TERM LOAN AND SECURITY AGREEMENT

TERM LOAN AND SECURITY AGREEMENT

Term Loan and Security Agreement dated as of 2nd day of July, 2004, between Pac-West Telecomm, Inc., a corporation organized and existing under the laws of the State of Califorinai having its principal office at 0000 X. Xxxxx Xxxx, Xxxxxxxx, XX 00000 ("Customer"), and Xxxxxxx Xxxxx Capital, a division of Xxxxxxx Xxxxx Business Financial Services Inc., a corporation organized and existing under the laws of the State of Delaware having its principal office at 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx, XX 00000 ("MLC").

In consideration of the mutual covenants of the parties hereto, Customer and MLC hereby agree as follows:

ARTICLE 1. DEFINITIONS

Section 1.1 Specific Terms. In addition to terms defined elsewhere in this Loan Agreement, when used herein the following terms shall have the following meanings:

"Applicable Law" shall mean all laws, judgments, decrees, ordinances and regulations and any other governmental rules, orders and determinations and all requirements having the force of law, now or hereafter enacted, made or issued, whether or not presently contemplated, including (without limitation) compliance with all requirements of zoning laws and labor laws.

"Bankruptcy Event" shall mean any of the following: (i) a proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, liquidation, winding up or receivership law or statute shall be commenced, filed or consented to by any Credit Party; or (ii) any such proceeding shall be filed against any Credit Party and shall not be dismissed or withdrawn within sixty (60) days after filing; or (iii) any Credit Party shall make a general assignment for the benefit of creditors; or (iv) any Credit Party shall generally fail to pay or admit in writing its inability to pay its debts as they become due; or (v) any Credit Party shall be adjudicated a bankrupt or insolvent; or (vi) any Credit Party shall take advantage of any other law or procedure for the relief of debtors or shall take any action for the purpose of or with a view towards effecting any of the foregoing; or (vii) a receiver, trustee, custodian, fiscal agent or similar official for any Credit Party or for any substantial part of any of their respective property or assets shall be sought by such Credit Party or appointed.

"Business Day" shall mean any day other than a Saturday, a Sunday, and any day on which banking institutions located in the State of New York are authorized by law or other governmental action to close.

"Business Guarantor" shall mean every Guarantor that is not a natural person.

"Closing Date" shall mean the date upon which all conditions precedent to MLC's obligation to make the Loan shall have been met to the satisfaction of MLC.

"Collateral" shall mean the collateral more fully described on Exhibit A attached hereto, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all parts thereof (including spare parts), all accessories, alterations and accessions thereto, all books and records (including computer records) directly related thereto, all proceeds thereof (including, without limitation, proceeds in the form of Accounts and insurance proceeds), and the additional collateral described in Section 3.6 (b) hereof.

"Commitment Expiration Date" shall mean December 31, 2004.

"Commitment Fee" shall mean an aggregate fee equal to $100,000.00 which was received by MLC in connection with the Commitment Letter and the initial funding thereunder.

"Commitment Letter" shall mean that certain commitment letter from MLC to Customer dated May 20, 2004.

"Credit Party" and "Credit Parties" shall mean, individually or collectively, the Customer, all Guarantors, and all Pledgors.

"Default" shall mean either an "Event of Default" as defined in Section 3.5 hereof, or an event which with the giving of notice, passage of time, or both, would constitute such an Event of Default.

"Default Rate" shall mean an annual interest rate equal to the lesser of: (i) two percentage points over the Interest Rate; or (ii) the highest interest rate allowed by applicable law.

"Event of Loss" shall mean the occurrence whereby any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated.

"GAAP" shall mean the generally accepted accounting principles in effect in the United States of America from time to time.

