, (i“Deed of Trust”) in no event shall -------- ---- favor of Bank of America Illinois (“BOA”) with respect to certain property owned by the aggregate amount Company and located in Merced County, Gustine, California (the “California Property”) remains of record notwithstanding that the Company has repaid all of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent obligations that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness had been secured thereby shall not exceed constitute a violation of this Section 10.5 so long as the cost Company (1) is using reasonable efforts to (A) cause BOA to file an appropriate Deed of Reconveyance that would remove the Deed of Trust from the Title Commitment issued to the Collateral Agent for the California Property, or (B) in the alternative, to deliver to First America Title Insurance Company, the issuer of such Title Commitment, such other evidence as would remove the Deed of Trust from such Title Commitment, and (2) in any event shall cause either the aforesaid event (A) or event (B) to occur within one hundred twenty (120) days of date of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoSecond Amendment.

Encumbrances. The Borrower shall not (and shall not permit any Domestic Subsidiaries to), either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of Borrower (or any Domestic Subsidiaries, as the case may be), whether owned at the date hereof or hereafter acquired except (all of the following, collectively, “Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests Liens listed on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender;Schedule 8.2; I\15453359.12 (b) liens securing the payment of Liens for taxes, either assessments or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksproceedings; (c) nonLiens or charges incidental to the conduct of its business or the ownership of its property and assets, including easements, rights-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business of-way, restrictions (including carriers'zoning restrictions), warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness minor defects or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested irregularities in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure title or other similar proceedings charges or encumbrances, which were not incurred in connection with the borrowing of money or the obtaining of an advance or credit, and with respect to which adequate reserves have been set aside on do not in the aggregate materially detract from the value of its booksproperty or assets or materially impair the use thereof in the operation of its business; (d) pledges and good faith deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of lending contracts or leases to which any Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with or any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquiredDomestic Subsidiaries, as the case may be) is a party; (e) deposits to secure public or statutory obligations of any Borrower (or any Domestic Subsidiaries, as the case may be), including, without limitation, Liens arising under workers' compensation, unemployment insurance, social security, and other similar laws and regulations; (f) Liens existing on the date hereof and disclosed on the financial statements referred to in Section 7.6; (g) Liens granted to the Bank hereunder and Liens securing purchase money indebtedness, permitted under Section 8.1(f); (h) mechanics' or materialmen's liens, landlords' liens, carriers' liens and software licenses, in each case incurred or granted in the ordinary course of business; (i) Liens to which the Bank consents in writing; and (ij) security interests and liens in existence on extensions, renewals or replacements of any of the date hereof which are set forth on Schedule 7.4 heretoforegoing.

Encumbrances. The Borrowers shall not create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance of any kind, including the lien or retained security title of a conditional vendor upon or with respect to any of their property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests Encumbrances in favor of Collateral the Administrative Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Issuing Bank or any of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) liens securing Encumbrances existing as of the payment date of taxes, either not yet overdue or the validity of which are being contested this Agreement and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksExhibit C hereto; (c) non-consensual statutory liens (other than liens Encumbrances securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) Indebtedness for Capital Expenditures to the extent: (i) extent such liens secure Indebtedness or obligations which are not overdue or (ii) is permitted by Section 7.1(c), provided that no such liens secure Indebtedness relating Encumbrance attaches to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksany Collateral; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationliens for taxes, unemployment insurance fees, assessments and other types governmental charges to the extent that payment of social security benefits consistent the same may be postponed or is not required in accordance with the current practices provisions of Borrower and Guarantor as of the date hereofSection 5.4; (e) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', warehouseman's, laborers' and materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrowers' or a Subsidiary's business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with their property or materially impair the current practices use thereof in the operation of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lendertheir business; (f) judgment liens arising from securing judgments that (i) operating leases and the precautionary UCC financing statement filings in respect thereof are not fully covered by insurance, and (ii) equipment or other materials which are shall not owned by Borrower or Guarantor located on have been in existence for a period longer than 30 days after the premises creation thereof or, if a stay of Borrower or Guarantor (but not in connection withexecution shall have been obtained, or as part of, for a period longer than 30 days after the financing thereof) from time to time in the ordinary course expiration of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofsuch stay; (g) zoning restrictions, rights of lessors under capital leases to the extent such capital leases are permitted hereunder; (h) easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoBorrowers' business; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- Encumbrances securing the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred Permitted Guarantees as set forth in the fiscal year of Borrower ending December 31Senior Debt Security Documents and the Hydro Debt Documents, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent provided that the amount of no such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply Encumbrance attaches to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beCollateral; and (ij) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoconstituting a renewal, extension or replacement of any Permitted Encumbrance.

Encumbrances. (a) liens and security interests Execute or otherwise enter into an agreement with any Person which prohibits or otherwise restricts the Borrower's ability to create or allow any Encumbrances to be on or otherwise effect any of Collateral Agent, provided, that, -------- ---- its properties other than pursuant to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderthis Agreement; (b) liens securing Create or allow any Encumbrances to be on or otherwise affect any of its property or assets except the payment following (collectively, "Permitted Encumbrances"): (i) Encumbrances in favor of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksBank; (cii) non-consensual statutory liens (Encumbrances for taxes, assessments and other than liens securing the payment of taxes) arising governmental charges incurred in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue yet due and payable or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being diligently contested in good faith and by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksare being maintained; (diii) pledges and Pledges or deposits of cash by Borrower or Guarantor after the date hereof made in the ordinary course of business to secure payment of worker's compensation or to participate in any fund in connection with workers' worker's compensation, unemployment insurance and or other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofobligations; (eiv) Good faith pledges and or deposits made in the ordinary course of cash by Borrower after the date hereof business to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), ) or leases or to secure statutory obligations and or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) Liens of mechanics, materialmen, warehousemen, carriers or other similar liens, securing obligations in each case incurred in the ordinary course of business consistent with the current practices of Borrower that are not yet due and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderpayable; (fvi) liens arising from Encumbrances securing Indebtedness permitted under Section 6.2(c), provided that (iA) operating leases and the precautionary UCC financing statement filings in respect thereof no other covenants of this Agreement are thereby violated and (iiB) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course case of business and consistent with current practices of Borrower and Guarantor in effect on Encumbrances over equipment, no equipment other than the date hereof and the precautionary UCC financing statement filings in respect thereofequipment so acquired secures such Indebtedness; (gvii) zoning restrictionsEncumbrances, easementsif any, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretootherwise expressly permitted by this Agreement; (hviii) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages Encumbrances set forth on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount Schedule 6.3 of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beAgreement; and (iix) security interests and Judgment liens in existence on the date hereof which are set forth on Schedule 7.4 heretoof less than Five Hundred Thousand Dollars ($500,000) or judgment liens that have been unstayed for less than thirty (30) days.

Encumbrances. The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of the Borrower, whether owned at the date hereof or hereafter acquired except: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Liens for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings diligently pursued in such a manner as not to make any property of Borrower forfeitable and available for which adequate reserves for such contest are maintained by the Borrower; (b) Liens arising out of judgments and pre-judgment attachments not constituting an Event of Default under Section 11.8 to Borrower which it shall concurrently therewith be prosecuting a timely appeal or Guarantor proceeding for review and with respect to which adequate reserves it shall have been set aside on its bookssecured a stay of execution pending such appeal or proceedings for review; (c) non-consensual statutory liens pledges or deposits to secure obligations under worker's compensation laws or similar legislation; (d) good faith deposits in connection with contracts (other than liens securing contracts for the payment of taxesmoney) arising or leases to which the Borrower is a party; (e) carriers,' warehousemen's, suppliers' or similar possessing liens existing in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderbusiness; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect Liens existing on the date hereof and the precautionary UCC financing statement filings disclosed on Schedule 8.2 referred to in respect thereofSection 7; (g) Liens on fixed assets acquired in connection with incurring obligations permitted under Section 8.1(f), to secure such obligations; (h) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and or other restrictions or encumbrances affecting on the use of Real Property which any real estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provideduse, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000value, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount marketability of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beestate; and (i) security interests and liens in existence on Liens granted to the date hereof which are set forth on Schedule 7.4 heretoBank.

Encumbrances. Directly or indirectly create, incur, assume, or permit to continue in existence any mortgage, lien, charge or encumbrance on, or security interest in, or pledge or deposit of, or conditional sale or other title retention agreement with respect to the Collateral, except for: (ai) liens and security interests for taxes, assessments or governmental charges the payment of Collateral Agent, provided, that, -------- ---- to which is not at the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendertime required by SECTION 3.2; (bii) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than of landlords and liens securing the payment of taxes) arising carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are for sums not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer yet due or being contested in good faith and by appropriate proceedings promptly initiated and diligently pursued and available to Borrower or Guarantorconducted, in each case prior to the commencement of foreclosure for which it has made such reserve or other similar proceedings and with respect to which adequate reserves have been set aside on its booksappropriate provision, if any, as shall be required by generally accepted accounting principles; (diii) pledges and liens incurred or deposits of cash by Borrower or Guarantor after the date hereof made in the ordinary course of business in connection with workers' workmen's compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations performance and return-of-money bonds and other similar obligations in each case in (exclusive of obligations for the ordinary course payment of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderborrowed money); (fiv) liens arising from any attachment lien being contested in good faith and by proceedings promptly initiated and diligently conducted, unless the attachment giving rise thereto shall not, within sixty (i60) operating leases and days after the precautionary UCC financing statement filings in respect entry thereof, have been discharged or fully funded or shall not have been discharged within sixty (60) days after the termination of such bond; (v) any judgment lien, unless the judgment it secures shall not, within sixty (60) days after the entry thereof, have been discharged or execution thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection withstayed pending appeal, or as part shall not have been discharged within sixty (60) days after the expiration of any such stay; (vi) easements, rights-of-way, the financing thereof) from time to time restrictions and other similar charges or encumbrances incurred in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect interfering with the use of such Real Property or ordinary conduct of the businesses business of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoDebtor; (hvii) liens securing motor vehicle loans and leases provided that any such lien shall at all times be confined to the motor vehicle or vehicles being purchased with the proceeds of such indebtedness or leased; (viii) liens which (a) secure loans for the purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after of equipment other than equipment which is purchased to replace equipment comprising the date hereof; provided, thatCollateral, (ib) in no event are confined to the equipment so purchased, and (c) are incurred with the Secured Party's prior written consent, which consent shall -------- ---- the aggregate amount not be unreasonably withheld; (ix) liens, charges, encumbrances and priority claims junior to those of the Indebtedness secured by such security interests or mortgages Secured Party and which are incidental to the conduct of the business of Debtor and the ownership of its properties and assets and incurred in the fiscal year ordinary course of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beDebtor's business; and (ix) mortgages, liens and security interests and liens in existence on securing the date hereof which are set forth on Schedule 7.4 heretopayment of the Secured Obligations.

Encumbrances. Credit Parties shall not, and shall not permit any Subsidiary of any Credit Party to, create, incur, assume, suffer or permit to exist any security interest, mortgage, pledge, Lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, except (a) liens the security interests, hypothecs and security interests Liens of the Collateral Agent, provided, that, -------- ---- Agents pursuant to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; Financing Agreements; (b) liens Liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower Credit Parties or Guarantor any Subsidiary, and in each case prior to the commencement of a foreclosure or other similar proceeding and with respect to which adequate reserves have been set aside on its books; ; (c) non-consensual statutory liens Liens (other than liens Liens securing the payment of taxes) arising in the ordinary course of Borrower's Credit Parties’ or Guarantor's such Subsidiary’s business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens Liens secure Indebtedness or obligations which are is not overdue or (ii) such liens Liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower Credit Parties or Guarantorany Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto.

Encumbrances. (a) liens and Except for those liens, security interests and encumbrances presently in existence and reflected in the Company's financial statements referred to in Section 6.14 and disclosed in Exhibit 6A under Section 6.4, no Domestic Borrower shall create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of Collateral Agentany nature whatsoever on or with regard to any of such Domestic Borrower's assets (including, providedwithout limitation, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; any Collateral) other than: (ba) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves such Domestic Borrower shall, if appropriate under GAAP, have been set aside on its books; books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowerdeposits under workmen's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedsuch Domestic Borrower's business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on past due; (c) liens and security interests in favor of Lender for the premises ratable benefit of Borrower or Guarantor Lender; (but not d) liens securing the interests of Broker in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; any Margin Account; (ge) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property such Domestic Borrower's real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of Lender and which do not interfere not, in any material respect with Lender's sole determination: (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by such Domestic Borrower; and (hf) purchase money security interests in Equipment securing amounts relating to items of equipment or other capital assets (including Capital Leases) and provided that no such purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests shall extend to or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount cover other property of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Domestic Borrower other than the Equipment items of equipment or real estate other capital assets so acquired). (b) No Borrower shall create, and (iii) the Indebtedness secured thereby shall not exceed the cost incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any security interest, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant or other encumbrance of any nature whatsoever on or with regard to any shares of capital stock of any Subsidiary of the Equipment or real estate so acquiredCompany (including, as the case may be; and without limitation, any Foreign Subsidiary) other than (i) liens, security interests and pledges in favor of Lender and (ii) liens on, security interests in, and pledges of shares of current and future Subsidiaries of VSK Electronics. Borrowers shall give Lender at least thirty (30) days' prior written notice of the grant to any Person (other than Lender) of a lien on, security interest in existence on the date hereof which are set forth on Schedule 7.4 heretoor pledge of any shares of any Subsidiary of VSK Electronics.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.13 and disclosed in Exhibit 6A under Section 6.4, Borrower and its consolidated subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of their assets other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent Borrower’s business, which are not past due; (c) liens securing the interests of the broker with the current practices respect to any Margin Account; and (d) any other liens, security interests and encumbrances on property of Borrower and Guarantor as of the date hereof; providedits consolidated subsidiaries other than Inventory, -------- thatAccounts, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment General Intangibles (including Capital Leasescontract rights) and purchase money mortgages on real estate (including improvements thereto) arising after or the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretodirect proceeds thereof.