"General Funding Conditions" shall mean each of the following conditions to each loan or advance by MLC hereunder: (i) no Default or Event of Default shall have occurred and be continuing or would result from the making of any such loan or advance hereunder by MLC; (ii) there shall not have occurred and be continuing any material adverse change in the business, condition (financial or otherwise) of any Credit Party; (iii) all representations and warranties of all of the Credit Parties herein or in any of the Loan Documents shall then be true and correct in all material respects; (iv) MLC shall have received this Loan Agreement and all of the other Loan Documents, duly executed, all of which shall be in form and substance satisfactory to MLC; (v) the Commitment Fee shall have been paid in full; (vi) MLC shall have received, as and to the extent applicable, copies of invoices, bills of sale, loan payoff letters and/or other evidence reasonably satisfactory to it that the proceeds of the Loan will satisfy the Loan Purpose; (vii) MLC shall have received evidence reasonably satisfactory to it as to the ownership of the Collateral and the perfection and priority of MLC's liens and security interests thereon, as well as the ownership of and the perfection and priority of MLC's liens and security interests on any other collateral for the Obligations furnished pursuant to any of the Loan Documents; (viii) MLC shall have received evidence reasonably satisfactory to it of the insurance required hereby or by any of the Loan Documents on the Collateral; and (ix) any additional conditions, information and/or other documents as reasonably requested by MLC with respect to the transactions contemplated hereby shall have been met to the reasonable satisfaction of MLC.

"Guarantor" shall mean each Person obligated under a guaranty, endorsement or other undertaking by which such Person guarantees or assumes responsibility in any capacity for the payment or performance of any of the Obligations.

"Individual Guarantor" shall mean every Guarantor that is a natural person.

"Loan" shall mean a 36 month term installment loan in an amount equal to $2,996,445.82

"Loan Agreement" shall mean this agreement as titled in the initial paragraph hereof.

"Loan Documents" shall mean this Loan Agreement, any note, any guaranty of any of the Obligations and all other security and other instruments, assignments, certificates, certifications and agreements of any kind relating to any of the Obligations, whether obtained, authorized, authenticated, executed, sent or received concurrently with or subsequent to this Loan Agreement, or which evidence the creation, guaranty or collateralization of any of the Obligations or the granting or perfection of liens or security interests upon any Collateral or any other collateral for the Obligations, including any modifications, amendments or restatements of the foregoing.

"Loan Purpose" shall mean the purpose for which the proceeds of the Loan will be used; to wit: to purchase or finance equipment.

"Location of Tangible Collateral" shall mean the address of Customer where the collateral is located as set forth on Exhibit A hereto.

"Material Adverse Effect" shall mean any material adverse effect on the business or financial condition of Customer taken as a whole as reasonably determined by MLC.

"Obligations" shall mean all liabilities, indebtedness and obligations of Customer to MLC, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without limiting the generality of the foregoing, shall include principal, accrued interest (including without limitation interest accruing after the filing of any petition in bankruptcy), all advances made by or on behalf of MLC under the Loan Documents, collection and other costs and expenses incurred by or on behalf of MLC, whether incurred before or after judgment, and all present and future liabilities, indebtedness and obligations of Customer under the Note issued pursuant hereto and this Loan Agreement, or any other Note or evidence of indebtedness to MLC.

"Permitted Liens" shall mean with respect to the Collateral: (i) liens for current taxes not yet due and payable, other non-consensual liens arising in the ordinary course of business for sums not due, and, if MLC's rights to and interest in the Collateral would not be materially and adversely affected thereby, any such liens for taxes or other non-consensual liens arising in the ordinary course of business being contested in good faith by appropriate proceedings and so long as adequate reserves are maintained with respect to such liens and available to Customer for the payment of such taxes or other non-consensual liens; (ii) liens in favor of MLC; (iii) liens which will be discharged with the proceeds of the Loan; (iv) statutory liens of landlords, carriers, warehousemen, processors, mechanics, materialmen, or suppliers incurred in the ordinary course of business and securing amounts not yet due or declared to be due by the claimant thereunder; and (v) any other liens expressly permitted in writing by MLC.

"Person" shall mean any natural person and any corporation, partnership (general, limited or otherwise), limited liability company, trust, association, joint venture, governmental body or agency or other entity having legal status of any kind.

"Pledgor" shall mean each Person who at any time provides collateral, or otherwise now or hereinafter agrees to grant MLC a security interest in any assets as security for Customer's Obligations.

"UCC" shall mean the Uniform Commercial Code of Illinois as in effect in Illinois from time to time.

1.2 Other Terms. Except as otherwise defined herein, all terms used in this Loan Agreement which are defined in the UCC shall have the meanings set forth in the UCC and accounting terms not defined herein shall have the meaning ascribed to them in GAAP.