Encumbrances. Neither the Borrower nor any of its Material Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Bank or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderits affiliates; (b) liens securing Encumbrances existing as of the payment date of taxesthis Agreement, either not yet overdue or the validity of which are being contested otherwise described in good faith by appropriate proceedings diligently pursued Section 6.1, and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksdisclosed in Exhibit B hereto; (c) non-consensual statutory liens (for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges and or deposits of cash by Borrower under workmen's compensation, unemployment insurance, social security laws, or Guarantor after the date hereof in the ordinary course of business similar legislation (other than ERISA) or in connection with workersappeal and similar bonds incidental to litigation; mechanics', laborers' compensationand materialmen's and similar liens, unemployment insurance and other types of social security benefits consistent with if the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; (e) judgment and other similar obligations in each case liens, singly or in the ordinary course aggregate in excess of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided$5,000,000.00, -------- that, arising in connection with any performance bonds issued by a surety court proceedings, provided that the execution or other ---- person, the issuer enforcement of such bond shall have waived judgment or similar lien has been in writing any rights existence for less than 30 days or is effectively stayed and the claims secured thereby are being actively contested in or to, or other interest in, any of the Collateral in an agreement, in form good faith and substance satisfactory to Lenderby appropriate proceedings; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises rights of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereoflessors under capitalized leases; (g) zoning restrictionsEncumbrances securing indebtedness for borrowed money incurred in connection with the purchase of real or personal property used in its business, provided that any such Encumbrances shall not extend to assets of the Borrower or any such Subsidiary not financed by such indebtedness; (h) easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real or personal property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits business; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) other than as permitted in no event shall -------- ---- accordance with Section 6.1(j), Encumbrances on its assets created in connection with the aggregate amount refinancing of the Indebtedness indebtedness secured by Permitted Encumbrances on such security interests or mortgages incurred in the fiscal year of Borrower ending December 31assets, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent provided that the amount of indebtedness secured by any such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount Encumbrance shall not be increased as a result of such Indebtedness which may be refinancing and no such Encumbrance shall extend to property and assets of the Borrower or any such Subsidiary not encumbered prior to any such refinancing; (j) Encumbrances incurred in connection with repurchase agreements; liens incurred in connection with asset securitizations; Encumbrances incurred in connection with the immediately following fiscal year shall be increased by such amount, up holding of municipal deposits subject to the New York State Comptroller's guidelines for collateralization; Encumbrances granted to a maximum such increase of $2,000,000 as Federal Reserve Bank, a Federal Home Loan Bank or the Federal Agricultural Mortgage Corporation to Indebtedness not incurred in secure advances or other transactions incidental to the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost conduct of the Equipment banking business of the Borrower or real estate so acquiredany such Subsidiary, as including loans to meet liquidity requirements; (k) Encumbrances securing obligations of a Subsidiary to the case may beBorrower or another Subsidiary; and (il) security interests and liens in existence on the date hereof other Encumbrances which are set forth incidental to the conduct of its business on Schedule 7.4 heretoan ongoing basis and that do not in the aggregate have a material adverse effect on its assets, business or prospects.

Encumbrances. Each Borrower shall not create, incur, assume or suffer to exist, any Lien or other encumbrance of any nature whatsoever on any of its assets, including without limitation the Collateral, other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves the applicable Borrower shall, if appropriate under GAAP, have been set aside on its books; books and records adequate reserves; provided that such contest does not have a Material Adverse Effect; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowerdeposits under worker's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar Laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations bonds in each case the ordinary course of business, and Liens securing judgments that have not resulted in an Event of Default under clause (d) of subsection 8.1 hereof; (c) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or suppliers incurred in the ordinary course of business consistent with the current practices of Borrower and Guarantor as for sums not yet delinquent; (d) Liens in favor of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases Administrative Agent and the precautionary UCC financing statement filings in respect thereof and Banks; (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (he) purchase money security interests arising in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the connection with Equipment or real estate so acquiredpurchases or lease financings made as permitted by this Agreement, not to exceed an aggregate of Five Million and 00/100 Dollars ($5,000,000.00) outstanding at any time; (f) Liens described on Schedule 7.2; and (iiig) the Indebtedness secured thereby shall not exceed the cost Liens other than those permitted in subsections 7.2(a) through (f), inclusive, securing obligations in an aggregate outstanding amount of the Equipment or real estate so acquired, as the case may be; and no more than Two Hundred Fifty Thousand and 00/100 Dollars (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto$250,000.00).

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("PERMITTED ENCUMBRANCES"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) liens securing Encumbrances (other than Encumbrances arising under the payment NatWest Facility) existing as of taxes, either not yet overdue or the validity date of which are being contested this Agreement and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksEXHIBIT C hereto; (c) non-consensual statutory liens (other than liens securing for taxes, fees, assessments and governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its bookssection 5.4; (d) landlords' and lessors' Liens in respect of rent not in default or liens in respect of pledges and or deposits of cash by Borrower under workmen's compensation, unemployment insurance, social security laws, or Guarantor after the date hereof in the ordinary course of business similar legislation (other than ERISA) or in connection with workersappeal and similar bonds incidental to litigation; mechanics', warehouseman's, laborers' compensationand materialmen's and similar liens, unemployment insurance and other types of social security benefits consistent with if the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrower s or a Subsidiary's business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments that (i) are not fully covered by insurance, and Guarantor as (ii) shall not have been in existence for a period longer than 10 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 10 days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderstay; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises rights of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereoflessors under capital leases; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoBorrower' business; (h) purchase money security interests any Encumbrance on any Eligible Lease, Eligible Rental Contract and Eligible Equipment created by the sale, transfer, assignment or disposition of such Eligible Lease, Eligible Rental Contract or Eligible Equipment in Equipment (including Capital Leasescompliance with Section 7.4(ii) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, ; (i) in liens constituting a renewal, extension or replacement of any Permitted Encumbrance; (j) Encumbrances arising under the NatWest Facility, that no event shall -------- ---- the aggregate amount such Encumbrance attaches to any part of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beCollateral; and (ik) security interests and liens in existence on Encumbrances granted with respect to any Indebtedness permitted under Section 7.1(h), PROVIDED that no such Encumbrance attaches to any part of the date hereof which are set forth on Schedule 7.4 heretoCollateral.

Encumbrances. Except for those Liens presently in existence and reflected in either the Borrower's or NBC's financial statements referred to in Section 7.16 or security interests granted in the Security Documents or in the Intercompany Financing Documents, neither the Borrower nor NBC shall create, incur, assume or suffer to exist any Lien of any nature whatsoever on or with regard to any of its assets (including, without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available as to which the Borrower or Guarantor and with respect to which adequate reserves NBC (as the case may be) shall, if appropriate under GAAP, have been set aside on its books; books and records adequate reserves; (cb) non-consensual statutory liens (other than liens Liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with under workers' compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of the Borrower's or NBC's business consistent with (as the current practices of Borrower case may be); (c) Liens granted under the Bond Documents or pursuant to the Water Services Agreement and Guarantor as Liens in favor of the date hereofAgent securing the Liabilities; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (gd) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property either the Borrower's or NBC's real property, and other Liens on property which are subordinate to the Liens of the Agent securing the Liabilities and which do not interfere not, in any material respect with the National Beef Packing Company Credit Agreement 58 determination of the Required Lenders (i) materially impair the use of such Real Property property or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by either the Borrower or NBC; (he) in the case of the Borrower and NBC, purchase money security interests in Equipment and capitalized leases securing indebtedness permitted to be incurred under Section 10.4(d); (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (if) in no event shall -------- ---- the aggregate amount case of the Indebtedness secured by such security Borrower, Liens securing the interests or mortgages incurred of any broker in any Margin Account; (g) in the fiscal year case of Borrower ending December 31the Borrower, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, Liens securing indebtedness permitted to the extent that the amount of such Indebtedness be incurred by Borrower in any fiscal year is less than the amount otherwise under Section 10.4(f); and (h) Liens permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoSection 7.29.

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance of any kind upon or with respect to any of their property or assets, or assign or otherwise convey any right to receive income, including the sale or discount of Receivables with or without recourse, except the following (“Permitted Encumbrances”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in Exhibit C hereto; (c) liens securing for taxes, fees, assessments and other governmental charges to the extent that payment of taxesthe same may be postponed or is not required in accordance with the provisions of Section 5.4; (d) landlords’ and lessors’ liens in respect of rent not in default or liens in respect of pledges or deposits under workmen’s compensation, either unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics’, warehouseman’s, laborers’ and materialmen’s and similar liens, if the obligations secured by such liens are not yet overdue then delinquent or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than faith; liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrower’s or a Subsidiary’s business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments that are fully covered by insurance, and Guarantor as shall not have been in existence for a period longer than 10 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 10 days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderstay; (f) liens arising from (i) operating leases easements, rights of way, restrictions and the precautionary UCC financing statement filings other similar charges or Encumbrances relating to real property and not interfering in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in a material way with the ordinary course conduct of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofBorrower’s business; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights restrictions under federal and state securities laws regarding the transfer or issuance of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecurities; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofliens constituting a renewal, extension or replacement of any Permitted Encumbrance; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; andor (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretosales permitted under Section 7.4(c) hereof.

Encumbrances. Neither the Company nor any of its Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("PERMITTED ENCUMBRANCES"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Bank or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderits Affiliates; (b) liens Encumbrances existing as of the date hereof and disclosed in SCHEDULE 6.4 hereto and securing the payment any refinancing of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available Indebtedness provided that such refinancing is permitted pursuant to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksSection 6.1(b); (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's Encumbrances for purchase money obligations or Guarantor's business (including carriers', warehousemen's, materialmen's Capital Leases permitted pursuant to Section 6.1(f); PROVIDED that such Encumbrances shall not attach to property and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk assets of the insurer Company or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to any Subsidiary not purchased with the commencement proceeds of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its bookssuch purchase money obligations; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationliens for taxes, unemployment insurance fees, assessments and other types governmental charges to the extent that payment of social security benefits consistent the same may be postponed or is not required in accordance with the current practices provisions of Borrower and Guarantor as of the date hereof;Section 5.4; and (e) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and other similar obligations in each case that do not in the ordinary course aggregate materially detract from the value of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon its property or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred use thereof in the fiscal year operation of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoits business.

Encumbrances. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by any Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower Borrowers and Guarantor Guarantors as of the date hereof; (e) pledges and deposits of cash by Borrower Borrowers after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower Borrowers and Guarantor Guarantors as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) the Capital Leases with respect to the Blytheville Collateral to secure the Indebtedness of Huntco Steel to the City thereunder permitted under Sections 9.9(d) and 9.9(e) below; (g) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by a Borrower or Guarantor located on the premises of such Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof Borrowers and the precautionary UCC financing statement filings in respect thereof, provided, that, Lender shall have received written notice of such equipment or other materials and such equipment and other materials shall be separately identified to Lender in any report with respect to Equipment and Inventory provided to Lender in a manner satisfactory to Lender; (gh) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property real property or ordinary conduct of the businesses of Borrower Borrowers as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (hi) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) hereof in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 for Borrowers not to exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 10,000,000 so long as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall do not apply to any property of Borrower Borrowers other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall does not exceed the cost of the Equipment or real estate so acquired, as the case may be; and; (j) mortgages and liens upon the Real Property of a Borrower (other than the Real Property constituting the Blytheville Collateral) arising after the date hereof to secure the Indebtedness of such Borrower permitted under Section 9.9(f) below; (k) the mortgage and lien upon the Real Property of Huntco Steel located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, Ghent, Kentucky 41045 to secure the Indebtedness of Huntco Steel to Huntco Nevada permitted under Section 9.9(g) below, provided, that, such mortgage and lien of Huntco Nevada is and shall be junior and subordinate to the mortgage and lien of Lender with respect to such Real Property on terms and conditions acceptable to Lender: (i) security interests and liens of Huntco Nevada in existence on and upon assets of Huntco Steel arising after the date hereof which to secure Indebtedness of such Borrower to Huntco Nevada arising after the date hereof permitted under Section 9.9(h) below, provided, that, such security interests and liens are and shall be junior and subordinate to the security interests and liens of Lender on terms and conditions acceptable to Lender; and (l) security interests and liens set forth on Schedule 7.4 8.4 hereto.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.13 and disclosed in Exhibit 6A under Section 6.4, Borrower and its consolidated subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of their assets other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on past due; (c) liens securing the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct interests of the businesses of Borrower as presently conducted thereon broker or materially impair the value of the Real Property which may be subject thereto; other counter party with respect to any Margin / Swap Account; (hd) purchase money liens on or security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- cash or other deposits up to the aggregate amount of $40,000,000 securing the Indebtedness secured interests of issuers of letters of credit, but only at such time as mutually agreed upon by such security interests or mortgages incurred in the fiscal year other unsecured pari passu creditors of Borrower ending December 31Borrower; and (e) any other liens, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any encumbrances on property of Borrower and its consolidated subsidiaries other than Inventory, Accounts, General Intangibles (including contract rights) or the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretodirect proceeds thereof.

Encumbrances. The Company warrants that it has title to the Collateral purportedly owned by it and that there are no sums owed or claims, liens, security interests or other encumbrances against the Collateral other than as set forth in Exhibit A attached hereto and made a part hereof. The Company will notify Versant of any lien, security interest or other encumbrance against the Collateral securing any obligation of the Company, will defend the Collateral against any claim, lien, security interest or other encumbrance adverse to Versant, except for liens having priority there over as set forth on Exhibit A, attached hereto and made a part hereof, and will not create, incur, assume, or suffer to exist any lien, security interest or other encumbrances against the Collateral, whether now owned or hereafter acquired, except: (a) liens in favor of Versant and security interests of Collateral Agent, provided, that, -------- ---- to the extent such other liens as are set forth on Exhibit A attached hereto and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendermade a part hereof; (b) liens securing the payment of taxes, either for taxes or assessments or other government charges or levies if not yet overdue due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves have previously been delivered by the Company to Versant; (c) liens imposed by law, such as mechanics', material men's, landlords', warehousemen's, and carriers' liens, and other similar liens, securing obligations incurred in the ordinary course of business, which are not past due for more than 30 days or the validity of which are being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect to for which adequate appropriate reserves have been set aside on its bookspreviously delivered to Versant; (cd) non-consensual statutory liens liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than liens securing contracts for the payment of taxes) money), leases, public statutory obligations, surety, stay, appeal, indemnity, performance, or other similar bonds or other similar obligations arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereofbusiness; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations judgments and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, liens arising in connection with any performance bonds issued by a surety court proceedings, provided that the execution or other ---- person, the issuer enforcement of such bond shall have waived liens is effectively stayed and the claims secured thereby are being actively contested in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form good faith and substance satisfactory to Lenderby appropriate proceedings; (f) liens arising from (i) operating leases easements, right-of-way restrictions, and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection withsimilar encumbrances which, or as part of, the financing thereof) from time to time in the ordinary aggregate, do not materially interfere with the occupation, use, and enjoyment by the Company of the property or assets encumbered thereby in the normal course of its business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be property subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (g) purchase-money liens on any property hereafter acquired or the assumption of any lien on property existing at the time of such acquisition (and not created in contemplation of such acquisition), or a lien incurred in connection with any conditional sale or other title retention agreement or a capital lease; provided that: (i) security interests any property subject to any of the foregoing is acquired by the Company in the ordinary course of its business and liens in existence the lien on any such property attaches to such asset concurrently or within 90 days after the date hereof which are set forth on Schedule 7.4 heretoacquisition thereof; (ii) the obligation secured by any lien so created, assumed, or existing shall not exceed 100% of the lesser ofthe cost or the fair market value as of the time of acquisition of the property covered thereby to the Company; and (iii) each such lien shall attach only to the property so acquired and fixed improvements thereon.

Encumbrances. The Borrower shall not create, incur, assume or permit to exist any Encumbrances on any of its property now owned or hereafter acquired, except for the following (hereinafter referred to as the "Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Encumbrances for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments, or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings action promptly initiated and diligently pursued and available to Borrower or Guarantor and with respect to which adequate conducted, if such reserves as shall be required by GAAP shall have been set aside on its booksmade therefor; (cb) non-consensual statutory liens (other than liens securing the payment Encumbrances of taxes) landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen arising by law in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are for sums either not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer yet due or being contested in good faith by appropriate proceedings action promptly initiated and diligently pursued and available to Borrower or Guarantorconducted, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves if such reserve as shall be required by GAAP shall have been set aside on its booksmade therefor; (c) Inchoate liens arising under ERISA to secure the contingent liabilities, if any, permitted by this Agreement; (d) pledges The Collateral Documents and deposits of cash by Borrower or Guarantor after the date hereof any other Encumbrances in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as favor of the date hereofBank to secure the Indebtedness of the Borrower to the Bank; (e) pledges and deposits Encumbrances in favor of cash by Borrower after EnCap, provided such Encumbrances are subordinated in favor of Bank pursuant to the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to LenderSubordination Agreement; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time Encumbrances granted prior to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and of this Agreement to secure non-recourse Debt, and/or Encumbrances granted after the precautionary UCC financing statement filings in respect thereofdate of this Agreement to secure non-recourse Debt; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct Encumbrances existing as of the businesses date of Borrower as presently conducted thereon or materially impair the value this Agreement in favor of the Real Property which may be subject thereto;Hibernia Corporation and/or Hibernia Energy Investment Corporation; and (h) purchase money security interests Encumbrance evidenced by that certain UCC-1 financing statement by PEO in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after favor of Linc Monex, recorded with the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount Secretary of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year State of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted Texas under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoNo. 98-215813.

Encumbrances. The Borrowers shall not, and shall not permit any other member of the Borrower Affiliated Group to, create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor (by way of consignment or otherwise) upon or with respect to any of its property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders of the Senior Secured Notes Administrative Agent or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of LenderBanks under any Security Document; (b) liens securing Encumbrances existing on the payment date of taxes, either not yet overdue or the validity of which are being contested this Agreement and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksExhibit C hereto; (c) non-consensual statutory liens (Liens for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) pledges Possessory liens in favor of brokers and deposits dealers arising in connection with the acquisition or disposition of cash by Borrower or Guarantor after Investments owned as of the date hereof and Qualified Investments, provided that such liens (a) attach only to such Investments and (b) secure only obligations incurred in the ordinary course of business and arising in connection with workers' compensation, unemployment insurance the acquisition or disposition of such Investments and other types of social security benefits consistent not any obligation in connection with the current practices of Borrower and Guarantor as of the date hereofmargin financing; (e) Landlords' and lessors' liens in respect of rent not in default, or liens in respect of pledges or deposits under worker's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', laborers', carriers', warehousemans', materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney); and statutory obligations, statutory obligations surety and appeal bonds, performance bonds and other similar obligations in each case of a like nature incidental to the conduct of its business and that do not in the ordinary course aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderits business; (f) Judgment liens arising from (i) operating leases and that shall not have been in existence for a period longer than 45 days after the precautionary UCC financing statement filings in respect creation thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on or, if a stay of execution shall have been obtained, for a period longer than 45 days after the premises expiration of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofsuch stay; (g) zoning restrictions, easements, reservations, exceptions, encroachmentsEasements, rights of way, zoning restrictions, licenses, covenants and other restrictions or encumbrances affecting on the use of Real Property which property or minor imperfections in title thereto which, in the aggregate, do not interfere in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits business; (h) purchase money security Security interests and liens securing Indebtedness of the Borrower Affiliated Group permitted by Section 6.1(c) in Equipment an amount not to exceed $65,000,000 in the aggregate outstanding at any time in addition to those Encumbrances permitted under subsection (including Capital Leasesa) and purchase money mortgages on real estate through (including improvements theretof) arising after the date hereof; of this Section, provided, thathowever, that (A) each such Encumbrance is given solely to secure the purchase price of, or the lease obligations relating to, such asset, does not extend to any other property, and is given at the time or within 30 days of the acquisition of such asset, and (B) the Indebtedness secured thereby does not exceed the lesser of the cost of such asset or its fair market value at the time such security interest attaches; and provided, further, that the Indebtedness secured pursuant to this clause (h), together with any Indebtedness secured pursuant to clause (j) below, does not at any time exceed $65,000,000; (i) Security interests in no event shall -------- ---- the aggregate amount favor of the Indebtedness secured by issuer of any documentary letters of credit for the account of B&N covering only the following: (i) any documentation presented in connection with a drawing under such security interests or mortgages incurred in the fiscal year letter of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereaftercredit, (ii) all goods which are described in such security interests and mortgages shall not apply to documents or any property such letter of Borrower other than the Equipment or real estate so acquiredcredit, and (iii) the proceeds thereof; (j) Encumbrances upon real property or other fixed assets acquired after the date hereof (by purchase, construction or otherwise) by the Borrowers or any other member of the Borrower Affiliated Group, each of which Encumbrance was created solely for the purpose of securing Indebtedness permitted under Section 6.1(c) and representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such property or asset; provided that (i) no such Encumbrance shall extend to cover any property or asset of any Borrower or such member of the Borrower Affiliated Group other than the property or asset so acquired and improvements thereon, (ii) the principal amount of Indebtedness secured thereby by any such Encumbrance shall not exceed 100% of the lesser of the cost of such asset or its fair market value (as determined in good faith by a Financial Officer) of such property or asset at the Equipment time it was acquired (by purchase, construction or real estate so acquiredotherwise), as and (iii) the case may besecurity interest is given at the time or within 60 days of the construction or acquisition of such property or asset; and provided, further, that the Indebtedness secured pursuant to this clause (j), together with any Indebtedness secured pursuant to clause (h) above, does not at any time exceed $65,000,000; (k) Encumbrances in connection with any sale-leasebacks permitted by Section 6.2; provided that no such Encumbrance shall extend to cover any property or asset of the Borrower or such member of the Borrower Affiliated Group other than the lease entered into in connection with any such sale-leaseback; and (il) security interests Any extension, renewal or replacement of the foregoing; provided that the Encumbrances permitted by this paragraph (l) shall not extend to or cover any additional Indebtedness or property (other than a substitution of like property). In addition, the Borrowers shall not, nor shall the Borrowers permit any other member of the Borrower Affiliated Group or any of its other Subsidiaries to, enter into or permit to exist any arrangement or agreement which directly or indirectly prohibits the Borrowers or any such other member of the Borrower Affiliated Group or Subsidiary from creating or incurring any Encumbrance in favor of the Administrative Agent for the benefit of the Banks and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoAdministrative Agent under the Loan Documents.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in the Borrower's financial statements referred to in Section 7.15 and permitted under Section 7.4, the Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of the Borrower's assets (including without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Borrower shall, if appropriate under GAAP, have set aside on the Borrower's books and records adequate reserves; (b) liens securing deposits under workmen's compensation, unemployment insurance, social security and other similar laws, or securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations or surety or appeal bonds, or securing indemnity, performance or other similar bonds in the ordinary course of the Borrower's business; (c) liens and security interests in favor of the Agent for the ratable benefit of the Lenders; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of the Borrower's real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of the Agent (for the ratable benefit of the Lenders) and which do not, in the Agent's determination (i) materially impair the use of such property or (ii) materially lessen the value of such property for the purposes for which the same is held by the Borrower; (e) liens securing the interests of any broker in any Margin Account; (f) purchase money security interests securing amounts relating to such items of Equipment as are specifically consented to by the Agent; (g) other liens and security interests securing indebtedness permitted under clause (d) of Section 10.4; and (h) liens being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect as to which the Borrower has established adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers'accordance with GAAP, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- exceeding $3,000,000 in the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoat any one time.