1.3 UCC Filing. Customer hereby authorizes MLC to file a record or records (as defined or otherwise specified under the UCC), including, without limitation, financing statements, in all jurisdictions and with all filing offices as MLC may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to MLC herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as MLC may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the MLC herein.

ARTICLE II. THE LOAN

2.1 Commitment. Subject to the terms and conditions hereof, MLC hereby agrees to make the Loan to Customer for the Loan Purpose, and Customer agrees that all amounts borrowed shall satisfy the Loan Purpose from MLC. The entire proceeds of the Loan shall be disbursed on the Closing Date either directly to the applicable third party or parties on account of the Loan Purpose or to reimburse Customer for amounts directly expended by it; all as directed by Customer in a Pay Proceeds Notice to be executed by Customer and delivered to MLC as set forth in Section 2.3.

2.2 Note. The Loan will be evidenced by and repayable in accordance with that certain Collateral Installment Note made by Customer payable to the order of MLC and issued pursuant to this Loan Agreement (the "Note"). The Note is hereby incorporated as a part hereof as if fully set forth herein.

2.3 Conditions of MLC's Obligation. The Closing Date and MLC's obligation to make the Loan on the Closing Date are subject to the prior fulfillment of each of the following conditions: (a) MLC shall have received a written request from Customer that the Loan be funded in accordance with the terms hereof, together with a written direction from Customer as to the method of payment and payee(s) of the proceeds of the Loan, which request and direction shall have been received by MLC not less than two Business Days prior to any requested funding date; (b) the Commitment Expiration Date shall not then have occurred; and (c) each of the General Funding Conditions shall then have been met or satisfied to the reasonable satisfaction of MLC.

2.4 Use of Loan Proceeds. The proceeds of the Loan shall be used by Customer solely for a Loan Purpose, or, with the prior written consent of MLC, for other lawful business purposes of Customer not prohibited hereby. Customer agrees that under no circumstances will the proceeds of the Loan be used: (a) for personal, family or household purposes of any Person whatsoever, or (b) to purchase, carry or trade in securities, or repay debt incurred to purchase, carry or trade in securities, or (c) unless otherwise consented to in writing by MLC, to pay any amount to Xxxxxxx Xxxxx and Co., Inc. or any of its subsidiaries, other xxxx Xxxxxxx Xxxxx Bank USA, Xxxxxxx Xxxxx Bank & Trust Co. or any subsidiary of either of them (including MLC and Xxxxxxx Xxxxx Credit Corporation).

ARTICLE III. GENERAL PROVISIONS

3.1 Representations and Warranties. Customer represents and warrants to MLC that:

Organization and Existence. Customer is a corporation, duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation; the organizational number assigned to Customer by such jurisdiction is C1968719; Customer is qualified to do business and in good standing in each other jurisdiction where the nature of its business or the property owned by it make such qualification necessary and where the failure to be so qualified would have a Material Adverse Effect; and, where applicable, each Business Guarantor is duly organized, validly existing and in good standing under the laws of the state of its formation and is qualified to do business and in good standing in each other jurisdiction where the nature of its business or the property owned by it make such qualification necessary, and where the failure to be so qualified would have a Material Adverse Effect.

Execution, Delivery and Performance. Each Credit Party has the requisite power and authority to enter into and perform the Loan Documents. The Customer holds all necessary permits, licenses, certificates of occupancy and other governmental authorizations and approvals required in order to own or operate the Customer's business except where the failure to do so would have a Material Adverse Effect. The execution, delivery and performance by Customer of this Loan Agreement and by each of the other Credit Parties of such of the other Loan Documents to which it is a party: (i) have been duly authorized by all requisite corporate action by such Credit Party, (ii) do not and will not violate or conflict with any material law, order or other governmental requirement, or any of the agreements, instruments or documents which formed or govern any of the Credit Parties, and (iii) do not and will not breach or violate any of the provisions of, and will not result in a default by any of the Credit Parties under, any other material agreement, instrument or document to which it is a party or is subject.

Notices and Approvals. Except as may have been given or obtained, no notice to or consent or approval of any governmental body or authority or other third party whatsoever (including, without limitation, any other creditor) is required in connection with the execution, delivery or performance by any Credit Party of this Loan Agreement, the Note and the other Loan Documents to which it is a party other than where the failure to have been given or to have obtained such notice, consent or approval would not have a Material Adverse Effect.