Encumbrances. Borrower and its Subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except for (collectively, “Permitted Liens”): (a) liens and the security interests and liens of Collateral Agent, provided, that, -------- ---- to Lender and any Bank Product Provider and the extent such liens rights of setoff of Lender and security interests on the Collateral are held any Bank Product Provider provided for the benefit of the holders of the Senior Secured Notes herein or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderunder applicable law; (b) liens securing the payment of taxes, assessments or other governmental charges or levies either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and any of its Subsidiaries as the case may be and with respect to which adequate reserves have been set aside on the books of the Borrower and its booksSubsidiaries to the extent required by GAAP; (c) non-consensual statutory liens (other than liens securing the payment of taxes, including but not limited to carriers’, warehousemen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ liens and other similar liens) arising in the ordinary course of Borrower's business of the Borrower or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) any of its Subsidiaries to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and such Subsidiary in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books to the extent required by GAAP or (ii) such liens secure Indebtedness obligations relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, such Subsidiary in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksbooks to the extent required by GAAP; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrower or any of its Subsidiaries as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) (i) purchase money security interests in Equipment (including Capital Leases) to secure Indebtedness permitted under Section 9.9(b) hereof and (ii) purchase money security interests (including Capital Leases) in the Distribution Center (or any of its constituent parts), as applicable, to secure Indebtedness permitted under Section 9.9(b) hereof, in each case so long as such security interests are limited to the Equipment or the Distribution Center (or any of its constituent parts), as applicable, acquired with such Indebtedness, and the Indebtedness secured thereby does not exceed the cost of the Equipment in the Distribution Center (or any of its constituent parts), as applicable, so acquired; (f) pledges and deposits of cash by Borrower or Guarantor any of its Subsidiaries after the date hereof in the ordinary course of business in connection with workers' ’ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor or such Subsidiary as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fg) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor its Subsidiaries located on the premises of Borrower or Guarantor its Subsidiaries (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof or any of its Subsidiaries and the precautionary UCC financing statement filings in respect thereof; (gh) zoning restrictions, easements, reservations, exceptions, encroachments, liens or rights of waysetoff against credit balances of Borrower or any of its Subsidiaries with Credit Card Issuers or Credit Card Processors or amounts owing by such Credit Card Issuers or Credit Card Processors to Borrower or such Subsidiary in the ordinary course of business, licensesbut not liens on or rights of setoff against any other property or assets of Borrower or such Subsidiary, covenants pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure the obligations of Borrower or such Subsidiary to the Credit Card Issuers or Credit Card Processors as a result of fees and chargebacks; (i) statutory or common law liens or rights of setoff of depository banks with respect to funds of Borrower or any of its Subsidiaries at such banks to secure fees and charges in connection with returned items or the standard fees and charges of such banks in connection with the deposit accounts maintained by Borrower or such Subsidiary at such banks (but not any other Indebtedness or obligations); (j) deposits of cash with the owner or lessor of premises leased and operated by Borrower or any of its Subsidiaries in the ordinary course of the business of Borrower or such Subsidiary to secure the performance by Borrower or such Subsidiary of its obligations under the terms of the lease for such premises; (k) judgments and other restrictions or encumbrances affecting the use of Real Property which similar liens arising in connection with court proceedings that do not constitute an Event of Default, provided, that, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other appropriate provision, if any, as are required by GAAP have been made therefor, (iii) a stay of enforcement of any such liens is in effect and (iv) Lender may establish a Reserve with respect thereto; (l) the security interests and liens set forth in the Information Certificate and any security interests and liens granted as a replacement or substitute therefor; provided that any such replacement or substitute security interest or lien (i) does not secure an aggregate amount of Indebtedness or other obligations, if any, greater than that secured on the date hereof and (ii) does not encumber any property other than the property subject thereto on the date hereof; (m) liens (i) incurred in the ordinary course of business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, government contracts, trade contracts, performance and return of money bonds and other similar obligations (in each case, exclusive of obligations for the payment of Indebtedness for borrowed money) or (ii) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers; (n) liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business of the Borrower or such Subsidiary in accordance with the past practices of the Borrower or such Subsidiary; (o) liens on property rented to, or leased by, the Borrower or any of its Subsidiaries pursuant to a Sale and Leaseback Transaction; provided that (i) such Sale and Leaseback Transaction is permitted by Section 9.23, (ii) such liens do not encumber any other property of the Borrower or any of its Subsidiaries, and (iii) such Liens secure only the Attributable Indebtedness incurred in connection with such Sale and Leaseback Transaction; (p) licenses or sublicenses of Intellectual Property granted by the Borrower or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Borrower or any of its Subsidiaries; (q) leases, subleases, licenses and sublicenses of the properties of Borrower or any of its Subsidiaries, in each case entered into in the ordinary course of the business of the Borrower of such Subsidiary so long as such leases, subleases, licenses and sublicenses do not (i) individually or in the aggregate, interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value business of the Real Property which may be subject theretoBorrower or any of its Subsidiaries or (ii) secure any Indebtedness; (hr) purchase money security interests liens of a collecting bank arising in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount ordinary course of business under Section 4-208 of the Indebtedness secured by such security interests or mortgages incurred Uniform Commercial Code as in effect in the fiscal year State of New York or any similar section under any applicable UCC, covering only the items being collected upon; (s) liens encumbering the underlying fee interest of any Real Property for which Borrower ending December 31, 2001 exceed $2,000,000, or any of its Subsidiaries has only a leasehold or subleasehold interest in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or Real Property; (t) all matters set forth in any fiscal year thereafter exceed $1,000,000, provided, that, lease that is a leasehold interest included as Real Property (but only to the extent that Borrower or any of its Subsidiaries only has a leasehold or subleasehold interest in the amount Real Property); (u) liens on property of a person existing at the time such person is acquired or merged with or into or consolidated with the Borrower or any of its Subsidiaries to the extent permitted hereunder; provided that such liens (i) do not extend to property not subject to such liens at the time of such acquisition, merger or consolidation (other than improvements thereon), (ii) are no more favorable to the lienholders than such existing liens; and (iii) are not created in anticipation or contemplation of such acquisition, merger or consolidation; (v) [intentionally left blank]; (w) liens securing Indebtedness incurred by Borrower in any fiscal year is less than the amount a non-Loan Party pursuant to Section 9.9(p); (x) liens not otherwise permitted under this Section, the amount of such Indebtedness which may be incurred Section 9.8 securing obligations that do not in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of aggregate exceed $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in 1,500,000 at any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may betime outstanding; and (iy) security interests liens granted to the Term Collateral Agent, for the benefit of itself and liens in existence on the date hereof which Term Secured Parties, to secure Indebtedness evidenced by the Term Loan Documents to the extent such Liens are set forth on Schedule 7.4 heretosubject to the terms and conditions of the Intercreditor Agreement.

Encumbrances. Except as set forth in Schedule 8.1, Borrower shall not create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its assets, including, without limitation, the Collateral, other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (bi) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower, if appropriate under generally accepted accounting principles, shall have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's books and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or records adequate reserves; (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereofbusiness; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fiii) liens arising from and security interests in favor of Lender; (iiv) operating leases and the precautionary UCC financing statement filings in respect thereof and liens which arise by operation of law, other than Environmental Liens; (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (gv) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property real property; (vi) liens on Equipment securing purchase money security indebtedness permitted under clause (iv) of the first sentence of subsection 8.2; (vii) liens arising as a result of any judgments or orders requiring payment of not more than $100,000 in the aggregate, provided (a) such judgments and orders are being contested or appealed by Borrower in good faith, by appropriate proceedings promptly initiated and diligently conducted, (b) Borrower has established adequate reserves to cover such judgments and orders and (c) the enforcement of any such lien has been stayed during the pendency of such contest or appeal; and (viii) other liens and encumbrances on property, which do not interfere not, in any material respect with the use of such Real Property Lender's sole determination, (a) mateuch property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; (h) purchase money the same is held by Borrower. Borrower shall not permit the filing of any financing statement naming Borrower as debtor, except for financing statements filed with respect to liens or security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured expressly permitted by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoAgreement.

Encumbrances. Tenant shall not at any time create or suffer to exist any Lien on any of its properties or assets, except: (a1) Permitted Encumbrances; (2) Liens in favor of Landlord; (3) Liens for taxes or assessments or governmental charges or levies, if payment shall not at the time be required to be made in accordance with Article 8 hereof and the other applicable provisions --------- of the Transaction Documents; (4) Liens in respect of judgments or awards and liens of appeal and security interests similar bonds incident to the conduct of Collateral Agentlitigation, provided, that, -------- ---- so long as and to the extent that such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes judgments or awards, or the Senior Secured Note Trusteejudgments or awards secured by such bonds, such interests shall be subject and subordinate in all respects to are permitted as Indebtedness by Section ------- 24.12(d) or are otherwise permitted under the liens and security interests of Collateral Agent to the extent held for the benefit of Lender;Transaction Documents; -------- (b5) Liens of carriers, warehousemen, mechanics, laborers and materialmen and similar liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising incurred in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are for sums not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer yet due or being contested in good faith by appropriate proceedings diligently pursued in accordance with the applicable provisions of this Agreement and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksTransaction Documents; (d6) Liens (other than liens created by Section 302(f) or Section 4068 of ERISA or Section 412(n) of the Code) incurred on pledges and or deposits of cash by Borrower or Guarantor after the date hereof made in the ordinary course of business in connection with workers' compensation, unemployment insurance insurance, social security laws or similar legislation, and other types of social security benefits consistent with liens incidental to the current practices of Borrower and Guarantor as conduct of the date hereof; (e) pledges and deposits business of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, Tenant which were not incurred in connection with the borrowing of money or the obtaining of advances or credits and do not in the aggregate materially detract from the value of any performance bonds issued by a surety material property of Tenant or other ---- person, materially impair the issuer use thereof in the operation of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender;its business; and (f7) liens arising from Security interests in its capital stock and in its personal property (excluding collateral under the HRP Shares Pledge Agreement and the Cash Collateral Pledge) securing the Indebtedness incurred in compliance with clauses (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on of Section 24.12(g); provided, ----------- ---- ---------------- -------- however, that (i) such security interest shall at all times be junior ------- to the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business liens and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment favor of Landlord, and confined solely to such assets, and (including Capital Leasesii) that the enforcement of such junior liens and purchase money mortgages on real estate security interests, and all claims secured thereby, shall at all times be subject to the terms of an intercreditor agreement in substantially the form (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that applicable) of the amount Intercreditor Agreement dated as of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this SectionFebruary 12, the amount 1997 among Tenant, GCIHCC, GranCare, First Union National Bank of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amountNorth Carolina, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquiredagent, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoLandlord.

Encumbrances. (a) liens Opthea will not, and security interests will not permit any Subsidiary of Collateral AgentOpthea to, providedwithout the prior written consent of the Required Investors: 7.3.2.1 create, thatincur, -------- ---- assume, allow, or suffer to the extent such liens and security interests exist any Lien on any of the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note TrusteeExcluded IP, such interests shall be subject and subordinate in all respects whether now owned or hereafter acquired or assign or convey any right to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxesreceive royalties, either not yet overdue license fees or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and other income with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens the Collateral or Excluded IP (other than liens securing satisfaction of royalty and other license fee obligations to licensors thereof in accordance with the payment applicable license agreement (including the sale, transfer or other disposition of taxesany Collateral or Excluded IP)), or permit any of its subsidiaries to do so, other than Permitted Liens; or 7.3.2.2 enter into any agreement, document, instrument or other arrangement (except with or in favor of Investors) arising with any Person which directly or indirectly prohibits or has the effect of prohibiting Opthea or any Subsidiary of Opthea from assigning, mortgaging, pledging, granting a security interest in or upon or encumbering the Collateral or any Product IP; provided that this Section ‎7.3.2.2 shall not apply to (i) restrictions in connect with any Permitted Liens that limit the right to dispose the assets subject to such Permitted Lien, (ii) any agreements, documents or other arrangement in effect on the Original Effective Date and set forth on Schedule ‎7.3.2.2 and any amendments or modifications thereof that do not expand the scope of any such restriction or condition; (iii) agreements, documents, instruments or other arrangements governing other Permitted Indebtedness; (iv) any Applicable Law; (v) customary non-assignment provisions in agreements, leases and licenses, documents, instruments or other arrangements otherwise permitted under this Agreement; (vi) customary restrictions and conditions contained in any agreement relating to any Disposition not prohibited under this Agreement pending the consummation of such Disposition; (vii) provisions limiting the disposition or distribution of assets or property in joint venture agreements, partnership agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements permitted under this Agreement, which limitation is applicable only to the assets that are the subject of such agreements; (viii) prohibitions, restrictions or conditions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of Borrower's business; (ix) any agreement or Guarantor's business (including carriers'instrument of, warehousemen'sor affecting, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness any Person or obligations which are not overdue asset existing on or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement date on which such Person or asset was acquired by Opthea or any Subsidiary of foreclosure Opthea (other than any such agreement, document, instrument or other similar proceedings arrangement entered into in contemplation of such acquisition); (x) customary provisions contained in leases, sub-leases, Excluded Licensing Transactions and Out-Licenses that are approved by the Required Investors pursuant to Section ‎7.3.4, including with respect to which adequate reserves have been set aside on its books; (d) pledges intellectual property, and deposits of cash by Borrower or Guarantor after the date hereof other agreements entered into in the ordinary course of business business; (xi) customary non-assignment provisions in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with leases or licenses governing leasehold or license interests to the current practices of Borrower and Guarantor as extent such provisions restrict the transfer of the date hereof; lease or the property leased or licensed thereunder; (exii) pledges customary restrictions in deposit and deposits security account agreements and agreements relating to Cash Management Services, and (xiii) any amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing of cash by Borrower after the date hereof an agreement document, instrument or arrangement referred to secure the performance in clauses (i) through (xii) of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereofthis Section ‎7.3.2.2; provided, -------- thatthat such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing is not more restrictive, as determined in connection good faith by Opthea, with any performance bonds issued by a surety or other ---- person, the issuer of respect to such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants encumbrances and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretorefinancing.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.13 and disclosed in Exhibit 6A under Section 6.4, Borrower and its consolidated subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of their assets other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on past due; (c) liens securing the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct interests of the businesses of Borrower as presently conducted thereon broker with respect to any Margin Account; (d) liens on or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- cash or other deposits up to the aggregate amount of $20,000,000 securing the Indebtedness secured interests of issuers of letters of credit, but only at such time as mutually agreed upon by such security interests or mortgages incurred in the fiscal year other unsecured pari passu creditors of Borrower ending December 31Borrower; and (e) any other liens, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any encumbrances on property of Borrower and its consolidated subsidiaries other than Inventory, Accounts, General Intangibles (including contract rights) or the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretodirect proceeds thereof.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in the Borrower’s financial statements referred to in Section 7.16 or permitted under Section 7.4, the Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of the Borrower’s assets (including without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves the Borrower shall, if appropriate under GAAP, have been set aside on its books; the Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower Borrower’s business; (c) liens and Guarantor as security interests in favor of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, Agent for the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any ratable benefit of the Collateral in an agreement, in form and substance satisfactory to Lender; Lenders; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (gd) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property the Borrower’s real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of the Agent (for the ratable benefit of the Lenders) and which do not interfere not, in any material respect with the determination of the Required Lenders (i) materially impair the use of such Real Property property or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by the Borrower; (he) purchase money security interests in Equipment securing indebtedness permitted to be incurred under Section 10.4(d); (including Capital Leasesf) and purchase money mortgages on real estate (including improvements thereto) arising after liens securing the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount interests of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or any broker in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, Margin Account; and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (ig) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretosecuring indebtedness permitted to be incurred under Section 10.4(g).

Encumbrances. Create, incur, assume or suffer to exist any Encumbrance upon any of its properties or assets (including without limitation, the Collateral), whether now owned or hereafter acquired, except for the following: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to Encumbrances created in connection with the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; Loan Documents; (b) Mechanic's, warehouseman's, and statutory landlords' Encumbrances arising as an incident to the normal and customary conduct of Borrower's business or the ownership of properties and assets by Borrower, and deposits and pledges incurred in the ordinary course of business and not in connection with the borrowing of money; provided, however, that (i) in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith and adequate reserves have been set aside by the Borrower as the case may be, and (ii), in the case of warehousemen's or landlord's Encumbrances, written subordination agreements providing for the subordination or waiver of the warehousemen's or landlord's Encumbrances to the security interests and liens provided by Borrower to Lender under this Agreement and the other Loan Documents shall have been executed by the warehousemen and/or landlords (as applicable) and Borrower and delivered to Lender, and are in form and substance satisfactory to Lender; (c) Encumbrances securing the payment payments of taxestaxes or other governmental charges incurred in the ordinary course of business that either (1) are not delinquent, either not yet overdue or the validity of which (2) are being contested in good faith by appropriate legal or administrative proceedings diligently pursued and available to Borrower or Guarantor and with respect as to which adequate reserves have been set aside on their books to the extent required by GAAP, and which do not result in a Material Adverse Effect; (d) Encumbrances listed on the schedule attached hereto as Schedule 7.2; (e) Encumbrances in respect of pledges or deposits in connection with workers compensation, unemployment insurance and other social security legislation; (f) Encumbrances in respect of precautionary UCC filings in respect of leases; and (g) Extensions, renewals and replacements of Encumbrances referred to in clauses (a) through (e) of this Section 7.2; provided, however, that any such extension, renewal or replacement Encumbrance shall be limited to the property or assets and proceeds thereof covered by the Encumbrance extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement Encumbrance shall be in an amount not greater than the amount of the obligations secured by the Encumbrance extended, renewed or replaced. Fundamental Changes. Amend its books; Articles or Certificate of Incorporation or Articles of Organization (cas applicable) non-consensual statutory liens by any amendment which would adversely affect Borrower's ability to perform or comply with any of the terms, conditions or agreements to be performed or complied with by Borrower hereunder or to perform any of the transactions contemplated hereby; change its fiscal year, name, or key management; convert its organizational form into another entity form or establish any new entity to perform the business or similar business of Borrower; reorganize, consolidate or merge with any other corporation or company; or change the state of incorporation or organization/formation of Borrower. Varsity Group Inc. shall not change from a corporation publicly traded in the United States under and in accordance with applicable securities and other laws and regulations. Furthermore, there shall not occur any change in ownership of the Borrower that would result in a change in control of the Borrower. For purposes of this covenant, a change in control of the Borrower shall occur if more than a thirty five percent (35%) aggregate interest in ownership in the Borrower is transferred to a person or entity and/or any affiliates of such person or entity, except as a result of the Merger. Furthermore, Borrower shall not materially engage in any business other than liens securing the payment business in which Borrower is actively engaged as of taxesthe date of this Agreement, which business the Borrower has fully disclosed to Lender Acquisitions. Purchase, lease or otherwise acquire the assets, business, goodwill or securities of any other Person, including, without limitation, shares of stock in corporations, partnership interests in general or limited partnerships or membership interests in limited liability companies, or acquire any other business. Transfer of Assets. Sell, lease, assign, pledge or otherwise dispose of any of its properties, stock or assets (including without limitation, the Collateral), whether now owned or hereafter acquired, except (a) arising in the ordinary course of business and for fair market value, (b) any subsidiary may be merged with or into any entity comprising the Borrower's , or Guarantor's business (including carriers'be liquidated, warehousemen'swound up or dissolved, materialmen's and mechanics' liens) or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the extent: Borrower; provided that, in the case of such a merger or other transaction with the Borrower, the Borrower shall be the continuing or surviving corporation or limited liability company; (c) dispositions of obsolete, worn out or surplus property in the ordinary course of business; (d) the licensing of Intellectual Property or software in the ordinary course of business; (e) the disposition of cash equivalents or any other investment permitted hereunder; provided Borrower retains ownership of the property received in exchange for or as a result of such disposition, and further provided that such property received as a result of such disposition has a value equal to or greater than the value of the cash equivalents or other investment which is the subject of such disposition; (f) intercompany transfers of assets or property among the entities comprising the Borrower; (g) investments, loans and advances permitted by Sections 7.6 and 7.7 of this Agreement; (h) stock purchases permitted by Section 7.9 of this Agreement; (i) such liens secure Indebtedness the granting of Encumbrances permitted under this Agreement; (j) discounts or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk forgiveness of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof accounts receivable in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types the collection or compromise thereof; provided the discount or forgiveness of social security benefits consistent with the current practices of Borrower and Guarantor as an account receivable does not exceed five percent (5%) of the amount of such account receivable; (k) the sale, shut-down or liquidation of Campus Outfitters, L.L.C. so long as the net cash flow generated from such sale, shut-down or liquidation (including any cash needed to pay any liabilities or obligations incurred in connection with or arising as a result of such sale, shut-down or liquidation) is not less than negative $300,000. Investments. Purchase or hold any stock, or evidence of indebtedness of any other Person or entity except the following: (a) investments in direct obligations of the United States Government and certificates of deposit of United States commercial banks insured by the Federal Deposit Insurance Corporation; (b) investments in United States dollar-denominated time deposits, certificates of deposit and bankers acceptances of any bank whose short-term debt rating from Standard & Poor's Ratings Group, a division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc. ("S&P"), is at least A-1 or the equivalent or whose short-term debt rating from ▇▇▇▇▇'▇ Investors Service, Inc. ("▇▇▇▇▇'▇") is at least P-1 or the equivalent with maturities of not more than six (6) months from the date hereof; of acquisition; (c) investments in commercial paper with a rating of at least A-1 or the equivalent by S&P or at least P-1 or the equivalent by Moody's maturing within six (6) months after the date of acquisition; (d) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (d) above; (e) pledges investments in deposit accounts in which the Lender has been granted a security interest under the Loan Documents; (f) investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and deposits customers and in settlement of cash by Borrower after the date hereof to secure the performance of tendersdelinquent obligations of, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case disputes with, customers and suppliers arising in the ordinary course of business consistent with business; (g) receivables owing to the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety created or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time acquired in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect payable on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct customary trade terms of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; Borrower; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofguarantees permitted by Section 7.1 of this Agreement; provided, that, (i) pledges and deposits permitted by Section 7.2 of this Agreement; (j) loans permitted under Section 7.7 of this Agreement; (k) securities or limited liability company membership interests issued by the Borrower or any of its subsidiaries; provided that the proceeds from all payments made for such issuance shall be paid directly to Lender and shall be used to reduce the principal amount owing under the Line of Credit, and shall further result in no event shall -------- ---- a dollar for dollar permanent reduction in the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year Line of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year Credit Amount. For purposes of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this SectionSection 7.6, the amount of such Indebtedness which may be incurred in the immediately following fiscal year any investment shall be increased by such amountequal to the initial investment less all repayments, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred returns, dividends, distributions or reimbursements in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretorespect thereof.

Encumbrances. No Restricted Person shall create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except for the following: (a) (i) liens and security interests in favor of Collateral Agentthe Secured Parties or the UK Secured Parties; and (ii) in the case of the assets and properties of the UK Loan Parties (other than the Borrower and the Guarantors), provided, that, -------- ---- liens and security interests in favor of any Loan Party to secure the extent such GIFL US Intercompany Obligations; (b) liens and security interests on the Collateral are held for the benefit of the holders securing indebtedness of the Senior Secured Notes or Parties under the Senior Secured Note TrusteeDocuments, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersuch liens, security interest and indebtedness are subject to any Intercreditor Agreement; (bc) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor such Restricted Person and with respect to which adequate reserves have been set aside on its books; (cd) security deposits in the ordinary course of business; (e) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's such Restricted Person’s business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: : (i) such liens secure Indebtedness or obligations which that are not overdue or yet overdue; (ii) such liens are not in imminent danger of foreclosure; or (iii) such liens secure Indebtedness indebtedness relating to claims or liabilities which that are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer (subject to applicable deductibles) or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantorsuch Restricted Person, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which real property that do not interfere in any material respect with the use of such Real Property real property or ordinary conduct of the businesses business of Borrower such Restricted Person as presently conducted thereon or materially impair the value of the Real Property which real property that may be he subject thereto; (hg) purchase money security interests in Equipment equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, property to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise secure indebtedness permitted under this Section, Section 6.8 (Indebtedness); (h) the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall liens set forth on Schedule 6.7 or replacements therefor that do not apply extend to any other property of Borrower other than or increase the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beamounts secured; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto.assets of any Other Restricted Person having entered into any financing transaction permitted pursuant to Section 6.6(b)(i) (Sale of

Encumbrances. Neither the Borrower nor any of its Material Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Bank or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderits affiliates; (b) liens securing Encumbrances existing as of the payment date of taxesthis Agreement, either not yet overdue or the validity of which are being contested otherwise described in good faith by appropriate proceedings diligently pursued Section 6.1, and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksdisclosed in Exhibit B hereto; (c) non-consensual statutory liens (for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges and or deposits of cash by Borrower under workmen's compensation, unemployment insurance, social security laws, or Guarantor after the date hereof in the ordinary course of business similar legislation (other than ERISA) or in connection with workersappeal and similar bonds incidental to litigation; mechanics', laborers' compensationand materialmen's and similar liens, unemployment insurance and other types of social security benefits consistent with if the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; (e) judgment and other similar obligations in each case liens, singly or in the ordinary course aggregate in excess of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided$250,000, -------- that, arising in connection with any performance bonds issued by a surety court proceedings, provided that the execution or other ---- person, the issuer enforcement of such bond shall have waived judgment or similar lien has been in writing any rights existence for less than 30 days or is effectively stayed and the claims secured thereby are being actively contested in or to, or other interest in, any of the Collateral in an agreement, in form good faith and substance satisfactory to Lenderby appropriate proceedings; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises rights of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereoflessors under capitalized leases; (g) zoning restrictionsEncumbrances securing indebtedness for borrowed money incurred in connection with the purchase of real or personal property used in its business, provided that any such Encumbrances shall not extend to assets of the Borrower or any such Subsidiary not financed by such indebtedness; (h) easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real or personal property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits business; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) Encumbrances on its assets created in no event shall -------- ---- connection with the aggregate amount refinancing of the Indebtedness indebtedness secured by Permitted Encumbrances on such security interests or mortgages incurred in the fiscal year of Borrower ending December 31assets, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent provided that the amount of indebtedness secured by any such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount Encumbrance shall not be increased as a result of such Indebtedness which may be refinancing and no such Encumbrance shall extend to property and assets of the Borrower or any such Subsidiary not encumbered prior to any such refinancing; (j) Encumbrances incurred in the immediately following fiscal year shall be increased by such amount, up connection with repurchase agreements; liens incurred in connection with asset securitizations; Encumbrances granted to a maximum such increase of $2,000,000 as Federal Reserve Bank or a Federal Home Loan Bank to Indebtedness not incurred in secure advances or other transactions incidental to the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost conduct of the Equipment banking business of the Borrower or real estate so acquiredany such Subsidiary, as including loans to meet liquidity requirements; (k) Encumbrances securing obligations of a Subsidiary to the case may beBorrower or another Subsidiary; and (il) security interests and liens in existence on the date hereof other Encumbrances which are set forth incidental to the conduct of its business on Schedule 7.4 heretoan ongoing basis and that do not in the aggregate have a material adverse effect on its assets, business or prospects.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.14 or disclosed in Exhibit 6A under Section 6.4, Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of Borrower’s assets (including without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which Borrower shall, if appropriate under GAAP, have set aside on Borrower’s books and records adequate reserves; (b) liens securing deposits under workmen’s compensation, unemployment insurance, social security and other similar laws, or securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations or surety bonds, or securing indemnity, performance or other similar bonds in the ordinary course of Borrower’s business, which are not past due; (c) liens securing appeal bonds securing judgments not in excess of $5,000,000; (d) liens and security interests in favor of the Agent for the ratable benefit of the Lenders; (e) liens securing the interests of Broker in any Margin Account; (f) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Borrower’s real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of the Lenders and which do not, in the Agent’s sole determination: (i) materially impair the use of such property, or (ii) materially lessen the value of such property for the purposes for which the same is held by Borrower; (g) purchase money security interests securing (i) up to $10,000,000 in the aggregate in existence at any one time for the purpose of constructing or making improvements to Borrower’s fertilizer plant in Missouri, and (ii) indebtedness permitted under Section 8.4(e) (provided, in each case, that no such purchase money security interests shall extend to or cover other property of Borrower other than the items of property constructed, acquired or improved); (h) liens existing under Section 4-210 of the Code; (i) liens being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect as to which Borrower has established adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers'accordance with GAAP, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- exceeding $5,000,000 in the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or existence at any one time; and (j) liens on property acquired in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, a Permitted Acquisition to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise secure indebtedness permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoSection 8.4(d).