Enforceability. The Loan Documents to which any Credit Party is a party are the respective legal, valid and binding obligations of such Credit Party, enforceable against it or them, as the case may be, in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally or by general principles of equity.

Collateral. Except for the existence of, or priorities afforded to, any Permitted Liens: (i) Customer has good and marketable title to the Collateral, (ii) none of the Collateral is subject to any lien, encumbrance or security interest, and (iii) upon the filing of all Uniform Commercial Code financing statements authenticated or otherwise authorized by Customer with respect to the Collateral in the appropriate jurisdiction(s) and/or the completion of any other action required by applicable law to perfect its liens and security interests, MLC will have valid and perfected first liens and security interests upon all of the Collateral. Without limiting the foregoing:

The chief executive office and chief place of business (as such terms are used in Article 9 of the UCC) of Customer is located at the address specified in the preamble hereto.

The tangible Collateral is and will remain tangible personal property and is not and shall not constitute real property fixtures. The tangible Collateral is removable from and is not essential to the premises at which the tangible Collateral is located.

All of the tangible Collateral is located at the Location of Tangible Collateral.

Financial Statements. Except as expressly set forth in Customer's or any Business Guarantor's financial statements, all financial statements of Customer and each Business Guarantor furnished to MLC have been prepared in conformity with generally accepted accounting principles, consistently applied, are true and correct in all material respects, and fairly present the financial condition of it as at such dates and the results of its operations for the periods then ended (subject, in the case of interim unaudited financial statements, to normal year-end adjustments); and since the most recent date covered by such financial statements, there has been no material adverse change in any such financial condition or operation.

Litigation; Compliance With All Laws. No litigation, arbitration, administrative or governmental proceedings are pending or, to the knowledge of Customer, threatened against any Credit Party, which would, materially and adversely affect (i) such Credit Party's interest in the Collateral or the liens and security interests of MLC hereunder or under any of the Loan Documents, or (ii) the financial condition of such Credit Party or its continued operations. Each Credit Party is in compliance in all material respects with all laws, regulations, requirements and approvals applicable to such Credit Party.

Tax Returns. All federal, state and local tax returns, reports and statements required to be filed by any Credit Party have been filed with the appropriate governmental agencies and all taxes due and payable by any Credit Party have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect (i) either the liens and security interests of MLC hereunder or under any of the Loan Documents, (ii) the financial condition of any Credit Party, or (iii) its continued operations).

Relationship with Xxxxxxx Xxxxx. Neither Customer nor any shareholder or other Person that controls Customer is (i) an executive officer or director of Xxxxxxx Xxxxx & Co., Inc. or any of its subsidiaries, or (ii) a holder of more than 10% of any class of voting securities of Xxxxxxx Xxxxx & Co., Inc. or any of its subsidiaries. For purposes of this representation, "control" means the power to vote 25% or more of any class of voting securities; the ability to control the election of a majority of directors; or the power to exercise a controlling influence over management policies.

No Outside Broker. Except for employees of MLC, Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Financial Consultant ("MLPF&S") or one of their affiliates or as described in writing by Customer to MLC, Customer has not in connection with the transactions contemplated hereby directly or indirectly engaged or dealt with, and was not introduced or referred to MLC by, any broker or other loan arranger.

Environmental Matters. In the ordinary course of its business, the officers of Customer consider the effect of Environmental Laws on the business of Customer, in the course of which they identify and evaluate potential risks and liabilities accruing to Customer due to Environmental Laws. On the basis of this consideration, Customer has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect on Customer or any Business Guarantor. Neither Customer nor any Business Guarantor has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect on Customer or any Business Guarantor. "Environmental Laws" shall mean any Federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") (42 U.S.C. section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.), the Clean Air Act (42 U.S.C. section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, Federal, state or local statutes, and the regulations promulgated pursuant thereto.

Investment Company Act. Neither Customer nor any Business Guarantor is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.

Public Utility Holding Company Act. Neither Customer nor any Business Guarantor is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Each of the foregoing representations and warranties: (i) has been and will be relied upon as an inducement to MLC to make the Loan, and (ii) is continuing and shall be deemed remade by Customer on the Closing Date and at no other time.