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower's financial statements referred to in Section 6.13 and disclosed in Exhibit 6A under Section 6.4, Borrower and its consolidated subsidiaries shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of their assets other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower's books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowerdeposits under workmen's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent Borrower's business, which are not past due; (c) liens securing the interests of the broker with the current practices respect to any Margin Account; and (d) any other liens, security interests and encumbrances on property of Borrower and Guarantor as of the date hereof; providedits consolidated subsidiaries other than Inventory, -------- thatAccounts, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment General Intangibles (including Capital Leasescontract rights) and purchase money mortgages on real estate (including improvements thereto) arising after or the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretodirect proceeds thereof.

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance of any kind upon or with respect to any of their property or assets, or assign or otherwise convey any right to receive income, including the sale or discount of Receivables with or without recourse, except the following (“Permitted Encumbrances”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in Exhibit C hereto; (c) liens securing for taxes, fees, assessments and other governmental charges to the extent that payment of taxesthe same may be postponed or is not required in accordance with the provisions of Section 5.4; (d) landlords’ and lessors’ liens in respect of rent not in default or liens in respect of pledges or deposits under workmen’s compensation, either unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics’, warehouseman’s, laborers’ and materialmen’s and similar liens, if the obligations secured by such liens are not yet overdue then delinquent or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than faith; liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrower’s or a Subsidiary’s business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments that are fully covered by insurance, and Guarantor as shall not have been in existence for a period longer than 10 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 10 days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderstay; (f) liens arising from (i) operating leases easements, rights of way, restrictions and the precautionary UCC financing statement filings other similar charges or Encumbrances relating to real property and not interfering in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in a material way with the ordinary course conduct of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofBorrower’s business; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights restrictions under federal and state securities laws regarding the transfer or issuance of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecurities; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofliens constituting a renewal, extension or replacement of any Permitted Encumbrance; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; andor (i) security interests and liens sales permitted under Section 7.4(c) hereof, provided that no purchaser or other Person involved in existence such transactions shall receive or retain any Encumbrance on the date hereof which are set forth on Schedule 7.4 heretoCollateral.

Encumbrances. The Borrower and the Guarantor shall not create, incur, assume or permit to exist any Encumbrances on any of its property now owned or hereafter acquired, except for the following (hereinafter referred to as the "Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held Encumbrances for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either assessments, or other governmental charges not yet overdue due or the validity of which are being contested in good faith by appropriate proceedings action promptly initiated and diligently pursued and available to Borrower or Guarantor and with respect to which adequate conducted, if such reserves as shall be required by GAAP shall have been set aside on its booksmade therefor; (cb) non-consensual statutory liens (other than liens securing the payment Encumbrances of taxes) landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen arising by law in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are for sums either not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer yet due or being contested in good faith by appropriate proceedings action promptly initiated and diligently pursued and available to Borrower or Guarantorconducted, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves if such reserve as shall be required by GAAP shall have been set aside on its booksmade therefor; (c) Inchoate liens arising under ERISA to secure the contingent liabilities, if any, permitted by this Agreement; (d) pledges The Collateral Documents and deposits of cash by Borrower or Guarantor after the date hereof any other Encumbrances in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as favor of the date hereofLenders to secure the Indebtedness of the Borrower to the Lenders; (e) pledges and deposits Encumbrances in favor of cash by Borrower after EnCap, provided such Encumbrances are subordinated in favor of Bank pursuant to the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to LenderSubordination Agreement; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection withSubject to Section 13.11. below, or as part of, the financing thereof) from time Encumbrances granted prior to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and of this Agreement to secure Non-Recourse Indebtedness, and/or Encumbrances granted after the precautionary UCC financing statement filings in respect thereofdate of this Agreement to secure Non-Recourse Indebtedness; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct Encumbrances existing as of the businesses date of Borrower this Agreement in favor of Hibernia Corporation and/or Hibernia Energy Investment Corporation as presently conducted thereon or materially impair security for the value of the Real Property which may be subject thereto;HEIC Facility; and (h) purchase money security interests Encumbrance evidenced by that certain UCC-1 financing statement by PetroQuest Energy One, L.L.C. in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after favor of Linc Monex, recorded with the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount Secretary of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year State of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted Texas under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoNo. 98-215813.

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 6.14 and disclosed in Exhibit 6A under Section 6.4, Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of Borrower’s assets (including without limitation, the Collateral) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which Borrower shall, if appropriate under GAAP, have set aside on Borrower’s books and records adequate reserves; (b) liens securing deposits under workmen’s compensation, unemployment insurance, social security and other similar laws, or securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations or surety bonds, or securing indemnity, performance or other similar bonds in the ordinary course of Borrower’s business, which are not past due; (c) liens securing appeal bonds securing judgments not in excess of $5,000,000; (d) liens and security interests in favor of the Agent for the ratable benefit of the Lenders; (e) liens securing the interests of Broker in any Margin Account; (f) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Borrower’s real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of the Lenders and which do not, in the Agent’s sole determination: (i) materially impair the use of such property, or (ii) materially lessen the value of such property for the purposes for which the same is held by Borrower; (g) purchase money security interests securing (i) up to $10,000,000 in the aggregate in existence at any one time for the purpose of constructing or making improvements to Borrower’s fertilizer plant in Missouri, and (ii) indebtedness permitted under Section 8.4(e) (provided, in each case, that no such purchase money security interests shall extend to or cover other property of Borrower other than the items of property constructed, acquired or improved); (h) liens existing under Section 4-210 of the Code; (i) liens being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect as to which Borrower has established adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers'accordance with GAAP, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- exceeding $5,000,000 in the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or existence at any one time; and (j) liens on property acquired in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, a Permitted Acquisition to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise secure indebtedness permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoSection 8.4(d).

Encumbrances. None of the Borrowers shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders of the Senior Secured Notes Agent or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to Banks or any of their respective Affiliates under the liens and security interests of Collateral Agent to the extent held for the benefit of LenderLoan Documents; (b) liens securing Encumbrances existing on the payment date of taxes, either not yet overdue or the validity of which are being contested this Agreement and disclosed in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksExhibit C hereto; (c) non-consensual statutory liens (for taxes, fees, assessments and other than liens securing governmental charges to the extent that payment of taxes) arising the same may be postponed or is not required in accordance with the ordinary course provisions of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its booksSection 5.4; (d) pledges landlords' and deposits lessors' liens in respect of cash by Borrower rent not in default, to the extent Landlord Waivers shall have been delivered to the Agent and the Banks, provided, however, that Landlord Waivers shall not be required for leased premises located outside of the United States, or Guarantor after if the date hereof value of all assets on or in all such leased premises in the ordinary course aggregate (measured at the greater of business in connection with workers' compensationcost or fair market value) is less than $1,000,000, unemployment insurance and other types of social security benefits consistent with provided further that the current practices of Borrower and Guarantor as of the date hereof; shall have ninety (e90) pledges and deposits of cash by Borrower after days from the date hereof to secure provide a Landlord Waiver with respect to the U.S. Borrower's chief executive office set forth in the preamble hereto (failure to timely obtain or deliver such Landlord Waiver or to provide the notice required under Section 5.12 that the U.S. Borrower has changed its chief executive office shall constitute an Event of Default hereunder); or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent or are being contested by a Borrower in good faith; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney); third party possessory liens, to the extent Bailee Waivers shall have been delivered to the Agent and the Banks, provided, however, that Bailee Waivers shall not be required if the value of all assets subject to all third party possessory liens in the aggregate (measured at the greater of cost or fair market value) is less than $1,000,000; and statutory obligations incidental to the conduct of business of any Borrower and other similar obligations in each case that do not in the ordinary course of business consistent with aggregate materially detract from the current practices of Borrower and Guarantor as value of the date hereof; provided, -------- that, property of any Borrower or materially impair the use thereof in connection with any performance bonds issued by a surety or other ---- person, the issuer operation of such bond Borrower's business; (e) judgment liens up to and including (i) $500,000 for any single judgment, or (ii) $2,000,000 in the aggregate, that shall not have been in existence for a period longer than 30 days after the creation thereof or, if a stay of execution shall have waived in writing any rights in or tobeen obtained, or other interest in, any for a period longer than 30 days after the expiration of the Collateral in an agreement, in form and substance satisfactory to Lendersuch stay; (f) liens arising from Encumbrances securing Indebtedness for the purchase price of capital assets to the extent such Indebtedness is permitted by Section 6.17, provided that (i) operating leases each such Encumbrance is given solely to secure the purchase price of such property, does not extend to any other property and is given at the precautionary UCC financing statement filings in respect thereof time of acquisition of the property, and (ii) equipment the Indebtedness secured thereby does not exceed the lesser of the cost of such property or other materials which are not owned by Borrower or Guarantor located on its fair market value at the premises time of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof;acquisition; and (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants restrictions and other restrictions similar charges or encumbrances affecting the use of Real Property which do Encumbrances relating to real property and not interfere interfering in any a material respect way with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoits business.

Encumbrances. Each Obligor shall ensure that no Restricted Person shall create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Security created pursuant to the Finance Documents, except for the following: (a) liens Security in favour of the Finance Parties; (b) Security created pursuant to and security interests of Collateral Agentin accordance with the US Loan Documents; (c) Security securing any amount outstanding under the US Senior Facility Documents and the UK Senior Facility Documents, provided, that, -------- ---- to the extent such liens liens, security interest and security interests on the Collateral indebtedness are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderany Intercreditor Agreement; (bd) liens securing the payment of taxesTaxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor such Restricted Person and with respect to which adequate reserves have been set aside on its books; (ce) security deposits in the ordinary course of business; (f) non-consensual statutory liens (other than liens securing the payment of taxesTaxes) arising in the ordinary course of Borrower's or Guarantor's such Restricted Person’s business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: : (i) such liens secure Indebtedness or obligations which that are not overdue or yet overdue; (ii) such liens are not in imminent danger of foreclosure; or (iii) such liens secure Indebtedness indebtedness relating to claims or liabilities which that are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer (subject to applicable deductibles) or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantorsuch Restricted Person, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which real property that do not interfere in any material respect with the use of such Real Property real property or ordinary conduct of the businesses business of Borrower such Restricted Person as presently conducted thereon or materially impair the value of the Real Property which real property that may be subject thereto; (h) purchase money security interests in Equipment equipment (including Capital Leases) and purchase money mortgages on real estate property to secure indebtedness permitted under Clause 19.8 (including improvements thereto) arising after the date hereof; provided, that, Indebtedness); (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall liens set forth on Schedule 19 (Existing Security) or replacements therefor that do not apply extend to any other property of Borrower other than or increase the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beamounts secured; and (ij) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoassets of the Other Restricted Persons having entered into any financing transaction permitted pursuant to Clause 19.6(i) (Sale of Assets, Consolidation, Merger, Dissolution, Etc.) or Clause 19.8(i) (Indebtedness) securing the obligations under such financing transaction.

Encumbrances. Create, assume, or permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge or other encumbrance on the ▇▇▇▇▇▇▇▇ Property or the “Collateral” (aas defined in the Security Agreement), other than: (i) security interests required by the Loan Documents; (ii) liens for taxes contested in good faith; (iii) Permitted Liens, (iv) capitalized lease obligations and purchase money liens on and security interests in equipment in the ordinary course of Collateral Agentbusiness, provided(v) mechanics’, thatmaterialmen’s, -------- ---- to warehousemen’s, carriers’ or other like liens arising in the extent such liens and security interests on the Collateral are held for the benefit ordinary course of business of the holders of the Senior Secured Notes Borrower or the Senior Secured Note Trusteeany subsidiary, such interests shall be subject and subordinate in all respects if any, arising with respect to the liens and security interests of Collateral Agent to the extent held obligations which are not overdue for the benefit of Lender; a period longer than thirty (b30) liens securing the payment of taxes, either not yet overdue days or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate reserves have been set aside provided on its books; the books of the Borrower or a subsidiary, (cvi) non-consensual pledges or deposits in connection with workers’ compensation, unemployment insurance, or other forms of governmental insurance or benefits or deposits or pledges to secure the performance of bids, tenders, contracts, leases, public or statutory liens (obligations, surety or appeal bonds or other than liens securing the payment deposits or pledges for purposes of taxes) arising a like general nature or given in the ordinary course of Borrower's a business by the Borrower or Guarantor's business (including carriers'any subsidiary, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (iivii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk other encumbrances consisting of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of rights-of-way, licenses, covenants and other restrictions or encumbrances affecting on the use of Real Property real property or minor irregularities in the title thereto, which do not interfere arise in any material respect connection with the use of such Real Property borrowing of, or ordinary conduct of any obligation for the businesses of Borrower as presently conducted thereon or payment of, money and which in the aggregate, do not materially impair detract from the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; providedbusiness, that, (i) in no event shall -------- ---- the aggregate amount properties or assets of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoBorrower.

Encumbrances. (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens for itself and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations indebtedness which are is not overdue or (ii) such liens secure Indebtedness indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or GuarantorBorrower, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses business of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (he) purchase money security interests in Equipment (including Capital Leasescapital leases) and fixtures, and purchase money mortgages on real estate (including improvements thereto) estate, or other security interests in equipment and fixtures, arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the hereof to secure Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this SectionSections 9.9(b), the amount of such Indebtedness which may be incurred and 9.9(c) hereof, in the immediately following fiscal year shall be increased by such amounteach case, up to a maximum such increase of $2,000,000 so long as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall do not apply to any property of Borrower other than the Equipment or real estate so acquiredacquired or otherwise subject to such security interest, and (iii) the Indebtedness secured thereby shall does not exceed the cost of the Equipment or real estate so acquiredacquired or otherwise subject to such security interest, as the case may be; (f) liens or rights of setoff or credit balances of Borrower with Credit Card Issuers, but not liens on or rights of setoff against any other property or assets of Borrower pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure the obligations of Borrower to the Credit Card Issuers as a result of fees and chargebacks; (g) deposits of cash with the owner or lessor of premises leased and operated by Borrower in the ordinary course of the business of Borrower to secure the performance by Borrower of its obligations under the terms of the lease for such premises; and (ih) the liens and security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 8.4 hereto.

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance of any kind upon or with respect to any of their property or assets, or assign or otherwise convey any right to receive income, including the sale or discount of Receivables with or without recourse, except the following (“Permitted Encumbrances”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in Exhibit C hereto; (c) liens securing for taxes, fees, assessments and other governmental charges to the extent that payment of taxesthe same may be postponed or is not required in accordance with the provisions of Section 5.4; (d) landlords’ and lessors’ liens in respect of rent not in default or liens in respect of pledges or deposits under workmen’s compensation, either unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics’, warehouseman’s, laborers’ and materialmen’s and similar liens, if the obligations secured by such liens are not yet overdue then delinquent or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than faith; liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrower’s or a Subsidiary’s business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments that are fully covered by insurance, and Guarantor as shall not have been in existence for a period longer than ten (10) days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than ten (10) days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lenderstay; (f) liens arising from (i) operating leases easements, rights of way, restrictions and the precautionary UCC financing statement filings other similar charges or Encumbrances relating to real property and not interfering in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in a material way with the ordinary course conduct of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereofBorrower’s business; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights restrictions under federal and state securities laws regarding the transfer or issuance of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecurities; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofliens constituting a renewal, extension or replacement of any Permitted Encumbrance; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; andor (i) security interests and liens sales permitted under Section 7.4(c) hereof, provided that no purchaser or other Person involved in existence such transactions shall receive or retain any Encumbrance on the date hereof which are set forth on Schedule 7.4 heretoCollateral.

Encumbrances. Neither the Company nor any of its Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("PERMITTED ENCUMBRANCES"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Bank or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderits Affiliates; (b) liens Encumbrances existing as of the date hereof and disclosed in SCHEDULE 6.4 hereto and securing the payment any refinancing of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available Indebtedness provided that such refinancing is permitted pursuant to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its booksSection 6.1(b); (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's Encumbrances for purchase money obligations or Guarantor's business (including carriers', warehousemen's, materialmen's Capital Leases permitted pursuant to Section 6.1(f); PROVIDED that such Encumbrances shall not attach to property and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk assets of the insurer Company or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to any Subsidiary not purchased with the commencement proceeds of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its bookssuch purchase money obligations; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensationliens for taxes, unemployment insurance fees, assessments and other types governmental charges to the extent that payment of social security benefits consistent the same may be postponed or is not required in accordance with the current practices provisions of Borrower and Guarantor as of the date hereof;Section 5.4; and (e) landlords' and lessors' liens in respect of rent not in default or liens 36 42 in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and deposits of cash similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by Borrower after the date hereof to secure such liens are not then delinquent; liens securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney), ; and statutory obligations incidental to the conduct of its business and other similar obligations in each case that do not in the ordinary course aggregate materially detract from the value of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon its property or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred use thereof in the fiscal year operation of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoits business.

Encumbrances. Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume, suffer or permit to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except: (a) liens and the security interests of Collateral Agent, provided, that, -------- ---- to the extent such and liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, assessments or other governmental charges or levies either (i) not yet overdue or (ii) the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower Borrower, provided, that, (A) adequate reserves or Guarantor other appropriate provision, if any, as are required by GAAP have been made therefor, (B) a stay of enforcement of any such liens is in effect and (C) Lender may establish a Reserve with respect to which adequate reserves have been set aside on its booksthereto; (c) non-consensual statutory liens of landlords, carriers, warehousemen, mechanics and other like persons (other than liens securing the payment of taxes, assessments or other governmental charges or levies) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness obligations relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or GuarantorBorrower, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property to secure Indebtedness permitted under Section 9.9(b) hereof; (f) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (eg) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fh) liens arising from (i) operating leases and the precautionary UCC or PPSA financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC or PPSA financing statement filings in respect thereof; (gi) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants judgments and other restrictions or encumbrances affecting the use of Real Property which similar liens arising in connection with court proceedings that do not interfere in any material respect with the use constitute an Event of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; Default, provided, that, (i) such liens are being contested in no event shall -------- ---- the aggregate amount of the Indebtedness secured good faith and by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafterappropriate proceedings diligently pursued, (ii) such security interests and mortgages shall not apply to any property of Borrower adequate reserves or other than the Equipment or real estate so acquiredappropriate provision, and if any, as are required by GAAP have been made therefor, (iii) a stay of enforcement of any such liens is in effect and (iv) Lender may establish a Reserve with respect thereto; (j) liens arising solely pursuant to any statutory or common law providing for banker's liens, rights of set-off or similar rights, in each case incurred in the Indebtedness secured thereby shall not exceed the cost ordinary course of the Equipment business of Borrower, except to the extent such liens or real estate so acquired, as the case may be; andrights of set-off or similar rights have been waived or modified; (ik) the pledge of cash by Borrower to the issuer of the Existing Letters of Credit prior to the date hereof in the amount of $3,500,000 to secure the contingent Indebtedness of Borrower to the Existing Lenders permitted under Section 9.9(f) hereof; (l) the security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto8.4 to the Information Certificate.

Encumbrances. (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Until all obligations of the holders Borrower under the Loan Documents are paid and performed in full, the Borrower hereby covenants and agrees that it shall not, unless the Lender otherwise consents in advance in writing, create, assume or suffer to exist, any Encumbrance of any kind, upon any of its properties, assets or Collateral, whether now owned or hereafter acquired, except: (i) Encumbrances securing the Toyo Loan; (ii) when the Toyo Loan is repaid in full, Encumbrances securing the Senior Loan; (iii) the Encumbrances granted in favor of the Senior Secured Notes Lender under the Mortgage and other Security Documents; (iv) Encumbrances for taxes, assessments and other governmental charges not yet due and payable or the Senior Secured Note Trusteedue and payable, such interests shall be subject and subordinate but not yet delinquent, or that are being contested in all respects good faith by appropriate proceedings; (v) deposits or pledges to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing secure the payment of taxesworkmen's compensation, either unemployment insurance or other social security benefits or obligations, or to secure the performance of trade contracts, leases, public or statutory obligations, surety or appeal bonds or other obligations of a like general nature incurred in the ordinary course of business; (vi) landlords', mechanics', materialmen's, warehousemen's, carriers', or other like Encumbrances arising in the ordinary course of business securing obligations which are not yet overdue for a period longer than 30 days, or the validity of which are being contested in good faith by appropriate proceedings which are being diligently pursued and available to Borrower or Guarantor and with respect as to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) Encumbrances are bonded to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk satisfaction of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; Lender; (dvii) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenseszoning, covenants similar restrictions, and other restrictions similar encumbrances or encumbrances affecting title defects that, singly or in the use of Real Property which aggregate, do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or case materially impair detract from the value of the Real Property which may be property subject thereto; thereto (has such property is used by the Borrower); (viii) purchase money security interests Encumbrances arising by operation of law in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; providedconnection with judgments, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, only to the extent that extent, for an amount, and for a period not resulting in an Event of Default; (ix) Encumbrances securing capitalized lease obligations insofar as such Encumbrances cover assets acquired pursuant to such capitalized lease obligations; (x) Encumbrances described in EXHIBIT B to the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise Mortgage; and (xi) --------- other Encumbrances permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, Security Documents (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretocollectively "PERMITTED ENCUMBRANCES").

Encumbrances. Except for those liens, security interests and encumbrances presently in existence and reflected in Borrower’s financial statements referred to in Section 4.12, and those created by the Security Agreement and the Mortgage, Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, capitalized lease, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of Borrower’s assets (and, for this purpose, the Company’s “priced as sold” arrangements with respect to its purchases of almonds and walnuts from growers in the ordinary course of business as customarily conducted in the past shall not be considered an assignment or a conveyance of a right to receive income or profits) other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under GAAP, have been set aside on its books; Borrower’s books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's deposits with insurance carriers or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations (including obligations to landlords, warehousemen and mechanics) or surety bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; providedBorrower’s business, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor past due; (but c) liens securing appeal bonds securing judgments not in connection with, or as part of, excess of $1,000,000; (d) liens and security interests in favor of the financing thereofAgent for the ratable benefit of the Lenders; (e) from time to time liens securing the interests of Broker in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; any Margin Account; (gf) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property Borrower’s real property, and other liens, security interests and encumbrances on property and which do not interfere not, in any material respect with the Agent’s reasonable determination: (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by Borrower; (hg) purchase money security interests securing amounts not exceeding $1,500,000 in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the during any fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, Borrower; and (iiih) the Indebtedness secured thereby shall not exceed the cost liens and encumbrances as described as part of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoProject.

Encumbrances. Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("PERMITTED ENCUMBRANCES"): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit Encumbrances in favor of the holders Agent or any of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects Lenders to the liens and security interests of Collateral Agent to the extent held for the benefit of Lendersecure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in EXHIBIT C hereto; (c) liens securing for taxes, fees, assessments and other governmental charges to the extent that payment of taxesthe same may be postponed or is not required in accordance with the provisions of Section 5.4; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, either unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', warehouseman's, laborers' and materialmen's and similar liens, if the obligations secured by such liens are not yet overdue then delinquent or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and proceedings, with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (maintained in accordance with GAAP; deposits, pledges and other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment payment of Indebtednessmoney); and deposits, pledges and other liens securing statutory obligations and or surety, indemnity, performance, or other similar obligations in each case bonds incidental to the conduct of the Borrower's or a Subsidiary's business in the ordinary course and that do not in the aggregate materially detract from the value of business consistent with its property or materially impair the current practices use thereof in the operation of Borrower its business; (e) judgment liens securing judgments unless (i) such liens are not fully covered by insurance, and Guarantor as shall not have been in existence for a period longer than 10 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 10 days after the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer expiration of such bond shall have waived in writing any rights in or tostay, or other interest in, any (ii) do not give rise to an Event of the Collateral in an agreement, in form and substance satisfactory to Lender;Default under Section 8.1 (f) liens rights of lessors under capital leases; (g) easements, rights of way, restrictions and other similar charges or Encumbrances relating to real property and not interfering in a material way with the ordinary conduct of the Borrower' business or arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretosecuring monetary obligations; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereofliens constituting a renewal, extension or replacement of any Permitted Encumbrance; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; andor (i) security interests restrictions under federal and liens in existence on state securities laws regarding the date hereof which are set forth on Schedule 7.4 heretotransfer of securities.

Encumbrances. ADT Limited will not, and will not permit any of its subsidiaries to, create, incur, assume or suffer to exist any encumbrance upon any of its property, revenues or assets (including Capital Stock of subsidiaries of ADT Limited), whether now owned or hereafter acquired, except: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lenderencumbrances securing any obligation under any Finance Document; (b) liens encumbrances granted prior to 23 August 1995 to secure Indebtedness of the type permitted and described in clause (c) of Section 4.2.2 and encumbrances securing refinancings thereof permitted by clause (o) of Section 4.2.2 and sub-paragraph (i) of the payment definition of "Permitted Indebtedness" of the Facility Agreement respectively; (c) encumbrances granted to secure Indebtedness of the type permitted and described in clause (h) of Section 4.2.2 and sub-paragraph (f) of the definition of "Permitted Indebtedness" of the Facility Agreement and covering only those assets acquired with the proceeds of such Indebtedness and encumbrances with respect to such assets securing refinancings of such Indebtedness permitted by clause (o) of Section 4.2.2, respectively; (d) encumbrances for taxes, either assessments or other governmental charges or levies not yet overdue at the time delinquent or the validity of which are thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate reserves in accordance with GAAP shall have been set aside on its books; (ce) non-consensual statutory liens (other than liens securing the payment encumbrances of taxes) arising carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are for sums not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being diligently contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to for which adequate reserves in accordance with GAAP shall have been set aside on its books; (df) pledges and deposits of cash by Borrower or Guarantor after the date hereof encumbrances incurred in the ordinary course of business in connection with workers' workmen's compensation, unemployment insurance and or other types forms of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof governmental insurance or benefits, or to secure the performance of tenders, bidsstatutory obligations, leases, trade leases and contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case borrowed money) entered into in the ordinary course of business consistent or to secure obligations on surety or appeal bonds; (g) judgment encumbrances (i) in an aggregate amount not in excess of $15,000,000, (ii) as to which enforcement proceedings shall not have commenced and there shall not have been a period of 30 consecutive days during which such judgment was not stayed or (iii) the payment of which is covered in full (subject to a customary deductible) by insurance maintained with the current practices responsible insurance companies; (h) encumbrances with respect to assets of Borrower and Guarantor as a subsidiary of ADT Limited (other than any member of the date hereofGroup) granted to secure Indebtedness owing to the Borrower or any other Obligor or any of the Obligors under the US $200 million Credit Facility or under any other Indebtedness described at clause (q) of Section 4.2.2; (i) encumbrances with respect to assets of a subsidiary of ADT Limited (other than any member of the Group) granted to secure Indebtedness owing to ADT Limited or a wholly owned subsidiary of ADT Limited; (j) encumbrances (i) existing at the time that a person becomes a subsidiary of ADT Limited in a transaction permitted hereunder or (ii) assumed in connection with an acquisition of assets permitted hereunder; provided, -------- thathowever, that any such encumbrance covers only assets that were subject to such encumbrance prior to the related transaction and was not created, assumed or incurred in contemplation of such transaction; (k) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of ADT Limited or any of its subsidiaries and incurred in the ordinary course of business; (l) the encumbrance inherent in the right of any bank to set off deposits against debts owed to such bank; (m) encumbrances in favour of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with any performance bonds issued by a surety or other ---- person, the issuer importation of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lendergoods; (fn) liens encumbrances arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises operation of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time law incurred in the ordinary course of business and consistent with current practices of Borrower and Guarantor which encumbrances, singly or in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictionsaggregate, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use business of such Real Property ADT Limited or ordinary conduct any of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject theretoits subsidiaries; (ho) purchase money security interests encumbrances created by ADT Operations, Inc. or any of its subsidiaries to secure Indebtedness referred to in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may beSection 4.2.2(q); and (ip) security interests and liens other encumbrances securing Indebtedness in existence on the date hereof which are set forth on Schedule 7.4 heretoan aggregate amount not to exceed $15,000,000 at any time outstanding.