3.2 Financial and Other Information. Customer shall furnish or cause to be furnished to MLC during the term of this Loan Agreement all of the following:

Annual Financial Statements. Within 90 days after the close of each fiscal year of Customer, a copy of the annual certified financial statements of Customer and the annual certified financial statements of each Business Guarantor, including, in each case, in reasonable detail, a balance sheet and statement of retained earnings as at the close of such fiscal year and statements of profit and loss and cash flow for such fiscal year;

Interim Financial Statements. Within 60 days after the close of each fiscal quarter of Customer, a copy of the interim financial statements of Customer and each Business Guarantor for such fiscal quarter (including in reasonable detail both a balance sheet as of the close of such fiscal period, and statement of profit and loss for the applicable fiscal period); and

Other Information. Such other information as MLC may from time to time reasonably request relating to Customer, any Credit Party or the Collateral.

General Agreements With Respect to Financial Information. Customer agrees that except as otherwise specified herein or otherwise agreed to in writing by MLC: (i) all annual financial statements required to be furnished by Customer to MLC hereunder will be audited by either the current independent accountants for Customer or other independent accountants selected by Customer and reasonably acceptable to MLC, and (ii) all other financial statements required to be furnished by Customer to MLC hereunder will be certified as fairly presenting the financial condition of the Customer in all material respects by the respective chief financial officer.

3.3 Other Covenants. Customer further agrees during the term of this Loan Agreement that:

Financial Records; Inspection. Each Credit Party (other than any Individual Guarantor) will: (i) maintain at its principal place of business complete and accurate books and records, and maintain all of its financial records in a manner consistent with the financial statements heretofore furnished to MLC, or prepared on such other basis as may be approved in writing by MLC or as required by law; and (ii) permit MLC or its duly authorized representatives, upon reasonable notice and at reasonable times, to inspect its properties (both real and personal), operations, books and records, provided that absent the occurrence and continuance of an Event of Default, MLC shall not conduct more than one inspection in any 12 month period.

Taxes. Each Credit Party will pay when due all of its respective taxes, assessments and other governmental charges, howsoever designated, and all other liabilities and obligations, except to the extent that any such failure to file or pay will not materially and adversely affect either the liens and security interests of MLC hereunder or under any of the Loan Documents, the financial condition of any Credit Party or its continued operations.

Compliance With Laws and Agreements. No Credit Party will violate (i) any law, regulation or other governmental requirement, any judgment or order of any court or governmental agency or authority; (ii) any agreement, instrument or document which is material to its operations or to the operation or use of any Collateral, in each case as contemplated by the Loan Documents; or (iii) any agreement, instrument or document to which it is a party or by which it is bound, if any such violation will materially and adversely affect either the liens and security interests of MLC hereunder or under any of the Loan Documents, the financial condition of any Credit Party, or its continued operations.

No Use of Xxxxxxx Xxxxx Name. Except upon the prior consent of MLC, no Credit Party will directly or indirectly publish, disclose or otherwise use in any advertising or promotional material, or press release, the name, logo or any trademark of MLC, MLPF&S, Xxxxxxx Xxxxx and Co., Inc. or any of their affiliates; provided, however, MLC hereby consents to any filing with the SEC or similar regulatory body and the disclosure of the existence and terms of this facility.

Notification By Customer. Customer shall provide MLC with prompt written notification of: (i) any Default or Event of Default; (ii) any Material Adverse Effect in the business, financial condition or operations of any Credit Party; (iii) any information which indicates that any financial statements of any Credit Party fail in any material respect to present fairly the financial condition and results of operations purported to be presented in such statements; (iv) any threatened or pending litigation involving any Credit Party which could reasonably be expected to have an Material Adverse Effect; (v) any casualty loss, attachment, lien, judicial process, encumbrance or claim affecting or involving any material portion of the Collateral; and (vi) any change in Customer's outside accountants. Each notification by Customer pursuant hereto shall specify the event or information causing such notification, and, to the extent applicable, shall specify the steps being taken to rectify or remedy such event or information.

Entity Organization. Each Credit Party which is an entity will (i) remain (A) validly existing and in good standing in the state of its organization and (B) qualified to do business and in good standing in each other state where the nature of its business or the property owned by it make such qualification necessary and the failure to do so materially adversely affects MLC's interest in the Collateral or its ability to enforce the terms of the Loan Documents or exercise any remedies thereunder or under applicable law, as reasonably determined by MLC, and (ii) maintain all governmental permits, licenses and authorizations where the failure to do so would and the failure to do so materially adversely affects MLC's interest in the Collateral or its ability to enforce the terms of the Loan Documents or exercise any remedies thereunder or under applicable law, as reasonably determined by MLC. Customer shall give MLC not less than 30 days prior written notice of any change in name (including any fictitious name) or chief executive office, place of business, or as applicable, the jurisdiction of organization or principal residence.

Merger, Change in Business. Except upon the prior written consent of MLC, Customer shall not cause or permit any Credit Party to: (i) be a party to any merger or consolidation except where Customer is the surviving entity thereof, (ii) sell, transfer or lease all or any substantial part of its assets; (iii) engage in any material business substantially different from its business in effect as of the date of application by Customer for credit from MLC, or cease operating any such material business; or (iv) cause or permit any other Person to assume or succeed to any material business or operations of such Credit Party.

Liquidity. The aggregate unrestricted cash and unrestricted marketable securities owned and controlled by Customer shall at all times exceed the lesser of (i) $5,000,000.00, or (ii) the amount of indebtedness evidenced by the Obligations.

3.4 Collateral .

Pledge of Collateral. To secure payment and performance of the Obligations, Customer hereby pledges, assigns, transfers and sets over to MLC, and grants to MLC first liens and security interests in and upon all of the Collateral, subject only to priorities afforded to Permitted Liens.

Liens. Except upon the prior written consent of MLC, Customer shall not create or permit to exist any lien, encumbrance or security interest upon or with respect to any Collateral now owned or hereafter acquired other than Permitted Liens.

Performance of Obligations. Customer shall perform in all material respects all of its obligations owing on account of or with respect to the Collateral; it being understood that nothing herein, and no action or inaction by MLC, under this Loan Agreement or otherwise, shall be deemed an assumption by MLC of any of Customer's said obligations.

Sales and Collections. Customer shall not sell, transfer or otherwise dispose of any Collateral so long as there are any Obligations..

Alterations and Maintenance. Except upon the prior written consent of MLC, Customer shall not make or permit any material alterations to any tangible Collateral which might materially reduce or impair its market value or utility. Customer shall at all times (i) keep the tangible Collateral in good condition and repair, reasonable wear and tear excepted, (ii) take reasonable precautions to protect the Collateral against loss, damage or destruction, (iii) maintain, service, test and inspect the Collateral (A) in accordance with manufacturer's recommendations, and so as to maintain in full force and effect any maintenance warranties, (B) in compliance with Applicable Law and the requirements of insurance, (C) at a standard consistent with industry practices, and (D) in all events not less than Customer's standard practices for similar equipment owned, operated or leased by Customer and (iv) pay or cause to be paid all obligations arising from the repair and maintenance of such Collateral, as well as all obligations with respect to any Location of Tangible Collateral (e.g., all obligations under any lease, mortgage or bailment agreement), except for any such obligations being contested by Customer in good faith by appropriate proceedings. Customer shall permit any Person designated by MLC, during normal business hours upon reasonable notice and at MLC's expense to visit, inspect and survey the tangible Collateral, its condition, use and operation, and the records maintained in connection therewith. None of MLC or any of its designees shall have any duty to make any such inspection and shall not incur any liability or obligation by reason of not making any such inspection. The failure of any such party to object to any condition or procedure observed or observable in the course of an inspection hereunder shall not be deemed to waive or modify any of the terms of this Loan Agreement with respect to such condition or procedure.

Location. Customer shall not without MLC's prior written notification place or move any tangible Collateral to any location other than the Location of Tangible Collateral identified on Exhibit A. In no event shall Customer cause or permit any material tangible Collateral to be removed from the United States without the express prior written consent of MLC. Customer will keep its books and records at its principal office address specified in the first paragraph of this Loan Agreement or at such other location notified to MLC on not less than 30 days' prior notice.