Encumbrances. Except for those liens, security interests and ------------ encumbrances presently in existence and reflected in Borrower's financial statements referred to in Section 6.14 and permitted under Section 6.4, Borrower ------------ shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any Collateral other than: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves Borrower shall, if appropriate under generally accepted accounting principles, have been set aside on its books; Borrower's books and records adequate reserves; (cb) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowerdeposits under workmen's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure similar laws, or securing the performance of bids, tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness)borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations and or surety or appeal bonds, or securing indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereofBorrower's business; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (fc) liens arising from and security interests in favor of FBS Ag Credit; (id) operating leases and liens securing the precautionary UCC financing statement filings interests of Broker in respect thereof and any Margin Account; (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (ge) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property Borrower's real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of FBS Ag Credit and which do not interfere not, in any material respect with FBS Ag Credit's sole determination: (i) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (ii) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; the same is held by Borrower; and (hf) purchase money security interests in securing amounts relating to such items of Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured as are specifically consented to by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoFBS Ag Credit.

Encumbrances. Create, incur, assume or suffer to exist any Encumbrance upon any of its properties or assets (including without limitation, the Collateral), whether now owned or hereafter acquired, except for the following: (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to Encumbrances created in connection with the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; Loan Documents; (b) Mechanic’s, warehouseman’s, and statutory landlords’ Encumbrances arising as an incident to the normal and customary conduct of Borrower’s business or the ownership of properties and assets by Borrower, and deposits and pledges incurred in the ordinary course of business and not in connection with the borrowing of money; provided, however, that (i) in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith and adequate reserves have been set aside by the Borrower as the case may be, and (ii), in the case of warehousemen’s or landlord’s Encumbrances, written subordination agreements providing for the subordination or waiver of the warehousemen’s or landlord’s Encumbrances to the security interests and liens provided by Borrower to Lender under this Agreement and the other Loan Documents shall have been executed by the warehousemen and/or landlords (as applicable) and Borrower and delivered to Lender, and are in form and substance satisfactory to Lender; (c) Encumbrances securing the payment payments of taxestaxes or other governmental charges incurred in the ordinary course of business that either (1) are not delinquent, either not yet overdue or the validity of which (2) are being contested in good faith by appropriate legal or administrative proceedings diligently pursued and available to Borrower or Guarantor and with respect as to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) their books to the extent: (i) such liens secure Indebtedness or obligations extent required by GAAP, and which are do not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested result in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; a Material Adverse Effect; (d) Encumbrances listed on the schedule attached hereto as Schedule 7.2; (e) Encumbrances in respect of pledges and or deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' workers compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereoflegislation; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment Encumbrances securing Capital Leases or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests securing amounts not to exceed in Equipment the aggregate Five Hundred Thousand and 00/100 Dollars (including Capital Leases$500,000.00) at any time outstanding; (g) Encumbrances not otherwise permitted hereunder that do not in the aggregate exceed Two Hundred Fifty Thousand and purchase money mortgages on real estate 00/100 Dollars (including improvements thereto$250,000.00) arising after the date hereofat any time outstanding; (h) Encumbrances in respect of precautionary UCC filings in respect of leases; and (i) Extensions, renewals and replacements of Encumbrances referred to in clauses (a) through (h) of this Section 7.2; provided, thathowever, (i) that any such extension, renewal or replacement Encumbrance shall be limited to the property or assets and proceeds thereof covered by the Encumbrance extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement Encumbrance shall be in no event shall -------- ---- an amount not greater than the aggregate amount of the Indebtedness obligations secured by such security interests the Encumbrance extended, renewed or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoreplaced.

Encumbrances. The Borrower shall not create, incur, assume or suffer to exist any Lien of any nature whatsoever on any of its assets or property, including, without limitation, the Collateral, other than the following (“Permitted Liens”): (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Borrower shall, if appropriate under GAAP, have set aside on its books and records adequate reserves, provided, that such contest does not have a material adverse effect on the ability of the Borrower to pay any of the Liabilities, or the priority or value of the Lender’s Lien in the Collateral; (b) deposits under workmen’s compensation, unemployment insurance, social security and other similar laws; (c) Liens in favor of the Lender; (d) liens imposed by law, such as mechanics’, materialmen’s, landlord’s, warehousemen’s, carriers’ and other similar liens, securing obligations incurred in the ordinary course of business that are not past due for more than ten (10) calendar days, that are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to for which adequate appropriate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's established or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which that are not overdue yet due and payable; (e) purchase money security interests upon or (ii) such liens secure Indebtedness relating to claims in any property acquired or liabilities which are fully insured and being defended at held by the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower and Guarantor as of the date hereof; provided, -------- that, in connection with any performance bonds issued by a surety or other ---- person, the issuer purchase price of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from property so long as: (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time aggregate indebtedness relating to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment and Capitalized Lease Obligations does not at any time exceed One Hundred Thousand Dollars (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i$100,000) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in at any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereaftertime, (ii) each such security interests and mortgages lien shall not apply only attach to any the property of Borrower other than the Equipment or real estate so to be acquired, ; and (iii) the Indebtedness secured thereby indebtedness incurred shall not exceed the cost one hundred percent (100%) of the Equipment purchase price of the item or real estate so acquireditems purchased; and (e) Liens in favor of the Mezzanine Lender, as subject in all cases to the case may be; and (i) security interests and liens in existence on provisions of the date hereof which are set forth on Schedule 7.4 heretoSubordination Agreements.

Encumbrances. (a) liens and security interests The Borrower will not create, incur, assume or suffer to exist any Lien of Collateral Agentany nature whatsoever on any of its assets or property, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit of the holders of the Senior Secured Notes or the Senior Secured Note Trustee, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers', warehousemen's, materialmen's and mechanics' liens) to the extentthan: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen’s compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent business; (ii) the security interests in favor of Lender; (iii) Liens which arise by operation of law, other than Environmental Liens; (iv) Liens for taxes not yet due which are being diligently contested in good faith by appropriate proceedings; (v) easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or encumbrances on real estate, that do not secure any monetary obligation and do not interfere with the current practices Borrower’s ordinary course of Borrower business; (vi) normal and Guarantor as customary rights of setoff upon deposits in favor of depository institutions, and Liens of a collecting bank on payment items in the date hereofcourse of collection; (vii) Liens in connection with purchase money Indebtedness and Capitalized Leases permitted pursuant to Section 8.2; provided, -------- thatthat such Liens secure only the amounts borrowed to finance the purchase or lease, in connection with any performance bonds issued by a surety or other ---- personand attaches only to, the issuer of such bond shall have waived in writing any rights in assets relating to the purchase or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof lease; and (iiviii) equipment or other materials which are not owned by Borrower or Guarantor located Liens existing on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business Closing Date and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (g) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the businesses of Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- the aggregate amount of the Indebtedness secured by such security interests or mortgages incurred in the fiscal year of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquired, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 hereto8.1 hereto (clauses (i) through (viii), collectively, “Permitted Liens”).

Encumbrances. (a) liens and security interests of Collateral Agent, provided, that, -------- ---- to the extent such liens and security interests on the Collateral are held for the benefit None of the holders Loan Parties will create, incur, assume or suffer to exist any Lien on any of its assets, including, without limitation, the Senior Secured Notes or Collateral, other than the Senior Secured Note Trusteefollowing (collectively, such interests shall be subject and subordinate in all respects to the liens and security interests of Collateral Agent to the extent held for the benefit of Lender; "Permitted Liens"): (bi) liens Liens securing the payment of taxes, either not yet overdue due or the validity of which are is being contested in good faith by appropriate proceedings diligently pursued proceedings, and available to Borrower or Guarantor and with respect as to which adequate reserves such Loan Party shall, if appropriate under generally accepted accounting principles, have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or Guarantor's business (including carriers'books and records adequate reserves, warehousemen's, materialmen's and mechanics' liens) to the extent: (i) such liens secure Indebtedness or obligations which are not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) pledges and deposits of cash by Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' under workmen's compensation, unemployment insurance insurance, social security and other types of social security benefits consistent with the current practices of Borrower and Guarantor as of the date hereof; (e) pledges and deposits of cash by Borrower after the date hereof similar laws, or to secure the performance of tenders, bids, leases, trade tenders or contracts (other than for the repayment of Indebtedness)borrowed money) or to secure indemnity, performance or other similar bonds for the 51 58 performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations and or surety or appeal bonds, or to secure indemnity, performance or other similar obligations in each case bonds in the ordinary course of business consistent with business, (iii) the current practices Liens in favor of Borrower and Guarantor as Agent, for the benefit of the date hereof; providedLenders, -------- that(iv) Liens which arise by operation of law, in connection with any performance bonds issued by a surety or other ---- personthan Environmental Liens, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender; (f) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or Guarantor located on the premises of Borrower or Guarantor (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower and Guarantor in effect on the date hereof and the precautionary UCC financing statement filings in respect thereof; (gv) zoning restrictions, easements, reservations, exceptions, encroachments, rights of way, licenses, covenants and other restrictions or encumbrances affecting the use of Real Property real property, (vi) Liens on Equipment securing purchase money security indebtedness and Capitalized Lease Obligations permitted under subsection 8.2(iii) hereof, (vii) Liens arising from the filing of precautionary financing statements by lessors regarding Equipment leased to the Loan Parties by such lessors, (viii) any judgment Lien securing a judgment not constituting a Default under subsection 9.1(D) hereof, (ix) the possessory Lien of First Union National Bank ("First Union") in cash collateral in the amount of approximately $4,570,000 pledged by the Company to First Union on the Closing Date to secure the Company's reimbursement obligations under the letters of credit referred to in subsection 8.2(viii) hereof and (x) other Liens on property (excluding Liens securing Indebtedness), which do not interfere not, in any material respect with Agent's sole determination, (a) materially impair the use of such Real Property property, or ordinary conduct of the businesses of Borrower as presently conducted thereon or (b) materially impair lessen the value of such property for the Real Property purposes for which may be subject thereto; (h) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages the same is held by such Loan Party. Schedule 8.1 attached hereto identifies all Permitted Liens existing on real estate (including improvements thereto) arising after the date hereof; provided, that, (i) in no event shall -------- ---- Closing Date with respect to the aggregate amount Collateral. None of the Indebtedness secured by such security interests or mortgages incurred in Loan Parties shall permit the fiscal year filing of Borrower ending December 31, 2001 exceed $2,000,000, or in the fiscal year of Borrower ending December 31, 2002 exceed $3,000,000, or in the fiscal year of Borrower ending December 31, 2003 exceed $5,000,000, or in any fiscal year thereafter exceed $1,000,000, provided, that, to the extent that the amount of such Indebtedness incurred by Borrower in financing statement naming any fiscal year is less than the amount otherwise permitted under this Section, the amount of such Indebtedness which may be incurred in the immediately following fiscal year shall be increased by such amount, up to a maximum such increase of $2,000,000 as to Indebtedness not incurred in the fiscal year of Borrower ending December 31, 2001 and up to a maximum for such increase of $1,000,000 in any fiscal year thereafter, (ii) such security interests and mortgages shall not apply to any property of Borrower other than the Equipment or real estate so acquired, and (iii) the Indebtedness secured thereby shall not exceed the cost of the Equipment or real estate so acquiredLoan Parties as debtor, as the case may be; and (i) security interests and liens in existence on the date hereof which are set forth on Schedule 7.4 heretoexcept for financing statements filed with respect to Liens expressly permitted by this Agreement.