Insurance. Customer shall insure all of the tangible Collateral under a policy or policies of physical damage insurance providing that losses will be payable to MLC as its interests may appear pursuant to a Lender's Loss Payable Endorsement and containing such other provisions as may be reasonably required by MLC. Customer shall maintain such other insurance as may be required by law or is customarily maintained by companies in a similar business or otherwise reasonably required by MLC. All such insurance policies shall provide that MLC will receive not less than 10 days prior written notice of any cancellation, and shall otherwise be in form and amount and with an insurer or insurers selected by Customer and reasonably acceptable to MLC. Customer shall furnish MLC with a copy or certificate of each such policy or policies and, prior to any expiration or cancellation, each renewal or replacement thereof.

Forced Placement. In the event that at any time the insurance required by this Section shall be reduced or cease to be maintained below the level required, then (without limiting the rights of MLC hereunder in respect of the Default which arises as a result of such failure) MLC may at its option after failure of Customer to do so, maintain the insurance required hereby in such event. Customer shall reimburse MLC upon demand for the cost thereof with interest thereon at a rate per annum equal to the Default Rate, but in no event shall the rate of interest exceed the maximum rate permitted by law.

Use. Customer agrees that the tangible Collateral will be used by Customer solely in the conduct of its business and in a manner complying in all material respects with all applicable laws and any applicable insurance policies. All tangible Collateral shall at all times remain personal property of Customer regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof. Unless otherwise waived by MLC, Customer shall obtain and deliver to MLC (to be recorded at Customer's expense) from any Person having an interest in the property where the tangible Collateral is to be located, waivers of any lien, encumbrance or interest which such Person might have or hereafter obtain or claim with respect to the tangible Collateral.

Event of Loss. Customer shall at its expense promptly repair all repairable damage to any tangible Collateral where such repair is economically feasible. In the event that there is an Event of Loss and the affected Collateral had a value prior to such Event of Loss of $100,000.00 or more, then, on or before the first to occur of (i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on which either Customer or MLC shall receive any proceeds of insurance on account of such Event of Loss, or any underwriter of insurance on such Collateral shall advise either Customer or MLC that it disclaims liability in respect of such Event of Loss, Customer shall, at Customer's option, either replace the Collateral subject to such Event of Loss with comparable Collateral free of all liens other than Permitted Liens (in which event Customer shall be entitled to utilize the proceeds of insurance on account of such Event of Loss for such purpose, and may retain any excess proceeds of such insurance), or permanently prepay the Obligations by an amount equal to the actual cash value of such Collateral as determined by either the insurance company's payment (plus any applicable deductible) or, in absence of insurance company payment, as reasonably determined by MLC; it being further understood that any such permanent prepayment shall cause an immediate permanent reduction in the Loan in the amount of such prepayment and shall not reduce the amount of any future reductions in the Loan that may be required hereunder. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or line reduction, as aforesaid, an Event of Default shall have occurred and be continuing hereunder, then MLC may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Customer to or prepay the Obligations, as aforesaid.

Notice of Certain Events. Customer, upon obtaining knowledge thereof, shall give MLC immediate notice of any attachment, lien, judicial process, encumbrance or claim affecting or involving the Collateral, other than Permitted Liens.

Indemnification. Customer shall indemnify, defend and save MLC harmless from and against any and all claims, liabilities, losses and reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature whatsoever which may be asserted against or incurred by MLC arising out of or in any manner occasioned by (i) the ownership, collection, possession, use or operation of any Collateral, or (ii) any failure by Customer to perform any of its obligations hereunder or under the other Loan Documents; excluding, however, from said indemnity any such claims, liabilities, etc. arising directly out of the willful wrongful act or active gross negligence of MLC as determined in a final non-appealable judgment by a court of competent jurisdiction. This indemnity shall survive the expiration or termination of this Loan Agreement as to all matters arising or accruing prior to such expiration or termination.

3.5 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" under this Loan Agreement:

Failure to Pay. Customer shall fail to pay when due any amount owing by Customer to MLC under the Note or this Loan Agreement, or shall fail to pay when due any other Obligations, and any such failure shall continue for more than five (5) Business Days from the due date.

Failure to Perform. Any Credit Party shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under this Loan Agreement, the Note or any of the other Loan Documents (not constituting an Event of Default under any other clause of this Section), and such default shall continue unremedied for ten (10) Business Days (i) after written notice thereof shall have been given by MLC to Customer, or (ii) from Customer's receipt of any notice or knowledge of such default from any other source.

Breach of Warranty. Any representation or warranty made by any Credit Party contained in this Loan Agreement, the Note or any of the other Loan Documents shall at any time prove to have been incorrect in any material respect when made.

Default Under Other Xxxxxxx Xxxxx Agreement. A default or event of default by any Credit Party shall occur under the terms of any other agreement, instrument or document with or directly intended for the benefit of MLC, MLPF&S or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed, or the Agreement shall be terminated for any reason.

Bankruptcy Event. Any Bankruptcy Event shall occur.

Material Adverse Effect. Any event shall occur which shall result in a Material Adverse Effect.

Default Under Other Agreements. Any event shall occur which results in any default of any material agreement involving any Credit Party or any agreement evidencing any indebtedness of any Credit Party of $5,000,000.00 or more the result of which default would permit or result in the holder of such indebtedness to declare such indebtedness due prior to its original maturity.

Collateral Impairment or Lapse in Insurance Coverage. The loss, theft or destruction of any material portion of the Collateral, or any levy, attachment, seizure or confiscation of material portion of the Collateral which is not released within ten (10) Business Days; or the failure to maintain insurance in accordance with Section 3.4(h).

Contested Obligation. (i) Any of the Loan Documents shall for any reason cease to be, or are asserted by any Credit Party not to be a legal, valid and binding obligations of any Credit Party, enforceable in accordance with their terms; or (ii) the validity, perfection or priority of MLC's first lien and security interest on any of the Collateral is contested by any Person; or (iii) any Credit Party shall or shall attempt to repudiate, revoke, contest or dispute, in whole or in part, such Credit Party's obligations under any Loan Document.

Judgments. A judgment shall be entered against any Credit Party in excess of $5,000,000.00 and the judgment is not paid in full and discharged, or stayed and bonded to the satisfaction of MLC.

Change in Control. (i)Customer shall enter into any transaction of merger or consolidation where Customer is not the surviving entity without the prior written consent of MLC; (ii) Customer shall cease to do business as a going concern, liquidate, or dissolve; (iii) Customer shall sell, transfer, or otherwise dispose of all or substantially all of its assets or property.

Dissolution. The dissolution, or the filing for dissolution of any Credit Party.

3.6 Remedies.

Remedies Upon Default. Upon the occurrence and during the continuance of any Event of Default, MLC may at its sole option do any one or more or all of the following, at such time and in such order as MLC may in its sole discretion choose:

Termination. MLC may without notice terminate its obligation to extend any credit to or for the benefit of Customer (it being understood, however, that upon the occurrence of any Bankruptcy Event all such obligations shall automatically terminate without any action on the part of MLC).

Acceleration. MLC may declare the principal of and interest and any premium on the Note, and all other Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate or other notice or formality of any kind, all of which are hereby expressly waived; provided, however, that upon the occurrence of any Bankruptcy Event all such principal, interest, premium and other Obligations shall automatically become due and payable without any action on the part of MLC.

Exercise Other Rights. MLC may exercise any or all of the remedies of a secured party under applicable law and in equity, including, but not limited to, the UCC, and any or all of its other rights and remedies under the Loan Documents.

Possession. MLC may require Customer to make the Collateral and the records pertaining to the Collateral available to MLC at a place designated by MLC which is reasonably convenient to Customer, or may take possession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice to Customer.

Sale. MLC may sell any or all of the Collateral at public or private sale upon such terms and conditions as MLC may reasonably deem proper, whether for cash, on credit, or for future delivery, in bulk or in lots. MLC may purchase any Collateral at any such sale free of Customer's right of redemption, if any, which Customer expressly waives to the extent not prohibited by applicable law. The net proceeds of any such public or private sale and all other amounts actually collected or received by MLC pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and sale of the Collateral, will be applied to the payment of the Obligations, with any remaining proceeds paid to Customer or whoever else may be entitled thereto, and with Customer and each Guarantor remaining jointly and severally liable for any amount remaining unpaid after such application.

Delivery of Cash, Checks, Etc. MLC may require Customer to forthwith upon receipt, transmit and deliver to MLC in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLC) which may be received by Customer at any time in full or partial payment of any Collateral, and require that Customer not commingle any such items which may be so received by Customer with any other of its funds or property but instead hold them separate and apart and in trust for MLC until delivery is made to MLC.

Control of Collateral. MLC may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and endorse Customer's name on any item of payment on or proceeds of the Collateral.